SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: APRIL 1, 2001
[ ]		TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________


		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JULY 1, 2001









		TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________

Commission file number: 0-23332

EFTC CORPORATION
(Exact name of registrant as specified in its charter)

Colorado		84-0854616
(State or other jurisdiction of		(IRS Employer
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
incorporation or organization)		Identification No.)

2501 West Grandview Road Phoenix, Arizona 85023 ~~(Address of principal executive offices)~~

(~~602) 789-6600 (Issuer’s~~Address ~~telephone~~of ~~number~~principal executive offices)

~~Not Applicable~~ (~~Former name, former address and former fiscal year, if changed since last report~~602) 789-6600

~~Indicate by check mark whether the registrant~~ (~~1) has~~Issuer’s ~~filed~~telephone ~~all reports required to be filed by section 13 or 15 (d~~number) 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. [X] Yes [ ] No

~~State~~Not ~~the number of shares outstanding of each of the issuer’s classes of~~Applicable ~~common equity, as of the latest practicable date.~~

Common Stock, par value $0.01		15,983,989 shares
(Class of Common Stock)		(Outstanding at April 30, 2001)

(Former name, former address and former fiscal year, if changed since last report)

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 (BOX) No

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.


Common Stock, par value $0.01		48,246,832 shares

(Class of Common Stock)		(Outstanding at July 31, 2001)

TABLE OF CONTENTS

Part I. Financial Information
~~Item 1. Unaudited Financial Statements~~	Item 1. Unaudited Financial Statements
	Consolidated Balance Sheets-December 31, 2000 and April 1, 2001
		CONSOLIDATED BALANCE SHEETS
	Consolidated Statements of Operations- Quarter Ended March 31, 2000 and April 1, 2001
		CONSOLIDATED STATEMENTS OF OPERATIONS
	Consolidated Statements of Cash Flows-Quarter Ended March 31, 2000 and April 1, 2001
		CONSOLIDATED STATEMENTS OF CASH FLOWS
	Notes to Consolidated Financial Statements
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	~~General~~	General
	~~Merger Agreement~~	Merger Agreement
	~~Results of Operations~~	Results of Operations
	Liquidity and Capital Resources
		Impact of Recently Issued Accounting Standards
	Special Note Regarding Forward-Looking Statements
		Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosures about Market Risk
		Special Note Regarding Forward-Looking Statements
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
~~Item 1. Legal Proceedings~~	Item 1. Legal Proceedings
~~Item 2. Changes in Securities and Use of Proceeds~~	Item 2. Changes in Securities and Use of Proceeds
~~Item 3. Defaults Upon Senior Securities~~	Item 3. Defaults Upon Senior Securities
~~Item 4. Submission Of Matters To A Vote Of Security Holders~~	Item 4. Submission Of Matters To A Vote Of Security Holders
~~Item 5. Other Information~~	Item 5. Other Information
~~Item 6. Exhibits and Reports on Form 8-K~~	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-10.25
EXHIBIT INDEX
EX-4.4.3

EFTC CORPORATION

FORM 10-Q

INDEX

			Page	~~Page~~
				Number(s)
PART I. FINANCIAL INFORMATION			Number(s)
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Item 1		Unaudited Financial Statements
	Consolidated Balance Sheets- December 31, 2000 and July 1, 2001			3-4
		Consolidated Balance Sheets-
	Consolidated Statements of Operations- For the Quarters and the Six Months Ended June 30, 2000 and July 1, 2001			5
		December 31, 2000 and April 1, 2001		3-4
	Consolidated Statements of Cash Flows- For the Six months Ended June 30, 2000 and July 1, 2001			6-7
		Consolidated Statements of Operations-
	Notes to Consolidated Financial Statements			8-12
		Quarter Ended March 31, 2000 and April 1, 2001		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Consolidated Statements of Cash Flows-
	General			13
		Quarter Ended March 31, 2000 and April 1, 2001		6-7
	Merger Agreement			13
		Notes to Consolidated Financial Statements		8-9
	Results of Operations			14-18
Item 2		Management's Discussion and Analysis of Financial
	Impact of Recently Issued Accounting Standards			18-19
		Condition and Results of Operations
	Liquidity and Capital Resources			19-20
		General		10
	Special Note Regarding Forward-looking Statements			20-21
		Merger Agreement		10
Item 3. Quantitative and Qualitative Disclosures about Market Risk				21
		Results of Operations		11-12
PART II. OTHER INFORMATION
		Liquidity and Capital Resources		13-14
Item 1. Legal Proceedings				22
		Special Note Regarding Forward-looking Statements		14
Item 2. Changes in Securities and Use of Proceeds				22
Item 3		Quantitative and Qualitative Disclosures about Market Risk		15
Item 3. Defaults Upon Senior Securities				22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders				22
Item 1		Legal Proceedings		15
Item 5. Other Information				22
Item 2		Changes in Securities		15
Item 6. Exhibits and Reports on Form 8-K				22
Item 3		Defaults Upon Senior Securities		15
SIGNATURES				23
Item 4		Submission of Matters to a Vote of Security Holders		15
Item 5		Other Information		15-16
Item 6		Exhibits and Reports on Form 8-K		16
SIGNATURES				17

Part I. Financial Information Item 1. Unaudited Financial Statements

~~Item~~EFTC 1.CORPORATION ~~Unaudited~~AND ~~Financial~~SUBSIDIARIES CONSOLIDATED ~~Statements~~BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts)

EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)


				December 31,			July 1,
ASSETS				2000			2001

Current Assets:




	Cash and equivalents			$	43		$	19




	Trade receivables, net of allowance for doubtful accounts of $1,671 and $2,584, respectively				42,270			26,039




	Receivable from sale of assets				500			75




	Inventories, net				82,220			78,094




	Prepaid expenses and other				1,380			1,747

			Total Current Assets		126,413			105,974

Property, Plant and Equipment, at cost:




	Leasehold improvements				4,249			4,329




	Buildings and improvements				2,127			2,124




	Manufacturing machinery and equipment				15,432			15,192




	Furniture, computer equipment and software				13,149			15,385

		Total			34,957			37,030




	Less accumulated depreciation and amortization				(14,581	)		(16,729	)

			Net Property, Plant and Equipment		20,376			20,301

Intangible and Other Assets:




	Goodwill, net of accumulated amortization of $1,025 and $1,159, respectively				6,997			6,863




	Intellectual property, net of accumulated amortization of $2,403 and $2,611, respectively				2,585			2,051




	Debt issuance costs, net of accumulated amortization of $811 and $156, respectively				2,470			545




	Deposits and other				731			746

			Total Intangible and Other Assets		12,783			10,205

				$	159,572		$	136,480

				December 31,			April 1,
				2000			2001
			ASSETS
Current Assets:
	Cash and equivalents			$	43		$	61
	Trade receivables, net of allowance for doubtful accounts of $1,671 and $2,228, respectively				42,270			33,613
	Receivable from sale of assets				500			—
	Inventories, net				82,220			81,504
	Prepaid expenses and other				1,380			2,140
			Total Current Assets		126,413			117,318
Property, Plant and Equipment, at cost:
	Leasehold improvements				4,249			4,256
	Buildings and improvements				2,127			2,158
	Manufacturing machinery and equipment				15,432			15,294
	Furniture, computer equipment and software				13,149			13,480
		Total			34,957			35,188
	Less accumulated depreciation and amortization				(14,581	)		(15,907	)
			Net Property, Plant and Equipment		20,376			19,281
Intangible and Other Assets:
	Goodwill, net of accumulated amortization of $1,025 and $1,092, respectively				6,997			6,930
	Intellectual property, net of accumulated amortization of $2,403 and $2,507, respectively				2,585			2,481
	Debt issuance costs, net of accumulated amortization of $811 and $969, respectively				2,470			2,312
	Deposits and other				731			727
			Total Intangible and Other Assets		12,783			12,450
				$	159,572		$	149,049

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

~~The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.~~3

3 Table of Contents

~~Table~~EFTC ofCORPORATION ~~Contents~~AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (Dollars in Thousands, Except Per Share Amounts)

EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (Dollars in Thousands, Except Per Share Amounts)


				December 31,			July 1,
LIABILITIES AND SHAREHOLDERS' EQUITY				2000			2001

Current Liabilities:




	Accounts payable			$	39,944		$	32,001




	Outstanding checks in excess of cash balances				5,471			10,307




	Accrued compensation and benefits				7,463			7,847




	Other accrued liabilities				1,498			2,356

			Total Current Liabilities		54,376			52,511




Long-term Liabilities:




	Long-term debt, net of current maturities:




		Banks			28,559			1,963




		Convertible Notes, including accrued interest			59,093			—




		Related parties			3,000			—




	Other				339			148

			Total Liabilities		145,367			54,622

Shareholders’ Equity:




	Preferred stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 14,233 shares of Series B Convertible Preferred Stock at December 31, 2000				14,683			—




	Common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 15,933,489 and 48,226,832 shares, respectively				159			482




	Additional paid-in capital related to common stock				93,222			167,443




	Settlement obligation to issue 910,000 shares of common stock				2,303			2,303




	Deferred stock compensation cost				(280	)		(243	)




	Accumulated deficit				(95,882	)		(88,127	)

			Total Shareholders’ Equity		14,205			81,858

				$	159,572		$	136,480

			December 31,			April 1,
			2000			2001
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable		$	39,944		$	40,082
	Outstanding checks in excess of cash balances			5,471			10,272
	Accrued compensation and benefits			7,463			5,857
	Other accrued liabilities			1,498			2,163
		Total Current Liabilities		54,376			58,374
Long-term Liabilities:
	Long-term debt, net of current maturities:
		Banks		28,559			9,671
		Convertible Notes, including accrued interest		59,093			60,404
		Related parties		3,000			3,000
	Other			339			229
		Total Liabilities		145,367			131,678
Shareholders’ Equity:
	Preferred stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 14,233 shares of Series B Convertible Preferred Stock			14,683			15,009
	Common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 15,933,489 and 15,980,989 shares, respectively			159			160
	Additional paid-in capital related to common stock			93,222			93,033
	Settlement obligation to issue 910,000 shares of common stock			2,303			2,303
	Deferred stock compensation cost			(280	)		(262	)
	Accumulated deficit			(95,882	)		(92,872	)
		Total Shareholders’ Equity		14,205			17,371
			$	159,572		$	149,049

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

~~The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.~~4

4 Table of Contents

~~Table~~EFTC ofCORPORATION ~~Contents~~AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars In Thousands, Except Per Share Amounts)

EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars In Thousands, Except Per Share Amounts)


			For the Quarter Ended						For the Six Months Ended

			June 30,			July 1,			June 30,			July 1,
			2000			2001			2000			2001

Net Sales			$	75,944		$	97,839		$	139,470		$	205,325




Cost of Goods Sold				76,220			86,666			138,417			184,242

		Gross profit		(276	)		11,173			1,053			21,083




Operating Costs and Expenses:




