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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

(Mark One)

|ý | Annual Report pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
|- | -------------------------------------------------------------------------------------

For fiscal year ended December 29, 2001
or

|o | Transition Report Pursuant to Section 13 or 15 (d) of
Securities Exchange Act of 1934
|- | -------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 333-55797

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ELGAR HOLDINGS, INC.(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization) | 51-0373329(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- | ----------------------------------------------

9250 Brown Deer Road, San Diego, California 92121-2294(Address of principal executive office) (Zip Code)

(858) 450-0085(Registrant's telephone number, including area code)

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Securities
registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 ý    No o

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 amendment to this
Form 10-K. o Not applicable.

As
of March 29, 2002, the number of outstanding shares of the registrant's Common Stock was 4,602,433.

DOCUMENTS INCORPORATED BY REFERENCE
None.

Table of Other Registrants

|Name of Corporation           |  | Jurisdiction of
Incorporation |  | IRS Employer
Identification Number |  | Address Inlcuding Zip Code and
Area Code and Telephone Number
of Principal Executive Offices
|----------------------------- |  | ----------------------------- |  | ---------------------------------- |  | --------------------------------------------------------------------------------------------
|Elgar Electronics Corporation |  | California                    |  | 33-0198753                         |  | 9250 Brown Deer Road
San Diego, CA 92121-2294
(858) 450-0085                                

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Elgar Holdings, Inc.  Index to Annual Report On Form 10-K for Fiscal Year Ended December 29, 2001

|Caption  |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I  
|ITEM 1.  |  | BUSINESS                                                                              |  | 1   
|ITEM 2.  |  | PROPERTIES                                                                            |  | 8   
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 9   
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 9   
|PART II 
|ITEM 5.  |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 10  
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 11  
|ITEM 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 13  
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 19  
|ITEM 8.  |  | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                              |  | 20  
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 20  
|PART III
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 20  
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  | 25  
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 28  
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 30  
|PART IV 
|ITEM 14. |  | EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K         |  | 33  

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PART I

ITEM 1. BUSINESS

In this report, the "Company," "EHI," "we," "us" and "our" refer to Elgar Holdings, Inc. and its subsidiaries, unless the context
requires otherwise.

Overview

We are a leading designer and manufacturer of programmable power supplies and systems for commercial and military applications. Power supplies convert one form of
electric power, such as alternating current ("AC") from a wall outlet, into another form of electric power, such as direct current ("DC") used by most electronic products. Programmable power supplies
have increased application flexibility as they convert a single input power level into various output power levels. Our products are designed into original equipment manufacturer ("OEM") systems, or
utilized by the end customer in power reliability verification, product acceptance, process control, or burn-in applications. We provide one of the broadest product offerings in our
industry. Our customers include such industry leaders as Alcatel, Boeing, Cisco, Loral, Northrup Grumman, Litton, Lucent, Motorola, Advanced Energy, Siemens, American Power Conversion, Halliburton and
Lockheed Martin.

Elgar
Electronics Corporation, our wholly owned subsidiary ("Elgar"), was founded in 1965 as a manufacturer of solid-state line conditioners and frequency changers for the AC power test
and measurement market. By the early 1990's, we had become primarily an AC power supply provider to the defense market with approximately $20 million in net sales. Over the next several years
we developed and executed a comprehensive plan to expand our focus to target the large and diverse, commercial DC market. We improved product quality through product redesign and clean-up,
quality systems improvement and ongoing employee training. We extended product breadth through new product introductions, strategic alliances and acquisitions of two DC power supply companies,
Sorensen and Power Ten. We also reduced delivery cycle times and established an industry-leading, technical support and services capability, with extensive pre-sales support and expert
rack system integration consultation. This strategy proved to be successful. For our fiscal years 1999, 2000 and 2001,
approximately 72.5%, 80.0% and 91.5% of our sales, respectively, were derived from diversified commercial customers.

Product Applications

Our significant software and hardware engineering capabilities enable us to address a wide range of complex applications in our target markets. We design and
manufacture power solutions used in critical applications that require varied levels of power output and involve substantial engineering complexity. Our products are used in applications such as:



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Applications
within each of our target markets include:

|AC Power                                                                                             |  | Programmable DC                                                                                                                                                |  | Systems Integration                                                              |  | Power Conditioning                                                                                                          
|---------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------
| Avionics testing
 Computer final test
 Lighting testing
 Power supply testing
 Weapons testing |  |  Cell phone verification
 Computer printed circuit boards
 Ion implantation systems
 Oncology Equipment
 Microprocessor test systems
 Components testing |  |  GPS satellite testing
 Automotive electronics testing
 Utility power control |  |  Military communications backup
 Power distribution for shipboard computers
 Training systems
 Unmanned aircraft control

Principal Products

We have four principal product areas:



We
categorize our sales in these four principal product areas, with net sales shown by product area for our fiscal year ended December 29, 2001 ("Fiscal 2001") as follows (the
amounts below exclude $307,000 of shipping revenue in 2001):

Net Sales for Fiscal 2001Product Line

$ (000s)

% of TotalProgrammable DC Power

$
30,799

52.7
%Systems Integration Products and Services


8,282

14.2Programmable AC Power


6,119

10.5Other Products and Services


13,189

22.6Total

$
58,389

100.0
%


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Our broad line of programmable DC products is used by commercial and military customers for a wide variety of applications including computer and communications
equipment, semiconductor burn-in, industrial process control, avionics, bench-top equipment, and research and development equipment. Customers for programmable DC products
include Racal Instruments ("Racal"), Applied Materials, Siemens, Halliburton Company, Cisco Systems, Lucent Technologies, Teradyne, Veeco Instruments, Advanced Power and Reliability Inc. On
November 2, 2001, Racal was acquired by a group of investors that includes affiliates of our largest shareholder.

Our
DC products are applied in test and measurement, burn-in and OEM applications. DC product applications include the testing of laser printer heads,
DC-to-DC converters, satellites and electronic components. These products are also used for the burn-in of DC-to-DC converters and
semiconductors. OEM applications of our DC products include supplying power to medical equipment and cable TV amplifiers. Our DC products are mainly used in OEM applications by customers such as
Novellus, Applied Materials and Veeco Instruments. Our power solutions are incorporated into semiconductor manufacturing equipment, microprocessor test stations and burn-in systems.
Through Racal, a systems integrator for test and measurement equipment, we are the sole source supplier of programmable DC power equipment to a leading semiconductor manufacturer for use in the Racal
automatic test equipment ("ATE") systems for testing microprocessors. Measurement and control applications are highly varied and include power solutions for the medical equipment, automotive,
computer, industrial automation, consumer goods, commercial avionics and space, and oil and gas markets. Our largest customer in this market, Siemens, uses our DC power supplies in its oncology
treatment systems to create x-rays.

We
offer 20 DC product lines under theSorensen,ElgarandPower
Tenbrand names, ranging in power from 60 watts to 30kW. Most of our products are produced in-house, although five lower priced programmable DC product lines, which
represented less than 6.0% of our revenue in Fiscal 2001, are manufactured by others and brand labeledSorensen. Our purchase of Power Ten in
May 1998 broadened our product offering with high-power, programmable DC products. We recently entered the market for DC loads with a new product line, enabling us to achieve
incremental revenue by selling this product into our existing customer base through the same sales channel.



Systems integration products and services includes power subsystems products and services and space power simulation systems. Because of the substantial power
subsystem integration expertise we have developed through our space power simulation work and the desire of customers to outsource non-core engineering tasks, many OEMs,
in-house test engineering groups and contract manufacturers are beginning to rely on us to provide the power subsystems component of complex integrated systems. We introduced this service
in 1999 and, as a result, have been able to secure additional market share for our products by bundling them with our engineering and manufacturing services into integrated power
subsystems supplied to customers. In addition to providing a new source of complementary business, we benefit from these services by increasing customer loyalty and retention, thereby differentiating
us from our competition. Our subsystems integration services include system design, power supply selection, power and thermal management design, complete rack wiring, custom input and output cables,
and system controls ranging from rudimentary switches to custom Windows NT application software. The customer is provided a complete turnkey system.

Systems
integration products and services also includes our space power simulation products, which are applied in test and measurement applications to test satellites. Given the
significant cost involved in building, launching and insuring satellites, fully testing units prior to launch is critical. With the flexibility to generate any possible power scenario that solar
panels may produce in space, our fully

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integrated Solar Array Simulator ("SAS") test system performs mission-critical power testing from payload testing to final satellite testing inside a thermal vacuum chamber. The SAS can be programmed
to create the output power forms associated with a wide variety of solar array operating environments including direct solar illumination, spinning orbital profiles, an eclipse entry and exit, aging
of the solar array and many other conditions.

We
believe that we are the leading non-captive source for satellite ground power test systems in the United States. We introduced our third generation Solar Array Simulator
in 1995, and were the sole supplier of solar array simulators, battery simulators and umbilical power systems to Lockheed Martin and Motorola on the Iridium project. Today, with our
turn-key power systems and fourth generation SAS systems, we supply virtually every major U.S. commercial, military and power subsystem development satellite manufacturer, including
Boeing/Hughes, Lockheed Martin, Space Systems Loral, TRW, Jet Propulsion Lab, Motorola Space and Ball Aerospace. Additionally, we have established a strong presence in Europe with customers such as
Astrium (Matra Marconi Space and DASA), Alenia Space, Alcatel, Terma and the European Space Agency (ESA ESTEC), and we have recently entered the Japanese market by securing an order with NT Space.



Our programmable AC products generate a wide range of dynamic AC voltages, frequencies, phase relationships and currents, simulating all possible electrical power
waveforms. In addition to pure AC waveforms, our SmartWave products are capable of creating any distortion to the wave including noise, spikes, drop-outs and shifts in phase
angle. Like our DC products, our AC products are used to test electronic equipment such as consumer appliances, computers, DC power supplies and avionics, with the tests subjecting the equipment to
all possible power variations needed to evaluate performance of the specific product or component.

Our
leading AC product, the SmartWave, is widely recognized in the industry as one of the most technologically advanced AC products on the market. The AC power market, which
has been
dominated by military spending in the past, is a small but steady and attractive niche for us. We believe that we have one of the largest shares of the AC power market. We are currently the incumbent
on many significant U.S. government ATE contracts.

We
offer 15 AC product lines under theElgarbrand name, ranging in power from 120VA to 712kVA. In 2000, to address the
low-cost market, we introduced the ContinuousWaveManual and ContinousWaveProgrammable product lines, which are used primarily in
avionics and AC power components testing.



Other products and services comprise three components, which are:



UPS.Our power conditioning and UPS product line includes a range of instruments which are capable of providing precise AC
output power regardless of the input power distortions or drop-outs. This type of product is used in critical applications where electrical power fluctuations could have severe
consequences, such as with field-support for military operations and back-up for data logging in oil exploration missions. The Global Uninterruptible Power Supply (GUPS), our
principal product in this line, is designed to handle any input power from anywhere in the world, including aircraft power, and generates a clean AC output even when the input power is lost.

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CASS.The CASS program is a Navy/NAVAIR program developed to reduce the required number of avionics custom automated test
equipment ("ATE") systems located on aircraft carriers, at depots and at test integration facilities. Our role in the CASS program is to provide these ATE stations with power subsystems, which consist
of programmable AC and DC power supplies, a power conditioner and fixed DC system supplies. We are the sole supplier of power subsystems to Lockheed Martin, the prime contractor for the CASS program.

Having
delivered 602 systems to date, we have been notified by Lockheed Martin that the U.S. Navy is winding down the CASS Program, with full-rate production to cease in the
fourth quarter of 2002. After full-rate production ceases, however, we will enter the sustaining phase for the program, where the emphasis will be on small quantity orders, spares and
service. We understand that the U.S. Navy is considering a limited expansion of the CASS program to equip non-carrier ships. If this were to occur, and Lockheed Martin were to obtain any
such business, this could represent additional opportunities for our revenue growth. Further, other branches of the military have programs similar to CASS, including the U.S. Army's Integrated Family
of Test Equipment, which currently utilizes our other standard products.

Customer Service.Additionally, we offer comprehensive customer service for all of our product offerings through our
in-house staff of six customer service technicians, three service administrators and six customer service engineers. Our customer service organization provides global repair and spare
parts for all products we offer, and provides technical assistance to our international distributors which are responsible for equipment repairs in their territories and to customers who repair
equipment in-house.

Significant Customers

We sell our power supplies and systems to over 2,500 customers, both directly and indirectly through distributors. Certain customers are material to our business
and operations. In Fiscal 2001, two customers represented more than 10% of total net sales. In Fiscal 2001, our top ten customers accounted for approximately 42.1% of net sales, up from 38.2% in our
fiscal year ended December 30, 2000 ("Fiscal 2000"). Lockheed Martin accounted for approximately 13.7% of our total net sales in Fiscal 2001, up from 9.2% in Fiscal 2000. Hughes accounted for
approximately 10.2% of our total net sales in Fiscal 2001, up from 3.3% in Fiscal 2000. No other customer accounted for 10% or more of our net sales in Fiscal 2001 or Fiscal 2000.

Competition

We believe we sell more programmable power supplies in the United States than any other provider except for Agilent. Most of our competitors are either small
private companies, which do not match the breadth of product offerings, or non-core subsidiaries of much larger parent companies, which tend to be less focused on the power solution
market. We operate in a very competitive environment across our DC and AC product lines and enjoy a less competitive environment in our systems integration product and services business. The power
supply industry is currently experiencing a period of consolidation in response to customers' desires to consolidate their supplier base and manufacturers' desires to incorporate additional product
lines and technologies.

The
principal competitive factors in the marketplace include vendor and product reputation, fast delivery, price, product performance specifications, functionality and features, ease of
implementation
and use, and quality of customer support. We believe we are well positioned with regard to these factors and have competed effectively in all of our target markets.

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Sales and Marketing

We sell our products through sales representatives in the U.S. and through distributors internationally, with some direct sales to specific customers and markets.
Our sales organization includes 37 employees (22 of whom are in sales and marketing, 15 in customer service support, and one in general and administrative plus an outside consultant), as well as
approximately 65 representative/distributor companies with more than 280 salespeople worldwide. We believe that our sales network is one of our major assets and a significant competitive advantage
over our competitors.

Our
in-house sales force includes 11 sales managers who are each responsible for working with customers and prospective customers to provide existing or custom solutions to
their needs. Our six sales engineers, who support the sales managers, representatives and customers, design solutions according to customers' applications. In turn, these 17 sales professionals are
supported by an administrative staff of four people. Our sales and marketing team also includes two marketing professionals who conduct marketing research, create collateral material and training
manuals, coordinate the placement of advertising in appropriate trade journals and other periodicals, as well as organize trade shows and perform general public relations work.

We
have strong relationships with the majority of our sales representatives. In the U.S., we believe we have retained the services of the top sales representative for our products in
each region of the country. Internationally, we believe we are represented by top-tier international distributors in the regions where we sell our products. Our sales representatives are
essentially field extensions of our sales team, helping to identify and pursue sales opportunities. As a result, the sales force, including the representative network, has been instrumental in
identifying potential new product opportunities, thus helping to guide our research and development efforts to the most promising areas. In an effort to maximize the effectiveness of our domestic
sales network, we have established a representative board, comprised of the chief executives of five of our sales representative organizations, that meets with management on a periodic basis to
discuss marketing strategy and execution of the marketing plan. Only one sales representative accounted for over 10% of our net sales in Fiscal 2001. Domestic sales accounted for approximately 91.4%,
88.8% and 89.1% of total net sales in Fiscal 1999, Fiscal 2000 and Fiscal 2001, respectively.

Research and Development

At December 29, 2001, our engineering department consisted of 65 people. As evidence of our commitment to new product development, our research and
development and engineering expenses were $5.9 million for Fiscal 1999, $6.7 million for Fiscal 2000 and $6.2 million for Fiscal 2001. Customer-funded research and development
comprised $0.7 million, $0.5 million and $0.3 million of our overall research and development expense incurred in Fiscal 1999, Fiscal 2000 and Fiscal 2001, respectively.

The
development and introduction of new products has been and will continue to be an essential part of our growth strategy to increase market share and expand into new markets. Our
current management team has had a record of successful and profitable new product introductions, including the SmartWaveand the Solar Array Simulator products. These and other products
are considered superior in the marketplace due to their digital capabilities, flexible format, high-quality engineering and long-term reliability. Our in-house
development efforts are focused on leveraging our strong engineering capabilities to produce higher-end, more sophisticated products utilizing digital technology. Management, in
conjunction with the sales force and engineering department, has demonstrated a strong ability to identify potential product areas and create technical solutions.

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Manufacturing

Our manufacturing facilities are organized and run efficiently with a focus on quality, productivity and cost and inventory management. Our manufacturing
equipment is modern and allows for efficient and quality production. We have designed and constructed our own in-house semi-automated test stations to enhance productivity and
ensure quality. Operations management has identified four core manufacturing competencies which are:



Operations
has redesigned the production floor to use lean manufacturing techniques and simplify material handling and assembly methodology based on these competencies. The redesign has
allowed maximum productivity and leveraging of common processes across product lines, as the majority of Elgar's products use the same basic components.

