UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington, D.C.
20549
 
 FORM 10-Q
 
 (Mark
One)
 
 xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
quarterly period ended January 26,
2008
 
 or
 
  ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from 
to
 
 Commission
File Number: 0-3319
 
 DEL
      GLOBAL TECHNOLOGIES CORP(Exact
      name of registrant as specified in its
charter)
 
 New
      York
              13-1784308(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)
 
 11550
      West King Street, Franklin Park, IL
              60131(Address
      of principal executive offices)
              (Zip
      Code)
 
 847-288-7000(Registrant’s
      telephone number, including area code)(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 x     No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
 Large
accelerated filer  ̈                 Accelerated
filer  ̈                 Non-accelerated
filer x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes  ̈     No
x
 The
number of shares of Registrant’s common stock outstanding as of February 22,
2008 was 24,185,280
 1
 Table of Contents
  DELGLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  Table
of Contents
  Page
      No.PART I
                  FINANCIAL
      INFORMATIONITEM 1  FINANCIAL
      STATEMENTS
                  3Consolidated Statements of
      Operations for the Three and Six Months ended January 26, 2008 and January
      27, 2007
                  3Consolidated Balance Sheets - January
      26, 2008 and July 28, 2007
                  4-5Consolidated Statements of Cash Flows for
      the Six Months ended January 26, 2008 and January 27,
    2007
                  6Notes to Consolidated Financial
      Statements
                  7-14Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
                  15-22Item 3. QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK
                  22Item 4T. CONTROLS AND
      PROCEDURES
                  22PART II
                  - OTHER INFORMATIONItem 1. LEGAL PROCEEDINGS
                  22-23Item 1A. RISK FACTORS
                  24Item 6. EXHIBITS
                  24SIGNATURES
                  25
    2
 Table of Contents
 
 PART
I  FINANCIAL
INFORMATION
 ITEM
1  FINANCIAL STATEMENTS
   DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (DOLLARS
IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 (UNAUDITED)
  
  Three
      Months Ended
              
              
              Six
      Months EndedJanuary
      26, 2008
              
              
              January 27,
      2007
              
              
              January
      26,2008
              
              
              January
      27, 2007NET
      SALES
              
              $
              29,894
              
              
              $
              26,771
              
              
              $
              56,609
              
              
              $
              46,057COST
      OF SALES
              
              
              22,404
              
              
              
              20,022
              
              
              
              42,689
              
              
              
              35,311GROSS
      MARGIN
              
              
              7,490
              
              
              
              6,749
              
              
              
              13,920
              
              
              
              10,746Selling,
      general and administrative
              
              
              4,225
              
              
              
              3,649
              
              
              
              7,965
              
              
              
              6,990Research
      and development
              
              
              657
              
              
              
              551
              
              
              
              1,137
              
              
              
              968Total
      operating expenses
              
              
              4,882
              
              
              
              4,200
              
              
              
              9,102
              
              
              
              7,958OPERATING
      INCOME
              
              
              2,608
              
              
              
              2,549
              
              
              
              4,818
              
              
              
              2,788Interest
      expense, net of interest income of $37 and $90 for the three and six
      months ended in 2008, respectively and $0 for the three and six months
      ended in 2007
              
              
              (79
              )
              
              
              (361
              )
              
              
              (149
              )
              
              
              (688
              )Other
      income (loss)
              
              
              63
              
              
              
              (37
              )
              
              
              56
              
              
              
              (28
              )INCOME
      BEFORE INCOME TAX PROVISION
              
              
              2,592
              
              
              
              2,151
              
              
              
              4,725
              
              
              
              2,072INCOME
      TAX PROVISION
              
              
              1,165
              
              
              
              1,069
              
              
              
              2,191
              
              
              
              1,477NET
      INCOME
              
              $
              1,427
              
              
              $
              1,082
              
              
              $
              2,534
              
              
              $
              595NET
      INCOME PER BASIC SHARE
              
              $
              0.06
              
              
              $
              0.09
              
              
              $
              0.10
              
              
              $
              0.05Weighted
      average shares outstanding
              
              
              24,179,569
              
              
              
              11,660,524
              
              
              
              24,170,488
              
              
              
              11,653,106NET
      INCOME PER DILUTED SHARE
              
              $
              0.06
              
              
              $
              0.09
              
              
              $
              0.10
              
              
              $
              0.05Weighted
      average shares outstanding
              
              
              24,792,001
              
              
              
              11,981,095
              
              
              
              24,757,196
              
              
              
              11,927,385
  See notes
to consolidated financial statements.
   3
 Table of Contents
   DEL
GLOBAL TECHNOLOGIESCORP. AND
SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (DOLLARS
IN THOUSANDS EXCEPT PAR VALUE)
 (UNAUDITED)
  ASSETS
  January
      26, 2008
              
              
              July
      28, 2007CURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              10,367
              
              
              $
              7,860Trade
      receivables (net of allowance for doubtful accounts of $1,634 and $1,569
      at January 26, 2008 and July 28, 2007, respectively)
              
              
              24,070
              
              
              
              21,221Inventories
              
              
              21,882
              
              
              
              21,930Prepaid
      expenses and other current assets
              
              
              646
              
              
              
              1,180Total
      current assets
              
              
              56,965
              
              
              
              52,191NON-CURRENT
      ASSETS:Property
      plant and equipment, net
              
              
              6,874
              
              
              
              6,511Deferred
      income taxes
              
              
              900
              
              
              
              1,011Goodwill
              
              
              6,437
              
              
              
              6,437Other
      assets
              
              
              155
              
              
              
              189Total
      non-current assets
              
              
              14,366
              
              
              
              14,148TOTAL
      ASSETS
              
              $
              71,331
              
              
              $
              66,339
  See notes
to consolidated financial statements.
 