	Selling, general and administrative expenses			8,232			4,527			13,080			9,461




	Recapitalization and merger transaction costs			5			996			4,879			996




	Impairment of furniture, computer equipment and software			1,662			—			1,662			—




	Goodwill amortization			67			67			134			134

		Total operating costs and expenses		9,966			5,590			19,755			10,591

		Operating income (loss)		(10,242	)		5,583			(18,702	)		10,492




Other Income (Expense):




	Interest expense			(2,780	)		(1,270	)		(4,388	)		(3,176	)




	Gain (loss) on sale of assets			(8	)		734			(10	)		738




	Other, net			2			3			(28	)		6

		Income (loss) before income taxes		(13,028	)		5,050			(23,128	)		8,060




Income Tax Expense				—			(305	)		—			(305	)

		Net income (loss)	$	(13,028	)	$	4,745		$	(23,128	)	$	7,755

Net Income (Loss) Applicable to Common Shareholders:




	Basic		$	(13,028	)	$	4,521		$	(23,128	)	$	7,205

	Diluted		$	(13,028	)	$	5,651		$	(23,128	)	$	9,972

Earnings (Loss) Per Share:




	Basic		$	(0.84	)	$	0.16		$	(1.49	)	$	0.32

	Diluted		$	(0.84	)	$	0.12		$	(1.49	)	$	0.21

Number of Shares Used for Computation:




	Basic			15,543,000			27,879,000			15,543,000			22,406,000

	Diluted			15,543,000			49,004,000			15,543,000			48,278,000

			For the Quarter Ended
			March 31,			April 1,
			2000			2001
Net Sales			$	63,526		$	107,486
Cost of Goods Sold				62,197			97,576
		Gross profit		1,329			9,910
Operating Costs and Expenses:
	Selling, general and administrative expenses			4,848			4,934
	Recapitalization transaction costs			4,874			—
	Goodwill amortization			67			67
		Total operating costs and expenses		9,789			5,001
		Operating income (loss)		(8,460	)		4,909
Other Income (Expense):
	Interest expense			(1,608	)		(1,906	)
	Gain (loss) on sale of assets			(2	)		4
	Other, net			(30	)		3
		Income (loss) before income taxes		(10,100	)		3,010
Income Tax Benefit (Expense)				—			—
		Net income (loss)	$	(10,100	)	$	3,010
Net Income (Loss) Applicable to Common Shareholders:
	Basic		$	(10,100	)	$	2,665
	Diluted		$	(10,100	)	$	4,302
Net Income (Loss) Per Share Applicable to Common Shareholders:
	Basic		$	(0.65	)	$	0.16
	Diluted		$	(0.65	)	$	0.09
Number of Shares Used for Computation:
	Basic			15,543,000			16,872,000
	Diluted			15,543,000			47,977,000

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

~~The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.~~5

5 Table of Contents

~~Table~~EFTC ofCORPORATION ~~Contents~~AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)

EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)


					For the Six Months Ended

					June 30,			July 1,
					2000			2001

Cash Flows from Operating Activities:




	Net income (loss)				$	(23,128	)	$	7,755




	Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:




		Depreciation and amortization				4,057			3,068




		Amortization of debt issuance costs				625			290




		Impairment of property, plant and equipment				1,662			1,095




		Accrued interest on exchangeable and convertible notes				2,093			2,217




		Provision for excess and obsolete inventories				2,930			2,654




		Provision for doubtful accounts receivable				660			391




		Loss (gain) on sale of assets				10			(738	)




		Stock-based compensation and services expense				210			37




		Changes in operating assets and liabilities, net of effects of sale of business:




			Decrease (increase) in:




				Trade receivables		(8,950	)		15,840




				Inventories		(43,360	)		1,472




				Income taxes receivable		2,106			—




				Prepaid expenses and other		1,749			(371	)




			Increase (decrease) in:




				Accounts payable		1,200			(7,943	)




				Accrued compensation and benefits		472			384




				Other accrued liabilities		(1,205	)		667

				Net cash provided (used) by operating activities		(58,869	)		26,818

Cash Flows from Investing Activities:




	Proceeds from sale of assets					12,740			1,163




	Payment of commissions related to sale of business					(500	)		—




	Capital expenditures					(3,322	)		(3,431	)

				Net cash provided (used) by investing activities		8,918			(2,268	)

Cash Flows from Financing Activities:




	Proceeds from long-term debt					213,288			203,057




	Principal payments on long-term debt					(168,559	)		(232,653	)




	Payments for debt issuance costs					(2,712	)		—




	Increase in outstanding checks in excess of cash balances					7,527			4,836




	Proceeds from exercise of stock options					—			186

				Net cash provided (used) by financing activities		49,544			(24,574	)

				Net decrease in cash and equivalents		(407	)		(24	)




Cash and Equivalents:




	Beginning of period					716			43

	End of period				$	309		$	19

				For the Quarter Ended
				March 31,			April 1,
				2000			2001
Cash Flows from Operating Activities:
	Net income (loss)			$	(10,100	)	$	3,010
	Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
			Depreciation and amortization		1,700			1,501
			Amortization of debt issuance costs		474			158
			Impairment of property, plant and equipment		—			618
			Accrued interest on convertible notes		—			1,311
			Provision for excess and obsolete inventories		1,031			1,330
			Provision for doubtful accounts receivable		321			518
			Loss (gain) on sale of assets		2			(4	)
			Stock-based compensation and services expense		210			18
			Changes in operating assets and liabilities, net of effects of sale of business:
			Decrease (increase) in:
			Trade receivables		31			8,139
			Inventories		(25,934	)		(614	)
			Prepaid expenses and other		1,024			(688	)
			Increase (decrease) in:
			Accounts payable		4,491			138
			Accrued compensation and benefits		(1,054	)		(1,606	)
			Other accrued liabilities		5,925			555
			Net cash provided (used) by operating activities		(21,879	)		14,384
Cash Flows from Investing Activities:
		Proceeds from sale of assets			12,740			504
		Payment of commissions related to sale of business			(100	)		—
		Capital expenditures			(1,170	)		(919	)
			Net cash provided (used) by investing activities		11,470			(415	)
Cash Flows from Financing Activities:
		Proceeds from long-term debt			121,861			100,885
		Principal payments on long-term debt			(108,184	)		(119,773	)
		Payments for debt issuance costs			(165	)		—
		Increase in outstanding checks in excess of cash balances			—			4,801
		Proceeds from exercise of stock options			—			136
			Net cash provided (used) by financing activities		13,512			(13,951	)
			Net increase in cash and equivalents		3,103			18
Cash and Equivalents:
		Beginning of period			716			43
		End of period		$	3,819		$	61

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

~~The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.~~6

6 Table of Contents

~~Table~~EFTC ofCORPORATION ~~Contents~~AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (Dollars in Thousands)

EFTC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (Dollars in Thousands)


		For the Six Months Ended

		June 30,		July 1,
		2000		2001

Supplemental Disclosure of Cash Flow Information:




	Cash paid for interest	$	1,906	$	744

	Cash received (paid) for income taxes	$	2,106	$	(100	)

Supplemental Schedule of Non-cash Investing and Financing Activities:




	Proceeds from sale of assets placed in escrow account	$	500	$	—

	Issuance of warrants to purchase common stock for debt issuance costs	$	326	$	—

	Issuance of 23,763,349 shares of common stock as a result of conversion of Convertible Notes	$	—	$	61,309

	Issuance of 8,462,994 shares of common stock as a result of conversion of Convertible Preferred Stock	$	—	$	15,233

			For the Quarter Ended
			March 31,		April 1,
			2000		2001
Supplemental Disclosure of Cash Flow Information:
		Cash paid for interest	$	1,416	$	512
		Cash paid (received) for income taxes	$	—	$	—
Supplemental Schedule of Non-cash Investing and
	Financing Activities:
		Proceeds from sale of assets placed in escrow account	$	500	$	—
		Issuance of warrants to purchase common stock for debt issuance costs	$	326	$	—

The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

~~The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.~~7

7 Table of Contents

~~Table~~EFTC ofCORPORATION ~~Contents~~AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts)

~~EFTC~~1. Basis ~~CORPORATION~~of ~~AND SUBSIDIARIES~~Presentation ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(Dollars in Thousands, Except Per Share Amounts)~~

Effective January 1, 2001, the Company changed its fiscal year from a calendar year to the Sunday closest to December 31. ~~Basis~~Similarly, the Company’s quarterly financial reporting ends on the Sunday closest to the last day of ~~Presentation~~each calendar quarter, which was July 1, 2001 for the second quarter of 2001. This change did not have a material effect on the comparability between the second quarter of fiscal 2000 and 2001.

~~Effective~~The ~~January 1,~~accompanying ~~2001,~~unaudited ~~the~~consolidated ~~Company~~financial ~~changed~~statements ~~its~~have ~~fiscal~~been ~~year~~prepared in ~~from~~accordance awith ~~calendar~~generally accepted accounting principles for interim ~~year~~financial toinformation ~~the~~and ~~Sunday~~in ~~closest~~conformity with the instructions to ~~December~~Form 3110-Q and Article 10 of Regulation S-X. ~~Similarly~~Accordingly, ~~the~~they ~~Company’s~~do ~~quarterly financial~~not ~~reporting~~include ~~ends~~all onof the information ~~Sunday~~and ~~closest~~footnotes torequired by generally accepted accounting principles for complete financial statements. In the ~~last~~opinion ~~day~~of management, all adjustments (consisting of ~~each~~normal ~~calendar~~recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter, ~~which~~and the ~~was~~six ~~April~~months ended July 1, 2001 are not necessarily indicative of the results that may be expected for the ~~first~~year ~~quarter~~ending ofDecember 30, 2001. ~~This~~The ~~change did~~unaudited ~~not~~consolidated ~~have~~financial astatements ~~material~~should ~~effect~~be onread in conjunction with the financial ~~comparability~~statements ~~between~~and notes thereto included in the ~~first~~Company’s ~~quarter~~Annual ofReport ~~fiscal~~on ~~2000~~Form 10-K ~~and~~for ~~2001~~the year ended December 31, 2000.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X2. Earnings ~~Accordingly,~~Per ~~they do not include all of the~~Share ~~information and footnotes required by generally accepted accounting principles~~ for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended April 1, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

2Basic Earnings Per Share excludes dilution for potential common shares and is computed by dividing net income or loss applicable to common shareholders by the weighted average number of common shares outstanding for the period. For the computation of Basic Earnings Per Share, accrued dividends on preferred stock are deducted to arrive at net income or loss applicable to common stockholders.

~~Basic Earnings Per Share excludes dilution for potential common shares and is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period.~~ Diluted Earnings Per Share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Basic and ~~diluted~~ Diluted Earnings Per Share are the same for ~~the~~all periods ~~quarter~~in ~~ended March 31,~~ 2000, as all potential common shares were antidilutive. For the quarter and the six months ended ~~April~~ July 1, 2001, ~~diluted~~Diluted Earnings ~~per~~Per Share gives effect to shares issuable ~~upon~~ prior to the May 31, 2001 conversion of the Company’s Convertible Notes and Convertible Preferred Stock, using the if-converted method. Under the if-converted method, it is assumed that conversion occurred at the beginning of the ~~quarter~~period, and that the Company would not have been required to incur interest and dividends on the Convertible Notes and Convertible Preferred Stock, respectively.