Over
the years we have utilized selective vertical integration and a focused factory approach to improve costs and mitigate delivery and quality risks. We utilize cross-functional teams
in new product development, design for manufacturability, sustaining support and quality improvement initiatives while supporting a foundation of employee empowerment and training. Our current
initiatives involve focused material cost reductions utilizing long-term partnerships and high quality offshore suppliers. In addition, we have made substantial investments in automated
test equipment and through-hole and surface-mount board assembly equipment. This equipment is being used to support the implementation of Demand Flow Technology focused on reducing
inventory and manufacturing cycle-times.

As
part of our cost management program, we have outsourced certain lower-end, high volume transformers to a subcontract assembly plant in nearby Tecate, Mexico. All
subcontract subassemblies are subjected to our inspection and test process as assurance that quality expectations are met.

During
Fiscal 2001, we improved our work flow, added semi-automated test capabilities and made process and engineering improvements to reduce manufacturing lead times and
improve product margins.

Power Ten Plant Consolidation

In the third quarter of 2001, we consolidated our Power Ten and Elgar manufacturing operations by moving Power Ten's production and manufacturing operations from
Northern California to our San Diego headquarters. In connection with the closure, we have incurred certain shut-down costs, including employee termination costs, lease termination costs
and costs associated with moving machinery, equipment and personnel to San Diego. We expect that the actions we have taken to consolidate the manufacturing and production facilities will provide us
with significant ongoing cost savings.

Backlog

Our backlog at December 29, 2001 was approximately $10.7 million, all of which we expect to ship in 2002. Our backlog was $20.8 million at
December 30, 2000. Backlog consists of product orders for which a customer purchase order has been received and accepted and which is scheduled for shipment. Orders are subject to rescheduling
or cancellation by the customer, usually without penalty. Backlog
also consists of customer-funded research and development payable under support contracts with our customers and orders for billable services. Because of possible changes in product delivery
schedules,

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cancellation of product orders, and sales will sometimes reflect orders shipped in the same month they are received, our backlog at any particular date is not necessarily indicative of actual sales
for any succeeding period. Moreover, we do not believe that backlog is necessarily indicative of our future results of operations or prospects.

Employees

At December 29, 2001, we had 360 full-time employees (of which 44 were temporary employees), including 78 manufacturing personnel, 65
engineering personnel, 28 administrative personnel, 22 sales and marketing personnel, nine customer service personnel and 158 personnel involved in direct labor. No attempts to unionize any of our
employees have been made. We consider our employee relations to be good.

Intellectual Property

We have trademarked our SmartWave, ContinuousWave, TrueWave and GUPS products and we have been operating under
theElgarandSorensentrade names for over 30 years. The Power Ten business has been using the Power Tentrade name for over 15 years. In addition to the protection offered by trademark laws and regulations, we rely upon trade secret
protection for our confidential and proprietary information and technology.

Environmental

We are subject to various evolving federal, state and local environmental laws and regulations governing, among other things, emissions to air, discharge to
waters and the generation, handling, storage, transportation, treatment and disposal of hazardous and non-hazardous substances and wastes. These laws and regulations provide for
substantial fines and sanctions for violations and, in many cases, could require us to remediate a site to meet applicable legal requirements. We are not aware of any material environmental conditions
affecting the properties where we conduct our business.

Government Contracts

Contracts with the United States government (whether directly or indirectly) are subject to cancellation for default or convenience by the government if deemed in
its best interests. In addition, based on audits conducted by the government with respect to its contracts, profits may be renegotiated with respect to certain programs and contracts. In the last five
years, we have not experienced any cancellations or significant price renegotiations of a contract at the government's convenience. At no time have we experienced a government cancellation by default.
As 27.5%, 20.0% and 8.5% of our net sales in Fiscal 1999, Fiscal 2000 and Fiscal 2001 were made directly or indirectly to the U.S. Government, a significant portion of our business is subject to the
government prerogatives described above.

ITEM 2. PROPERTIES

For Elgar's and Power Ten's operations, which are based in San Diego, California, we lease five facilities in close proximity totaling approximately 118,000
square feet, which we use for:



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Prior
to our consolidation of Power Ten's operations with Elgar's, Power Ten utilized a 29,100 square foot facility in Los Gatos, California under a lease that expires in
July 2002. We sublease 5,300 square
feet of this space to an unaffiliated party, with the term of the sublease also expiring in July 2002. Efforts to find a tenant to sublease the remaining 23,800 square feet for the remainder of
the term were unsuccessful. The 23,800 square feet is not currently being used, and will be turned back in to the owner in July 2002.

We
believe that our facilities are in good condition with substantial capacity available for increased production of current product lines and new product introductions. As a result, no
substantial capital expenditures are expected to be required to accommodate the projected revenue growth.

ITEM 3. LEGAL PROCEEDINGS

We are routinely involved in legal proceedings related to the ordinary course of our business. We do not believe any such matters will have a material adverse
effect on us. We maintain property, general liability and product liability insurance in amounts which we believe are consistent with industry practices and adequate for our operations.

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

No matters were submitted to a vote of security holders in the fourth quarter of 2001.

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PART II

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

Common Equity Dividends

Our common stock is not listed or traded on any exchange. At March 1, 2002, there were 35 holders of record of our common stock.

We
have not paid any cash dividends on our common stock to date. We intend to retain all future earnings for use in the development of our business and, consequently, do not anticipate
paying cash dividends in the foreseeable future. The payment of all dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations,
capital requirements, our general financial condition, general business conditions and the prior payment of cash dividends to the holders of our preferred stock. Our ability to pay dividends to our
stockholders, and the ability of our subsidiaries to pay dividends to us, is restricted by the indenture governing the $90.0 million principal amount of Senior Notes due 2008 (the "Senior
Notes") and the documents governing our credit facility.

Recent Sales of Unregistered Securities

In March 1999, EHI issued and sold 4,000 shares of Series C 6% Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") for
cash proceeds of $4.0 million. The purchasers of the Series C Preferred Stock were those of our stockholders and warrantholders who elected to participate in a pro rata subscription
offering. Upon the occurrence of certain triggering events, the holders of the Series C
Convertible Preferred Stock are entitled to convert such shares into our Common Stock at a price of $0.75 per share.

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ITEM 6. SELECTED FINANCIAL DATA

Selected Historical Consolidated Financial Data

The selected consolidated financial data below for the fiscal years ended January 1, 2000 ("Fiscal 1999"), December 30, 2000 ("Fiscal 2000") and
December 29, 2001 ("Fiscal 2001) and as of December 30, 2000 and December 29, 2001 have been derived from our consolidated financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, and are included in Item 14 of this report. The selected consolidated financial data below for the fiscal years ended March 28, 1998 and the
nine-month period ended January 2, 1999 and as of March 28, 1998 and January 2, 1999 have been derived from our consolidated financial statements which have been
audited by Arthur Andersen LLP, independent public accountants, but are not included in this report. The selected consolidated financial data below as of and for the nine-month period
ended December 27, 1997 and the twelve-month period ended January 2, 1999 have been derived from our unaudited consolidated financial statements, not presented herein.

In
March 1999, the Company changed its fiscal year from the Saturday closest to March 31st to the Saturday closest to December 31st. This resulted in the fiscal
years ended March 28, 1998 and January 2, 1999 containing a three-month overlap period, from December 28, 1997 to March 28, 1998. This three-month overlap period included
$15,881,000 of net sales and $203,000 of net income. The nine-month period ended December 28, 1997 is also included in the fiscal year ended March 28, 1998. The
nine-month period included $46,615,000 of net sales and $4,570,000 of net income.

The
unaudited consolidated financial statements for each of the periods referred to above include, in the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited periods. The data below reflect the effect of our recapitalization on February 3, 1998 (the "Recapitalization")
and our acquisition of Power Ten on May 29, 1998.

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The
information presented below is qualified in its entirety by, and should be read in conjunction with, Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, and Item 8. Consolidated Financial Statements and Supplemental Data.

|                                                                        |  | Fiscal Year
Ended |         | Nine Months Ended |   | Fiscal Year Ended |  
|----------------------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ----------------- | -
|
|
|
|Operating Data:                                                         |  |                   |         |                   |   |                   |  
|Net sales                                                               |  | $                 | 62,496  |                   | $ | 46,615            |  
|Cost of sales                                                           |  |                   | 32,944  |                   |   | 24,325            |  
|                                                                        |  |                   |         |                   |   |                   |  
|Gross profit                                                            |  |                   | 29,552  |                   |   | 22,290            |  
|Selling, general and administrative expenses(1)                         |  |                   | 9,434   |                   |   | 6,781             |  
|Research and development and engineering expenses                       |  |                   | 6,242   |                   |   | 4,448             |  
|Amortization expense(2)                                                 |  |                   | 1,314   |                   |   | 985               |  
|                                                                        |  |                   |         |                   |   |                   |  
|Operating income                                                        |  |                   | 12,562  |                   |   | 10,076            |  
|Interest expense, net                                                   |  |                   | 3,341   |                   |   | 1,096             |  
|                                                                        |  |                   |         |                   |   |                   |  
|Income (loss) before income tax provision (benefit)                     |  |                   | 9,221   |                   |   | 8,980             |  
|Income tax provision (benefit)                                          |  |                   | 4,448   |                   |   | 4,410             |  
|                                                                        |  |                   |         |                   |   |                   |  
|Net income (loss)                                                       |  | $                 | 4,773   |                   | $ | 4,570             |  
|                                                                        |  |                   |         |                   |   |                   |  
|Other Data:                                                             |  |                   |         |                   |   |                   |  
|Operating cash flows (uses)                                             |  | $                 | 7,462   |                   | $ | 4,535             |  
|Investing cash flows (uses)                                             |  |                   | (1,218  | )                 |   | (933              | )
|Financing cash flows (uses)                                             |  |                   | (4,269  | )                 |   | (4,035            | )
|Depreciation                                                            |  |                   | 883     |                   |   | 615               |  
|Amortization of intangibles                                             |  |                   | 2,194   |                   |   | 1,117             |  
|Capital expenditures                                                    |  |                   | 1,228   |                   |   | 933               |  
|Ratio of combined earnings and preferred stock dividends to earnings(3) |  |                   | 3.70    | x                 |   | 8.76              | x
|Other Non-GAAP Data:                                                    |  |                   |         |                   |   |                   |  
|Adjusted EBITDA(4)                                                      |  | $                 | 15,118  |                   | $ | 11,669            |  
|Adjusted EBITDA margin(5)                                               |  |                   | 24.2    | %                 |   | 25.0              | %
|Balance Sheet Data:                                                     |  |                   |         |                   |   |                   |  
|Total assets                                                            |  | $                 | 44,912  |                   | $ | 38,922            |  
|Total debt                                                              |  |                   | 90,000  |                   |   | 11,211            |  
|Stockholders' equity (deficit)                                          |  |                   | (61,471 | )                 |   | 20,407            |  

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12

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains certain forward-looking statements and information relating to our business that are based on the beliefs of management as well as
assumptions made by and information currently available to management. The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions, as they relate to our
operations, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions
that could cause actual results to differ materially from those expressed in any forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. We do not intend to update these forward-looking
statements.

The
following discussion and analysis should be read in conjunction with "Selected Historical Consolidated Financial Data" and our consolidated financial statements and the notes thereto
included elsewhere in this report.

As
a holding company, we operate through Elgar Electronics Corporation.

Results of Operations

The following table sets forth certain income statement information and other data as a percentage of net sales for the periods indicated.

Fiscal Year EndedJan. 1, 2000

Dec. 30, 2000

Dec. 29, 2001Statement of Operations Data:Net sales

100.0
%
100.0
%
100.0
%Cost of sales

57.1

58.0

62.1Gross profit

42.9

42.0

37.9Selling, general and administrative expenses

17.9

17.3

20.0Research and development and engineering expenses

10.5

10.1

10.5Amortization expense

4.3

3.7

4.1Operating income

10.2
%
10.9
%
3.3
%Other Data:Adjusted EBITDA %

16.3
%
16.0
%
9.2
%


Fiscal Year Ended December 29, 2001 Versus Fiscal Year Ended December 30, 2000

Net sales.Net sales in Fiscal 2001 were $58.7 million, a decrease of $7.1 million, or 10.8%, from net sales of
$65.8 million in Fiscal 2000. This decrease was primarily attributable to a decrease in sales of programmable DC power products, predominately sales of Power Ten products and sales to Racal,
and sales of Sorensen products, partially offset by an increase in sales of space systems products. In Fiscal 2001, sales of Power Ten products were $7.2 million, a decrease of
$5.0 million from Fiscal 2000 sales, due to a significant decrease in sales to semiconductor manufacturers. In Fiscal 2001, net sales attributable to Racal were down approximately
$3.0 million compared to Fiscal 2000, also due to a decrease in sales to the semiconductor manufacturers. Sales of space systems products in Fiscal 2001 were $8.3 million, an increase of
$3.9 million from Fiscal 2000, principally due to increased sales to Boeing Satellite Systems and, to a lesser degree, Space Systems/Loral.

13

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Gross profit.Gross profit in Fiscal 2001 was $22.3 million, a decrease of $5.3 million, or 19.2%, from gross
profit of $27.6 million in Fiscal 2000. The decrease in gross profit was mainly due to the decrease in net sales which resulted in a $3.0 million decrease in gross profit, and partly as
result of a decrease in the gross margin due to higher overall production costs when compared to Fiscal 2000. The lower margins in Fiscal 2001 are expected to improve in future periods due to the
elimination of certain fixed costs as a result of the consolidation of the Power Ten operations with Elgar's operations at our headquarters in San Diego.

Selling, general & administrative expenses.Selling, general and administrative ("SG&A") expenses were
$11.7 million in Fiscal 2001, an increase of $0.4 million, or 3.5%, from SG&A expenses of $11.3 million in Fiscal 2000. SG&A expenses increased as a percentage of net sales from
17.3% in Fiscal 2000 to 20.0% in Fiscal 2001. The dollar increase was primarily due to $1.0 million of costs associated with the Power Ten operations' consolidation, partially offset by lower
advertising costs and sales and marketing expenses in Fiscal 2001 compared to Fiscal 2000.

Research and development and engineering expenses.Research and development and engineering (R&D&E) expenses in Fiscal 2001
were $6.2 million, a decrease of $0.5 million, or 7.5%, from R&D&E expenses of $6.7 million in Fiscal 2000. R&D&E expenses increased as a percentage of net sales from 10.1% to
10.5%. The decrease in dollars was primarily due to lower headcount and compensation expense in Fiscal 2001 compared to Fiscal 2000, and to a decrease in customer-funded research and development
expense in Fiscal 2001 compared to Fiscal 2000. A portion of the Company's R&D&E expenses has historically been funded by customers and the costs associated with the support has been excluded from
R&D&E expenses and included in cost of sales.

Amortization expense.Amortization expense was $2.4 million in each of Fiscal 2001 and Fiscal 2000. Amortization
expense is comprised of the amortization of goodwill associated with the April 1996 acquisition of Elgar by Carlyle-EEC Holdings, Inc., and our May 1998 acquisition of
Power Ten.

Operating income.Operating income was $1.9 million in Fiscal 2001, a decrease of $5.3 million, or 73.6%, from
operating income of $7.2 million in Fiscal 2000. Operating income decreased as a percentage of net sales from 10.9% in Fiscal 2000 to 3.3% in Fiscal 2001. The decrease was due to the factors
discussed above. To minimize the negative impact due to the lower sales volume, management initiated a series of cost savings actions. These included consolidating the Sorensen and Power Ten
operations into Elgar's San Diego facility in the second and third quarters of 2001, respectively, negotiating raw material price reductions and acquiring automation equipment to shorten production
times, reduce scrap and lower the labor content of our products.

Interest expense.Net interest expense was $10.6 million in Fiscal 2001, an increase of $0.1 million, or 1.0%,
from net interest expense of $10.5 million in Fiscal 2000. Net interest expense increased as a percentage of net sales from 16.0% in Fiscal 2000 to 18.2% in the comparable Fiscal 2001 period.
The increase in dollars was a result of higher outstanding borrowings on our revolving line of credit partially offset by lower interest rates on borrowings under our credit facility.

Income taxes.Income taxes for Fiscal 2001 and Fiscal 2000 were $1,449,000 and $70,000, respectively. Losses generated in
these periods do not have a carryback benefit and thus have not been recognized because future realization is uncertain. A full valuation reserve was set up on the deferred tax asset balance of
$1,449,000 due to a change in management's assessment that the realization of these deferred tax assets was uncertain.

Net loss.Net loss was $10.2 million in Fiscal 2001, an increased loss of $6.8 million from a net loss of
$3.4 million in Fiscal 2000, due to the factors discussed above. In order to improve operating results, we have undertaken a number of initiatives to increase sales across our multiple product
lines. These include (1) introducing our value-added-integration services to high-tech end customers,

14

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(2) introducing various product line extensions to our products and (3) initiating cost reduction efforts in the manufacturing and procurement processes, including the relocation of our
Power Ten operations to our San Diego facilities.

Fiscal Year Ended December 30, 2000 Versus Fiscal Year Ended January 1, 2000

Net sales.Net sales in Fiscal 2000 were $65.8 million, an increase of $9.7 million, or 17.3%, from net sales
of $56.1 million in Fiscal 1999. This increase was primarily attributable to an increase in sales of programmable DC products, including sales of Sorensen and Power Ten products and sales to
Racal, partially offset by a decrease in sales of Other Products and Services. In Fiscal 2000, sales of Power Ten products, which are part of the DC product line, were $12.2 million, an
increase of $4.6 million from Fiscal 1999 sales.