 4
 Table of Contents
  DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (DOLLARS
IN THOUSANDS EXCEPT PAR VALUE)
 (UNAUDITED)
  LIABILITIES
AND SHAREHOLDERS’ EQUITY
  January
      26, 2008
              
              
              July
      28, 2007CURRENT
      LIABILITIES:Current
      portion of long-term debt
              
              $
              1,351
              
              
              $
              1,086Accounts
      payable – trade
              
              
              17,319
              
              
              
              17,125Accrued
      expenses
              
              
              9,040
              
              
              
              7,432Income
      taxes payable
              
              
              916
              
              
              
              1,570Total
      current liabilities
              
              
              28,626
              
              
              
              27,213NON-CURRENT
      LIABILITIES:Long-term
      debt, less current portion
              
              
              5,138
              
              
              
              5,398Deferred
      income taxes
              
              
              -
              
              
              
              292Other
      long-term liabilities
              
              
              3,292
              
              
              
              3,240Total
      non-current liabilities
              
              
              8,430
              
              
              
              8,930Total
      liabilities
              
              
              37,056
              
              
              
              36,143COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Common
      stock, $.10 par value;Authorized
      50,000,000; issued-24,804,433 and 24,753,526 at January 26, 2008 and July
      28, 2007, respectively
              
              
              2,481
              
              
              
              2,475Additional
      paid-in capital
              
              
              80,071
              
              
              
              79,726Treasury
      shares – 622,770 shares, at cost
              
              
              (5,546
              )
              
              
              (5,546
              )Accumulated
      other comprehensive income
              
              
              3,084
              
              
              
              1,880Accumulated
      deficit
              
              
              (45,815
              )
              
              
              (48,339
              )Total
      shareholders' equity
              
              
              34,275
              
              
              
              30,196TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
              
              $
              71,331
              
              
              $
              66,339
  See notes
to consolidated financial statements.
   5
 Table of Contents
   DEL GLOBALTECHNOLOGIES CORP. AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (DOLLARS
IN THOUSANDS)
 (UNAUDITED)
  Six
      Months EndedJanuary
      26, 2008
              
              
              January
      27, 2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              2,534
              
              
              $
              595Adjustments
      to reconcile net income to net
                cash provided by operating activities:
                Depreciation
      and amortization
              
              
              476
              
              
              
              458Deferred
      income tax provision (benefit)
              
              
              (99
              )
              
              
              167Imputed
      interest – subordinated note
              
              
              -
              
              
              
              140Stock
      based compensation expense
              
              
              256
              
              
              
              97Other
              
              
              60
              
              
              
              50Changes
      in operating assets and liabilities:Trade
      receivables
              
              
              (1,377
              )
              
              
              (815
              )Inventories
              
              
              1,347
              
              
              
              (1,673
              )Prepaid
      expenses and other current assets
              
              
              588
              
              
              
              70Other
      assets
              
              
              39
              
              
              
              51Accounts
      payable – trade
              
              
              (971
              )
              
              
              5,227Accrued
      expenses
              
              
              1,157
              
              
              
              526Payment
      of accrued litigation settlement costs
              
              
              -
              
              
              
              (100
              )Income
      taxes payable
              
              
              (764
              )
              
              
              621Other
      long-term liabilities
              
              
              (219
              )
              
              
              160Net
      cash provided by operating activities
              
              
              3,027
              
              
              
              5,574CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      plant and equipment purchases
              
              
              (434
              )
              
              
              (361
              )Net
      cash used in investing activities
              
              
              (434
              )
              
              
              (361
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayment
      under short-term credit facilities
              
              
              -
              
              
              
              (3,807
              )Borrowing
      of long-term debt
              
              
              -
              
              
              
              3,057Repayment
      of long-term debt
              
              
              (556
              )
              
              
              (1,064
              )Proceeds
      from stock option exercises
              
              
              4
              
              
              
              25Proceeds
      from warrant exercises
              
              
              82
              
              
              
              -Net
      cash used in financing activities
              
              
              (470
              )
              
              
              (1,789
              )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
              
              
              384
              
              
              
              96CASH
      AND CASH EQUIVALENTS INCREASE FOR THE PERIOD
              
              
              2,507
              
              
              
              3,520CASH
      AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
              
              
              7,860
              
              
              
              333CASH
      AND CASH EQUIVALENTS, END OF THE PERIOD
              
              $
              10,367
              
              
              $
              3,853SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid forInterest
              
              $
              212
              
              
              $
              548Taxes
              
              
              3,137
              
              
              