3.Presented ~~Inventories~~below is the calculation of Net Income Applicable to Common Shareholders used in the calculation of Diluted Earnings Per Share for the quarter and the six months ended July 1, 2001:

Inventories at December 31, 2000 and April 1, 2001 consist of the following:


		Quarter		Six Months

Net income		$	4,745	$	7,755




Interest on Convertible Debt			906		2,217

	Net Income Applicable to Common Stockholders	$	5,651	$	9,972

	2000		2001
Purchased parts and completed subassemblies	$	65,905	$	67,265
Work-in-process		14,284		12,250
Finished goods		2,031		1,989
	$	82,220	$	81,504

8 Table of Contents

~~Table~~EFTC ofCORPORATION ~~Contents~~AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts)

~~EFTC~~Presented ~~CORPORATION~~below ~~AND~~is ~~SUBSIDIARIES NOTES~~the TOcalculation ~~CONSOLIDATED~~of ~~FINANCIAL~~the ~~STATEMENTS (Dollars~~number of shares used in ~~Thousands,~~the calculation ~~Except~~of Diluted Earnings Per Share ~~Amounts)~~for the quarter and the six months ended July 1, 2001:

4. Restructuring and Sale of Assets


		Quarter		Six Months

Basic Weighted Average Shares Outstanding			27,879,000		22,406,000




Shares related to Convertible Debt before conversion			15,437,000		18,981,000




Shares related to Preferred Stock before conversion			5,498,000		6,760,000




Options and warrants			190,000		131,000

	Number of Shares Used in Computation		49,004,000		48,278,000

~~Since~~Stock ~~the~~options ~~fourth~~for ~~quarter~~approximately ~~of 1998~~1,700,000 ~~the~~shares ~~Company~~exercisable ~~has~~at ~~taken~~prices ~~actions~~ranging from $2.75 per share to ~~increase capacity~~$14.31 ~~utilization~~per ~~through~~share were outstanding during the ~~closure~~first six months of ~~facilities~~2001 ~~and~~but were not included in the ~~sale~~computation of ~~assets. The~~Diluted ~~aggregate~~Earnings ~~operating~~Per Share ~~results~~because ~~related~~the toexercise ~~these~~price ~~locations,~~of ~~derived~~the ~~from~~options ~~the Company’s~~was ~~divisional~~greater ~~accounting~~than ~~records~~the ~~(excluding~~average market ~~corporate~~price ~~costs,~~of ~~interest and~~the ~~income~~Company’s ~~taxes),~~common ~~for~~stock during the ~~first~~ quarter ofand ~~2000~~the ~~are~~six months ~~summarized~~ended asJuly 1, ~~follows:~~2001.

Net sales		$	14,510
Cost of goods sold			15,429
	Gross profit (loss)	$	(919	)
Selling, general and administrative expenses		$	(682	)

3. Inventories

~~Management~~Inventories ~~estimates~~at ~~that approximately $11~~December 31,~~000~~ of2000 ~~the~~and ~~net~~July 1, ~~sales~~2001 ~~shown~~consist ~~above relate to customers who have agreed to transition the manufacture~~ of ~~their products to other facilities operated by~~ the ~~Company. Following is a~~following: ~~description of each location that was impacted by a sale or restructuring~~ ~~during the first quarter of 2000.~~

Sale of Tucson Assets. In December 1999, the Company commenced negotiations with Honeywell International, Inc. for the sale of inventory and equipment at the Company’s facility located in Tucson, Arizona. On February 17, 2000, these assets were sold to Honeywell for a purchase price of $13,240.


	2000		2001

Purchased parts and completed subassemblies	$	65,905	$	62,174




Work-in-process		14,284		11,958




Finished goods		2,031		3,962

	$	82,220	$	78,094

~~Southeast Operations~~4. On Restructuring ~~September 30, 1999, the Company initiated a plan to consolidate~~ and ~~close~~Sale ~~its Southeast Operations in Fort Lauderdale, Florida. In connection with the restructuring, the Company recognized a charge~~ of ~~approximately~~ ~~$700 for severance costs related to approximately 200 employees~~Assets ~~who were terminated by April 2000. During the first quarter of 2000, the~~ Company recognized charges totaling $950 for retention bonuses, relocation costs and other closure activities. The closure was substantially complete by the end of the second quarter of 2000 and all severance and retention costs were paid in 2000.

5Beginning in the fourth quarter of 1998, the Company took actions to increase capacity utilization through the closure of facilities and the sale of assets. The ~~Debt~~aggregate ~~Financing~~operating results related to these locations, derived from the Company’s divisional accounting records (excluding corporate costs, interest and income taxes), for the quarter and the six months ended June 30, 2000 are summarized as follows:

At December 31, 2000 and April 1, 2001, long-term debt consisted of the following:


		For the Period Ended June 30, 2000

		Quarter			Six Months

Net sales		$	276		$	11,933




Cost of goods sold			996			13,968

	Gross profit (loss)	$	(720	)	$	(2,035	)

Selling, general and administrative expenses		$	(223	)	$	(820	)

		2000		2001
Senior Subordinated Convertible Notes, interest at 8.875%, due June 2006		$	59,093	$	60,404
Note payable to director, interest at 10%, unsecured, due March 2004			3,000		3,000
Note payable to bank under revolving line of credit, interest at the prime rate plus .5% (8.5% at April 1, 2001), collateralized by substantially all assets, due March 2003			28,559		9,671
	Total long-term debt	$	90,652	$	73,075

Management estimates that approximately $8,000 of the net sales shown above for the six-month period relate to customers who agreed to transition the manufacture of their products to other

~~Item~~facilities 2operated by the Company. ~~Management’s~~Following ~~Discussion~~is ~~and~~a ~~Analysis~~description of ~~Financial~~each ~~Condition~~location that ~~and~~was ~~Results~~impacted ofby ~~Operations~~a sale or restructuring during the first six months of 2000.

~~The~~Sale ~~information~~of ~~set~~Tucson ~~forth~~Assets. ~~below~~In ~~contains~~December ~~“forward-looking~~1999, ~~statements” within~~ the ~~meaning~~Company ofcommenced ~~the~~negotiations with ~~Private~~Honeywell ~~Securities~~International, ~~Litigation Reform Act~~Inc. ~~Such statements~~for ~~are~~the ~~subject~~sale toof ~~risks~~inventory and ~~uncertainties~~equipment ~~that~~at the ~~could~~Company’s ~~cause~~leased ~~actual results~~facility toin ~~differ~~Tucson, ~~materially~~Arizona. ~~from~~On ~~those~~February 17, ~~expressed~~2000, inthese assets ~~the~~were ~~statements.~~sold ~~See "—Special~~to ~~Note~~Honeywell ~~Regarding~~for ~~Forward-Looking~~a ~~Statements~~purchase price of $13,240.”

~~General~~Southeast Operations. In September 1999, the Company initiated a plan to consolidate and close its Southeast Operations in Fort Lauderdale, Florida. In connection with the restructuring, the Company recognized a charge of approximately $700 for severance costs related to approximately 200 employees who were terminated in the second quarter of 2000. During the first quarter of 2000, the Company recognized charges totaling $950 for retention bonuses, relocation costs and other closure activities. During the second quarter of 2000, the Company recognized additional charges of $1,186 related to operations, impairment of equipment and final closure activities. The closure was substantially complete by the end of the second quarter of 2000 and all severance and retention costs were paid as of June 30, 2000.

~~EFTC Corporation (the “Company”) is a provider of electronic manufacturing services to original equipment manufacturers~~5. Headquarters ~~The~~Relocation ~~Company focuses on high-mix solutions that target the aerospace, industrial controls~~ and ~~instrumentation, medical~~Change equipment, semiconductor capital equipment, networking and telecommunications equipment industries. The Company’s manufacturing services consist of assembling complex printed circuit boards (using both surface mount and pin-through-hole technologies), cables, electro-mechanical devices and finished products. High mix manufacturing involves processing printed circuit board assemblies in ~~small-lots (25-100 assemblies per production run) in a~~Estimates ~~flexible manufacturing environment.~~

~~The~~In ~~following~~July ~~discussion~~2000, ~~and~~the ~~analysis~~Company ~~provides~~announced ~~information~~plans ~~that~~to ~~EFTC’s management~~relocate ~~believes~~its iscorporate headquarters ~~relevant~~from Denver to anPhoenix. ~~assessment~~During ~~and~~the ~~understanding~~second quarter of ~~the~~2000, ~~Company’s~~management ~~results~~assessed the estimated useful lives of ~~operations~~the assets located in Denver and ~~financial~~determined ~~condition.~~that ~~This~~it ~~discussion should~~will not be ~~read~~practical into ~~conjunction~~utilize ~~with~~certain assets at the Phoenix ~~consolidated~~location. ~~financial~~In ~~statements~~June ~~and~~2000, the Company also reevaluated the carrying value ~~notes~~of ~~thereto~~intellectual ~~appearing~~property ~~elsewhere~~related ~~herein,~~to asa ~~well~~customer aswhose ~~with~~business ~~the~~will ~~consolidated~~be ~~financial~~transitioned ~~statements,~~to ~~notes~~a ~~thereto~~new location. The aggregate carrying value of the Denver assets and the ~~related~~intellectual ~~management’s~~property ~~discussion~~as ~~and~~of March 31, 2000 was $2,100. ~~analysis~~Accordingly, during the second quarter of ~~financial~~2000 ~~condition~~the ~~and~~estimated ~~results~~useful lives of these ~~operations~~assets ~~included~~were shortened to coincide with the expected period that the assets will continue to be used in the business. This change in estimate ~~Company’s~~resulted ~~Annual~~in ~~Report~~an onincrease ~~Form 10-K~~in ~~for~~depreciation and amortization expense of $711 ($.05 per share) during the ~~year~~second ~~ended~~quarter ~~December 31,~~of 2000.

~~Merger~~In ~~Agreement~~connection with the Denver headquarters relocation and other changes in management, during the second quarter of 2000 the Company incurred $1,771 for severance, moving costs, and recruiting fees for new management and employees.

As discussed in Part II, Item 5 of this Report, in May 2001 the Company signed a definitive merger agreement with K*TEC Electronics Holding Corporation, an electronic manufacturing services company based in Sugar Land, Texas6. Debt ~~K*TEC is controlled by an affiliate of Thayer-BLUM Funding, L.L.C., the~~Financing ~~Company’s principal shareholder. A special committee of independent directors~~ ~~negotiated terms of the merger agreement on behalf of the minority shareholders of EFTC.~~

~~Following~~ At ~~completion of the transaction~~December 31, ~~EFTC~~2000 and ~~K*TEC will be wholly owned subsidiaries of a newly formed holding company~~July 1, ~~whose common stock is expected to be traded on the Nasdaq National Market. In connection with the signing of the merger agreement~~2001, ~~Thayer~~long-~~BLUM~~term ~~Funding,~~debt ~~L.L.C.~~consisted ~~agreed to convert the Series B preferred stock and the senior convertible notes~~ of ~~EFTC into~~the ~~common stock on or before May 31, 2001.~~following:

The current directors of EFTC will serve as the directors of the holding company following the merger. Consummation of the proposed business combination is subject to a number of closing conditions, including approval by EFTC’s shareholders. Consequently, there can be no assurance that the business combination will be consummated. If the merger is consummated, management expects that it will be accounted for as a reorganization of entities under common control.