In
Fiscal 2000, net sales attributable to the CASS Program, which are included within Other Products and Services, were approximately $6.7 million. We have been notified that the
U.S. Navy is winding down the CASS Program, with full-rate production to cease in the fourth quarter of 2002. After full-rate production ceases, we expect that our net sales
attributable to the CASS Program will decrease fairly significantly as we enter the sustaining phase for the program, where the emphasis will be on small quantity orders, spares and service.

Gross profit.Gross profit in Fiscal 2000 was $27.6 million, an increase of $3.6 million, or 15.0%, from gross
profit of $24.0 million in Fiscal 1999. The increase in gross profit was mainly due to the increase in net sales which resulted in a $4.2 million increase in gross profit, offset by a
$0.6 million decrease in the gross profit margin due to a greater concentration of sales of lower-margin products when compared to Fiscal 1999. In Fiscal 2000, gross margins on Power Ten
products were $6.0 million, an increase of $2.1 million from Fiscal 1999 gross margins.

Selling, general & administrative expenses.SG&A expenses were $11.3 million in Fiscal 2000, an increase of
$1.3 million, or 13.0%, from SG&A expenses of $10.0 million in Fiscal 1999. SG&A expenses decreased as a percentage of net sales from 17.9% in Fiscal 1999 to 17.3% in Fiscal 2000. The
dollar increase was primarily due to higher sales volume, generating higher commissions of $0.7 million, along with higher advertising costs and sales and marketing expenses.

Research and development and engineering expenses.R&D&E expenses in Fiscal 2000 were $6.7 million, an increase of
$0.8 million, or 13.6%, from R&D&E expenses of $5.9 million in Fiscal 1999. R&D&E expenses decreased as a percentage of net sales from 10.5% to 10.1%. The increase in dollars was
primarily due to higher compensation expense and increased consulting and material costs at Power Ten, and to a decrease in customer-funded research and development expense in Fiscal 2000 compared to
Fiscal 1999.

Amortization expense.Amortization expense was $2.4 million in each of Fiscal 2000 and Fiscal 1999. Amortization
expense is comprised of the amortization of goodwill associated with the April 1996 acquisition of Elgar by Carlyle-EEC Holdings, Inc., and our May 1998 acquisition of
Power Ten.

Interest expense.Net interest expense was $10.5 million in each of Fiscal 2000 and Fiscal 1999. In connection with
our swap agreement, on a net basis we paid $43,000 of interest to our swap counterparty in Fiscal 1999, and we received $49,000 in interest from our swap counterparty in Fiscal 2000. As of
December 30, 2000, all but $2,125,000 of our long-term bank debt was covered by this swap arrangement.

Operating income.Operating income was $7.2 million in Fiscal 2000, an increase of $1.5 million, or 26.3%, from
operating income of $5.7 million in Fiscal 1999. Operating income increased as a percentage of net
sales from 10.2% in Fiscal 1999 to 10.9% in Fiscal 2000. The increase was due to the factors discussed above.

15

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Income taxes.Income taxes for Fiscal 2000 contained a tax provision of $0.1 million, compared to a tax benefit of
$0.5 million for Fiscal 1999. Losses generated in Fiscal 1999 resulted in carryback benefits that were reflected as a benefit. Losses generated in Fiscal 2000 do not have a carryback benefit
and thus have not been recognized because future realization is uncertain.

Net loss.Net loss was $3.4 million in Fiscal 2000, an improvement of $0.8 million, or 19.0%, from net loss of
$4.2 million in Fiscal 1999, due to the factors discussed above.

Liquidity and Capital Resources



Our principal uses of cash are for working capital requirements, debt service requirements and capital expenditures. Based upon current and anticipated levels of
operations, and after giving effect to the Ninth Amendment and Waiver to Credit Agreement entered into on January 31, 2002 (the "Ninth Amendment"), as discussed below, we believe that our cash
flow from operations, together with amounts available under our credit facility, will be adequate to meet our anticipated cash requirements through the end of the second quarter of 2002, but will not
be sufficient to repay the amounts outstanding under our credit facility on June 28, 2002, as discussed below. No assurance can be given, however, that this will be the case. As a holding
company with no operations or assets other than our ownership of Elgar's capital stock, we must rely on dividends and other payments from Elgar to generate the funds necessary to meet our obligations,
including the payment of principal of and interest on the Senior Notes.

We
have been notified by Bankers Trust, the lender under our credit facility, of its desire to have the full amount of the outstanding loans under the credit facility, plus accrued but
unpaid interest, repaid on June 28, 2002. At March 28, 2002, the outstanding principal amount of the loans under the credit facility was $14,597,615. In order for us to repay the
facility and to meet other future debt service and working capital requirements, we will need to obtain other sources of funding. Management is currently pursuing alternative financing sources, and
has recently retained advisors to help the Company in this endeavor. There can be no assurance that additional financing will be available on terms satisfactory to
us. If we are unsuccessful in obtaining this additional financing, substantial doubt exists as to our ability to continue as a going concern.



We are party to a credit agreement with Bankers Trust, as agent and sole lender (the "Credit Agreement"), which we entered into in connection with our
February 1998 recapitalization. Elgar is the borrower under the Credit Agreement and EHI is the guarantor. As amended, the Credit Agreement consists of (1) a $6,700,000 revolving credit
facility (the "Revolving Facility"), of which $900,000 was available to be drawn on March 28, 2002, and (2) a $15,000,000 term facility (the "Term Facility," and collectively with the
Revolving Facility, the "Credit Facility"). We used the proceeds from the Term Facility to finance a portion of the purchase price for Power Ten in May 1998. At December 29, 2001, the
outstanding balance of the Revolving Facility was $5,015,000, including $15,000 of capitalized interest, and the outstanding balance of the Term Facility was $8,783,000, including $33,000 of
capitalized interest. At February 1, 2002, after making an additional draw on the Revolving Facility, the outstanding balance on the Revolving Facility was $5,815,000, including $15,000 of
capitalized interest.

Indebtedness
under the Credit Facility bears interest at a floating rate equal to, at our option, the Eurodollar Rate plus a margin of 2.75%, or the Base Rate plus a margin of 1.75%.
Pursuant to an earlier amendment to the Credit Agreement, Elgar is to pay Bankers Trust an additional 50 basis points of interest on loans outstanding from and after March 27, 2001, with such
payment of additional interest to be made at maturity or upon earlier repayment of the loans. The effective interest rate on the Term Facility was approximately 5.94% at December 29, 2001. We
entered into an interest rate

16

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swap agreement in June 1998 that covered $7.5 million of our term loan. This swap agreement terminated in June 2001. See Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.

Elgar's
obligations under the Credit Facility are:



The
Credit Facility contains covenants restricting our ability to, among other things, incur additional indebtedness, create liens or other encumbrances, pay dividends or make other
restricted payments, make investments, loans and guarantees or sell or otherwise dispose of a substantial portion of assets to, or merge or consolidate with, another entity. The Credit Facility also
contains a number of financial covenants that require us to meet certain financial ratios and tests. If we were to be in default under these covenants and Bankers Trust were to demand the final
maturity of the outstanding bank debt, and we did not timely pay in full the amount so demanded under the Credit Facility, that would constitute an event of default under the indenture governing the
$90 million of our senior notes that are outstanding (the "Senior Notes").

The
most recent amendment and waiver to the Credit Facility was the Ninth Amendment, which we entered into with Bankers Trust on January 31, 2002. The Ninth Amendment calls for
the full amount of the loans outstanding under the Credit Facility, plus accrued interest, to be repaid on June 28, 2002, or sooner if there is an event of default declared by Bankers Trust. At
March 28, 2002, the outstanding principal amount of the loans under the Credit Facility was $14,597,615. The Ninth Amendment also requires us to pay Bankers Trust an amendment fee of up to
$300,000, payable in installments. In the Ninth Amendment, Bankers Trust waived compliance with (i) the maximum leverage ratio through January 31, 2002, and then deleted that covenant
from the Credit Agreement, (ii) the fixed charge coverage ratio through December 29, 2001, and then deleted that covenant from the Credit Agreement and (iii) the minimum
consolidated EDITDA covenant through December 29, 2001, and then reset the measurement periods for consolidated EBITDA to begin on December 30, 2001 and end at the end of each of
February, March, April and May 2002. In addition, we agreed to limit capital expenditures in the period from December 30, 2001 through June 28, 2002 to $500,000. Finally, under
the Ninth Amendment, Bankers Trust increased the Revolving Facility from $5,000,000 to $6,700,000, but required interest to be paid monthly, rather than quarterly, as was the case in prior periods.

A
substantial portion of our interest expense is attributable to the $90 million of 9.875% Senior Notes that are due in 2008. Interest is payable semi-annually on the
Senior Notes on each February 1st and August 1st.



Our capital expenditures were $676,000 in the year ended January 1, 2000, $1,254,000 in Fiscal 2000 and $1,093,000 in Fiscal 2001. Our expenditures during
Fiscal 2001 were primarily for new surface mount manufacturing capability and the consolidation of all manufacturing into one building in connection with the Power Ten consolidation. We have budgeted
$500,000 for capital expenditures for fiscal 2002, to be used principally for manufacturing test stations.

17

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Critical Accounting Policies



For products, we recognize revenue upon shipment of goods and the passage of title to the customer. For services, we recognize revenue as the related services are
performed. Our revenue recognition policies are in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements".



Intangible assets represent (1) the excess of purchase price over net book value of assets acquired in connection with acquisitions, (2) deferred
financing costs incurred in connection with our February 1998 recapitalization and May 1998 acquisition of Power Ten and (3) agreements not to compete relating to the Power Ten
acquisition. We are amortizing the components of intangible assets on a straight-line basis over their estimated useful lives, ranging from five to 15 years. The debt issuance costs
we incurred in connection with issuing the Senior Notes and entering into the Credit Facility are subject to this amortization policy. The original amount of debt issuance costs being amortized was
approximately $6.5 million, the accumulated amortization was approximately $2.8 million, and the amount of amortization that was booked in Fiscal 2001 was approximately $725,000.

We
periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated useful lives of these assets. The
criteria we use for these evaluations include management's estimate of the assets' continuing ability to generate income from operations and positive cash flows in future periods as well as the
strategic significance of the intangible assets to our business activity.



We maintain allowances for doubtful accounts based on our estimate of losses that will result from the inability of our customers to pay us and for the refusal of
customers to pay us because of disputes regarding our products and services. If the financial condition of a customer were to deteriorate, resulting in their inability to make payments to us, or if a
customer were dissatisfied with our products
or services resulting in their refusal to make payments to us, additional allowances may be required. Significant increases in required reserves may occur in the future if there is a continued decline
in the general economic environment that negatively affects the financial condition of our customers or an increase in the number of customers that are dissatisfied with our products or services.



We periodically re-evaluate all inventory for potential excess and obsolete material. We reserve excess material based on a percentage of the
inventory that is deemed to be in excess of one year's forecast demand, while we reserve obsolete inventory at 100% of carrying value.



We periodically re-evaluate warranty liability to ensure that the liability recorded at period end is sufficient to cover future claims for repair or
replacement of product. The reserve balance takes into account the warranty period of the product, which ranges from one year to five years.

Inflation and General Economic Conditions; Backlog

Although we cannot accurately anticipate the effect of inflation on our operations, we do not believe that inflation has had, or is likely in the foreseeable
future to have, a material impact on our

18

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results of operations. We do not have a significant number of fixed-price contracts where we bear the risk of cost increases. As of December 29, 2001, we had no backlog for which shipments
under those contracts are scheduled after December 31, 2002.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have had only limited involvement in derivative financial instruments in the past. We do not hold or issue derivative financial instruments for trading
purposes. At December 29, 2001, $13,798,000 of outstanding borrowings under the Credit Facility, including letters of credit, were at variable interest rates. We are subject to market risk
resulting from interest rate fluctuations with respect to our variable-rate borrowings. We had previously entered into an interest rate swap arrangement, which matured in June 2001,
and we may consider entering into such arrangements in the future in order to
alter interest rate exposures. In general, interest rate swaps allow a company to raise long-term borrowings at floating rates and effectively swap them into fixed rates that are lower
than those available if fixed-rate borrowings were made directly. Under interest rate swaps, a company agrees with another party to exchange, at specified intervals, the difference between
fixed-rate and floating-rate amounts calculated by reference to an agreed notional principal amount. At December 29, 2001, none of our debt was covered by
interest-rate swap arrangements.

The
tables below provide information as of December 29, 2001 about our financial instruments that are sensitive to changes in interest rates.

Long-Term Bank Debt (Variable Rate)Principal amount

$13,798,000Variable interest rate

6.07%(1)Maturitytranche

January 2, 2002 through June 28, 2002Maturityloan and capitalized interest (2)

June 28, 2002Remaining principal payments:June 28, 2002 (term debt)

$8,783,000June 28, 2002 (revolving line of credit)

$5,015,000


---

19

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements required in response to this Item are listed under Item 14(a) of Part IV of this Report.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of each person who is one of our directors or executive officers as of December 29, 2001. Each
director holds office until the next annual meeting of the stockholders or until his successor has been elected and qualified. Officers are elected by the Board of Directors and serve at the
discretion of the Board.

|Name                   |  | Age |  | Positions                                                                                          
|---------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------
|Kenneth R. Kilpatrick  |  | 64  |  | President and Chief Executive Officer, EHI, Elgar and Power Ten; Director, EHI, Elgar and Power Ten
|Samuel A. Lewis        |  | 53  |  | Vice PresidentSales and Marketing, Elgar                                                          
|Christopher W. Kelford |  | 51  |  | Vice PresidentFinance, Chief Financial Officer and Treasurer, EHI and Elgar                       
|Normand E. Precourt    |  | 59  |  | Vice PresidentEngineering, Elgar                                                                  
|John J. Santospirito   |  | 61  |  | Vice PresidentOperations, Elgar                                                                   
|Daniel E. Donati       |  | 44  |  | Vice PresidentProgram Management, Elgar                                                           
|Thomas Erickson        |  | 58  |  | Vice PresidentHuman Resources, Elgar                                                              
|Gerald D. Price        |  | 53  |  | Vice PresidentSales and Marketing, Power Ten                                                      
|David C. Hoffman       |  | 50  |  | Vice PresidentEngineering, Power Ten                                                              
|Dr. John F. Lehman     |  | 59  |  | Director, EHI and Elgar                                                                            
|Donald Glickman        |  | 68  |  | Vice President, EHI and Elgar; Chairman of the Board, EHI and Elgar; Director, Power Ten           
|George Sawyer          |  | 70  |  | Director, EHI and Elgar                                                                            
|Thomas G. Pownall      |  | 79  |  | Director, EHI and Elgar                                                                            
|Oliver C. Boileau, Jr. |  | 74  |  | Director, EHI and Elgar                                                                            
|Stephen L. Brooks      |  | 30  |  | Director and Secretary, EHI and Elgar                                                              
|Joseph A. Stroud       |  | 46  |  | Director, EHI and Elgar                                                                            
|William Paul           |  | 65  |  | Director, EHI and Elgar                                                                            
|Bruce D. Gorchow       |  | 43  |  | Director, EHI and Elgar                                                                            
|Tig H. Krekel          |  | 48  |  | Director, EHI and Elgar                                                                            

Kenneth R. Kilpatrick, who is President and Chief Executive Officer and a director of EHI, Elgar and Power Ten, has been with Elgar since
July 1991 in his current position. Mr. Kilpatrick was appointed President and Chief Executive Officer of EHI in May 1998 and Power Ten in June 1999. Prior to joining Elgar,
Mr. Kilpatrick was President of Machine Industries, Inc., an aerospace parts manufacturer, from 1989 to 1991, and with ACDC Electronics, a division of Emerson Electric Co. and a
manufacturer of fixed power supplies, from 1964 to 1989. After beginning as an Assistant General Manager of ACDC Electronics in 1964, Mr. Kilpatrick was appointed President of the company in
1972. Mr. Kilpatrick is active in all aspects of Elgar's business.

Samuel A. Lewis, Vice PresidentSales and Marketing of Elgar, with 25 years of experience in the test and measurement
equipment industry, including 21 years with Elgar, is responsible for leading

20

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Elgar's sales efforts. Mr. Lewis, who began his career with Elgar in 1972, re-joined Elgar in January 1988 after spending the prior six years as the North American Sales
Manager for Wavetek Corporation, a test and measurement company. At Wavetek, Mr. Lewis spearheaded the creation of a central sales management organization, set up area sales offices, and
managed 18 representative organizations with 130 sales people. Prior to beginning work with Wavetek in 1982, Mr. Lewis spent nine years with Elgar in the positions of Customer Service Manager
and National Sales Manager.

Christopher W. Kelford, Vice PresidentFinance, Chief Financial Officer and Treasurer of EHI, Elgar and Power Ten, has been
with Elgar since August 1990. Prior to joining Elgar, Mr. Kelford spent 12 years with TRW LSI Products, Inc., a semiconductor manufacturer, advancing from Finance Manager
to Controller during that time. Mr. Kelford had significant experience in modernizing information infrastructures, overseeing foreign operations and managing the due diligence phases of five
merger and acquisition transactions.

Normand E. Precourt, Vice PresidentEngineering of Elgar, has been with Elgar since July 1990. Prior to that time,
Mr. Precourt was with Cipher Data Products, a computer peripherals company, advancing from Engineering Group Leader to Vice President, Engineering Technology during that time.