              841
  See notes
to consolidated financial statements.
   6
 Table of Contents
   DEL
GLOBALTECHNOLOGIES CORP. AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except per share data)
 (Unaudited)
  BASIS
OF PRESENTATION
  The
accompanying unaudited consolidated financial statements of Del Global
Technologies Corp. and subsidiaries (the “Company”) have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X.  Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements.  In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of the results for the interim periods have been
included.  Results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full
year.  These consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company’s annual report on Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended July 28, 2007.  Certain prior
year’s amounts have been reclassified to conform to the current period
presentation.
  The
Company’s fiscal year-end is based on a 52/53-week cycle ending on the Saturday
nearest to July 31.  Results of the Company’s subsidiary, Villa
Sistemi Medicali S.p.A. (“Villa”), are consolidated into Del Global’s
consolidated financial statements based on a fiscal year that ends on June 30
and are reported on a one-month lag.
  REVENUE
RECOGNITION
  The
Company recognizes revenue upon shipment, provided there is persuasive evidence
of an arrangement, there are no uncertainties concerning acceptance, the sales
price is fixed, collection of the receivable is probable and only perfunctory
obligations related to the arrangement need to be completed.  The
Company maintains a sales return allowance, based upon historical patterns, to
cover estimated normal course of business returns, including defective or out of
specification product.  The Company’s products are covered primarily
by one year warranty plans and in some cases optional extended warranties for up
to five years are offered.  The Company establishes allowances for
warranties on an aggregate basis for specifically identified, as well as
anticipated, warranty claims based on contractual terms, product conditions and
actual warranty experience by product line.  The Company recognizes
service revenue when repairs or out of warranty repairs are
completed.  The Company has a Food & Drug Administration
obligation to continue to provide repair service for certain medical systems for
up to seven years past the warranty period.  These repairs are billed
to the customers at market rates.
  NEW
ACCOUNTING PRONOUNCEMENTS
  In
December 2007, the Financial Accounting Standards Board (the “FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141R, Business
Combinations (“SFAS 141R”).  SFAS 141R states that acquisition-related
costs are to be recognized separately  from the acquisition and
expensed as incurred with restructuring costs being expensed in periods after
the acquisition date. SFAS  141R also states that business
combinations will result in all assets and liabilities of the acquired business
being recorded at their fair values. The Company is required to adopt SFAS No.
141R effective July 1, 2009. The impact of the adoption of SFAS No.
141R  will depend on the nature and extent of business combinations
occurring on or after the effective date.
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51 (“SFAS 160”). SFAS
160 requires identification and presentation of ownership interests in
subsidiaries held by parties other than the Company in the consolidated
financial statements within the equity section but separate from the equity
owned by the Company.  SFAS 160 also requires that (1) the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly  identified and presented on the face of the
consolidated statement of operations, (2) changes in ownership interest be
accounted for similarly, as equity transactions (3) and when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the subsidiary be
measured at fair value. This statement is effective for the Company on July 1,
2009. The Company is currently evaluating the requirements of SFAS 160 but does
not expect it to have a material impact.
  In
September 2006, the FASB issued SFAS No 157, “Fair Value Measurements,” (“SFAS
157”) which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information.  Portions of this statement are effective for the Company
beginning July 1, 2008 while others have been deferred until fiscal
2009.  The Company has not evaluated the impact that the adoption of
SFAS No. 157 will have on its financial statements at this time.
   7
 Table of Contents
  In
February 2007, the FASB released SFAS No. 159, “Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value.  This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years.  The Company has not evaluated the
impact that the adoption of SFAS No. 159 will have on its financial statements
at this time.
  In June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”— an interpretation of SFAS No. 109.  FIN
48 requires that the Company recognize the financial statement effects of a tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination.  As used in this
Interpretation, the term more likely than not means a likelihood of more than 50
percent.  The terms examined and upon examination also include
resolution of the related appeals or litigation processes, if
any.  The determination of whether or not a tax position has met the
more-likely-than-not recognition threshold is to be determined based on the
facts, circumstances, and information available at the reporting
date.
  FIN 48
was adopted by the Company beginning July 29, 2007.  The adoption of
FIN 48 did not have any impact on the Company’s statement of financial position
or on its results of operations.
  The
Company’s primary income tax jurisdictions are in the United States and
Italy.  The Company is currently not under audit in either
jurisdiction.  Tax years since 2003 are open pursuant to statutes in
Italy and tax years since 2004 are open pursuant to statutes in the Unites
States.
  It is the
Company’s practice to recognize interest and/or penalties related to income tax
matters in tax expense.  As of January 26, 2008, there were no
material interest or penalty amounts to accrue.
 INVENTORIES
  Inventories
are stated at the lower of cost (first-in, first-out) or
market.  Inventories and their effect on cost of sales are determined
by physical count for annual reporting purposes and are evaluated using
perpetual inventory records for interim reporting periods.  For
certain subsidiaries during interim periods, the Company estimates the amount of
labor and overhead costs related to finished goods inventories.  As of
January 26, 2008, finished goods represented approximately 20.4% of the gross
carrying value of our total gross inventory.  The Company believes the
estimation methodologies used to be appropriate and are consistently
applied.
  Inventories
at January 26, 2008 and July 28, 2007 is as follows:
  January
      26, 2008
              
              
              July
      28, 2007Raw
      materials and purchased parts
              
              $
              16,713
              
              
              $
              15,237Work-in-process
              
              
              3,568
              
              
              
              3,910Finished
      goods
              
              
              5,205
              
              
              
              6,65225,486
              
              
              
              25,799Less
      allowance for obsolete and excess inventories
              
              
              (3,604
              )
              
              
              (3,869
              )Total
      inventories
              
              $
              21,882
              
              
              $
              21,930
 
 PRODUCT
WARRANTIES
  The
Company’s products are covered primarily by one-year warranty plans and in some
cases optional extended contracts may be offered covering products for periods
up to five years, depending upon the product and contractual terms of
sale.  The Company establishes allowances for warranties on an
aggregate basis for specifically identified, as well as anticipated, warranty
claims based on contractual terms, product conditions and actual warranty
experience by product line.
  The
activity in the warranty reserve accounts in the first three and six months of
fiscal 2008 and 2007 is as follows:
  
 8
 Table of Contents
  
  Three
      Months Ended
              
              
              Six
      Months EndedJanuary
      26,2008
              
              
              January
      27, 2007
              
              
              January
      26, 2008
              
              
              January
      27, 2007Balance
      at beginning of period
              
              $
              1,168
              
              
              $
              1,051
              
              
              $
              1,065
              
              
              $
              1,010Provision
      for anticipated warranty claims
              
              
              206
              
              
              
              280
              
              
              
              365
              
              
              
              442Costs
      incurred related to warranty claims
              
              
              (74
              )
              
              
              (496
              )
              
              
              (178
              )
              
              
              (626
              )Effect
      of foreign currency fluctuation
              
              
              30
              
              
              
              27
              
              
              
              78
              
              
              
              36Balance
      at end of period
              
              $
              1,330
              
              
              $
              862
              
              
              $
              1,330
              
              
              $
              862
 
 The
liability related to warranties is included in accrued expenses on the
accompanying Consolidated Balance Sheets.
  INCOME
TAX EXPENSE
  The
Company’s foreign subsidiary operates in Italy.  Italy recently
enacted legislation which reduces tax rates effective for the Company’s fiscal
year 2009.  The quarter ended January 26, 2008 income tax expense
includes a charge to reduce the carrying value of the foreign subsidiary’s net
deferred income tax asset resulting from the income tax rate
reduction.
  Additionally,
the Company’s deferred income tax liabilities had included the estimated tax
obligation which would be incurred upon a distribution of the foreign
subsidiary’s earnings to its US parent.  This tax liability had been
recorded as the foreign subsidiary has routinely distributed monies to the US
parent.  Based on current operating results, expectations of future
results and available cash and credit in the US, the Company has determined it
no longer intends to repatriate monies in the foreseeable future and has
reversed this tax obligation.  This reversal resulted in a reduction
in tax expense for the quarter ended January 26, 2008.
  The net
impact of these two tax adjustments was a $0.1 million benefit.
  COMPREHENSIVE
INCOME
  Comprehensive
income for the Company includes foreign currency translation adjustments and net
income reported in the Company’s Consolidated Statements of
Operations.
  Comprehensive
income for the fiscal 2008 and 2007 periods presented was as
follows:
  Three
      Months Ended
              