		2000		2001

Senior Subordinated Convertible Notes, interest at 8.875%, due June 2006		$	59,093	$	—




Note payable to director, interest at 10%, unsecured, due March 2004			3,000		—




Note payable to bank under revolving line of credit, interest at the prime rate plus .5% (7.25% at July 1, 2001), collateralized by substantially all assets, due March 2003			28,559		1,963





	Total long-term debt	$	90,652	$	1,963

~~Results~~In connection with the signing of ~~Operations~~the Merger Agreement discussed in Note 7, on May 31, 2001, the Senior Subordinated Convertible Notes with an aggregate principal and accrued interest balance of $61,309 were converted to 23,763,349 shares of the Company’s common stock. Unamortized debt issuance costs of $1,635 related to the Notes was charged to additional paid-in capital in connection with the conversion. In June 2001, the Company repaid the $3,000 note payable to one of its directors.

~~The Company’s results of operations are affected by several factors, primarily the level and timing of customer orders (especially orders from Honeywell)~~7. Merger ~~The level and timing of orders placed by a customer vary due to the~~Agreement ~~customer’s attempts to balance its inventory, changes in the customer’s~~ manufacturing strategy, and variation in demand for its products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on the Company’s quarterly results of operations. Other factors affecting the Company’s quarterly results of operations may include, among other things, the Company’s performance under the agreement with Honeywell, price competition, disposition of divisions and closure of operating units, the ability to obtain inventory from its suppliers on a timely basis, the Company’s level of experience in manufacturing a particular product, the degree of automation used in the assembly process, the efficiencies achieved by the Company through managing inventories and other assets, the timing of expenditures in anticipation of increased sales, and fluctuations in the cost of components or labor.

~~The~~On ~~following~~May 2, ~~table~~2001, ~~sets~~the ~~forth~~Company; ~~certain~~K*TEC ~~operating~~Electronics ~~data~~Holding Corporation, formerly known as K*TEC Electronics Corporation (“K*TEC”); Thayer-Blum Funding II, L.L.C. (“TBF II”); and Express EMS Corporation (“Parent”), a ~~percentage~~newly formed wholly owned subsidiary of the Company, entered into an Agreement and Plan of ~~net~~Merger ~~sales:~~(the “Merger Agreement”), providing for, among other things, the merger of two wholly owned subsidiaries of Parent with and into the Company and K*TEC, respectively. K*TEC is a privately held electronic manufacturing services company based in Sugar Land, Texas. K*TEC is 100% owned by TBF II, an affiliate of Thayer-BLUM Funding L.L.C. (“TBF”), the Company’s principal shareholder. TBF currently controls approximately 78% of the outstanding voting stock of the Company. A special committee comprised of the Company’s independent directors negotiated the terms of the Merger Agreement on behalf of the minority shareholders of the Company.

		For the Quarter Ended
		March 31,			April 1,
		2000			2001
Net sales			100.0	%		100.0	%
Cost of goods sold			97.9	%		90.8	%
	Gross profit		2.1	%		9.2	%
Selling, general and administrative			7.6	%		4.6	%
Recapitalization transaction costs			7.7	%		—
Goodwill amortization			0.1	%		0.1	%
	Operating income (loss)		(13.3	%)		4.5	%

On May 3, 2001, the parties to the Merger Agreement agreed to substitute TBF II as a party to the K*TEC Merger (as such term is defined in the Merger Agreement). Such substitution is reflected in the Amended and Restated Agreement and Plan of Merger dated as of May 3, 2001 by and among the Company, K*TEC, TBF II and Parent (the “Amended and Restated Merger Agreement”).

~~Net~~In ~~Sales. Net~~connection ~~sales~~with ~~for~~ the ~~first~~signing ~~quarter~~ of ~~2000~~the ~~were~~Merger ~~$63.5 million~~Agreement, the Company entered ~~compared~~into toa ~~$107.5 million~~stockholder inagreement, ~~the~~as ~~first~~amended ~~quarter~~(the of“Stockholder ~~2001~~Agreement”), ~~which~~with TBF, isTBF anII ~~increase of~~and ~~69.2%.~~Parent ~~Substantially~~that ~~all~~required ofTBF to convert the ~~increase~~Senior inSubordinated Convertible ~~revenue~~Notes ~~during~~and the ~~first quarter~~Series B preferred stock of ~~2001~~the ~~was~~Company ~~attributable~~held toby ~~increased~~TBF into ~~sales~~common ~~under~~stock ~~the~~on ~~Honeywell agreement~~or atbefore May 31, 2001. These conversions resulted in the issuance ~~Company’s~~of ~~Phoenix~~approximately ~~facility~~32.2 million ~~However,~~additional ~~this~~shares ~~increased~~of ~~revenue~~common stock to ~~was~~TBF, ~~offset~~which byincreased ~~the~~its ~~loss~~voting control of ~~revenue~~the Company from ~~the~~58% ~~Tucson~~to approximately ~~assets~~78%. ~~that~~Pursuant ~~were~~to ~~sold~~the ~~on February 17~~Stockholder Agreement, ~~2000~~TBF ~~and~~agreed ~~which~~to ~~contributed~~vote all ~~sales~~its shares of ~~approximately~~the ~~$4 million~~Company’s ~~in the~~common ~~first~~stock ~~quarter~~in favor of ~~2000~~the business combination.

~~Management~~Pursuant ~~expects~~to the ~~positive~~Amended ~~year~~and ~~over~~Restated ~~year~~Merger ~~trends~~Agreement, inParent ~~revenues~~is ~~and profits~~required to form ~~continue~~two innew ~~the~~wholly ~~second~~owned ~~quarter~~subsidiaries, ofwhich ~~2001~~will merge with and into EFTC and ~~due~~TBF toII, ~~the~~respectively. ~~addition~~Following completion of ~~new~~the ~~customers~~transactions, the Company and ~~improved~~TBF ~~operational~~II ~~execution. However~~will be wholly owned subsidiaries of Parent, ~~the~~whose ~~Company~~common stock is expected ~~experiencing~~to ~~order~~be ~~softness~~traded ~~from~~on ~~some~~the ofNasdaq ~~its~~National ~~customers~~Market. Based upon the Amended and ~~second~~Restated ~~quarter~~Merger ~~revenues~~Agreement’s ~~and~~exchange ~~profits~~ratios, ~~may~~it ~~decline~~is upexpected tothat ~~approximately~~the ~~15%~~owner ~~from~~of ~~first~~TBF ~~quarter~~II will receive approximately 55% of ~~2001~~Parent’s ~~results.~~capital ~~The~~stock, while the Company’s iscurrent ~~not~~shareholders ~~able~~will toreceive ~~provide~~approximately 45% of the shares. ~~guidance~~Following ~~beyond~~consummation of the ~~second~~proposed ~~quarter~~business ~~due~~combination, TBF and its affiliates are expected to ~~the~~own ~~uncertainty~~approximately in88% of the ~~markets~~outstanding ~~served~~capital bystock ~~many~~ of ~~its customers~~Parent.

~~Gross Profit. The Company had gross profit of 2.1% in the first quarter of~~11 ~~2000 compared to gross profit of 9.2% in the first quarter of 2001. The~~ improvement in gross profit during the first quarter of 2001 is primarily attributable to an overall improvement in capacity utilization at the Company’s facilities. This improvement was driven by changes initiated in 1999 and the first half of 2000 related to the closure of the Ft. Lauderdale facility and the sale of the assets of the Tucson facility. The Ft. Lauderdale and Tucson facilities generated a combined gross profit deficiency of $0.9 million during the first quarter of 2000.

11 Table of Contents

~~Table~~Consummation of ~~Contents~~the proposed business combination is subject to a number of closing conditions. Consequently, there can be no assurance that the business combination will be consummated. If the merger is consummated, management expects that it will be accounted for as a reorganization of entities under common control.

~~Gross~~During ~~profit for~~ the ~~first~~second quarter of ~~2000~~2001, ~~was~~the ~~also negatively~~Company ~~impacted~~incurred bytransaction costs of $~~0.8 million~~996 related to the ~~transition~~proposed ofmerger, ~~additional~~primarily related to a fairness opinion ~~manufacturing~~and ~~services~~professional ~~under~~fees. Since the ~~Honeywell~~merger ~~agreement~~will inbe ~~the~~accounted ~~first~~for ~~quarter~~as a reorganization of entities under common control, the transactions costs are ~~2000~~required to be charged to operations in the period incurred.

During the first quarter of 2001, the Company assessed certain long-lived assets for impairment related to the planned move to a new facility in the Northeast, and the abandonment of software that is no longer expected to be used8. Subsequent ~~Accordingly, the Company recognized impairment expense of $0.6 million~~Events ~~that is included in cost of goods sold in 2001.~~

~~Selling,~~In ~~General~~July ~~and Administrative Expenses. Selling~~2001, ~~general~~the ~~and administrative~~Company ~~expenses~~announced ~~(“SG~~plans &for ~~A”)~~a ~~increased~~reduction ~~1.8% to $4.9 million~~ in ~~the~~force ~~first~~at its ~~quarter~~Midwest ofplant. ~~2001~~The ~~compared~~Company expects to ~~$4.8 million~~terminate inapproximately ~~the~~175 ~~first~~employees ~~quarter of 2000. Despite~~and ~~the~~to ~~significant~~incur ~~increase~~severance inand ~~sales,~~retention SGcosts &of Aapproximately ~~expenses have remained stable~~$250, ~~primarily~~000 ~~due~~during to the third ~~elimination~~quarter of ~~costs~~2001. asThese acosts ~~result~~will ofbe ~~the~~recognized ~~closure~~as ofexpenses ~~the Denver headquarters~~ in the ~~fourth~~ third quarter ofsince ~~2000,~~the ~~and~~restructuring ~~$0.7 million~~plan ofwas SGnot &communicated ~~A eliminated~~to inemployees ~~connection with~~ until the ~~closure~~third ~~of the Ft~~quarter. ~~Lauderdale and Tucson~~ ~~facilities.~~

~~Recapitalization~~In ~~Transaction~~July ~~Costs~~2001, the Financial Accounting Standards Board issued Statement No. In 141, ~~connection~~Business ~~with~~Combinations ~~the~~and ~~March~~Statement No. ~~2000 recapitalization~~142, ~~the~~Goodwill ~~Company~~and ~~incurred~~Other ~~charges~~Intangible Assets. ~~totaling~~Statement $4No.9 ~~million~~141 ~~for~~requires that the purchase method of accounting be ~~financial~~used ~~advisor~~for ~~fees~~all business combinations initiated after June 30, a2001. ~~fee~~Statement 141 ~~paid~~also tospecifies ~~Thayer-BLUM~~criteria ~~Funding,~~that ~~and~~intangible ~~due~~assets ~~diligence~~acquired in a business ~~costs~~combination ~~for~~must ~~legal,~~meet ~~accounting~~to be recognized and ~~management~~reported ~~consultants~~apart from goodwill. Statement ~~The~~No. 142 ~~Company~~addresses ~~capitalized~~how intangible assets that are acquired ~~costs~~individually ~~associated~~or with ~~the~~a ~~Senior~~group ~~Subordinated~~of ~~Exchangeable~~other ~~Notes~~assets ~~and~~(but ~~the~~not ~~new~~those acquired in a ~~revolving~~business ~~credit~~combination) ~~agreement,~~should ~~and~~be ~~all~~accounted ~~other~~for ~~costs~~in ~~were~~financial ~~charged~~statements toupon their ~~operations~~acquisition. This Statement also addresses how goodwill and other ~~during~~intangible ~~the~~assets ~~first~~should ~~quarter~~be ofaccounted ~~2000~~for after they have been initially recognized in the financial statements.