John J. Santospirito,Vice PresidentOperations of Elgar, joined Elgar in July 2000. Prior to that time,
Mr. Santospirito was a senior operations executive with GNP Computers from 1998 to 2000, with Artecon, Inc. from 1996 to 1998, with Encad, Inc. from 1995-1996 and with
Scientific-Atlantic, Inc. from 1988 to 1995.

Daniel E. Donati, Vice PresidentProgram Management of Elgar, joined Elgar in September 1991 and is responsible for
overseeing Elgar's Space Systems and CASS Program operations. Prior to that time, Mr. Donati spent over 12 years with Aerojet Electronics Systems and Walt Disney where he gained valuable
program management, operations and engineering experience.

Thomas Erickson, Vice PresidentHuman Resources of Elgar, joined Elgar in October 1983. Prior to that time, he spent
seven years at Solar Turbines as its Human Resources Manager.

Gerald D. Pricehas been the Vice PresidentSales and Marketing of Power Ten since November 1998, having joined the
Company with 20 years of experience in the sales and marketing of semiconductor equipment. Prior to joining Power Ten, Mr. Price spent the previous ten years in regional sales management
positions with Advanced Energy Industries, a manufacturer of power supplies used by semiconductor equipment companies for generating plasma. Prior to that time, Mr. Price spent ten years in
product marketing management with Varian Associates and KLA-Tencor, two companies heavily involved in the manufacture of capital equipment used in semiconductor fabrication.

David C. Hoffmanhas been the Vice PresidentEngineering of Power Ten since April 1995. Mr. Hoffman has amassed
25 years of experience in the power electronics industry. Prior to joining Power Ten in 1995, Mr. Hoffman was Director of Engineering at Netframe Systems, Inc., a manufacturer of
network file servers. He founded Modular Power Corporation, a producer of state-of-the-art 100kW uninterruptible power supplies. Before founding Modular Power,
Mr. Hoffman was manager of power systems at Trilogy Systems and was applications manager at Siliconix, Inc. Mr. Hoffman has been awarded eight patents for his engineering
contributions in the power electronics industry.

Dr. John F. Lehman, who is a director of EHI and Elgar, is a Managing Principal of J.F. Lehman & Company ("Lehman"). Prior
to founding Lehman in 1991, Dr. Lehman was an investment banker with PaineWebber, Incorporated from 1988 to 1991, and served as a Managing Director in Corporate Finance. Dr. Lehman
served for six years as Secretary of the Navy, was a member of the National Security Council Staff, served as a delegate to the Mutual Balanced Force Reductions negotiations and was the Deputy
Director of the Arms Control and Disarmament Agency. Dr. Lehman served as

21

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Chairman of the Board of Directors of Sperry Marine, Inc., and is Chairman of the Board of Directors of Special Devices, Incorporated, OAO Technology Solutions, Inc. and Racal
Instruments, Inc. Dr. Lehman is also a director of Ball Corporation, Burke Industries, Inc. and ISO Inc. and is Chairman of the Princess Grace Foundation, a director of
OpSail Foundation and a trustee of LaSalle College High School.

Donald Glickman, who is Chairman of the Board and a Vice President of both EHI and Elgar and a director of Power Ten, is a Managing
Principal of Lehman. From February 1998 to May 1998, Mr. Glickman was President of EHI. Prior to joining Lehman, Mr. Glickman was a principal of the Peter J. Solomon
Company, a Managing Director of Shearson Lehman Brothers Merchant Banking Group and Senior Vice President and Regional Head of The First National Bank of Chicago. Mr. Glickman served as an
armored cavalry officer in the Seventh U.S. Army. Mr. Glickman is currently a director of the MSC Software Corporation, Special Devices, Incorporated, Burke Industries, Inc., Racal
Instruments, Inc. and Monroe Muffler Brake, Inc. He is also a trustee of MassMutual Corporate Investors and MM Participation Investors.

George Sawyer, who is a director of EHI and Elgar, is a Managing Principal of Lehman, and has been affiliated with Lehman for the past
eleven years. From 1993 to 1996, Mr. Sawyer served as the President and Chief Executive Officer of Sperry Marine, Inc. Prior to that time, Mr. Sawyer held a number of prominent
positions in private industry and in the U.S. government, including serving as the President of John J. McMullen Associates, the President and Chief Operating Officer of TRE Corporation, Executive
Vice President of General Dynamics Corporation, the Vice President of International Operations for Bechtel Corporation and the Assistant Secretary of the Navy for Shipbuilding and Logistics under
Dr. Lehman. Mr. Sawyer is a director of Blacklight Power, Inc., Racal Instruments, Inc. and Special Devices, Incorporated and Chairman of the Board of Burke
Industries, Inc. He also serves on the Board of Trustees of Webb Institute and the Mariners' Museum.

Thomas G. Pownall, who became a director of EHI and Elgar in July 1998, is a member of the investment advisory board of Lehman.
Mr. Pownall was Chairman of the Board of Directors of Martin Marietta Corporation from 1983 until 1992 and Chief Executive Officer of Martin Marietta from 1982 until his retirement in 1988.
Mr. Pownall joined Martin Marietta in 1963 as President of its Aerospace Advanced Planning unit, became President of Aerospace Operations and, in succession, Vice President then President and
Chief Operating Officer of Martin Marietta. Mr. Pownall is also a director of the Titan Corporation, Burke Industries, Inc. and Special Devices, Incorporated, Director Emeritus of
Sundstrand Corporation, and is Chairman Emeritus of the American-Turkish Council. He is also a director of the U.S. Naval Academy Foundation and the Naval Academy Endowment Trust and a trustee of
Salem-Teikyo University.

Oliver C. Boileau, Jr.became a director of EHI and Elgar in December 1998. He joined Boeing Company in 1953 as a research engineer
and progressed through several technical and management positions and was named Vice President in 1968 and then President of Boeing Aerospace in 1973. In 1980, he joined General Dynamics Corporation
as President and a member of the Board of Directors. He retired in May 1988. Mr. Boileau joined Northrop Grumman Corporation ("Northrop Grumman") in December 1989 as President and
General Manager of the B-2 Division. He also served as President and Chief Operating Officer of the Grumman Corporation, a subsidiary of Northrop Grumman, and as a member of the Board of
Directors of Northrop Grumman. Mr. Boileau retired from Northrop Grumman in 1995. He is an Honorary Fellow of the American Institute of Aeronautics and Astronautics, a fellow of the Royal
Aeronautical Society, a Senior Member of the Institute of Electrical and Electronic Engineers, a member of the National Academy of Engineering, the Board of Trustees of St. Louis University, and a
Trustee of the University of Wyoming Foundation. Mr. Boileau is also a director of Burke Industries, Inc. and Special Devices, Incorporated.

22

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Stephen L. Brooks,who is Secretary and a director of EHI and Elgar, is a Vice President of Lehman, having joined Lehman in 1998.
Mr. Brooks's responsibilities at Lehman include investment sourcing and execution as well as the financial and capital market aspects of portfolio companies' management. Prior to joining
Lehman, Mr. Brooks was an investment banker with Bowles Hollowell Conner & Co. from 1996 to 1998 where he was a founding member of the firm's aerospace and defense mergers and
acquisition practice. Mr. Brooks is currently a director of Racal Instruments, Inc.

Joseph A. Stroud, who is a director of EHI and Elgar, has been a member and limited partner of various affiliates of J.F. Lehman & Company
since 1992. Mr. Stroud was the Chief Financial Officer of Sperry Marine, Inc. from 1993 until the company was purchased by Litton Industries, Inc. in 1996. From 1989 to 1993,
Mr. Stroud was Chief Financial Officer of the Accudyne and Kilgore Corporations. Mr. Stroud is also a director of Burke Industries, Inc. and Special Devices, Incorporated.

William Paulis a director of EHI and Elgar. Mr. Paul began his career with United Technologies Corporation ("UTC") at its Sikorsky
Aircraft division in 1955. Mr. Paul progressed through a succession of several technical and managerial positions while at Sikorsky, including Vice President of Engineering and Programs and
Executive Vice President and Chief Operating Officer, and in 1983 was named President and Chief Executive Officer of Sikorsky Aircraft. In 1994, Mr. Paul was appointed as the Executive Vice
President of UTC, Chairman of UTC's international operations and became a member of UTC's management executive committee. Mr. Paul retired from those positions in 1997. Mr. Paul is a
Member of the Board of St. Vincent's Medical Center and a presidential appointee to the United States Access Board. Mr. Paul is also a director of Special Devices, Incorporated.

Bruce D. Gorchow, who is a director of EHI and Elgar, is a member of the investment advisory board of Lehman. Since 1991,
Mr. Gorchow has been Executive Vice President of PPM America, Inc. In 1999, he became President of PPM America Capital Partners, LLC. Prior to his position at PPM America,
Mr. Gorchow was a Vice President at Equitable Capital Management, Inc. Mr. Gorchow is also a director of Global Imaging Systems, Inc., Leiner Health Products, Inc.,
Examination Management Services, Inc., Elizabeth Arden Salon and Spa Holdings, Inc., PPM America, Inc. and Burke Industries, Inc., and is an investment advisor for several
investment limited partnerships.

Tig H. Krekel, who is a director of EHI and Elgar, is the former President of Boeing Satellite Systems and former President and Chief
Executive Officer of Hughes Space and Communications, the world's largest manufacturer of commercial communications satellites. Mr. Krekel also served as a Senior Vice President and member of
the Executive Committee of Hughes Electronics Corporation. Before joining Hughes in 1999, Mr. Krekel was the President and Chief Executive Officer of AlliedSignal's $3.0 billion
Aerospace Equipment Systems group, which served the commercial transport, regional airline, general aviation, military and space markets. Prior to joining Allied Signal, Mr. Krekel served in
senior executive positions at Decair Corporation, an aviation/aerospace holding company, Poloron Products, a diversified
manufacturing concern and Jet America, a domestic and international air carrier. He holds an Airline Transport Pilot's license and has more than 3,000 hours of flight time in jet and
rotary-wing aircraft. Mr. Krekel spent five years as a Naval Officer holding various assignments including nuclear engineering duty on the aircraft carrier USS Enterprise, and aide
in the office of the Chief of Naval Operations at the Pentagon. Mr. Krekel graduated from the U.S. Naval Academy with a B.S. in Mechanical Engineering and from the U.S. Naval Nuclear Power
School as a licensed nuclear engineer. Additionally, he earned a M.B.A. from the Stanford Graduate School of Business with concentration in finance and international strategic management.
Mr. Krekel is a National Trustee of the Boys and Girls Club of America and a director of Derco Aerospace, Inc. and Racal Instruments, Inc.

23

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Certain Rights of Holders of Redeemable Preferred Stock

Under certain circumstances, the holders of the Series A Redeemable Preferred Stock may have the right to elect a majority of EHI's directors. See "Certain
Relationships and Related TransactionsShareholders Agreement."

Committees of the Board of Directors

Audit Committee.The Audit Committee of the Board of Directors is comprised of Messrs. Paul (Chairman), Sawyer,
Pownall and Brooks. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the scope and results of the
audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and
non-audit fees and reviews the adequacy of our internal accounting controls.

Human Resources and Compensation Committee.The Human Resources and Compensation Committee of the Board of Directors is
comprised of Dr. Lehman (Chairman) and Messrs. Glickman, Sawyer, Kilpatrick and Stroud. This committee makes recommendations concerning the salaries and incentive compensation of our
employees and consultants.

The Stock Option Committee.The Stock Option Committee of the Board of Directors is comprised of Dr. Lehman and
Messrs. Glickman and Sawyer. This committee oversees the issuance of options under our stock option plan.

The Executive Committee.The Executive Committee of the Board of Directors is comprised of Dr. Lehman and
Messrs. Glickman (Chairman), Pownall, Sawyer and Kilpatrick. This committee has the ability to take action on behalf of the full Board of Directors in certain circumstances.

24

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ITEM 11. EXECUTIVE COMPENSATION

The following summary compensation table sets forth for 1999, 2000 and 2001 the historical compensation for services to the Company of the Chief Executive Officer
and the four most highly compensated executive officers (the "Named Executive Officers") for Fiscal 2001.

SUMMARY COMPENSATION TABLE

|Name and Principal Position                                                |  | Year           |  | Salary($) |                         | Bonus($)(1) |   | Securities
Underlying
Options |  | All Other
Compensation
($)(2)
|-------------------------------------------------------------------------- |  | -------------- |  | --------- | ----------------------- | ----------- | - | ----------------------------- |  | -----------------------------
|Kenneth R. Kilpatrick
President and Chief Executive Officer, EHI and Elgar |  | 2001
2000
1999 |  | $         | 234,014
225,930
197,498 |             | $ | 
103,850
83,742              |  | 160,000
160,000
80,000       
|Samuel A. Lewis
Vice PresidentSales and Marketing of Elgar                |  | 2001
2000
1999 |  |           | 138,008
134,773
124,500 |             |   | 
42,460
39,600               |  | 78,000
78,000
39,000         
|Gerald D. Price
Vice PresidentSales and Marketing of Power Ten            |  | 2001
2000
1999 |  |           | 134,992
126,352
121,327 |             |   | 
46,057
49,220               |  | 50,000
50,000
15,000         
|Normand E. Precourt
Vice PresidentEngineering of Elgar                    |  | 2001
2000
1999 |  |           | 145,018
141,777
129,997 |             |   | 
44,620
36,953               |  | 76,000
76,000
38,000         
|David C. Hoffman
Vice PresidentEngineering of Power Ten                   |  | 2001
2000
1999 |  |           | 139,548
129,550
124,671 |             |   | 
36,437
39,476               |  | 40,000
40,000
12,000         

---

Options Granted in the Last Fiscal Year

There were no grants of options to the Named Executive Officers in Fiscal 2001.

25

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Aggregate Option Purchases in Last Fiscal Year-End and Fiscal Year End Option Values

The following table summarizes information with respect to the year-end values of all options held by the Named Executive Officers.

|Name                  |  | Shares
Acquired on
Exercise |  | Value
Realized |  | Number of Securities
Underlying
Unexercised Options
at Fiscal Year-End
(#) Exercisable/
Unexercisable |  | Value of Unexercised
In-The-Money
Options at Fiscal
Year-End ($)(1)
|--------------------- |  | --------------------------- |  | -------------- |  | ----------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------
|Kenneth R. Kilpatrick |  | 0                           |  | 0              |  | 160,000/0                                                                                             |  | $0                                                                 
|Samuel A. Lewis       |  | 0                           |  | 0              |  | 78,000/0                                                                                              |  | $0                                                                 
|Gerald D. Price       |  | 0                           |  | 0              |  | 37,000/13,000                                                                                         |  | $0                                                                 
|Normand E. Precourt   |  | 0                           |  | 0              |  | 76,000/0                                                                                              |  | $0                                                                 
|David C. Hoffman      |  | 0                           |  | 0              |  | 30,000/10,000                                                                                         |  | $0                                                                 

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Employment Agreements

In connection with the Recapitalization, the Company entered into employment agreements (each, an "Employment Agreement") with several key executives. Generally,
each Employment Agreement provides for the executive's continued employment with the Company post-Recapitalization at an annual salary, bonus and with such other employment-related
benefits comparable to those received by such executive immediately prior to the Recapitalization. Each Employment Agreement may be terminated by either party upon 30 days' prior written
notice. If an executive is terminated without cause (as set forth in the agreements) or for no reason at all, then the executive shall be entitled to payment of his annual base salary for a period of
one year following the date of such termination. Each Employment Agreement contains provisions prohibiting the executive, during the period of his employment with the Company and for two years
thereafter, from directly or indirectly engaging in competition with the Company. Each Employment Agreement also contains provisions requiring the executive to maintain the confidentiality of certain
information related to the Company.

Stock Option Plan

As of December 29, 2001, there were outstanding options granted under the Elgar Holdings, Inc. 1998 Stock Option Plan (the "Stock Option Plan") to
purchase 896,800 shares of common stock. All options have been granted at fair value, or at a premium thereto, as determined by the Board of Directors of the Company on the date of grant. Options vest
ratably over three or four years and generally expire on the tenth anniversary of the date of grant. The Stock Option Plan is administered by the Stock Option Committee, which is composed solely of
non-employee directors. The Stock Option Committee has the authority to interpret the Stock Option Plan; to determine the terms and conditions of options granted under the Stock Option
Plan; to prescribe, amend and rescind the rules and regulations of the Stock Option Plan; and to make all other determinations necessary or advisable for the administration of the Stock Option Plan.
Subject to limitations imposed by law, the Stock Option Committee may amend or terminate the Stock Option Plan at any time and in any manner. However, no such amendment or termination may deprive the
recipient of an award previously granted under the Stock Option Plan of any rights thereunder without his or her consent. Under the Stock Option Plan, as amended, 1,164,082 shares of common stock are
reserved for issuance upon the exercise of options.

26

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The
Stock Option Plan provides for grants of incentive stock options ("ISOs") to employees (including officers and employee directors) which are intended to qualify under the provisions
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock options to nonemployee directors of the Company. The Stock Option Committee selects the
eligible persons to whom options will be granted and determines the dates, amounts, exercise prices, vesting periods and other relevant terms of the options, provided that the exercise price for each
option is determined by the Stock Option Committee at a price per share not less than the fair market value of common stock on the date of grant. Options granted under the Stock Option Plan are
generally not transferable during the life of the optionee.