              
              Six
      Months EndedJanuary
      26,
                  2008
              
              
              January
      27,
                  2007
              
              
              January
      26,
                  2008
              
              
              January
      27,
                  2007Net
      income
              
              $
              1,427
              
              
              $
              1,082
              
              
              $
              2,534
              
              
              $
              595Foreign
      currency translation adjustments
              
              
              570
              
              
              
              183
              
              
              
              1,204
              
              
              
              (9
              )Comprehensive
      income
              
              $
              1,997
              
              
              $
              1,265
              
              
              $
              3,738
              
              
              $
              586
 
 INCOME
(LOSS) PER SHARE
  Common
shares outstanding for all periods exclude 622,770 shares of treasury
stock.  The computation of dilutive securities includes the assumed
conversion of warrants and employee stock options to purchase Company stock if
such conversion is dilutive.
   9
 Table of Contents
   Three
      Months Ended
              
              
              Six
      Months EndedJanuary
      26, 2008
              
              
              January
      27, 2007
              
              
              January
      26, 2008
              
              
              January
      27, 2007Numerator:Net
      income
              
              $
              1,427
              
              
              $
              1,082
              
              
              $
              2,534
              
              
              $
              595Denominator:
      (shares in thousands)Weighted
      average number of common shares outstanding used for basic income per
      share
              
              
              24,180
              
              
              
              11,661
              
              
              
              24,170
              
              
              
              11,653Effect
      of dilutive securities
              
              
              612
              
              
              
              320
              
              
              
              587
              
              
              
              274Denominator
      for diluted income per share
              
              
              24,792
              
              
              
              11,981
              
              
              
              24,757
              
              
              
              11,927Income
      per common share:Basic
              
              $
              0.06
              
              
              $
              0.09
              
              
              $
              0.10
              
              
              $
              0.05Diluted
              
              $
              0.06
              
              
              $
              0.09
              
              
              $
              0.10
              
              
              $
              0.05
 
 Antidilutive
securities excluded from above computations:
  Three
      Months Ended
              
              
              Six
      Months EndedJanuary
      26,
                  2008
              
              
              January
      27,
                  2007
              
              
              January
      26, 2008
              
              
              January
      27, 2007Employee
      stock options
              
              
              950
              
              
              
              1,758
              
              
              
              1,031
              
              
              
              1,777Warrants
              
              
              --
              
              
              
              793
              
              
              
              --
              
              
              
              823
 
 SHORT-TERM
CREDIT FACILITIES AND LONG-TERM DEBT
  On August
1, 2005, the Company entered into a three-year revolving credit and term loan
facility with North Fork Business Capital (the “North Fork Facility”) and repaid
the prior facility.  During the first six months of 2007, an average
of $1,618 was outstanding under this facility.  In March 2007, the
Company used a portion of the proceeds from the Rights Offering described below
to pay all outstanding balances under this facility as well as $2,505 of
subordinated notes then outstanding and $146 in related interest.
  On June
1, 2007, the North Fork Facility was amended and restated.  As
restated, the North Fork Facility provides for a $7,500 formula based revolving
credit facility based on the Company’s eligible accounts receivable and
inventory as defined in the credit agreement and a capital expenditure loan
facility up to $1,500.  Interest on the revolving credit and capital
expenditure borrowings is payable at prime plus 0.5% or alternatively at a LIBOR
rate plus 2.5%.  Other changes to the terms and conditions of the
original loan agreement include the modification of covenants, removal of the
Villa stock as loan collateral and the removal of daily collateral reporting
which was part of the previous asset-based facility requirements.
  As of
January 26, 2008 and July 28, 2007, no amounts were outstanding and the Company
had approximately $9,000 of availability under the North Fork Facility, of which
North Fork has reserved $1,000 against possible litigation
settlements.
  The North
Fork Facility is subject to commitment fees of 0.5% per annum on the
daily-unused portion of the facility, payable monthly.  The Company
granted a security interest to the lender on its US credit facility in
substantially all of its accounts receivable, inventory, property, plant and
equipment, other assets and intellectual property in the US.
  As of the
end of the first quarter of fiscal 2007, the Company was non-compliant with the
tangible net worth covenant under the North Fork Facility.  On
December 6, 2006, North Fork waived the non-compliance with this covenant for
the first quarter of fiscal 2007 and adjusted the covenant levels going forward
through the maturity of the credit facility.  As of January 26, 2008
and July 28, 2007, the Company was in compliance with all covenants under the
North Fork Facility.
  The
Company received a dividend from its Villa subsidiary in October 2006 of
approximately $1,560 which was used to pay down amounts outstanding under the
North Fork Facility, in accordance with provisions of the facility.
  The
Company’s Villa subsidiary maintains short term credit facilities which are
renewed annually with Italian banks.  Currently, these facilities are
not being utilized and the balance due at January 26, 2008 is
$0.  Interest rates on these facilities are variable and currently
range from 3.7 – 14.25%.
   10
 Table of Contents
  Long term
debt at January 26, 2008 and July 28, 2007 is summarized as
follows:
  January
      26, 2008
              
              
              July
      28, 2007Italian
      capital lease obligations
              
              $
              2,680
              
              
              $
              2,650Italian
      credit facilities
              
              
              2,734
              
              
              
              2,699Italian
      government loans
              
              
              1,075
              
              
              
              1,135Total
      long term debt
              
              
              6,489
              
              
              
              6,484Less
      current portion of long-term bank debt
              
              
              (1,351
              )
              