~~Interest~~The ~~Expense. Interest~~provisions ~~expense~~of ~~increased~~Statement 18No.5% 141 apply to ~~$1.9 million~~all inbusiness ~~the~~combinations ~~first~~initiated ~~quarter~~after ofJune 30, 2001 ~~compared to $1~~.~~6 million~~ ~~in the same quarter of 2000.~~ The ~~increase~~ inprovisions ~~2001~~also ~~was~~apply ~~primarily attributable~~ to anall ~~increase in the Company’s~~business ~~weighted~~combinations ~~average~~accounted ~~borrowings~~for tousing ~~$78.6 million compared to $38.7 million in~~ the ~~first~~ ~~quarter~~purchase ofmethod ~~2000.~~for ~~The~~which ~~increased debt level in 2001 is attributable to~~ the ~~August 2000~~ ~~issuance~~date of ~~Convertible Notes that bear interest at 8.875%. The~~ ~~Convertible~~acquisition ~~Notes~~is ~~had an outstanding principal balance of $60.4~~July ~~million at April~~ 1, 2001. ~~During~~or ~~the first quarter of 2000, interest expense included $0~~later.4 ~~million of accelerated amortization of debt issuance costs in connection with~~ ~~amendments to the previous bank credit agreement.~~

~~Interest~~The ~~expense~~provisions ~~for~~of ~~the~~Statement ~~second~~No. 142 ~~quarter~~are ofrequired ~~2001~~to isbe ~~expected~~adopted toby ~~decrease~~the Company ~~from~~beginning in the first quarter ~~levels~~of ~~since~~2002. ~~Thayer-BLUM~~Goodwill ~~Funding,~~and ~~L.L.C.~~intangible ~~has~~assets ~~agreed to~~acquired ~~convert~~after ~~the Convertible Notes to common stock by May~~June 3130, 2001, aswould ~~one~~be ofsubject ~~the conditions~~to of the ~~Merger~~amortization ~~Agreement~~provisions ~~with K*TEC Electronics Holding Corporation, as discussed in Part II, Item 5~~ of this Statement ~~Report on Form 10-Q~~immediately.

~~Income~~The ~~Tax~~effect ~~Benefit. Due~~of tothese ~~significant~~Statements ~~net~~on ~~losses~~the inCompany ~~1999~~will ~~and~~be ~~2000,~~ the ~~Company~~ ~~recorded~~elimination aof ~~valuation~~the amortization ~~allowance~~of ~~for~~goodwill ~~all~~which ofis ~~its~~currently ~~net~~being ~~deferred~~amortized ~~tax~~over ~~assets.~~30 years and Anthe ~~income~~requirement ~~tax~~to ~~provision~~begin ~~was~~testing ~~not~~goodwill ~~recorded~~and ~~for~~other ~~the~~intangible ~~earnings~~assets ~~generated in the~~for ~~first~~impairment ~~quarter~~at ofleast ~~2001~~on asan ~~the~~annual ~~amount~~basis. ~~that~~Because ~~otherwise~~of ~~would~~the ~~have~~extensive ~~been~~effort ~~provided was~~needed ~~offset~~to bycomply awith ~~decrease in~~ the ~~valuation~~adoption ~~allowance for net deferred tax assets. Utilization~~ of ~~the~~Statements ~~Company’s~~141 ~~net~~and ~~operating~~142, ~~loss~~it ~~carryforwards~~ is ~~subject~~not tocurrently ~~limitation~~practicable asto aestimate ~~result~~the impact of ~~the~~adopting ~~change~~these inStatements ~~ownership~~on of the Company’s ~~that~~consolidated ~~occurred during~~financial ~~2000~~statements. ~~Accordingly,~~If ifsuch ~~the~~losses ~~Company~~are ~~continues~~required to ~~generate taxable earnings~~be inrecognized ~~future~~upon ~~periods,~~the ~~these~~initial ~~net~~application ~~operating~~of ~~losses~~these ~~may~~Statements, ~~not~~they would be accounted ~~sufficient~~for ~~to eliminate~~as the ~~Company’s~~cumulative ~~entire~~effect ~~current~~of ~~income~~a ~~tax~~change ~~liability~~in accounting principle.

~~Liquidity and Capital Resources~~12

TheTable Company’sof working capital at April 1, 2001 totaled $58.9 million compared to $72.0 million at December 31, 2000. At April 1, 2001, borrowings on the Company’s $45.0 million Contents

12Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Table~~The following discussion of ~~Contents~~our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes, and the other financial information included in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of specified factors, including those set forth in the section below entitled “Special Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q.

~~revolving credit facility were approximately~~General ~~$9.7 million and unused availability equaled approximately $35.3 million under~~ ~~the credit facility.~~

~~Cash~~ We ~~Flows~~are ~~from~~a ~~Operating~~provider ~~Activities. Net cash provided by operating activities for the first quarter~~ of ~~2001~~electronic ~~was~~manufacturing ~~$14.4 million,~~services ~~compared~~to ~~with net~~original ~~cash~~equipment ~~used~~manufacturers. inWe ~~operating~~focus ~~activities~~on ofhigh-mix ~~$21.9 million~~solutions inthat ~~the~~target ~~first quarter of~~the ~~2000.~~aerospace, ~~The~~industrial ~~difference~~controls ~~between~~and ~~the~~instrumentation, ~~Company’s~~medical ~~net~~equipment, semiconductor ~~income~~capital inequipment, ~~the~~networking ~~first~~and ~~quarter~~telecommunications ofequipment ~~2000 of $3~~industries.~~0 million~~ ~~and~~Our ~~its~~manufacturing ~~$14.4 million~~services ~~operating~~consist ~~cash~~of ~~flow~~assembling ~~was~~complex ~~primarily~~printed ~~attributable~~circuit toboards an(using ~~$8.1 million~~both ~~decrease~~surface inmount ~~trade~~and ~~receivables~~pin-through-hole technologies), cables, ~~$1.7 million~~electro-mechanical ~~of depreciation~~devices and ~~amortization~~finished ~~expense, a $1~~products.~~3 million~~ ~~provision for excess and~~High-mix ~~obsolete~~manufacturing ~~inventories,~~involves ~~and~~processing aprinted ~~$1.3 million~~circuit ~~increase~~board inassemblies ~~accrued interest on~~in ~~convertible~~small-lots ~~debt~~(typically, ~~partially~~25-100 ~~offset~~assemblies byper aproduction ~~decrease~~run) ~~of $1.6 million~~ in ~~accrued~~a flexible ~~compensation~~manufacturing ~~and benefits~~environment.

~~Days~~ The ~~Sales~~following ~~Outstanding~~discussion ~~(based~~and onanalysis ~~annualized~~provides ~~sales~~information ~~for~~that ~~the~~we ~~quarter and net~~believe ~~trade~~is ~~receivables~~relevant ~~outstanding~~to atan ~~the~~assessment ~~end~~and understanding of ~~the~~our ~~quarter)~~results ~~decreased~~of tooperations ~~29 days~~and ~~for~~financial ~~the~~condition. ~~first~~This ~~quarter~~discussion ofshould ~~2001,~~be ~~compared~~read toin ~~37 days~~conjunction ~~for~~with the consolidated ~~first~~financial ~~quarter~~statements ~~of 2000.~~and ~~Days~~notes ~~Sales~~thereto ~~Outstanding~~appearing ~~for~~elsewhere ~~the~~herein, as ~~first~~well ~~quarter~~as ofwith ~~2001~~the ~~were~~consolidated ~~affected favorably~~financial bystatements, anotes ~~new~~thereto ~~financing~~and ~~program~~the related ~~for~~management’s adiscussion ~~substantial~~and ~~portion~~analysis of ~~the~~financial ~~Company’s~~condition and results ~~receivables~~of ~~whereby~~operations ~~the~~included ~~receivables~~in ~~are~~our ~~generally~~Annual ~~collected~~Report inon 10Form ~~days~~10-K, ~~in exchange~~as amended, for athe year ~~discount~~ended ofDecember 31, 02000.~~5%.~~

~~Inventories~~Merger ~~decreased 0.9% to $81.5 million at April 1, 2001, compared to~~Agreement ~~$82.2 million at December 31, 2000. For the first quarter of 2001, inventory~~ ~~turns (i.e., annualized revenue divided by period end inventory) amounted to~~ 5.3 times per year. This compares to 3.6 times for the first quarter of 2000. During 2000, one of the Company’s biggest challenges involved financing the higher levels of inventories required to support increased sales at the Phoenix facility. During the last half of 1999 and much of 2000, these difficulties worsened because of industry-wide shortages of components that ultimately delayed shipment of finished goods to customers. By the fourth quarter of 2000, the component shortages had diminished and the Company had generally improved its inventory management practices, which contributed to improved inventory turns in 2001 compared to 2000.

~~Cash~~ As ~~Flows~~discussed ~~from~~in ~~Investing~~Note ~~Activities. Net~~7 ~~cash~~to ~~used~~the Financial Statements included in ~~investing~~Item 1 of ~~activities~~this Report, in ~~the~~May ~~first~~2001 ~~quarter~~we ofsigned ~~2001~~a ~~was~~definitive ~~$0.4 million~~merger ~~compared~~agreement with ~~net cash~~K*TEC ~~provided~~Electronics byHolding ~~investing~~Corporation, ~~activities~~an ofelectronic ~~$11.5 million~~manufacturing inservices ~~the first quarter of~~company ~~2000.~~based ~~The~~in ~~Company’s~~Sugar ~~investing~~Land, ~~cash~~Texas. ~~flows~~K*Tec inis ~~the~~controlled ~~first~~by ~~quarter~~an affiliate of ~~2001 reflect~~Thayer-BLUM $0Funding, L.~~9 million~~L.C., inour ~~capital~~principal ~~expenditures~~shareholder. ~~(primarily~~A ~~for~~special ~~new~~committee ~~manufacturing~~comprised of ~~equipment),~~our ~~partially~~independent ~~offset~~directors bynegotiated ~~$0.5 million~~the terms of ~~proceeds~~the ~~from~~merger ~~the~~agreement ~~sale~~on behalf of ~~assets~~ our minority shareholders.