Options
granted under the Stock Option Plan to an employee may include a provision conditioning or accelerating the receipt of benefits upon the occurrence of specified events, such as a
change of control of the Company or a dissolution, liquidation, sale of substantially all of the property and assets of the Company or other significant corporate transaction.

Options
granted under the Stock Option Plan vest and become exercisable as determined by the Stock Option Committee in its discretion. Options granted under the Stock Option Plan may be
exercised at any time after they vest and before the expiration date determined by the Stock Option Committee, provided that no option may be exercised more than ten years after its grant. In the
absence of a specific agreement to the contrary, (i) if an optionee ceases to be employed by the Company or one of its subsidiaries for any reason other than death or disability, the optionee
shall be entitled to exercise, for a period of 30 days after the date such optionee ceases to be such an employee, that number of options that were vested on such date and (ii) if an
optionee dies or becomes disabled while still an employee of the Company and its subsidiaries, such optionee or his estate may exercise the option to the extent vested at the date of death or
disability and prior to the expiration of such option.

Options
may be granted under the Stock Option Plan until the tenth anniversary of its adoption, on which date the Stock Option Plan will terminate. Although any option that was duly
granted prior to such date may thereafter be exercised or settled in accordance with its terms, no shares of common stock may be issued pursuant to any award on or after the twentieth anniversary of
its adoption.

401(k) Plan

We maintain a defined contribution 401(k) plan which covers all of our full-time employees. The employees become eligible to participate in the 401(k)
plan at the beginning of the first quarter after hire. Participants may elect to contribute up to 15% of their compensation to this plan, subject to Internal Revenue Service limits. We match 40% of
the first 6% of employee contributions.

Compensation of Directors

Other than Mr. Kilpatrick, directors receive a $15,000 annual retainer, $1,500 for each board meeting attended ($500 for each committee meeting attended)
and reimbursement of reasonable expenses incurred in attending such meetings. In addition, we pay J.F. Lehman & Company certain fees for various management, consulting and financial planning
services, including assistance in strategic planning, providing market and financial analyses, negotiating and structuring financing and exploring expansion opportunities. See "Certain Relationships
and Related Transactions." Recent amendments to our Credit Facility preclude the Company from paying any management fees to Lehman and its affiliates for services rendered during the period that
Bankers Trust is waiving events of default by the Company. However, Lehman continues to provide such services to the Company.

27

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of our common stock as of March 1, 2002 by (i) each director,
(ii) each of the Named Executive Officers, (iii) all executive officers and directors as a group and (iv) each person who is the beneficial owner of more than 5% of the Common
Stock.

Name of Individual or Entity(1)

Number
of Shares(2)

Percentage of
Shares
Outstanding(3)JFL-EEC(4)

3,802,800

64.8
%John F. Lehman(5)

3,802,800

64.8Donald Glickman(5)

3,802,800

64.8George Sawyer(5)

3,802,800

64.8Stephen L. Brooks(5)

3,802,800

64.8Joseph Stroud(5)

3,802,800

64.8Thomas G. Pownall(6)



Oliver C. Boileau, Jr.(7)



William Paul(8)



Bruce D. Gorchow(9)



Tig H. Krekel(10)



Kenneth R. Kilpatrick

280,000
(11)
4.8Samuel A. Lewis

158,000
(11)
2.7Gerald D. Price

37,000
(11)
*Normand E. Precourt

126,000
(11)
2.1David C. Hoffman

30,000
(11)
*Jackson National Life Insurance Company(12)

557,500

9.5All directors and executive officers as a group (18 persons)

4,572,300
(11)
78.0


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28

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29

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement

Pursuant to the terms of a Management Agreement entered into among Lehman, EHI and Elgar upon consummation of the Recapitalization (the "Management Agreement"),
(1) we paid Lehman a transaction fee in the amount of $1,000,000 in connection with the Recapitalization and (2) we agreed to pay Lehman an annual management fee of $500,000 that
commenced accruing on February 3, 1998 and is payable in advance on a semi-annual basis thereafter. As consideration for services rendered in connection with the Power Ten
acquisition, we paid Lehman an acquisition fee of $425,000 pursuant to the Management Agreement. In September 1998, we amended the Management Agreement with Lehman and concurrently entered into
a Management Services Agreement with Lehman, the combined effect of which was to further delineate the management services to be provided by Lehman and to reduce the term of the Management Agreement
from ten years to five years. Recent amendments to our Credit Facility preclude the Company from paying any management fees to Lehman and its affiliates for services rendered during the period that
Bankers Trust is waiving events of default by the Company. However, Lehman continues to provide such services to the Company.

Shareholders Agreement

In connection with the Recapitalization, the Company and JFL-EEC, the Continuing Shareholders and, in their capacity as Warrantholders, Jackson
National, Indosuez Electronics Partners ("Indosuez") and Old Hickory Fund I, L.L.C. ("Old Hickory") (collectively, the "Shareholders") entered into a Shareholders Agreement (the "Shareholders
Agreement"), the principal terms of which are summarized below:

Certain Voting Rights.Pursuant to the Shareholders Agreement, so long as Jackson National holds in the aggregate warrants
and shares obtained upon exercise of the warrants representing at least seventy-five percent (75%) of the warrants initially issued to it, Jackson National shall have the right to
designate one Director. So long as the common stock held by the Non-Management Continuing Shareholders constitutes in the aggregate at least five percent (5%) of the issued and outstanding
common stock,
then the Non-Management Continuing Shareholders shall have the right to designate one Director. Subject to the rights of the holders of the Redeemable Preferred Stock to elect Directors
upon the occurrence of certain events pursuant to the Certificate of Designations governing the Redeemable Preferred Stock, JFL-EEC is entitled to designate all Directors of the Company
not designated by Jackson National or the Non-Management Continuing Shareholders.

Restrictions on Transfer.The shares of the common stock held by each of the parties to the Shareholders Agreement, and
certain of their transferees, are subject to restrictions on transfer. Shares of common stock may be transferred only to certain related transferees, including, (i) in the case of individual
Shareholders, family members or their legal representatives or guardians, heirs and legatees and trusts, partnerships and corporations the sole beneficiaries, partners or shareholders, as the case may
be, of which are family members, (ii) in the case of partnership or limited liability company Shareholders, the partners or members of such partnership or limited liability company, as the case
may be, (iii) in the case of corporate Shareholders, affiliates of such corporation and (iv) transferees of shares sold in transactions complying with the applicable provisions of the
Right of First Offer or the Tag-Along or Drag-Along Rights (as each term is defined below).

Rights of First Offer.If any Shareholder desires to transfer any shares of the common stock or warrants (other than pursuant
to certain permitted transfers), all other Shareholders have a right of first offer (the "Right of First Offer") to purchase the shares or warrants (the "Subject Shares") upon such terms and subject
to such conditions as are set forth in a notice (a "First Offer Notice") sent by the selling Shareholder to such other Shareholders. If the Shareholders elect to exercise their Rights of

30

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First Offer with respect to less than all of the Subject Shares, EHI has a right to purchase all of the Subject Shares that the Shareholders have not elected to purchase. If the Shareholders
receiving the First Offer Notice and EHI wish to exercise their respective rights of first offer with respect to less than all of the Subject Shares, the selling Shareholder may solicit offers to
purchase all (but not less than all) of the Subject Shares upon such terms and subject to such conditions as are, in the aggregate, no less favorable to the selling Shareholder than those set forth in
the First Offer Notice.

Subscription Offer With Respect to Primary Issuances.The Shareholders Agreement provides that EHI is not permitted to issue
equity securities, or securities convertible into equity securities, to any person unless EHI has offered to issue to each of the other Shareholders, on a pro rata basis, an opportunity to purchase
such securities on the same terms, including price, and subject to the same conditions as those applicable to such person.

Tag-Along Rights.The Shareholders Agreement provides that, if the Shareholders and EHI fail to exercise their
respective rights of first refusal with respect to all of the Subject Shares, the Shareholders have the right to "tag along" (the "Tag-Along Right") upon the sale of the common stock by
certain Shareholders pursuant to a third-party offer.

Drag-Along Rights.The Shareholders Agreement provides that, subject to certain conditions, if one or more
Shareholders holding a majority of the common stock (the "Majority Shareholders") propose to sell all of the common stock owned by the Majority Shareholders, the Majority Shareholders have the right
(the "Drag-Along Right") to compel the other Shareholders to sell all of the shares of common stock held by such other Shareholders upon the same terms and subject to the same conditions
as the terms and conditions applicable to the sale by the Majority Shareholders.

Registered Offerings.The shares of common stock may be transferred in a bona fide public offering for cash pursuant to an
effective registration statement (a "Registered Offering") without compliance with the provisions of the Shareholders Agreement related to the Right of First Offer or the Tag-Along or
Drag-Along Rights.

Legends.The shares of common stock subject to the Shareholders Agreement bear a legend related to the Right of First Offer
and the Tag-Along and Drag-Along Rights, which legend will be removed when the shares of common stock are, pursuant to the terms of the Shareholders Agreement, no longer
subject to the restrictions on transfer imposed by the Shareholders Agreement.

Registration Rights.Pursuant to the terms of the Shareholders Registration Rights Agreement, dated as of February 3,
1998, among the Company and the Shareholders, JFL-EEC and certain other shareholders are entitled to one "demand" and unlimited piggyback registration rights, subject to additional
customary rights and limitations.

Term.The term of the Shareholders Agreement is 10 years from the Closing Date, subject to earlier termination under
certain conditions and upon certain events.

Registration Rights for Warrantholders

The holders of the shares issuable upon exercise of the warrants are entitled to one "demand" registration right at any time on or after the later of
(i) February 3, 2003 and (ii) the 181st day after completion of EHI's initial public offering of its common stock, subject to additional customary rights and limitations. In
addition, holders of the shares issuable upon exercise of the warrants are entitled to unlimited "piggyback" registration rights after the date of EHI's initial public offering of its common stock,
subject to customary rights and limitations.

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Indemnification of Officers and Directors

EHI's Certificate of Incorporation contains provisions eliminating the personal liability of directors for monetary damages for breaches of their duty of care,
except in certain prescribed circumstances. EHI's Bylaws also provide that directors and officers will be indemnified to the fullest extent authorized by Delaware law, as it now stands or may in the
future be amended, against all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company. EHI's Bylaws provide that the rights of directors and officers
to indemnification is not exclusive of any other right now possessed or hereinafter acquired under any statute, agreement or otherwise.

Racal Instruments

Racal Instruments, a significant customer of ours, was acquired on November 2, 2001 by a group of investors that includes affiliates of our largest
shareholder. In addition, certain members of our board of directors are also members of Racal's board of directors. As a result, Racal is considered a related party. Sales by us to Racal were
approximately $803,000, $4,977,000 and $1,984,000 during Fiscal 1999, Fiscal 2000 and Fiscal 2001, respectively.

32

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PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)    Consolidated
Financial Statements:

The
following consolidated financial statements of the Company are included in response to Item 8 of this report.

|                                                                                                                                       |                                               | Page Reference
Form 10-K
|-------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------
|Report of Independent Public Accountants                                                                                               |                                               | F-1                     
|Consolidated Balance Sheets as of December 30, 2000 and December 29, 2001                                                              |                                               | F-2                     
|Consolidated Statements of Operations for the years ended January 1, 2000, December 30, 2000 and December 29, 2001                     |                                               | F-3                     
|Consolidated Statements of Stockholders' Equity (Deficit) for the years ended January 1, 2000, December 30, 2000 and December 29, 2001 |                                               | F-4                     
|Consolidated Statements of Cash Flows for the years ended January 1, 2000, December 30, 2000 and December 29, 2001                     |                                               | F-5                     
|Notes to Consolidated Financial Statements                                                                                             |                                               | F-6                     
|(a)(2)    Consolidated Financial Statement Schedules:                                                                                  |                                               |                         
|                                                                                                                                       | Schedule IIValuation and Qualifying Accounts |                         

Schedules
other than those listed above have been omitted since they are either not required, not applicable or the information is otherwise included.

None.

|Exhibit No. |  | Description                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|1.1         |  | Purchase Agreement, dated January 30, 1998, between the Company and the Initial Purchaser(1)                                                      
|2.1         |  | Agreement and Plan of Merger, dated as of January 2, 1998, by and among the Company, JFL-EEC LLC, JFL-EEC Merger Sub Co. and T.C. Group, L.L.C.(1)
|3.1         |  | Amended and Restated Certificate of Incorporation of the Company(1)                                                                               
|3.2         |  | Certificate of Designations for the Series A 10% Cumulative Redeemable Preferred Stock(1)                                                         
|3.3         |  | Certificate of Designations for the Series B 6% Cumulative Convertible Preferred Stock(1)                                                         
|3.4         |  | Certificate of Designations for the Series C 6% Cumulative Convertible Preferred Stock(2)                                                         
|3.5         |  | Amended and Restated Bylaws of the Company(1)                                                                                                     
|3.6         |  | Articles of Incorporation of Elgar Electronics Corporation(1)                                                                                     
|3.7         |  | Bylaws of Elgar Electronics Corporation(1)                                                                                                        
|3.8         |  | Articles of Incorporation of Power Ten(1)                                                                                                         
|3.9         |  | Bylaws of Power Ten(1)                                                                                                                            
|            |  |                                                                                                                                                   

33

---

|4.1   |  | Indenture, dated as of February 3, 1998, between the Company and United States Trust Company of New York(1)                                                                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2   |  | First Supplemental Indenture, dated as of February 3, 1998, among the Company, Elgar Electronics Corporation and United States Trust Company of New York(1)                                                                               
|4.3   |  | Second Supplemental Indenture, dated as of May 29, 1998, among the Company, Elgar Electronics Corporation, Power Ten and United States Trust Company of New York(1)                                                                       
|4.4   |  | Form of Note (included in Exhibits 4.1 and 4.2)(1)                                                                                                                                                                                        
|4.5   |  | Registration Rights Agreement, dated February 3, 1998, between the Company and the Holders of Old Notes(1)                                                                                                                                
|4.6   |  | Form of Warrant Certificate(1)                                                                                                                                                                                                            
|10.1  |  | Assumption Agreement, dated as of February 3, 1998, between the Company and Elgar Electronics Corporation, assuming, among other things, the obligations of MergerCo under the Purchase Agreement and the Registration Rights Agreement(1)
|10.2  |  | Investment Agreement, dated as of February 3, 1998, between the Company and Series A preferred shareholders(1)                                                                                                                            
|10.3  |  | Shareholders Agreement, dated as of February 3, 1998, between the Company and the shareholders(1)                                                                                                                                         
|10.4  |  | Shareholders Registration Rights Agreement, dated as of February 3, 1998, between the Company and the shareholders(1)                                                                                                                     
|10.5  |  | Warrantholders' Registration Rights Agreement, dated as of February 3, 1998, between the Company and the warrantholders(1)                                                                                                                
|10.6  |  | Management Agreement, dated as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(1)                                                                                                        
|10.7  |  | Amendment No. 1 to Management Agreement, entered into on September 15, 1998, effective as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(4)                                             
|10.8  |  | Management Services Agreement, entered into on September 15, 1998, effective as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(4)                                                       
|10.9  |  | Employment Agreement, dated as of May 29, 1998, between Elgar Electronics Corporation and Joseph A. Varozza, Jr.(1)                                                                                                                       
|10.10 |  | Employment Agreement, dated as of May 29, 1998, between Elgar Electronics Corporation and Vincent S. Mutascio(1)                                                                                                                          
|10.11 |  | Employment Agreement, dated as of February 3, 1998, between Elgar Electronics Corporation and Kenneth R. Kilpatrick(1)                                                                                                                    
|10.12 |  | Form of Employment Agreement entered into between Elgar Electronics Corporation and certain of its executive officers (other than Kenneth R. Kilpatrick) on February 3, 1998(1)                                                           
|10.13 |  | Lease Agreement, dated February 1, 1984, between the Company and Carroll Park Ridge, for the Company's principal facilities(1)                                                                                                            
|      |  |                                                                                                                                                                                                                                           

34

---

|10.14 |  | First Amendment to Lease, dated November 5, 1992, between RREEF WEST-IV and the Company(1)                                                                                                                                                        
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Second Amendment to Lease, dated February 12, 1998, between The Irvine Company and the Company(1)                                                                                                                                                 
|10.16 |  | Third Amendment to Lease, dated July 2, 1998, between The Irvine Company and the Company(3)                                                                                                                                                       
|10.17 |  | Amended and Restated Credit Agreement, dated as of February 3, 1998 and amended and restated as of May 29, 1998, among the Company, Elgar Electronics Corporation and Bankers Trust Company, as Agent(1)                                          
|10.18 |  | First Amendment and Waiver, dated as of February 12, 1999, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(2)                                                     
|10.19 |  | Second Amendment, dated as of March 24, 1999, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(2)                                                                  
|10.20 |  | Amended and Restated Pledge Agreement, dated as of February 3, 1998 and amended and restated as of May 29, 1998, among the Company, Elgar Electronics Corporation and Bankers Trust Company, as Pledgee and Collateral Agent(1)                   
|10.21 |  | Amended and Restated Security Agreement, dated as of February 3, 1998 and amended and restated as of May 29, 1998, among the Company, Elgar Electronics Corporation, Power Ten and Bankers Trust Company, as Collateral Agent(1)                  
|10.22 |  | Subsidiaries Guaranty, dated as of May 29, 1998, made by Power Ten in favor of Bankers Trust Company, as Agent(1)                                                                                                                                 
|10.23 |  | Amended and Restated Capital Call Agreement, dated as of May 29, 1998 and amended and restated as of February 12, 1999, among J.F. Lehman Equity Investors L.P., the Company, Elgar Electronics Corporation and Bankers Trust Company, as Agent(2)
|10.24 |  | Form of Term Loan Note(1)                                                                                                                                                                                                                         
|10.25 |  | Form of Revolving Note(1)                                                                                                                                                                                                                         
|10.26 |  | Form of Swingline Note(1)                                                                                                                                                                                                                         
|10.27 |  | Elgar Holdings, Inc. 1998 Stock Option Plan(2)                                                                                                                                                                                                    
|10.28 |  | Form of Stock Option Agreement(1)                                                                                                                                                                                                                 
|10.29 |  | Third Amendment, dated as of March 10, 2000, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(5)                                                                   
|10.30 |  | Fourth Amendment, dated as of March 27, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(6)                                                                  
|10.31 |  | Waiver, dated as of July 25, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent(7)                                                                             
|      |  |                                                                                                                                                                                                                                                   

35

---

|10.32 |  | Fifth Amendment and Waiver, dated as of September 28, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent(8)                                                                                                                    
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33 |  | Sixth Amendment and Waiver to Credit Agreement and First Amendment to Capital Call Agreement, dated as of October 5, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent
and J.F. Lehman Equity Investors I, L.P. as Contributor
|10.34 |  | Waiver to Credit Agreement and Second Amendment to Capital Call Agreement, dated as of November 13, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent and J.F. Lehman
Equity Investors I, L.P. as Contributor                 
|10.35 |  | Seventh Amendment and Waiver to Credit Agreement, dated as of December 20, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent and acknowledged and agreed to by Power
Ten as subsidiary guarantor                              
|10.36 |  | Eighth Amendment and Waiver to Credit Agreement, dated as of January 23, 2002, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent                                                                                                    
|10.37 |  | Ninth Amendment and Waiver to Credit Agreement, dated as of January 31, 2002, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent, and acknowledged and agreed to for limited
purposes by J.F. Lehman Equity Investors I, L.P.        
|12.1  |  | Statement re: Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends                                                                                                                                                                                         
|21.1  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                       

---

36

---

No
annual report or proxy material covering our last fiscal year has been or will be sent to security holders of the Company.