              
              (1,086
              )Long
      term debt, less current portion
              
              $
              5,138
              
              
              $
              5,398
 
 In
October 2006, Villa entered into a 1.0 million Euro loan for financing of
R&D projects, with an option for an additional 1 million Euro upon
completion of 50% of the projects.  Interest is payable at Euribor 3
months plus 1.3 points, currently 5.984%.  The spread may be reduced
to 1.04 points upon completion of the project if objectives are
achieved.  The note is repayable over a 7 year term, with
reimbursement starting in September 2008.  The note contains a
financial covenant which provides that the net equity of Villa cannot fall below
5.0 million Euros.  This covenant could limit Villa’s ability to pay
dividends to the US parent company in the event future losses, future dividends
or other events should cause Villa’s equity to fall below the defined
level.
  In
December 2006, Villa entered into a 1.0 million Euro loan with interest payable
at Euribor 3 months plus 0.95 points, currently 5.634%.  The loan is
repayable in 4 years.
  Villa is
also party to two Italian government long-term loans with a fixed interest rate
of 3.425% with principal payable annually through maturity in February and
September 2010.  At January 26, 2008, total principal due is 0.7
million Euro.  Villa’s manufacturing facility is subject to a capital
lease obligation which matures in 2011 with an option to
purchase.  Villa is in compliance with all related financial covenants
under these short and long-term financings.
  SEGMENT
INFORMATION
  The
Company has three reportable segments: Medical Systems Group, Power Conversion
Group and Other.  The “Other” segment includes unallocated corporate
costs.  Interim segment information is as follows:
  For
      three months ended
                  January
      26, 2008
              
              Medical
      Systems Group
              
              
              Power
      Conversion Group
              
              
              Other
              
              
              TotalNet
      Sales to External Customers
              
              $
              27,230
              
              
              $
              2,664
              
              
              
              -
              
              
              $
              29,894Cost
      of sales
              
              
              20,695
              
              
              
              1,709
              
              
              
              -
              
              
              
              22,404Gross
      margin
              
              
              6,535
              
              
              
              955
              
              
              
              
              
              
              
              7,490Operating
      expenses
              
              
              3,805
              
              
              
              697
              
              
              
              380
              
              
              
              4,882Operating
      income (loss)
              
              $
              2,730
              
              
              $
              258
              
              
              $
              (380
              )
              
              $
              2,608
  For
      three months ended
                        January
      27, 2007
                    
                    Medical
      Systems Group
                    
                    
                    Power
      Conversion Group
                    
                    
                    Other
                    
                    
                    TotalNet
      Sales to External Customers
                    
                    $
                    23,901
                    
                    
                    $
                    2,870
                    
                    
                    
                    -
                    
                    
                    $
                    26,771Cost
      of sales
                    
                    
                    18,048
                    
                    
                    
                    1,974
                    
                    
                    
                    -
                    
                    
                    
                    20,022Gross
      margin
                    
                    
                    5,853
                    
                    
                    
                    896
                    
                    
                    
                    -
                    
                    
                    
                    6,749Operating
      expenses
                    
                    
                    3,211
                    
                    
                    
                    591
                    
                    
                    
                    398
                    
                    
                    
                    4,200Operating
      income (loss)
                    
                    $
                    2,642
                    
                    
                    $
                    305
                    
                    
                    $
                    (398
                    )
                    
                    $
                    2,549
 11
 Table of Contents
  For
      six months ended
                          January
      26, 2008
                      
                      Medical
      Systems Group
                      
                      
                      Power
      Conversion Group
                      
                      
                      Other
                      
                      
                      TotalNet
      Sales to External Customers
                      
                      $
                      51,313
                      
                      
                      $
                      5,296
                      
                      
                      
                      -
                      
                      
                      $
                      56,609Cost
      of sales
                      
                      
                      39,311
                      
                      
                      
                      3,378
                      
                      
                      
                      -
                      
                      
                      
                      42,689Gross
      margin
                      
                      
                      12,002
                      
                      
                      
                      1,918
                      
                      
                      
                      -
                      
                      
                      
                      13,920Operating
      expenses
                      
                      
                      7,034
                      
                      
                      
                      1,284
                      
                      
                      
                      784
                      
                      
                      
                      9,102Operating
      income (loss)
                      
                      $
                      4,968
                      
                      
                      $
                      634
                      
                      
                      $
                      (784
                      )
                      
                      $
                      4,818
 
 For
      six months ended
                          January
      27, 2007
                      
                      Medical
      Systems Group
                      
                      
                      Power
      Conversion Group
                      
                      
                      Other
                      
                      
                      TotalNet
      Sales to External Customers
                      
                      $
                      40,523
                      
                      
                      $
                      5,535
                      
                      
                      
                      -
                      
                      
                      $
                      46,057Cost
      of sales
                      
                      
                      31,524
                      
                      
                      
                      3,787
                      
                      
                      
                      -
                      
                      
                      
                      35,311Gross
      margin
                      
                      
                      8,999
                      
                      
                      
                      1,748
                      
                      
                      
                      -
                      
                      
                      
                      10,746Operating
      expenses
                      
                      
                      5,801
                      
                      
                      
                      1,135
                      
                      
                      
                      1,022
                      
                      
                      
                      7,958Operating
      income (loss)
                      
                      $
                      3,198
                      
                      
                      $
                      613
                      
                      
                      $
                      (1,022
                      )
                      