~~The~~ Following ~~Company~~completion ~~recently~~of ~~entered~~the ~~into~~transaction, aEFTC ~~10-year~~and ~~operating~~K*TEC ~~lease~~will ~~that~~be ~~provides~~wholly ~~for~~owned ~~annual~~subsidiaries ~~payments~~ of ~~approximately $0.6 million for~~ a ~~new~~newly ~~manufacturing facility~~formed inholding ~~Lawrence~~company, ~~Massachusetts.~~whose ~~This~~common ~~facility~~stock ~~will replace the Company’s~~is ~~current~~expected ~~leased~~to ~~facility~~be intraded ~~Wilmington,~~on ~~Massachusetts that provided for annual payments of approximately $0.7 million. The Company anticipates that capital expenditures in~~ the ~~second~~Nasdaq ~~and~~National ~~third quarter of 2001 will include approximately $1~~Market.~~5 million~~ inIn ~~initial leasehold improvement costs in~~ connection with the ~~new~~ ~~facility.~~signing Inof ~~addition,~~ the ~~Company~~merger ~~expects~~agreement, toThayer-BLUM ~~incur~~Funding, ~~capital~~L.L.C. ~~expenditures~~converted ~~of up~~the ~~to $0.7~~Series ~~million~~B ~~during~~preferred ~~the~~stock ~~second~~and ~~quarter~~the ofSenior ~~2001~~Subordinated ~~for~~Convertible ~~the~~Notes ~~purchase~~into shares of ~~computer hardware,~~our ~~including~~common ~~servers,~~stock ~~routers, and switches,~~ in ~~connection~~May ~~with upgrading its management information systems at corporate headquarters~~2001.

13 Our current directors will serve as the directors of the holding company following the merger. Consummation of the proposed business combination is subject to a number of closing conditions. Consequently, there can be no assurance that the business combination will be consummated. If the merger is consummated, management expects that it will be accounted for as a reorganization of entities under common control.

~~Table of Contents~~13

CashTable Flows from Financing Activities. Net cash used in financing activities in the first quarter of 2001 was $14.0 million, compared with net cash provided by financing activities of $13.5 million in the first quarter of 2000. The Company’s financing cash flows in the first quarter of 2001 reflect a net reduction in borrowings under the Company’s revolving line of credit of $18.9 million, partially offset by a $4.8 million increase in outstanding checks in excess of cash balances. Contents

~~Management~~Results ~~believes the Company has adequate capital resources to fund working capital and other cash requirements during 2001. At April 1, 2001, the Company had unused availability~~ of ~~approximately $35.3 million under its~~Operations ~~revolving credit facility. However, depending on the timing and ability of the~~ ~~Company to improve operational performance, the Company may need to seek~~ ~~additional funds through public or private debt or equity offerings, bank borrowings or leasing arrangements.~~

~~Special~~ Our ~~Note~~results ~~Regarding~~of ~~Forward-Looking~~operations ~~Statements~~are affected by several factors, primarily the level and timing of customer orders (especially orders from Honeywell). The level and timing of orders placed by a customer vary due to the customer’s attempts to balance its inventory, changes in the customer’s manufacturing strategy, and variation in demand for its products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on our quarterly results of operations. Other factors affecting our quarterly results of operations may include, among other things, our performance under the agreement with Honeywell, price competition, disposition of divisions and closure of operating units, our ability to obtain inventory from our suppliers on a timely basis, our level of experience in manufacturing a particular product, the degree of automation used in the assembly process, the efficiencies we achieve through managing inventories and other assets, the timing of expenditures in anticipation of increased sales, and fluctuations in the cost of components or labor.

~~Certain~~ The ~~statements~~following intable ~~this~~sets ~~Report~~forth ~~constitute~~certain ~~“forward-looking~~operating ~~statements” within~~data ~~the~~as ~~meaning~~a ofpercentage ~~the federal securities laws. Additional written or oral~~of ~~forward-looking~~net statement may be made by the Company from time to time, in press releases, annual or quarterly reports to shareholders, filings with the Securities and Exchange Commission, presentations or otherwise. Such forward-looking statements may include, among other things, statements concerning the Company’s plans, objectives and future economic prospects, prospects for achieving cost savings, future capacity utilization, future sales~~, profitability and capital expenditures,~~: ~~the Company’s proposed merger with K*TEC Electronics Holding Corporation, and~~ ~~other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.~~

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of EFTC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the dependence on Honeywell; risks associated with EFTC’s acquisition strategy and integration of acquired companies; integration of management, information, operating and financial systems; control by the Company’s majority shareholder; new management team; diversion of management attention; and other factors detailed in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.


		Quarter Ended:						Six months ended:

		June 30,			July 1,			June 30,			July 1,
		2000			2001			2000			2001

Net sales			100.0	%		100.0	%		100.0	%		100.0	%




Cost of goods sold			100.4	%		88.6	%		99.2	%		89.7	%

	Gross profit		(0.4	%)		11.4	%		0.8	%		10.3	%




Selling, general and administrative			10.8	%		4.6	%		9.4	%		4.6	%




Recapitalization and merger costs			—			1.0	%		3.5	%		0.5	%




Impairment of furniture, computer equipment and software			2.2	%		—			1.2	%		—




Goodwill amortization			0.1	%		0.1	%		0.1	%		0.1	%

	Operating income (loss)		(13.5	%)		5.7	%		(13.4	%)		5.1	%

~~Readers~~ Quarter ~~are~~Ended ~~cautioned not to place undue reliance on any forward-looking statements contained herein~~June 30, ~~which~~2000 ~~speak~~Compared ~~only as of the date hereof. These statements reflect EFTC’s current expectations, and EFTC does not undertake~~ to ~~update~~ orQuarter ~~revise~~Ended ~~these forward-looking statements~~July 1, ~~even if experience or future~~2001 ~~changes make it clear that any projected results expressed or implied in this~~ ~~or other company statements will not be realized.~~

14 Net Sales. Net sales increased $21.9 million, or 28.8%, from $75.9 million for the quarter ended June 30, 2000 to $97.8 million for the quarter ended July 1, 2001. Approximately 50% of our net sales for the second quarter of 2000 related to manufacturing services for Honeywell at our Phoenix plant, compared to approximately 62% for the second quarter of 2001. Substantially all of the increase in net sales during the second quarter of 2001 was attributable to increased sales to Honeywell at our Phoenix plant. For the second quarter of 2001, the concentration of business with Honeywell accounted for 83% of our consolidated net sales.

~~Table~~ We estimate that net sales for the third quarter of ~~Contents~~2001 may decline up to approximately 15% from the net sales for the second quarter of 2001, due to overall order softness from our existing customers. We are not able to provide guidance beyond the third quarter of 2001 due to the uncertainty in the markets served by many of our customers.

~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~14

OnTable March 30, 2000, the Company entered into a $45 million revolving line of credit agreement with Bank of America, N.A. The interest rate under this agreement is based either on the prime rate or LIBOR rate, plus applicable margins. Therefore, as interest rates fluctuate, the Company may experience changes in interest expense that will impact financial results. The Company has not entered into any interest rate swap agreements, or similar instruments, to protect against the risk of interest rate fluctuations. Assuming outstanding borrowings of $45 million, if interest rates were to increase or decrease by 1%, the result would be an increase or decrease in annual interest expense of $450,000. Contents

~~PART~~ Gross IIProfit. ~~OTHER~~Our ~~INFORMATION~~gross profit increased by $11.5 million from a gross profit deficiency of $0.3 million in the second quarter of 2000 to a gross profit of $11.2 million in the second quarter of 2001. Similarly, gross profit as a percentage of net sales improved from a deficiency of 0.4% of net sales in the second quarter of 2000 to 11.4% of net sales in the second quarter of 2001. The improvement in gross profit during the second quarter of 2001 is primarily attributable to an overall improvement in capacity utilization at our facilities and more favorable product mix with our customers. The improvement in capacity utilization was driven by changes initiated in 1999 and the first six months of 2000, including the closure of our Ft. Lauderdale facility and the sale of the assets of our Tucson facility. The Ft. Lauderdale and Tucson facilities generated a combined gross profit deficiency of $0.7 million during the second quarter of 2000.

~~Item~~ During 1the second quarter of 2001, we assessed certain long-lived assets for impairment, due to changes in our customers and product mix. ~~Legal~~We ~~Proceedings~~assessed the carrying value of intellectual property costs and manufacturing equipment related to those customers and determined that an impairment charge of $0.4 million was required in the second quarter of 2001. Accordingly, this impairment charge is included in our cost of goods sold in 2001.

~~Not~~ Selling, ~~Applicable~~General and Administrative Expenses. Selling, general and administrative expenses (“SG & A”) decreased $3.7 million, or 45.0%, from $8.2 million in the second quarter of 2000 to $4.5 million in the second quarter of 2001. SG & A expenses for the quarter ended June 30, 2000 included $1.5 million for consulting services intended to accelerate operational improvement at each of our facilities. SG & A expenses for the second quarter of 2000 include a charge of $0.7 million for accelerated depreciation and amortization of assets that were not expected to be utilized after the 2000 relocation of our corporate headquarters to Phoenix. We also recognized charges of $1.8 million for severance, recruiting and other costs associated with changes in management during the second quarter of 2000. Finally, the results for the second quarter of 2000 include $0.2 million for SG & A at divisions that were sold or closed by the end of June 2000.

~~Item~~ After 2excluding all of the charges discussed above, SG & A expenses increased $0.5 million ~~Changes~~from $4.0 million for the second quarter of 2000 to $4.5 million in ~~Securities~~the ~~and~~second ~~Use~~quarter of ~~Proceeds~~2001. This increase in SG & A is primarily attributable to an increase in information technology services, professional fees, and compensation and benefits costs.

~~Not~~ Despite ~~Applicable.~~the significant increase in sales, SG & A expenses have increased at a slower pace, primarily due to the elimination of costs as a result of the closure of the Denver headquarters in the fourth quarter of 2000.

~~Item~~ Recapitalization 3and Merger Transaction Costs. ~~Defaults~~During ~~Upon~~2001, ~~Senior~~we ~~Securities~~incurred costs, primarily for a fairness opinion and professional fees, of $1.0 million related to our proposed merger with K*TEC Electronics Corporation. If this merger is consummated, it will be accounted for as a reorganization of entities under common control and, accordingly, these costs were charged to operations in the second quarter.

~~Not~~ Impairment ~~Applicable~~of Long-lived Assets. During the second quarter of 2000, we recognized an impairment charge of $1.7 million, including $1.3 million for software that we decided to abandon.