37

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
Elgar Holdings, Inc.:

We
have audited the accompanying consolidated balance sheets of ELGAR HOLDINGS, INC. (a Delaware corporation) and subsidiaries (the "Company") as of December 30, 2000 and
December 29, 2001, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years ended January 1, 2000, December 30, 2000 and
December 29, 2001. 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 audits.

We
conducted our audits in accordance with auditing standards generally accepted in the 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 audits
provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Elgar Holdings, Inc. and subsidiaries as of December 30,
2000 and December 29, 2001, and the results of their operations and their cash flows for the years ended January 1, 2000, December 30, 2000 and December 29, 2001, in
conformity with accounting principles generally accepted in the United States.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered
losses from operations and expects that losses may continue in 2002. In addition, certain of the Company's debt is due on June 28, 2002, and the existing cash balances at December 29,
2001 plus management's forecast operating cash flows for Fiscal 2002 are not expected to be sufficient to pay off the debt when
it comes due. Therefore, the Company will be required to restructure or obtain additional sources of funding to replace the existing debt and provide sufficient operating cash flow for the remainder
of Fiscal 2002. There can be no assurances that the Company will be successful in restructuring or securing such additional financing. If it should be unsuccessful, substantial doubt exists regarding
the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a
going concern.

Our
audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II-Valuation and Qualifying Accounts is presented for
purposes of complying with the Securities and Exchange Commission's rules, and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements
taken as a whole.

/s/ARTHUR ANDERSEN LLP

ARTHUR
ANDERSEN LLP
San Diego, California
February 22, 2002

F-1

---



ELGAR HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (dollars in thousands)

|                                                                                                                                 |                                                                                                                                 | December 30,
2000           |        | December 29,
2001 |        
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | ----------------- | -------
|ASSETS                                                                                                                           |                                                                                                                                 |                             |        |                   |        
|CURRENT ASSETS:                                                                                                                  |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 | Cash and cash equivalents                                                                                                       |                             | $      | 224               |        
|                                                                                                                                 | Accounts receivable, net of allowance for doubtful accounts of $163 and $204, respectively                                      |                             |        | 10,252            |        
|                                                                                                                                 | Inventories                                                                                                                     |                             |        | 10,700            |        
|                                                                                                                                 | Deferred tax assets                                                                                                             |                             |        | 615               |        
|                                                                                                                                 | Prepaids and other                                                                                                              |                             |        | 424               |        
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 |                                                                                                                                 | Total current assets        |        |                   | 22,215 
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                               |                                                                                                                                 |                             | 2,690  |                   |        
|INTANGIBLE ASSETS, net of accumulated amortization of $11,243 and $14,413, respectively                                          |                                                                                                                                 |                             | 31,247 |                   |        
|DEFERRED TAX ASSETS, net of current portion                                                                                      |                                                                                                                                 |                             | 834    |                   |        
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 |                                                                                                                                 | $                           | 56,986 |                   | $      
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                            |                                                                                                                                 |                             |        |                   |        
|CURRENT LIABILITIES:                                                                                                             |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 | Accounts payable                                                                                                                |                             | $      | 3,379             |        
|                                                                                                                                 | Accrued liabilities                                                                                                             |                             |        | 8,858             |        
|                                                                                                                                 | Line of credit                                                                                                                  |                             |        |                  |        
|                                                                                                                                 | Current portion of long-term debt                                                                                               |                             |        | 3,625             |        
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 |                                                                                                                                 | Total current liabilities   |        |                   | 15,862 
|LONG-TERM DEBT, net of current portion                                                                                           |                                                                                                                                 |                             | 96,000 |                   |        
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 | Total liabilities                                                                                                               |                             |        | 111,862           |        
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|SERIES A 10% CUMULATIVE REDEEMABLE PREFERRED STOCK, no par value, 20,000 shares authorized; 10,000 shares issued and outstanding |                                                                                                                                 |                             | 12,126 |                   |        
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|STOCKHOLDERS' DEFICIT:                                                                                                           |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 | Series B 6% Cumulative Convertible Preferred Stock, no par value, 5,000 shares authorized, issued and outstanding               |                             |        | 5,000             |        
|                                                                                                                                 | Series C 6% Cumulative Convertible Preferred Stock, no par value, 4,000 shares authorized, issued and outstanding               |                             |        | 4,000             |        
|                                                                                                                                 | Common Stock, $.01 par value, 15,000,000 shares authorized; 4,601,533 and 4,602,433 shares issued and outstanding, respectively |                             |        | 46                |        
|                                                                                                                                 | Additional paid-in capital                                                                                                      |                             |        | (68,572           | )      
|                                                                                                                                 | Accumulated deficit                                                                                                             |                             |        | (7,476            | )      
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 |                                                                                                                                 | Total stockholders' deficit |        |                   | (67,002
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        
|                                                                                                                                 |                                                                                                                                 | $                           | 56,986 |                   | $      
|                                                                                                                                 |                                                                                                                                 |                             |        |                   |        

The
accompanying notes are an integral part of these consolidated financial statements.

F-2

---



ELGAR HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (dollars in thousands)

|                                                  |                  | Year Ended
January 1, 2000 |        | Year Ended
December 30, 2000 |   | Year Ended
December 29, 2001 |       
|------------------------------------------------- | ---------------- | -------------------------- | ------ | ---------------------------- | - | ---------------------------- | ------
|Net sales                                         |                  | $                          | 56,059 |                              | $ | 65,786                       |       
|Cost of sales                                     |                  |                            | 32,032 |                              |   | 38,152                       |       
|                                                  |                  |                            |        |                              |   |                              |       
|                                                  | Gross profit     |                            |        | 24,027                       |   |                              | 27,634
|Selling, general and administrative expenses      |                  |                            | 10,005 |                              |   | 11,337                       |       
|Research and development and engineering expenses |                  |                            | 5,851  |                              |   | 6,675                        |       
|Amortization expense                              |                  |                            | 2,432  |                              |   | 2,435                        |       
|                                                  |                  |                            |        |                              |   |                              |       
|                                                  | Operating income |                            |        | 5,739                        |   |                              | 7,187 
|Interest expense, net                             |                  |                            | 10,458 |                              |   | 10,544                       |       
|                                                  |                  |                            |        |                              |   |                              |       
|Loss before income taxes                          |                  |                            | (4,719 | )                            |   | (3,357                       | )     
|Income tax (benefit) provision                    |                  |                            | (536   | )                            |   | 70                           |       
|                                                  |                  |                            |        |                              |   |                              |       
|                                                  | Net loss         |                            | $      | (4,183                       | ) | $                            | (3,427
|                                                  |                  |                            |        |                              |   |                              |       

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---



ELGAR HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT        (dollars in thousands, except share amounts)

|                                                  |  | Series B
Preferred Stock |  | Series C
Preferred Stock |       |  |       |  |   |       |  |           |  |   |   
|------------------------------------------------- |  | ------------------------ |  | ------------------------ | ----- |  | ----- |  | - | ----- |  | --------- |  | - | --
|
|
|
|BALANCE, January 2, 1999                          |  | 5,000                    |  | $                        | 5,000 |  |      |  | $ |      |  | 4,600,000 |  | $ | 46
|Issuance of Series C preferred stock              |  |                         |  |                          |      |  | 4,000 |  |   | 4,000 |  |          |  |   |  
|Series A preferred stock dividend-in-kind         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series B preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series C preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Accretion of discount on Series A preferred stock |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Net loss                                          |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|                                                  |  |                          |  |                          |       |  |       |  |   |       |  |           |  |   |   
|BALANCE, January 1, 2000                          |  | 5,000                    |  |                          | 5,000 |  | 4,000 |  |   | 4,000 |  | 4,600,000 |  |   | 46
|Exercise of stock options                         |  |                         |  |                          |      |  |      |  |   |      |  | 1,533     |  |   |  
|Series A preferred stock dividend-in-kind         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series B preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series C preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Accretion of discount on Series A preferred stock |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Net loss                                          |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|                                                  |  |                          |  |                          |       |  |       |  |   |       |  |           |  |   |   
|BALANCE, December 30, 2000                        |  | 5,000                    |  |                          | 5,000 |  | 4,000 |  |   | 4,000 |  | 4,601,533 |  |   | 46
|Exercise of stock options                         |  |                         |  |                          |      |  |      |  |   |      |  | 900       |  |   |  
|Series A preferred stock dividend-in-kind         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series A preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series B preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Series C preferred stock dividend accrual         |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Accretion of discount on Series A preferred stock |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|Net loss                                          |  |                         |  |                          |      |  |      |  |   |      |  |          |  |   |  
|                                                  |  |                          |  |                          |       |  |       |  |   |       |  |           |  |   |   
|BALANCE, December 29, 2001                        |  | 5,000                    |  | $                        | 5,000 |  | 4,000 |  | $ | 4,000 |  | 4,602,433 |  | $ | 46
|                                                  |  |                          |  |                          |       |  |       |  |   |       |  |           |  |   |   

The accompanying notes are an integral part of these consolidated financial statements.

F-4

---



ELGAR HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (dollars in thousands)

|                                                     |                                                                             | Year Ended
Jan. 1, 2000                                        |                     | Year Ended
Dec. 30, 2000                            |       | Year Ended
Dec. 29, 2001 |       
|---------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------- | --------------------------------------------------- | ----- | ------------------------ | ------
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     | Net loss                                                                    |                                                                | $                   | (4,183                                              | )     | $                        | (3,427
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                |                     |                                                     |       |                          |       
|                                                     |                                                                             | Amortization of intangibles                                    |                     |                                                     | 3,166 |                          |       
|                                                     |                                                                             | Depreciation and amortization of property, plant and equipment |                     |                                                     | 888   |                          |       
|                                                     |                                                                             | Loss on sale of property, plant and equipment                  |                     |                                                     | 23    |                          |       
|                                                     |                                                                             | Provision for Deferred Income Taxes                            |                     |                                                     |      |                          |       
|                                                     |                                                                             | Changes in operating assets and liabilities:                   |                     |                                                     |       |                          |       
|                                                     |                                                                             |                                                                | Accounts receivable |                                                     |       | (2,085                   | )     
|                                                     |                                                                             |                                                                | Inventories         |                                                     |       | 1,472                    |       
|                                                     |                                                                             |                                                                | Prepaids and other  |                                                     |       | 372                      |       
|                                                     |                                                                             |                                                                | Accounts payable    |                                                     |       | (1,416                   | )     
|                                                     |                                                                             |                                                                | Accrued liabilities |                                                     |       | 413                      |       
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     |                                                                             |                                                                |                     | Net cash used in operating activities               |       |                          | (1,350
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     | Purchases of property, plant and equipment                                  |                                                                |                     | (676                                                | )     |                          | (1,254
|                                                     | Proceeds from sales of property, plant and equipment                        |                                                                |                     | 2                                                   |       |                          | 2     
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     |                                                                             |                                                                |                     | Net cash used in investing activities               |       |                          | (674  
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     | Proceeds from preferred stock issuance                                      |                                                                |                     | 4,000                                               |       |                          |      
|                                                     | Proceeds from exercise of options                                           |                                                                |                     |                                                    |       |                          | 9     
|                                                     | Proceeds from line of credit                                                |                                                                |                     |                                                    |       |                          |      
|                                                     | Repayment on debt                                                           |                                                                |                     | (4,000                                              | )     |                          | (375  
|                                                     | Payments under capital leases                                               |                                                                |                     | (4                                                  | )     |                          |      
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     |                                                                             |                                                                |                     | Net cash provided by (used in) financing activities |       |                          | (4    
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                             |                                                                | (2,028              | )                                                   |       | (4,255                   | )     
|CASH AND CASH EQUIVALENTS, beginning of period       |                                                                             |                                                                | 6,507               |                                                     |       | 4,479                    |       
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|CASH AND CASH EQUIVALENTS, end of period             |                                                                             | $                                                              | 4,479               |                                                     | $     | 224                      |       
|                                                     |                                                                             |                                                                |                     |                                                     |       |                          |       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     | Cash paid for interest                                                      |                                                                | $                   | 9,826                                               |       | $                        | 9,843 
|                                                     | Cash paid (received) for income taxes, net                                  |                                                                |                     | (581                                                | )     |                          | (779  
|NON-CASH INVESTING & FINANCING ACTIVITIES:           |                                                                             |                                                                |                     |                                                     |       |                          |       
|                                                     | Series A preferred stock dividend-in-kind                                   |                                                                | $                   | 1,135                                               |       | $                        | 1,252 
|                                                     | Series A, B and C preferred stock dividend accrual                          |                                                                |                     | 502                                                 |       |                          | 590   
|                                                     | Accretion of discount on Series A preferred stock                           |                                                                |                     | 166                                                 |       |                          | 167   

The accompanying notes are an integral part of these consolidated financial statements.

F-5

---



ELGAR HOLDINGS, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Company Operations

Elgar Holdings, Inc., a Delaware corporation (the "Company"), manufactures and sells programmable power supply units through its wholly owned subsidiary,
Elgar Electronics Corporation ("Elgar"), for commercial and military applications. The Company's primary sales are within the United States and Europe. The Company operates in one business segment.

In
April 1996, the Company acquired all of the outstanding common stock of Elgar (the "Acquisition"). The Acquisition was accounted for as a purchase and, accordingly, the
purchase price of $33 million was allocated to the assets acquired and liabilities assumed at their fair values. The excess of purchase price over the net assets acquired of approximately
$19.7 million was recorded as goodwill, and is being amortized over 15 years on a straight line basis. The acquisition was funded with $14 million in cash and the proceeds from
$19 million in term debt, which was paid off in connection with the Recapitalization (as defined below).

In
January 1998, the Company entered into an Agreement and Plan of Merger (the "Recapitalization Agreement") pursuant to which the Company was recapitalized on February 3,
1998 (the "Recapitalization"). Pursuant to the Recapitalization Agreement, all shares of the predecessor company's then-existing common stock, other than those retained by certain members
of management and certain other stockholders (the "Continuing Shareholders"), were converted into the right to receive cash based upon a formula. The Continuing Shareholders agreed to retain
approximately 15% of the common equity of the Company. In order to finance the Recapitalization, the Company (i) issued $90 million of senior notes in a debt offering,
(ii) received $19 million in cash from an investor group for common stock and (iii) received $10 million in cash for the issuance of redeemable preferred stock.

In
May 1998, Elgar acquired all issued and outstanding shares of capital stock of Power Ten for $17.8 million in cash. The acquisition has been accounted for as a purchase.
In connection with the acquisition, Elgar entered into non-compete agreements with the two former stockholders of Power Ten. At closing, Elgar paid each former stockholder $120,000 as
consideration for their agreement not to compete. The acquisition was financed by the issuance of 5,000 shares of Series B Convertible Preferred Stock for $5 million in cash and
borrowings of $15 million under the amended credit facility (see Note 6 and Note 7). In connection with the Power Ten acquisition and the financing thereof, Elgar recorded
approximately $16.1 million of goodwill (representing the excess of purchase price over the net assets acquired) and approximately $0.9 million of deferred financing costs, both of which
are included in intangible assets as of December 30, 2000 and December 29, 2001.