                      $
                      2,788
 STOCK
OPTION PLAN AND WARRANTS
  During
the first quarter of fiscal year 2008, the Company granted options to purchase
212,500 common shares under the 2007 Incentive Stock Plan at a weighted average
exercise price of $2.72 per share that vested 25% immediately and 25% per year
for the next three years.  The aggregate fair value of these options
was $409.  The fair values of the grants awarded were determined using
the following assumptions in the Black-Scholes model: an estimated life of seven
years, volatility of approximately 72%, risk free interest rate of 4.20% and the
assumption that no dividends will be paid.  There were no stock
options granted during the second quarter of fiscal 2008.
  During
the first quarter of fiscal year 2007, the Company granted options to purchase
335,000 common shares under the Del Global Technologies Corp. Amended and
Restated Stock Option Plan (the “1994 Plan”) at a weighted average exercise
price of $1.45 per share.  During the second quarter of fiscal year
2007, the Company granted options to purchase 75,000 common shares under the
1994 Plan at a weighted average exercise price of $1.96 per
share.  These shares vested 25% immediately and 25% per year for the
next three years.  The aggregate fair value of these options was
$328.  The fair values of the grants awarded were determined using the
following assumptions in the Black-Scholes model: an estimated life of seven
years, volatility of approximately 63%, risk free interest rate of 4.61% to
4.75% and the assumption that no dividends will be paid.
  In the
second quarter of fiscal 2008 and 2007, the Company recorded $84 and $59,
respectively, of compensation expense related to stock options.  In
the six months ended January 26, 2008 and January 27, 2007, the Company recorded
$256 and $97, respectively, of compensation expense related to stock
options.
  During
the second quarter of fiscal 2008, 2,500 stock options were exercised for cash
proceeds to the Company of $4 and an intrinsic value of $3.  The
intrinsic value is the amount by which the market value of the underlying stock
exceeds the exercise price of the option.
  During
the first quarter of fiscal 2008, 47,527 warrants were exercised for cash
proceeds to the Company of $68.  During the second quarter of fiscal
2008, 3,380 warrants were exercised for cash proceeds to the Company of
$14.  No warrants were exercised in the first six months of fiscal
2007.  As of January 26, 2008 and January 27, 2007, 525,109 and
940,370 of these warrants were outstanding, respectively.
  CONTINGENCIES
  EMPLOYMENT
MATTERS - The Company had an employment agreement with Samuel Park, a previous
Chief Executive Officer (“CEO”), for the period May 1, 2001 to April 30,
2004.  The employment agreement provided for certain payments in the
event of a change in the control of the Company.  On October 10, 2003,
the Company announced the appointment of Walter F. Schneider as President and
CEO to replace Mr. Park, effective as of such date.  As a result, the
Company recorded a charge of $200 during the first quarter of fiscal 2004 to
accrue the balance remaining under Mr. Park’s employment agreement.
  The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes in control.  The Company’s Board of Directors elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1,800 under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On
  12
 Table of Contents
   November
17, 2003, the Company filed a complaint in the United States District Court,
Southern District of New York, against Mr. Park seeking a declaratory judgment
that no change in control payment was or is due to Mr. Park, and that an
amendment to the employment contract with Mr. Park regarding advancement and
reimbursement of legal fees is invalid and unenforceable.  Mr. Park
answered the complaint and asserted counterclaims seeking payment from the
Company based on his position that a “change in control” occurred in June
2003.  Mr. Park is also seeking other consideration he believes he is
owed under his employment agreement.  The Company filed a reply to Mr.
Park’s counterclaims denying that he is entitled to any of these
payments.  Discovery in this matter was conducted and
completed.  Following discovery, the Company and Mr. Park filed
motions for summary judgment on the issues related to the change in control and
the amendment to the employment agreement, which motions have been fully
submitted to the court for consideration.  To date, no decision has
been issued by the court on these motions.  If Mr. Park prevails on
his claims and the payments he seeks are required to be paid in a lump sum,
these payments may have a material adverse effect on the Company’s
liquidity.  It is not possible to predict the outcome of these
claims.  However, the Company’s Board of Directors does not believe
that such a claim is reasonably likely to result in a material decrease in the
Company’s liquidity in the foreseeable future.  The Company has not
recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.
  On June
28, 2002, Jeffrey N. Moeller, the former Director of Quality Assurance and
Regulatory Affairs of Del Medical, commenced an action in the Circuit Court of
Cook County, Illinois, against the Company, Del Medical and Walter Schneider,
the former President of Del Medical.  In the most current iteration of
this pleading, the third amended complaint, Mr. Moeller alleges four claims
against the defendants in the action: (1) retaliatory discharge from employment
with Del Medical, allegedly in response to Mr. Moeller’s complaints to officers
of Del Medical about purported prebilling and his stopping shipment of a product
that allegedly did not meet regulatory standards, (2) defamation, (3)
intentional interference with his employment relationship with Del Medical and
prospective employers, and (4) to hold the Company liable for any misconduct of
Del Medical under a theory of piercing the corporate veil.  By order
dated September 15, 2006, the Court denied in part and granted in part
defendants’ motion requesting summary judgment dismissing the third amended
complaint.  The court granted the motion only to the extent of
dismissing that part of Mr. Moeller’s claim of interference with his employment
relationship with Del Medical and his relationship with prospective employers,
addressed to alleged interference with his relationship with prospective
employers.  The parties appeared for mediation in January 2007 but the
mediation did not result in a disposition of the action.  Accordingly,
it appears that the action will proceed to trial.  A status conference
before the Court was held March 8, 2007, and subsequently, a trial date had been
scheduled for October 1, 2007.  The trial date has been postponed due
to the unavailability of a witness for the plaintiff.  A trial date
has been scheduled for April 7, 2008.  The Company and Del Medical
intend to defend vigorously against Mr. Moeller’s claims.  Mr. Moeller
is seeking $2,370 in damages consisting of alleged income loss, including salary
and benefits, and the present value of his lost income and benefits in the
future after lump sum tax adjustments.  In fiscal 2007, the Company
recorded an accrual of $100 relating to potential liability in the settlement of
these claims.
  Diamond v. Allied Diagnostic
Imaging Resources, Inc., et al. (Superior Court, County of Los Angeles;
Case No. BC362544). This action is brought against numerous defendants,
including the Company. While the action commenced in late 2006, plaintiff first
served the summons and complaint on the Company in December 2007. The plaintiff
alleges that she is the wife of a chiropractor who died in June 2005. Plaintiff
alleges that her husband was exposed to chemical products in developing x-ray
films and cleaning film processing machines and worked with the x-ray film
processing machines and x-ray machines, and that the defendants manufactured,
supplied or serviced the chemical products and machines.  The