~~Item~~ Interest 4Expense. ~~Submission~~Interest Ofexpense ~~Matters~~decreased To$1.5 million, Aor ~~Vote~~54.3%, Offrom $2.8 million ~~Security~~in ~~Holders~~the second quarter of 2000 to $1.3 million in the second quarter of 2001. Our outstanding debt

~~Not Applicable.~~15

ItemTable 5.of Other InformationContents

On ~~May 2,~~has ~~2001,~~decreased ~~EFTC~~$87.2 million ~~Corporation~~from ~~(“EFTC”);~~$89.9 million ~~K*TEC~~at ~~Electronics Holding Corporation~~June 30, ~~formerly~~2000 ~~known~~to ~~as K*TEC Electronics Corporation (“K*TEC”);~~$2.0 ~~Thayer-BLUM~~million ~~Funding~~at IIJuly 1, L2001.~~L.C.~~ ~~(“TBF~~Our ~~II”);~~weighted ~~and~~average ~~Express~~borrowings ~~EMS~~decreased ~~Corporation~~from $75.0 ~~(“Parent”),~~million ain ~~newly~~the ~~formed~~second ~~wholly~~quarter ~~owned subsidiary~~ of ~~EFTC,~~2000 ~~entered~~to ~~into~~$53.3 million ~~an Agreement~~in ~~and~~the ~~Plan~~second quarter of 2001. ~~Merger~~The ~~(the~~decreased ~~“Merger~~debt ~~Agreement”),~~level ~~providing~~in ~~for,~~2001 ~~among other~~was ~~things,~~primarily due to the ~~merger~~conversion of $61.3 million ~~two wholly owned subsidiaries~~ of ~~Parent~~debt ~~with~~to ~~and into~~common ~~EFTC~~stock ~~and~~on ~~K*TEC~~May 31, ~~respectively~~2001. ~~K*TEC~~The isreduction ain ~~privately held electronic~~debt ~~manufacturing~~was ~~services~~also ~~company~~attributable ~~based~~to inimproved ~~Sugar~~working ~~Land,~~capital ~~Texas.~~management ~~K*TEC~~during isthe ~~100% owned~~second byquarter ~~TBF II, an affiliate~~ of ~~Thayer-BLUM Funding L.L.C. (“TBF”)~~2001, ~~EFTC’s~~which ~~principal shareholder.~~resulted ~~TBF~~in ~~currently controls approximately 56% of~~ the ~~outstanding~~repayment ~~voting stock~~ of ~~EFTC~~$7.7 million ~~A special committee~~ of ~~independent~~debt ~~directors~~under ~~negotiated~~ the ~~terms~~revolving ~~of the~~credit ~~Merger~~agreement ~~Agreement~~and on$3.0 million ~~behalf~~under of the ~~minority~~subordinated ~~shareholders~~note payable ofto ~~EFTC~~a director.

On Lower ~~May 3,~~interest rates in 2001, ~~the~~also ~~parties~~contributed to the ~~Merger~~reduction ~~Agreement~~in ~~agreed~~interest expense. toThe ~~substitute~~interest rate on the $54 million of Exchangeable Notes that were ~~TBF~~outstanding IIduring asthe asecond ~~party~~quarter of 2000 accrued interest at 15% compared to the ~~K*TEC~~reduced ~~Merger~~rate ~~(as~~of ~~such~~8.875% ~~term~~that iswent ~~defined~~into ineffect after the ~~Merger~~recapitalization ~~Agreement).~~was ~~Such~~approved ~~substitution~~by isour ~~reflected~~shareholders in ~~the~~August ~~Amended~~2000. ~~and~~Additionally, ~~Restated~~the prime rate ~~Agreement~~has ~~and~~decreased ~~Plan~~by of1.25 percentage ~~Merger~~points ~~dated~~during asthe second quarter of ~~May 3~~2001, ~~2001~~and this byalso ~~and~~had ~~among~~a ~~EFTC,~~favorable ~~K*TEC, TBF~~impact IIas ~~and~~the ~~Parent~~interest (rate on the ~~“Amended~~revolving ~~and~~line ~~Restated~~of credit ~~Merger~~is ~~Agreement”)~~a variable rate based on the prime rate.

15 Gain (Loss) on Sale of Assets. In April 2001, we entered into a settlement agreement with respect to the Earn-out calculation related to the 1999 sale of our Services Division. As a result of this agreement, we received a final payment of $0.6 million that accounted for most of the $0.7 million gain on the sale of assets in the second quarter of 2001.

~~Table~~ Income Taxes. Due to significant net losses in 1999 and 2000, we have recorded a valuation allowance for all of ~~Contents~~our net deferred tax assets. Utilization of our net operating loss carryforwards is subject to limitation as a result of the change in ownership of our company that occurred during 2000. Accordingly, if we continue to generate taxable earnings in future periods, these net operating losses may not be sufficient to eliminate our entire current income tax liability.

In Based ~~connection~~on ~~with~~ the ~~signing~~increased level of ~~the~~earnings ~~Merger~~generated ~~Agreement,~~in the ~~Company entered~~second ~~into a stockholder agreement, as amended (the “Stockholder Agreement”),~~quarter ~~with~~of ~~TBF~~2001, ~~TBF~~we IIdetermined ~~and Parent~~ that ~~provides~~an ~~that~~income ~~TBF~~tax ~~will~~provision ~~convert~~of ~~the senior convertible notes and the Series~~$0.3 Bmillion ~~preferred~~should ~~stock of EFTC held by TBF into~~be ~~common~~recognized. ~~stock~~This onprovision orwas ~~before~~necessary ~~May 31,~~due ~~2001. These conversions are expected~~ to ~~result~~Federal inalternative ~~the issuance~~minimum ~~of approximately 32.2 million additional shares of common stock to~~tax ~~TBF,~~and ~~which~~a isprovision ~~expected~~for tostate ~~increase~~income ~~its~~taxes ~~voting~~at ~~control~~locations towhere ~~approximately~~the ~~78%.~~state net ~~Pursuant~~operating toloss ~~the~~carryovers ~~Stockholder~~were ~~Agreement,~~not ~~TBF~~sufficient ~~agreed~~ to ~~vote~~offset ~~all~~expected ~~its~~taxable ~~shares of~~income ~~EFTC~~for ~~common stock in favor of the business combination~~2001.

~~Pursuant~~ Six toMonths ~~the~~Ended ~~Amended and Restated Merger Agreement~~June 30, ~~Parent~~2000 ~~will~~Compared form two new wholly owned subsidiaries, which will merge with and into EFTC and TBF II, respectively. Following completion of the transactions, EFTC and TBF II will be wholly owned subsidiaries of Parent, whose common stock is expected to be ~~traded~~Six onMonths ~~the~~Ended ~~Nasdaq National Market. Based upon the Amended and Restated Merger Agreement’s exchange ratios~~July 1, ~~it is expected that the member of TBF II~~2001 ~~will receive approximately 55% of Parent’s capital stock, while EFTC~~ shareholders will receive approximately 45% of the shares. Following consummation of the proposed business combination, TBF and its affiliates are expected to own approximately 88% of the outstanding capital stock of Parent.

~~Consummation~~ Net ofSales. Net sales increased $65.8 million, or 47.2%, from $139.5 million for the ~~proposed~~first ~~business~~six ~~combination~~months isof ~~subject~~2000 to a$205.3 million ~~number~~for the first six months of ~~closing conditions~~2001. Approximately 43% of our net sales for the first six months of ~~Consequently~~2000 related to manufacturing services for Honeywell at our Phoenix plant, compared ~~there~~to ~~can~~approximately be60% nofor ~~assurance~~the ~~that~~first six months of 2001. Substantially all of the ~~business~~increase ~~combination~~in ~~will~~net besales during the first six months of 2001 was ~~consummated~~attributable to increased sales to Honeywell at our Phoenix plant. For the first six months of 2001, the concentration of business with Honeywell accounted for 83% of our consolidated net sales.

~~Item~~ We 6estimate that net sales for the third quarter of 2001 may decline up to approximately 15% from the results for the second quarter of 2001, due to overall order softness from our existing customers. ~~Exhibits~~We ~~and~~are ~~Reports~~not onable ~~Form~~to ~~8-K~~provide guidance beyond the third quarter of 2001 due to the uncertainty in the markets served by many of our customers.

~~(a)~~ Gross Profit. ~~Exhibits~~Our gross profit increased $20.0 million from $1.1 million for the first six

~~The following exhibits are filed with this report:~~16

*ExhibitTable 10.25of Commercial/ Industrial Lease effective April 1, 2001 between the Company and H.J. Brooks, LLCContents

* ~~Filed~~months ~~herewith~~of 2000 compared to $21.1 million for the first six months of 2001. Similarly, gross profit as a percentage of net sales improved from 0.8% of net sales in the first six months of 2000 to 10.3% of net sales in the first six months of 2001. The improvement in gross profit during the first six months of 2001 is primarily attributable to an overall improvement in capacity utilization at our facilities and more favorable product mix with our customers. The improvement in capacity utilization was driven by changes initiated in 1999 and the first six months of 2000, including the closure of our Ft. Lauderdale facility and the sale of the assets of our Tucson facility. The Ft. Lauderdale and Tucson facilities generated a combined gross profit deficiency of $2.0 million during the first six months of 2000. Gross profit for the first six months of 2000 was also negatively impacted by $0.8 million related to the transition of additional manufacturing services under the Honeywell agreement in the first quarter of 2000.

~~(b).~~ During ~~Reports~~the onfirst ~~Form~~six 8months of 2001, we assessed certain long-Klived assets for impairment related to the planned move to a new facility in the Northeast, and the abandonment of manufacturing-related software that is no longer expected to be used. Due to changes in our customers and product mix, we also assessed the carrying value of intellectual property and manufacturing equipment related to those customers during the first six months of 2001. Accordingly, we recognized impairment expense of $1.1 million that is included in our cost of goods sold in 2001.

~~The~~ Selling, ~~Company~~General ~~did~~and ~~not~~Administrative ~~file~~Expenses. ~~any~~Selling, ~~reports~~general onand administrative ~~Form~~expenses (“SG & A”) decreased $3.6 ~~8-K~~million, ~~during~~or 27.7%, from $13.1 million for the ~~quarter~~six months ended June 30, 2000 to $9.5 million for the first ~~April~~six months of 2001. SG & A expenses for the first six months of 2000 included $1.5 million for consulting services intended to accelerate operational improvement at each of our facilities. SG & A for the first six months of 2000 also included a charge of $0.7 million for accelerated depreciation and amortization of assets that were not expected to be utilized after the 2000 relocation of our corporate headquarters to Phoenix. We also recognized charges of $1.8 million for severance, ~~2001~~recruiting and other costs associated with changes in management during the first six months of 2000. Finally, the results for the first six months of 2000 include $0.8 million for SG & A at divisions that were sold or closed by the end of June 2000.

16 After excluding all of the charges discussed above, SG & A expense increased $1.2 million, or 14.5%, from $8.3 million for the first six months of 2000 to $9.5 million for the first six months of 2001. The increase in SG & A in 2001 is primarily attributable to an increase in compensation and benefit costs, information technology services, and professional fees.

~~Table~~ Despite the significant increase in sales, SG & A expenses have increased at a slower pace in 2001, primarily due to the elimination of ~~Contents~~costs as a result of the closure of the Denver headquarters in the fourth quarter of 2000.

~~SIGNATURES~~ Impairment of Long-lived Assets. During the first six months of 2000, we recognized an impairment charge of $1.7 million, including $1.3 million for software that we decided to abandon.