2.    Going Concern Assumptions

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the Company's financial statements during the years ended January 1, 2000, December 30, 2000 and December 29, 2001, the Company has
incurred losses of $4.2 million, $3.4 million, and $10.2 million, respectively. The Company expects to continue to incur losses in Fiscal 2002.

The
Company believes that its present cash balances will be sufficient to pay ongoing cash expenses only until approximately the end of the second quarter of 2002, and will not be
sufficient to repay the amounts outstanding under the Company's credit facility on June 28, 2002. The Company has been notified by Bankers Trust, the lender under its credit facility, of its
desire to have the full amount

F-6

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of the outstanding loans under the credit facility, plus accrued but unpaid interest, repaid on June 28, 2002. The Company expects to generate positive cash flows from operations by the end of
fiscal 2002. However, given the Company's current cash balances, expected cash requirements for the credit facility repayment on June 28, 2002, the bond interest payment on August 1,
2002 and ongoing operations after the second quarter, the Company believes that it will be necessary for it to raise additional funds before the end of the second quarter of 2002 in order for the
Company to continue its operations. Management is currently pursuing alternative financing sources, and has recently retained advisors to help the Company in this endeavor. Although the Company is
currently in discussions with potential financing sources and investors, there can be no assurance that the Company will be able to obtain additional funding in the near future on acceptable terms, or
at all.

If
the Company were unsuccessful in obtaining this additional financing, substantial doubt exists as to the Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is also dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitability.

3.    Summary of Significant Accounting Policies



The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Elgar. All significant intercompany
accounts and transactions have been eliminated in consolidation.



The Company operates and reports financial results on a fiscal year of 52 or 53 weeks that ends on the Saturday closest to December 31.



Cash equivalents at December 30, 2000 and December 29, 2001 consist of a money market account in a financial institution.



Inventories, which include materials, direct labor and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or
market.



Property, plant and equipment is recorded at cost. Depreciation of property, plant and equipment is provided using the straight-line method over the
estimated useful lives of the related assets. Maintenance, repairs and betterments are expensed as incurred.

F-7

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Intangible assets represent (i) the excess of purchase price over net book value of assets acquired in connection with acquisitions, (ii) deferred
financing costs incurred in connection with the Recapitalization and the Power Ten acquisition and (iii) agreements not to compete relating to the Power Ten acquisition. The components of
intangible assets are being amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 15 years.

The
Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated useful lives of these assets.
The criteria used for these evaluations include management's estimate of the assets' continuing ability to generate income from operations and positive cash flows in future periods as well as the
strategic significance of the intangible assets to the Company's business activity.



The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires the use of the asset and liability method in providing for income taxes. Under the asset and liability method, deferred tax assets and liabilities are established to recognize the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. The effects on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.



For products, the Company recognizes revenue upon shipment of goods and the passage of title to the customer. For services, the Company recognizes revenue as the
related services are performed. The Company's revenue recognition policies are in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101").



The Company capitalizes certain costs associated with customer-funded research and development. Revenue is recorded when earned under such projects and costs
incurred are charged to cost of sales. Customer-funded research and development was $0.7 million for the year ended January 1, 2000, $0.5 million for the year ended
December 30, 2000 and $0.3 million for the year ended December 29, 2001.



The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123, "Accounting for Stock-based Compensation." The Company
has elected to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and has provided pro forma disclosure as if the fair value based method prescribed by SFAS No. 123 had been utilized.

F-8

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The preparation of financial statements in conformity accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from those estimates.



The carrying value of certain of the Company's financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximates fair
value due to their short term nature.



In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" ("SFAS No. 141"). This statement
addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations," and FASB Statement No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. The Company adopted the
provisions of SFAS No. 141 for all business combinations initiated after June 30, 2001.

In
June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"). This statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets that are acquired individually or with
a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially recognized in the financial statements. Upon adoption of SFAS No. 142 goodwill is no longer subject to amortization over
its estimated useful life, which would have been $2,387,000 for the year 2002. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value test. The
Company adopted these standards effective January 1, 2002 and has not yet determined what impact the adoption of SFAS No. 142 will have on its financial statements, results of operations
or related disclosures thereto.

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to (a) all entities and (b) legal
obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of a long-lived assets
except for certain obligations of lessees. This statement amends FASB Statement No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management does not believe that the adoption of this statement will have a material impact on its financial position or
results of operations.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or

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disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that Opinion). The provisions of SFAS
No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, with early application encouraged and generally are to be applied prospectively.
Management does not expect the adoption of SFAS No. 144 will have a material impact on the Company's financial position or results of operations.

4.    Supplementary Financial Information

Inventories are comprised of the following (in thousands):

December 30, 2000

December 29, 2001Raw materials

$
6,033

$
7,268Work-in-process


3,230


1,261Finished goods


1,437


1,051$
10,700

$
9,580


Property,
plant and equipment and the related depreciable lives are as follows (in thousands):

December 30, 2000

December 29, 2001Asset Type/Depreciable LifeMachinery and equipment/4-6 years

$
5,048

$
5,850Leasehold improvements/lease term


966


893Furniture and fixtures/4 years


666


466Construction in progress


39


356,719


7,244Less: Accumulated depreciation and amortization


(4,029
)

(4,570
)$
2,690

$
2,674


During
Fiscal 2001, the Company disposed of fixed assets associated with the closure of the Power Ten production facilities that had an acquisition cost of approximately $244,000 and
accumulated depreciation of $81,000 (see Note 15).

Accrued
liabilities consist of the following (in thousands):

December 30, 2000

December 29, 2001Payroll and related

$
2,341

$
1,201Warranty reserve


455


490Commissions


477


357Interest payable


3,688


3,843Dividends payable


1,282


3,176Other


615


1,170$
8,858

$
10,237


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5.    Concentration of Credit Risk

Sales to two customers, in the aggregate, accounted for approximately 32%, 12% and 24% of the Company's sales for the years ended January 1, 2000,
December 30, 2000 and December 29, 2001, respectively. Two customers represented greater than 10% of sales for the years ended January 1, 2000 and December 29, 2001. No
customer represented greater than 10% of sales for the year ended December 30, 2000. In terms of accounts receivable at period end, one customer represented 10% of accounts receivable as of
January 1, 2000, one customer represented 11% of accounts receivable as of December 30, 2000, and two customers represented 26% and 20% of accounts receivable as of December 29,
2001. The Company performs ongoing credit evaluation of its customers' financial condition. The Company maintains reserves for potential credit losses.

6.    Long-Term Debt and Revolving Line of Credit

At December 30, 2000 and December 29, 2001, the Company's long-term debt consisted of the following, giving effect to the impact of the
Ninth Amendment to the Company's Credit Facility entered into in January 2002 (in thousands):

December 30, 2000

December 29, 2001Senior Notes due February 1, 2008 with an interest rate of 9.875%

$
90,000

$
90,000Revolving line of credit due June 28, 2002 with an interest rate ranging from 5.25% to 7.1875%





5,015Term note due June 28, 2002 with an interest rate of 5.9375%


9,625


8,78399,625


103,798Less: current portion


(3,625
)

(13,798
)Long term portion

$
96,000

$
90,000


Principal
maturities under notes payable are as follows:

Fiscal Year

Amount2002

$
13,7982003


2004


2005


2006


Thereafter


90,000Total Notes Payable

$
103,798


Interest
expense related to the $90 million of senior notes was approximately $8.9 million for fiscal years ended January 1, 2000, December 30, 2000 and
December 29, 2001. Interest expense related to the term notes and revolving line of credit was approximately $0.9 million for the years ended January 1, 2000 and
December 30, 2000 and $1.0 million for the fiscal year ended December 29, 2001.



The Senior Notes, which were issued on February 3, 1998, bear interest at a rate of 9.875% per annum, payable semi-annually on
February 1st and August 1st, with a maturity date of February 1, 2008.

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At
any time on or before February 1, 2003, the Company may redeem up to 35% in aggregate principal amount of (i) the initial aggregate principal amount of the Senior Notes
and (ii) the initial principal amount of any additional notes issued under the indenture after the issue date, on one or more occasions, with the net cash proceeds of one or more public equity
offerings at a redemption price of 109.875% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date, provided that at least 65% of the sum of (i) the
initial aggregate principal amount of the Senior Notes and (ii) the initial aggregate principal amount of additional notes remain outstanding immediately after redemption. The Senior Notes are
redeemable by the Company at stated redemption prices beginning in February 2003.

The
Senior Notes are general unsecured obligations of the Company and rank senior to all existing and future subordinated indebtedness of the Company. The obligations of the Company as a
guarantor of Elgar's obligations under the bank credit facility are secured by substantially all of the assets of the Company. Accordingly, such secured indebtedness effectively ranks senior to the
Senior Notes to the extent of such assets.

The
Senior Notes restrict, among other things, the Company's ability to incur additional indebtedness, pay dividends or make certain other restricted payments, incur liens, sell
preferred stock of subsidiaries, apply net proceeds from certain asset sales, merge or consolidate with any other person, sell, assign, transfer, lease, convey or otherwise dispose of substantially
all of the assets of the Company or enter into certain transactions with affiliates. The Senior Notes are guaranteed by the Company's wholly owned subsidiary, Elgar. Such guarantee is full and
unconditional. The only direct or indirect subsidiary of the Company that is not a guarantor of the Senior Notes is insignificant to the consolidated financial statements. In management's opinion,
separate financial statements of the guarantors have not been presented as they would not be material to investors.

In
accordance with SFAS 107, the Company is supplying the following data regarding its Senior Notes. On December 29, 2001, Deutsche Bank Global Markets Research indicated a
bid price of 32% of par for the Senior Notes, equaling a price of $320 per $1,000 par note.



The Company, Elgar and Bankers Trust are party to a credit agreement (the "Credit Agreement") that provides for a term facility and a revolving facility.
Indebtedness under the Credit Agreement is secured by a first priority security interest in substantially all of the Company's assets, and bears interest at a floating rate of interest equal to, at
Elgar's option, the eurodollar rate for one, two, three or six months, plus 2.75%, or the bank's prime rate plus a margin of 1.75%.

The
Credit Agreement contains restrictions on the incurrence of debt, the sale of assets, mergers, acquisitions and other business combinations, voluntary prepayment of other debt of the
Company, transactions with affiliates, repurchase or redemption of stock from stockholders, and various financial covenants, including covenants requiring the maintenance of fixed charge coverage, and
maximum debt to earnings, before interest, taxes, depreciation and amortization (EBITDA) ratios and minimum consolidated EBITDA.

On
December 20, 2001, the Company, Elgar and Bankers Trust Company entered into a Seventh Amendment and Waiver to the Credit Agreement. Under the Seventh Amendment, Bankers Trust
agreed to waive any default or event of default under the Credit Agreement, through December 29, 2001, regarding the EBITDA, leverage ratio and fixed charge coverage covenants. The principal
payment scheduled to be made by Elgar on December 20, 2001 in the amount of $2,875,000 was deferred until January 25, 2002. The accrued Capitalized PIK Interest of $47,615 from
March 27, 2001 through December 19, 2001 was also expensed and included as a part of the principal balance due Bankers Trust, increasing the total principal balance to $13,798,000 for
the term note and line of credit.

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On
January 23, 2002, the same parties entered into a Eighth Amendment and Waiver to Credit Agreement. Under the Eighth Amendment, Bankers Trust agreed to waive until
January 30, 2002 any violations of the minimum EBITDA, leverage ratio and fixed charge coverage covenants, and agreed to defer until January 30, 2002 the $2,875,000 principal payment
that was due on January 25, 2002.

On
January 31, 2002, the same parties entered into a Ninth Amendment and Waiver to the Credit Agreement. The Ninth Amendment calls for the full amount of the loans outstanding
under the Credit Facility, plus accrued interest, to be repaid on June 28, 2002, or sooner if there is an event of default declared by Bankers Trust. At February 22, 2002, the
outstanding principal amount of the loans under the Credit Facility was $14,597,615. The Ninth Amendment also requires the Company to pay Bankers Trust an amendment fee of up to $300,000, payable in
installments. In the Ninth Amendment, Bankers Trust waived compliance with (i) the maximum leverage ratio through January 31, 2002, and then deleted that covenant from the Credit
Agreement, (ii) the fixed charge coverage ratio through December 29, 2001, and then deleted that covenant from the Credit Agreement and (iii) the minimum consolidated EDITDA
covenant through December 29, 2001, and then reset the measurement periods for consolidated EBITDA to begin on December 30, 2001 and end at the end of each of February, March, April and
May 2002. In addition, the Company agreed to limit capital expenditures in the period from December 30, 2001 through June 28, 2002 to $500,000. Finally, under the Ninth Amendment,
Bankers Trust increased the Revolving Facility from $5,000,000 to $6,700,000, but required interest to be paid monthly, rather than quarterly, as was the case in prior periods.

At
December 29, 2001, the outstanding balance of the Revolving Facility was $5,015,000, including $15,000 of capitalized interest, and the outstanding balance of the Term Facility
was $8,783,000, including $33,000 of capitalized interest. At February 22, 2002, after making an additional draw on the Revolving Facility, the outstanding balance on the Revolving Facility was
$5,815,000, including $15,000
of capitalized interest, leaving available capacity of $900,000 under the Revolving Facility as of that date.

Indebtedness
under the Company's credit facility is shown as short-term debt in the balance sheet, while the $90.0 million of senior notes are currently classified as
long-term debt. If the Company were not successful in paying-off the bank debt by June 28, 2002, Elgar would be in violation of the Credit Agreement. If that were to be
the case and Bankers Trust were to demand payment of the final maturity of the outstanding bank debt, and if Elgar did not timely pay in full the amount so demanded under the Credit Agreement, that
would constitute an event of default under the indenture governing the senior notes. Accordingly, the Company would be required to classify the $90.0 million of senior notes as
short-term debt in the balance sheet. In this event, the maturity of the senior notes could also be accelerated.



In connection with the issuance of the Senior Notes and entering into the Credit Facility, the Company incurred debt issuance costs of $4.9 million and
$1.6 million, respectively that are being amortized to interest expense over the term of the related debt. The accumulated amortization associated with the Senior Notes was approximately
$1,400,000 at December 30, 2000 and $1,925,000 at December 29, 2001. The accumulated amortization associated with the Credit Facility was approximately $675,000 at December 30,
2000 and $875,000 at December 29, 2001. In connection with the acceleration of the payment due on June 28, 2002, the remaining unamortized fees associated with entering into the Credit
Facility will be amortized over the remaining term of the Credit Facility, which matures on June 28, 2002.

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In December 2001, J.F. Lehman Equity Investors, I, L.P ("JFLEI"), an affiliate of our largest stockholder, deposited $5.0 million in a collateral
account held by Bankers Trust in connection with earlier amendments and waivers to the Credit Facility and a capital call agreement between JFLEI and Bankers Trust. In January 2002, in
connection with the Ninth Amendment, JFLEI deposited an additional $1.7 million into another collateral account. The $6.7 million in the collateral accounts is for the benefit of Bankers
Trust. The Company does not have any rights in these funds.

7.    Preferred Stock



In connection with the Recapitalization, the Company issued 10,000 shares of redeemable preferred stock, designated as Series A 10% Cumulative Redeemable
Preferred Stock (the "Series A Preferred Stock"), for cash proceeds of $10 million. In connection with such issuance, the Company also issued to the purchasers warrants to purchase
707,488 shares of the Company's common stock. The Company has attributed a value of $1.7 million to the warrants, which is included in additional paid-in-capital as of
December 30, 2000 and December 29, 2001.

Dividends
are payable to the holders of the Series A Preferred Stock at the annual rate per share of 10% times the sum of $1,000 and accrued but unpaid dividends. Dividends shall
be payable at the rate of 0.10 per share of Series A Preferred Stock through January 31, 2001, and in cash on and after April 30, 2001. Dividends are payable quarterly on
January 31, April 30, July 31, and October 31 of each year, commencing April 30, 1998. Dividends shall be fully cumulative and shall accrue on a quarterly basis.

If
the cash dividends payable on the Series A Preferred Stock shall have been in arrears and unpaid for four or more successive dividend payment dates, then until the date on
which all such dividends in arrears are paid in full, dividends shall accrue and be payable to the holders at the annual rate of 12% times the sum of $1,000 per share and accrued but unpaid dividends
thereon. Upon payment in full of all dividends in arrears, cash dividends will thereafter be payable at the 10% annual rate set forth above. As of December 29, 2001, cash dividends from
February 1, 2001 through December 29, 2001 were in arrears.

Holders
of shares of Series A Preferred Stock shall be entitled to receive the stated liquidation value of $1,000 per share, plus an amount per share equal to any dividends
accrued but unpaid, in the event of any liquidation or dissolution of the Company. After payment of the full amount of the liquidation preference, holders of shares of redeemable preferred stock will
not be entitled to any further participation in any distribution of assets of the Company.

The
Company may, at its option, redeem at any time, all or any part of the shares of the Series A Preferred Stock at a redemption price per share equal to 100% of the liquidation
preference on the date of redemption. On August 3, 2008, the Company shall redeem any and all outstanding shares of Series A Preferred Stock at a redemption price per share equal to 100%
of the liquidation preference on the date of redemption.

Upon
the occurrence of a change in control (as defined), the Series A Preferred Stock shall be redeemable at the option of the holders, at a redemption price per share equal to
100% of the liquidation preference.