complaint further alleges that the decedent was exposed to toxic chemicals and
radiation from the chemical products used on or in the machines, which caused
“serious injuries to his internal organs, including acute myelogenous leukemia”,
resulting in his death.
  The
complaint alleges the following six claims against the defendants: (1)
negligence in manufacturing. and distributing the chemical products and
machines, and servicing the machines, and failing adequately to warn decedent of
the hazards of the chemical products and machines, (2) violation of a California
statute and regulation by failing to determine whether the chemical products
caused health hazards and failing to label or identify in material safety data
sheets a health hazard relating to acute myelogenous leukemia, (3) strict
products liability for failing to warn adequately of the chemical products’ and
machines’ health hazards, (4) strict products liability for defects in the
design of the chemical products and machines, (5) fraudulent concealment of the
toxic and carcinogenic nature of the chemical products and the machines, and (6)
breach of implied warranties as to the fitness of the chemical products and
machines for intended uses, merchantability, and lack of defects.
   13
 Table of Contents
  While the
complaint does not allege a total amount of damages sought, plaintiff alleges
that she has suffered damages consisting of medical, funeral, and burial
expenses, the decedent’s lost earnings prior to and lost wages after his death,
lost benefits after his death, the value of his services in managing his
family’s home, and loss of companionship and similar losses. The plaintiff also
requests punitive damages.  The Company has not recorded an accrual
for any potential settlement of this claim as it has no basis upon which to
estimate either the outcome or amount of loss, if any.  The Company
intends to defend vigorously against these claims.
  On
May 24, 2007, the Company’s RFI subsidiary was served with a subpoena to testify
before a grand jury of the United States District Court of New York and to
provide items and records from its Bay Shore NY offices in connection with U.S.
Department of Defense contracts.  A search warrant from the United
States District Court, Eastern District of New York was issued and executed with
respect to such offices.  The Company believes that it is in full
compliance with the quality standards that its customers require and is fully
cooperating with investigators to assist them with their review.  The
Company’s RFI subsidiary is continuing to ship products to the U.S. Government
as well as to its commercial customers.
  In
addition, the Company is a defendant in several other legal actions arising from
the normal course of business in various US and foreign
jurisdictions.  Management believes the Company has meritorious
defenses to such actions and that the outcomes will not be material to the
Company’s consolidated financial statements.
  AUTHORIZED
SHARES OF THE CORPORATION’S COMMON STOCK
  At a
special meeting of shareholders of the Company held on November 17, 2006, the
Company’s shareholders approved an Amendment of the Certificate of Incorporation
of the Corporation (the “Amendment”) to increase the number of authorized shares
of the Corporation’s common stock, par value $.10 per share, from twenty million
(20,000,000) shares to fifty million (50,000,000) shares  in order to
have a  sufficient number of shares of Common Stock to provide a
reserve of shares available for issuance to meet business needs as they may
arise in the future. Such business needs may include, without limitation, rights
offerings, financings, acquisitions, establishing strategic relationships with
corporate partners, providing equity incentives to employees, officers or
directors, stock splits or similar transactions.  Issuances of any
additional shares for these or other reasons could prove dilutive to current
shareholders or deter changes in control of the Company, including transactions
where the shareholders could otherwise receive a premium for their shares over
then current market prices.
  RIGHTS
OFFERING AND STOCKHOLDER’S RIGHTS PLAN
  On
December 12, 2006, the Company filed a registration statement for a subscription
Rights Offering with the SEC that became effective January 30,
2007.  Under the terms of this Rights Offering, the Company
distributed to shareholders of record as of February 5, 2007, non-transferable
subscription rights to purchase one share of the Company’s common stock for each
share owned at that date at a subscription price of $1.05 per
share.  On March 12, 2007, the Company completed the Rights Offering,
selling 12,027,378 shares of its common stock at $1.05 per
share.  Total proceeds to the Company, net of expenses related to the
Rights Offering, were $12,354.
  The
purpose of this Rights Offering was to raise equity capital in a cost-effective
manner.  Approximately $7,564 of the proceeds were used for debt
repayment and the remainder invested in short-term money market securities for
anticipated working capital needs and general corporate purposes.  A
portion of the net proceeds may also ultimately be used to acquire or invest in
businesses, products and technologies that Company management believes are
complementary to the Company’s business.
  In
addition, on January 22, 2007, the Company entered into a stockholders rights
plan (the “Rights Plan”).  The Rights Plan provides for a dividend
distribution of one Common Stock purchase right for each outstanding share
of  the Company’s Common Stock.  The Company’s Board of
Directors adopted the Rights Plan to protect stockholder value by protecting the
Company’s ability to realize the benefits of its net operating losses (“NOLs”)
and capital loss carryforwards.  The Company has experienced
substantial operating and capital losses in previous years.  Under the
Internal Revenue Code and rules promulgated by the IRS, the Company may “carry
forward” these losses in certain circumstances to offset current and future
earnings and thus reduce its federal income tax liability, subject to certain
requirements and restrictions.  Assuming that the Company has future
earnings, the Company may be able to realize the benefits of NOLs and capital
loss carryforwards.  These NOLs and capital loss carryforwards
constitute a substantial asset to the Company.  If the Company
experiences an “Ownership Change,” as defined in Section 382 of the Internal
Revenue Code, its ability to use the NOLs and capital loss carryforwards could
be substantially limited or lost altogether.  In general terms, the
Rights Plan imposes a significant penalty upon any person or group that acquires
certain percentages of the Company’s common stock by allowing other shareholders
to acquire equity securities at half their fair values.
   14
 Table of Contents
  DELGLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  Item
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.  These statements are based
on current expectations and the current economic environment.  We
caution that these statements are not guarantees of future
performance.  They involve a number of risks and uncertainties that
are difficult to predict including, but not limited to, our ability to implement
our business plan, retention of management, changing industry and competitive
conditions, obtaining anticipated operating efficiencies, securing necessary
capital facilities and favorable determinations in various legal and regulatory
matters.  Actual results could differ materially from those expressed
or implied in the forward-looking statements.  Important assumptions
and other important factors that could cause actual results to differ materially
from those in the forward-looking statements are specified in the Company’s
filings with the Securities and Exchange Commission including our Annual Report
on Form 10-K for the fiscal year ended July 28, 2007 and Current Reports on Form
8-K.
  OVERVIEW
  The