~~Pursuant~~ Recapitalization toand ~~the~~Merger ~~requirements~~Transaction ofCosts. ~~the~~In ~~Securities~~connection ~~Exchange~~with ~~Act~~the March of2000 ~~1934~~recapitalization, ~~the~~we incurred charges totaling $4.9 million for ~~Registrant~~financial ~~has~~advisor ~~duly~~fees, ~~caused~~a ~~this~~fee ~~Report~~paid to beThayer-BLUM ~~signed~~Funding, onand ~~its~~due ~~behalf~~diligence costs byfor legal, accounting and management consultants. We capitalized costs associated with the Senior Subordinated Exchangeable Notes and the new ~~undersigned~~revolving credit agreement, ~~thereunto~~and ~~duly~~all ~~authorized.~~other costs were charged to operations during the

		EFTC CORPORATION
		(Registrant)
Date:	May 15, 2001	/s/ James K. Bass
		James K. Bass
		Chief Executive Officer
Date:	May 15, 2001	/s/ Peter W. Harper
		Peter W. Harper
		Chief Financial Officer
Date:	May 15, 2001	/s/ James A. Doran
		James A. Doran
		Chief Accounting Officer

17 Table of Contents

~~Table~~ first six months of ~~Contents~~2000.

~~INDEX~~ In TOthe ~~EXHIBITS~~first six months of 2001, we incurred costs, primarily for a fairness opinion and professional fees, of $1.0 million related to the proposed merger with K*TEC Electronics Corporation. If this merger is consummated, it will be accounted for as a reorganization of entities under common control and, accordingly, these costs were charged to operations in the first six months of 2001.

~~Exhibits~~ Interest *ExhibitExpense. 10Interest expense decreased $1.252 million, ~~Commercial/~~or ~~Industrial~~27.6%, ~~Lease~~from $4.4 million ~~effective~~for ~~April~~the first six months of 2000 to $3.2 million in the first six months of 2001. Our outstanding debt decreased $87.2 million from $89.9 million at June 30, 2000 to $2.0 million at July 1, 2001. ~~between~~The decreased debt level at July 1, 2001 was driven by the ~~Company~~conversion ~~and~~of H$61.J3 million of debt to common stock on May 31, 2001. ~~Brooks~~The reduction in debt was also attributable to improved working capital management during the first six months of 2001, ~~LLC~~which resulted in the repayment of nearly $27 million of debt under our revolving credit agreement and a $3 million note payable owed to a director.

* Lower ~~Filed~~interest ~~herewith~~rates in 2001 also contributed to the reduction in interest expense. The interest rate on the $54 million of Exchangeable Notes that were outstanding during the second quarter of 2000 accrued interest at 15% compared to the reduced rate of 8.875% that went into effect after the recapitalization was approved by our shareholders in August 2000. Additionally, the prime rate has decreased by nearly three percentage points during the first six months of 2001, and this also had a favorable impact as the interest rate on the revolving line of credit is a variable rate based on the prime rate.

Gain (Loss) on Sale of Assets. In April 2001, we entered into a settlement agreement with respect to the earn-out calculation related to the 1999 sale of our Services Division. As a result of this agreement, we received a final payment of $0.6 million that accounted for most of the $0.7 million gain on sale of assets in 2001.

Income Taxes. Due to significant net losses in 1999 and 2000, we have recorded a valuation allowance for all of our net deferred tax assets. An income tax provision was not recorded for the earnings generated in the first quarter of 2001 as the amount that otherwise would have been provided was offset by a decrease in the valuation allowance for net deferred tax assets. Based on the increased level of earnings generated in the second quarter of 2001, we determined that an income tax provision of $0.3 million should be recognized. This provision was necessary due to Federal alternative minimum tax and a provision for state income taxes at locations where the state net operating loss carryovers were not sufficient to offset expected taxable income for 2001. Utilization of the Company’s net operating loss carryovers is subject to limitation as a result of the change in ownership of the Company that occurred during 2000.

Impact of Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Statement 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.

The provisions of Statement No. 141 apply to all business combinations initiated after June 30, 2001. The provisions also apply to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later.

The provisions of Statement No. 142 are required to be adopted by us beginning in the first quarter of 2002. Goodwill and intangible assets acquired after June 30, 2001, would be subject to the amortization provisions of this Statement immediately.

The effect of these Statements on the Company will be the elimination of the amortization of goodwill which is currently being amortized over 30 years and the requirement to begin testing goodwill and other intangible assets for impairment at least on an annual basis. Because of the extensive effort needed to comply with the adoption of Statements 141 and 142, it is not currently practicable to estimate the impact of adopting these Statements on the Company’s consolidated financial statements, including whether any transitional impairment losses will be required to be recognized. If such losses are required to be recognized upon the initial application of these Statements, they would be accounted for as the cumulative effect of a change in accounting principle.

Liquidity and Capital Resources

Our working capital at July 1, 2001 totaled $53.5 million compared to $72.0 million at December 31, 2000. At July 1, 2001, borrowings on our $45.0 million revolving credit facility were approximately $2.0 million and unused availability was approximately $36.5 million under the credit facility.

Cash Flows from Operating Activities. Net cash provided by operating activities for the first six months of 2001 was $26.8 million, compared with net cash used in operating activities of $58.9 million in the first six months of 2000. The difference between our net income in the first six months of 2001 of $7.8 million and our $26.8 million operating cash flow was primarily attributable to a $15.8 million decrease in trade receivables, $3.1 million of depreciation and amortization expense, a $2.7 million provision for excess and obsolete inventories, a $2.2 million increase in accrued interest on convertible debt, a reduction in inventories of $1.5 million, and an impairment charge of $1.1 million, partially offset by a reduction of $7.9 million in accounts payable.

Days sales outstanding (based on annualized net sales for the quarter and net trade receivables outstanding at the end of the quarter) decreased to 24 days for the second quarter of 2001, compared to 41 days for the second quarter of 2000. Days sales outstanding for the second quarter of 2001 were affected favorably by a new financing program for a substantial portion of our receivables whereby the receivables are generally collected in 10 days in exchange for a discount of 0.5%.

Inventories decreased 5.0% to $78.1 million at July 1, 2001, compared to $82.2 million at December 31, 2000. For the second quarter of 2001, inventory turns (i.e., annualized net sales divided by period end inventory) amounted to 5.0 times per year. This compares to 3.5 times for the second quarter of 2000. During 2000, one of our biggest challenges involved financing the

higher levels of inventories required to support increased sales at our Phoenix facility. During the last six months of 1999 and much of 2000, these difficulties worsened because of industry-wide shortages of components that ultimately delayed shipment of finished goods to customers. By the fourth quarter of 2000, the component shortages had diminished and we had generally improved our inventory management practices, which contributed to improved inventory turns in 2001 compared to 2000.

Cash Flows from Investing Activities. Net cash used in investing activities in the first six months of 2001 was $2.3 million compared with net cash provided by investing activities of $8.9 million in the first six months of 2000. Our investing cash flows in the first six months of 2001 reflect $3.4 million in capital expenditures (consisting primarily of $2.1 million for information technology assets and $0.9 million for new manufacturing equipment), partially offset by $1.2 million of proceeds from the sale of assets. The proceeds from asset sales consisted primarily of $0.6 million received as a final settlement under the earn-out provision from the September 1999 sale of our Services Division, and the release of $0.5 million of proceeds from the February 2000 sale of Tucson assets that were required to be released from escrow one year after closing.

During the first six months of 2001, we entered into a 10-year operating lease that provides for annual payments of approximately $0.6 million for a new manufacturing facility in Lawrence, Massachusetts. This facility will replace our current leased facility in Wilmington, Massachusetts that provided for annual payments of approximately $0.7 million. We anticipate that capital expenditures in the second six months of 2001 will include approximately $1.5 million in initial leasehold improvement costs for the new facility.

Cash Flows from Financing Activities. Net cash used in financing activities in the first six months of 2001 was $24.6 million, compared with net cash provided by financing activities of $49.5 million in the first six months of 2000. Our financing cash flows in the first six months of 2001 reflect a net reduction in borrowings under our revolving line of credit of $26.6 million and the repayment of a $3.0 million loan from a director, partially offset by a $4.8 million increase in outstanding checks in excess of cash balances.

We believe we have adequate capital resources to fund working capital and other cash requirements for the next 12 months. At July 1, 2001, we had unused availability of approximately $36.5 million under our revolving credit facility.

Special Note Regarding Forward-Looking Statements

Certain statements in this Report constitute “forward-looking statements” within the meaning of the federal securities laws. Additional written or oral forward-looking statement may be made by us from time to time, in press releases, annual or quarterly reports to shareholders, filings with the Securities and Exchange Commission, presentations or otherwise. Such forward-looking statements may include, among other things, statements concerning our plans, objectives and future economic prospects, prospects for achieving cost savings, future capacity utilization, future sales, profitability and capital expenditures, our proposed merger with K*TEC Electronics Corporation, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results,

to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the dependence on Honeywell; risks associated with our acquisition strategy and integration of acquired companies; integration of management, information, operating and financial systems; control by our majority shareholder; new management team; diversion of management attention; and other factors detailed in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2000.

Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. These statements reflect our current expectations, and we do not undertake to update or revise these forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied in this or other company statements will not be realized.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

On March 30, 2000, we entered into a $45 million revolving line of credit agreement with Bank of America, N.A. The interest rate under this agreement is based either on the prime rate or LIBOR rate, plus applicable margins. Therefore, as interest rates fluctuate, we may experience changes in interest expense that will impact our financial results. We have not entered into any interest rate swap agreements, or similar instruments, to protect against the risk of interest rate fluctuations. Assuming outstanding borrowings of $45 million, if interest rates were to increase or decrease by 1%, the result would be an increase or decrease in our annual interest expense of $450,000.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable.

Item 2. Changes in Securities and Use of Proceeds

In connection with the signing of the Merger Agreement, EFTC entered into a stockholder agreement, as amended (the “Stockholder Agreement”), with TBF, TBF II and Parent that required TBF to convert the Senior Subordinated Convertible Notes and the Series B preferred stock of EFTC held by TBF into common stock On May 31, 2001, Thayer-BLUM Funding, LL.C., our largest shareholder, converted all of the outstanding Senior Subordinated Convertible Notes and the Series B preferred stock into approximately 32.2 million additional shares of our common stock. These transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Submission Of Matters To A Vote Of Security Holders

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits and Reports on Form 8-K

	(a)		Exhibits:

	The following exhibit is filed with this Report:

	4.4.3		Third Amendment to Rights Agreement dated as of May 3, 2001 between the Company and Rights Agent.

	(b)		Reports on Form 8-K:

The Company filed a Current Report on Form 8-K on May 16, 2001 related to the signing of the Amended and Restated Agreement and Plan of Merger by and among the Company, K*TEC Electronics Holding Corporation, Thayer-Blum Funding II, L.L.C. and Express EMS Corporation.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


		EFTC CORPORATION (Registrant)









Date: August 15, 2001		/s/ James K. Bass

		James K. Bass Chief Executive Officer









Date: August 15, 2001		/s/ Peter W. Harper

		Peter W. Harper Chief Financial Officer









Date: August 15, 2001		/s/ James A. Doran

		James A. Doran Chief Accounting Officer

EXHIBIT INDEX


4.4.3		Third Amendment to Rights Agreement dated as of May 3, 2001 between the Company and Rights Agent.

Filing Compare · EFTC CORP/