The
holders of shares of Series A Preferred Stock shall not be entitled to any voting rights. However, without the consent of the holders of at least 85% of the outstanding shares
of redeemable preferred stock, the Company may not change the powers or preferences of the redeemable preferred stock, create, authorize or issue any shares of capital stock ranking senior to or on a
parity with the

F-14

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redeemable preferred stock or create, authorize or issue any shares of capital stock constituting junior securities, unless such junior securities are subordinate in right of payment to the
redeemable preferred stock.

If
any amount of cash dividends payable on the Series A Preferred Stock shall have been in arrears and unpaid for four or more successive dividend payment dates, then the number
of directors constituting the board of directors shall increase, as defined, and the holders of the redeemable preferred stock shall have the right to elect the newly-created directors.

If
the Company fails to redeem shares of Series A Preferred Stock in accordance with the mandatory redemption provisions described above, then the number of directors constituting
the Board of Directors shall increase, as defined, and the holders of the redeemable preferred stock shall have the right to elect directors to fill the newly-created directorships.



In connection with the acquisition of Power Ten (see Note 1), the Company issued 5,000 shares of Series B 6% Cumulative Convertible Preferred Stock
(the "Series B Preferred Stock") for cash proceeds of $5.0 million.

On
March 30, 1999, the Company issued 4,000 shares of Series C 6% Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") for cash proceeds of
$4.0 million. The offering, which was made in compliance with the subscription rights contained in the Company's Shareholders Agreement, was completed on March 30, 1999 (See
Note 8).

Dividends
are payable to the holders of the Series B and Series C Preferred Stock at the annual rate per share of 6%, respectively, times the sum of $1,000 and accrued but
unpaid dividends. For the Series B Preferred Stock, dividends are payable semi-annually on April 30 and October 31. For the Series C Preferred Stock, dividends
are payable semi-annually on March 31 and September 30. These dividends are payable when and if declared by the Board of Directors out of funds legally available therefor.

Holders
of shares of convertible preferred stock shall be entitled to receive the stated liquidation value of $1,000 per share, plus an amount per share equal to any dividends accrued
but unpaid without interest, in the event of any liquidation or dissolution of the Company. After payment of the full amount of the liquidation preference, holders of shares of convertible preferred
stock will not be entitled to any further participation in any distribution of assets of the Company.

Holders
of shares of the Series B and Series C Preferred Stock will have the right, at such holder's option, at any time following a Triggering Event (as defined), to
convert all or a portion of such shares into the Company's common stock, excluding accrued dividends, at the conversion price of $5.00 per share for the Series B and $0.75 per share for the
Series C, respectively, subject to adjustments pursuant to certain anti-dilution provisions. The Board of Directors established the conversion price on the Series C Preferred
Stock at a premium to fair market value on the date of issuance.

The
holders of shares of convertible preferred shall not be entitled to any voting rights. However, without the consent of the holders of at least 51% of the outstanding shares of
convertible preferred stock, the Company may not amend its Certificate of Incorporation in any way that would adversely alter or change the powers, preferences or special rights of the convertible
preferred stock.

The
Series B Preferred Stock and Series C Preferred Stock, which rank on a parity with each other, rank junior to the Series A Preferred Stock in terms of dividend
payments and liquidation preferences.

F-15

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8.    Common Stock



The Company and its stockholders are party to a Shareholders Agreement. Among other provisions, the Shareholders Agreement contains a provision regarding
subscription rights. This provision provides that the Company is not permitted to issue equity securities, or securities convertible into equity securities, to any person unless the Company has
offered to issue to each of the other stockholders party to the agreement, on a pro rata basis, an opportunity to purchase such securities on the same terms, including price, and subject to the same
conditions as those applicable to such person.



On June 5, 2000, the Company's Board of Directors effected a two-for-one common stock split in the form of a stock dividend and
increased the number of shares authorized from 5,000,000 to 15,000,000. As a result of this action, 2,300,000 shares were issued to shareholders of record on June 5, 2000. The accompanying
consolidated financial statements and related financial information contained herein have been restated to give effect for the stock split.



At December 30, 2000 and December 29, 2001, the holders of Series A Preferred Stock held warrants to purchase an aggregate of 707,488 shares
of common stock at an exercise price of $2.50 per share. The exercise price and number of warrant shares are both subject to adjustment in certain events.

9.    Derivative Financial Instruments



The Company has had only limited involvement in derivative financial instruments in the past. The Company does not hold or issue derivative financial instruments
for trading purposes. At December 29, 2001, $13,798,000 of outstanding borrowings under the Company's credit facility, including letters of credit, were at variable interest rates. The Company
is subject to market risk resulting from interest rate fluctuations with respect to its variable-rate borrowings. The Company has previously entered into an interest rate swap arrangement,
which matured in June 2001, and may consider entering into such arrangements in the future in order to alter interest rate exposures. In general, interest rate swaps allow a company to raise
long-term borrowings at floating rates and effectively swap them into fixed rates that are lower than those available if fixed-rate borrowings were made directly. Under
interest rate swaps, a company agrees with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate amounts calculated by
reference to an agreed notional principal amount. At December 29, 2001, none of the Company's debt was covered by swap arrangements. The Company has included settlement income of $48,609 and
settlement expense of $7,238, respectively, in interest expense, net, in its consolidated statements of operations for the years ended December 30, 2000 and December 29, 2001.

10.  Stock-Based Compensation



On July 15, 1998, the Company adopted the 1998 Stock Option Plan (the "Option Plan"), which provided for the issuance of up to 530,748 shares of common
stock pursuant to awards granted under the Option Plan. In March 1999, the Company amended its Stock Option Plan to provide for the issuance of up to 1,164,082 shares of common stock under the
Option Plan. All options have been granted at fair value, or at a premium thereof, on the date of grant, as determined by the Board of

F-16

---

Directors. Options vest ratably over three or four years and generally expire on the tenth anniversary of the date of grant. The stock option grants in 1999, 2000 and 2001 were made at a premium to
the fair value on the date of grant. The options outstanding reflected in the table below have a weighted-
average remaining contractual life of 7.22 years. Option activity for the years ended January 1, 2000, December 30, 2000 and December 29, 2001 is summarized as follows:

Number of
Shares

Weighted Average
Exercise PriceOutstanding as of January 2, 1999

509,500

$
7.50Granted

410,200


2.75Exercised




Forfeited

(41,500
)

7.50Outstanding as of January 1, 2000

878,200

$
5.28Granted

150,500


5.35Exercised

(1,533
)

5.85Forfeited

(34,167
)

5.29Outstanding as of December 30, 2000

993,000

$
5.29Granted

32,800


5.35Exercised

(900
)

5.35Forfeited

(128,100
)

5.30Outstanding as of December 29, 2001

896,800

$
5.30Exercisable as of December 29, 2001

824,950

$
5.27


The
Company has adopted only the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," pertaining to disclosure. The following amounts are shown for disclosure
purposes only, and may not be representative of future calculations since additional options may be granted in future years. If the Company had recognized compensation cost for stock-based employee
compensation in accordance with the provisions of SFAS No. 123, the Company's net loss would have increased by approximately $395,000 for the year ended January 1, 2000, $365,000 for the
year ended December 30, 2000 and zero for the year ended December 29, 2001. The fair value of these options was estimated at the date of grant using an option-pricing model with the
following weighted-average assumptions for the above periods: expected volatility of 0%; risk-free interest rate of 5.48%, 5.76% and a range of 4.60% to 5.42% for the years ended
January 1, 2000, December 30, 2000 and December 29, 2001, respectively; expected option life of 10 years; and no dividend yield.

F-17

---

11.  Income Taxes

The provision (benefit) for income taxes consists of the following (in thousands):

Fiscal Year EndedJan. 1, 2000

Dec. 30, 2000

Dec. 29, 2001CurrentFederal

$
(493
)
$
60


State


(43
)

10


(536
)

70


DeferredFederal








776State








673





1,449Provision (benefit) for income taxes

$
(536
)
$
70

$
1,449


The
provision (benefit) for income taxes reconciles to the amounts computed by applying the Federal statutory rate to income (loss) before taxes as follows (dollars in thousands):

|                                                             |  | Year Ended
January 1, 2000 |    | Year Ended
December 30, 2000 |        | Year Ended
December 29, 2001 |       
|------------------------------------------------------------ |  | -------------------------- | -- | ---------------------------- | ------ | ---------------------------- | ------
|Computed statutory tax                                       |  | (34.00                     | )% | $                            | (1,604 | )                            | (34.00
|State income taxes, net of federal benefit                   |  | (3.00                      | )% |                              | (142   | )                            | (6.00 
|Permanent differences from amortization of intangible assets |  | 20.20                      | %  |                              | 953    |                              | 27.90 
|Increase in valuation allowance                              |  | 7.60                       | %  |                              | 357    |                              | 17.10 
|Other                                                        |  |                           |    |                              |       |                              |      
|R&D credits                                                  |  | (2.10                      | )% |                              | (100   | )                            | (3.00 
|                                                             |  |                            |    |                              |        |                              |       
|Provision (benefit) for income taxes                         |  | (11.30                     | )% | $                            | (536   | )                            | 2.00  
|                                                             |  |                            |    |                              |        |                              |       

The
tax effects of temporary differences that give rise to significant portions of the net deferred tax assets are as follows (in thousands):

December 30, 2000

December 29, 2001Current deferred taxesSection 163(j) interest carryforwards

$
440

$
440Accrued expenses


349


471Other


167


708Less Valuation Allowance


(341
)

(1,619
)Total current deferred taxes


615


Noncurrent deferred taxesDepreciation and UNICAP


288


270Inventory


609


708Other


527


3,183Less: Valuation allowance


(590
)

(4,161
)Total non-current deferred taxes


834


$
1,449

$



F-18

---

During
2001, management determined that as a result of projected losses, realization of the deferred tax assets was uncertain. Thus, the Company has recorded a full valuation allowance
against the deferred tax assets. As of December 29, 2001, the Company had a federal income tax net operating loss carryforward of $5.8 million which will begin to expire in 2006 for
federal income tax purposes.

12.  Commitments and Contingencies



The Company is subject to various claims as a result of its ongoing business activities. Management believes that the outcome of any such claims will not have a
material adverse effect on the Company's financial position or results of operations.



The Company leases its facilities and certain equipment under non-cancelable operating leases that expire through 2005. The Company's primary facility
lease expires in 2002 and contains an option to extend the lease for two additional five-year periods. Rent expense under operating leases amounted to $1,299,000 for the year ended
January 1, 2000, $1,488,000 for the year ended December 30, 2000 and $1,660,000 for the year ended December 29, 2001.

Minimum
future lease payments as of December 29, 2001 under operating leases are as follows (in thousands):

Year

Operating Leases2002

$
1,2792003


2022004


1302005


107Total

$
1,718




The Company sub-leases certain of its office space for approximately $7,700 per month under a sublease expiring in July 2002. Future income
expected under the sublease is approximately $50,000.

13.  Incentive Compensation Arrangements

The Company instituted an employee bonus program in 1996 under which all non-management employees are paid bonuses based on the achievement of certain
performance criteria, as defined in the bonus program. The Company incurred expenses of $293,000 for the year ended January 1, 2000, $521,000 for the year ended December 30, 2000 and
$28,000, for the year ended December 29, 2001 under this compensation arrangement.

The
Company has a management incentive program under which management-level employees are paid incentives based on the achievement of certain performance criteria. The Company incurred
expenses of $409,000 for the year ended January 1, 2000 and $470,000 for the year ended December 30, 2000 under this compensation arrangement. There was no expense associated with this
program for the year ended December 29, 2001.

The
Company also maintains a defined contribution 401(k) plan (the "Plan") for all of its employees. Those employees who participate in the Plan are entitled to make contributions of up
to 15 percent of their compensation, limited by IRS statutory contribution limits. In addition to employee contributions, the Company also contributes to the Plan by matching 40 percent
of employee

F-19

---

contributions up to the first six percent of contributions. Amounts contributed to the Plan by the Company were $251,000 for the year ended January 1, 2000, $304,000 for the year ended
December 30, 2000 and $285,000 for the year ended December 29, 2001.

The
Company has entered into employment agreements with certain of its officers and executives that provide for stipulated annual salary payments. Termination of the agreements may occur
by either party upon 30 days prior written notice or in the event of death or permanent disability. The agreements contain certain payment provisions in the event the employee is terminated due
to permanent disability or in the event of death, conviction of a crime, or material breach or failure to perform obligations under the agreements.

14.  Related Party Transaction

In February 1998, the Company entered into a Management Agreement with J.F. Lehman & Company ("Lehman"), an affiliate of the Company's principal
shareholder (the "Management Agreement"). Under the terms of the Management Agreement, the Company paid Lehman a $425,000 transaction fee in connection with the Power Ten acquisition and is obligated
to pay Lehman a $500,000 annual management fee in advance on a semi-annual basis. In September 1998, the Company and Lehman amended the Management Agreement and concurrently entered
into a Management Services Agreement with the affiliate, the combined effect of which was to further delineate the management services to be provided by the affiliate and to reduce the term of the
Management Agreement from ten years to five years. Management fees expense under the Management Agreement, Management Services Agreement and previous management agreements were $500,000 for the years
ended January 1, 2000, December 30, 2000 and December 29, 2001. Recent amendments to the Company's Credit Agreement preclude the Company from paying any management fees to Lehman
for services rendered during the period that Bankers Trust is waiving events of default by the Company. However, Lehman continues to provide such services to the Company.

Racal
Instruments, a significant customer of the Company, was acquired on November 2, 2001 by a group of investors that includes affiliates of the Company's largest shareholder.
In addition, certain members of the Company's board of directors are also members of Racal's board of directors. As a result, Racal is considered a related party. Sales by the Company to Racal were
approximately $803,000, $4,977,000 and $1,984,000 during Fiscal 1999, Fiscal 2000 and Fiscal 2001, respectively.

15.  Power Ten Consolidation

In July 2001, the Company decided to move its Power Ten operations from Northern California to its San Diego facilities. In connection with the move, the
Company has incurred expenses totaling $1,002,000 in Fiscal 2001 consisting of lease abandonment costs of $413,000, severance costs of $229,000, fixed asset disposals of $162,000, travel costs of
$104,000 and other costs totaling $94,000.

As
of December 29, 2001, the Company had accrued expenses relating to the consolidation of Power Ten's operations with Elgar's totaling $350,000, of which $299,000 was for lease
abandonment costs and $51,000 for severance. These accrued expenses are expected to be paid by July 2002 when the lease on the Power Ten facility expires.

Power
Ten was merged with and into Elgar Electronics Corporation effective January 1, 2002, as the Power Ten legal entity was no longer required due to the consolidation of Power
Ten's operations with Elgar's in San Diego.

F-20

---



VALUATION AND QUALIFYING ACCOUNTS        ELGAR HOLDINGS, INC.        (in thousands)

Description

Balance at
Beginning of
Period

Additions Charged
to Costs and
Expenses

(a) Deductions

Balance at End
of PeriodAllowance for doubtful accounts (deducted from accounts receivable)Year ended December 29, 2001

$
163

$
77

$
(36
)
$
204Year ended December 30, 2000


152


21


(10
)

163Year ended January 1, 2000


171


3


(22
)

152


---

S-1

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this Report to be signed on
their behalf by the undersigned, thereunto duly authorized in the City of San Diego, State of California on the 28th day of March, 2002.

| |  | ELGAR HOLDINGS, INC.
ELGAR ELECTRONICS CORPORATION
| |  | --------------------------------------------------
| |  | By:                                               
| |  | By:                                               
| |  |                                                   
| |  |                                                   

|Signature                                       |  | Title                                                                                                      |  | Date          
|----------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------------
|                                                |  |                                                                                                            |  |               
|/s/KENNETH R. KILPATRICKKenneth R. Kilpatrick   |  | Director, President and Chief Executive Officer (Principal Executive Officer)                              |  | March 28, 2002
|/s/CHRISTOPHER W. KELFORDChristopher W. Kelford |  | Vice PresidentFinance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |  | March 28, 2002
|/s/JOHN F. LEHMANJohn F. Lehman                 |  | Director                                                                                                   |  | March 28, 2002
|/s/DONALD GLICKMANDonald Glickman               |  | Director and Vice President                                                                                |  | March 28, 2002
|/s/GEORGE SAWYERGeorge Sawyer                   |  | Director                                                                                                   |  | March 28, 2002
|/s/STEPHEN L. BROOKSStephen L. Brooks           |  | Director and Secretary                                                                                     |  | March 28, 2002
|                                                |  |                                                                                                            |  |               

---

|/s/OLIVER C. BOILEAU, JR.Oliver C. Boileau, Jr. |  | Director |  | March 28, 2002
|----------------------------------------------- |  | -------- |  | --------------
|/s/THOMAS G. POWNALLThomas G. Pownall           |  | Director |  | March 28, 2002
|/s/WILLIAM PAULWilliam Paul                     |  | Director |  | March 28, 2002
|/s/JOSEPH A. STROUDJoseph A. Stroud             |  | Director |  | March 28, 2002
|/s/GEORGE SAWYERGeorge Sawyer                   |  | Director |  | March 28, 2002
|/s/BRUCE D. GORCHOWBruce D. Gorchow             |  | Director |  | March 28, 2002
|/s/TIG H. KREKELTig H. Krekel                   |  | Director |  | March 28, 2002

---

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