Company is primarily engaged in the design, manufacture and marketing of
cost-effective medical and dental diagnostic imaging systems consisting of
stationary and portable imaging systems, radiographic/fluoroscopic systems,
dental imaging systems and digital radiography systems.  The Company
also manufactures electronic filters, high voltage capacitors, pulse modulators,
transformers and reactors, and a variety of other products designed for
industrial, medical, military and other commercial applications.  The
Company manages its business in two operating segments: our Medical Systems
Group and our Power Conversion Group.  In addition, the Company has a
third reporting segment, Other, comprised of certain unallocated corporate
General and Administrative expenses.  See “Segment Information” in
Part I, Item 1 of this Quarterly Report on Form 10-Q for the fiscal quarter
ended January 26, 2008 (this “Quarterly Report”) for discussions of the
Company’s segments.
  CRITICAL
ACCOUNTING POLICIES
  Complete
descriptions of significant accounting policies are outlined in Note 1 of the
Notes to Consolidated Financial Statements included in our Annual Report on Form
10-K for the fiscal year ended July 28, 2007.  Within these policies,
the Company has identified the accounting for deferred tax assets, the allowance
for obsolete and excess inventory and goodwill as being critical accounting
policies due to the significant amount of estimates involved.  In
addition, for interim periods, the Company has identified the valuation of
finished goods inventory as being critical due to the amount of estimates
involved.
  Revenue
Recognition
  The
Company recognizes revenue upon shipment, provided there is persuasive evidence
of an arrangement, there are no uncertainties concerning acceptance, the sale
price is fixed, collection of the receivable is probable and only perfunctory
obligations related to the arrangement need to be completed.  The
Company maintains a sales return allowance, based upon historical patterns, to
cover estimated normal course of business returns, including defective or out of
specification product.  The Company’s products are covered primarily
by one year warranty plans and in some cases optional extended warranties for up
to five years are offered.  The Company establishes allowances for
warranties on an aggregate basis for specifically identified, as well as
anticipated, warranty claims based on contractual terms, product conditions and
actual warranty experience by product line.  The Company recognizes
service revenue when repairs or out of warranty repairs are
completed.  The Company has an FDA obligation to continue to provide
repair service for certain medical systems for up to seven years past the
warranty period.  These repairs are billed to the customers at market
rates.
  Deferred
Income Taxes
  The
Company accounts for deferred income taxes in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,”
whereby it recognizes deferred tax assets and liabilities for temporary
differences between financial reporting basis and income tax basis and for net
operating loss carryforwards.
   15
 Table of Contents
   The
Company periodically assesses the realization of our net deferred income tax
assets.  This evaluation is primarily based upon current operating
results and expectations of future operating results.  A valuation
allowance is recorded if the Company believes its net deferred income tax assets
will not be realized.  The Company’s determination is based on what it
believes will be the more likely than not result.
  During
fiscal year 2007, the Company recorded operating income on a consolidated
basis.  For tax reporting purposes, the Company’s foreign tax
reporting entity was profitable and its US tax reporting entities incurred a
taxable loss.  Based on these results and expectations of future
results, the Company concluded that it should maintain a 100% valuation
allowance on its net US deferred income tax assets.  For the quarter
ended January 26, 2008, the Company continues to carry a 100% valuation
allowance on its net U.S. deferred income tax asset.
  The
Company recorded a tax expense with respect to its foreign subsidiary’s income
in all periods presented and based on a more likely than not standard, believes
that the foreign subsidiary’s net deferred income tax asset at January 26, 2008
will be realized.
  The
Company’s foreign subsidiary operates in Italy.  Italy recently
enacted legislation which reduces tax rates effective for the Company’s fiscal
year 2009.  The quarter ended January 26, 2008 income tax expense
includes a charge to reduce the carrying value of the foreign subsidiary’s net
deferred income tax asset resulting from the income tax rate
reduction.
  Additionally,
the Company’s deferred income tax liabilities had included the estimated tax
obligation which would be incurred upon a distribution of the foreign
subsidiary’s earnings to its US parent.  This tax liability had been
recorded as the foreign subsidiary has routinely distributed monies to the US
parent.  Based on current operating results, expectations of future
results and available cash and credit in the US, the Company has determined it
no longer intends to repatriate monies in the foreseeable future and has
reversed this tax obligation.  This reversal resulted in a reduction
in tax expense for the quarter ended January 26, 2008.
  The net
impact of these two tax adjustments was a $0.1 million benefit.
  In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), which is an interpretation of SFAS No.
109.  FIN 48 requires that the Company  recognize the
financial statement effects of an income tax position when it is more likely
than not, based on the technical merits, that the position will be sustained
upon examination.  As used in this Interpretation, the term “more
likely than not” means a likelihood of more than 50 percent.  The term
“upon examination” includes resolution of the related appeals or litigation
processes, if any.  The determination of whether or not a tax position
has met the more-likely-than-not recognition threshold is to be determined based
on the facts, circumstances, and information available at the reporting
date.
  FIN 48
was adopted by the Company beginning July 29, 2007.  The adoption of
FIN 48 did not have any impact on the Company’s statement of financial position
or on its results of operations.
  The
Company’s primary income tax jurisdictions are in the United States and
Italy.  The Company is currently not under audit in either
jurisdiction.  Tax years since 2003 are open pursuant to statutes in
Italy and tax years since 2004 are open pursuant to statutes in the Unites
States.
  It is the
Company’s practice to recognize interest and/or penalties related to income tax
matters in tax expense.  As of January 26, 2008, there were no
material interest or penalty amounts to accrue.
  Obsolete
and excess inventory
  We
re-evaluate our allowance for obsolete inventory once a quarter, and this
allowance comprises the most significant portion of our inventory
reserves.  The re-evaluation of reserves is based on a written policy,
which requires at a minimum that reserves be established based on our analysis
of historical actual usage on a part-by-part basis.  In addition, if
management learns of specific obsolescence in addition to this minimum formula,
these additional reserves will be recognized as well.  Specific
obsolescence might arise due to a technological or market change, or based on
cancellation of an order.  As we typically do not purchase inventory
substantially in advance of production requirements, we do not expect
cancellation of an order to be a material risk.  However, market or
technology changes can occur.
  Valuation
of finished goods inventories
  In
addition, we use certain estimates in determining interim operating
results.  The most significant estimates in interim reporting relate
to the valuation of finished goods inventories.  For certain
subsidiaries, for interim periods, we estimate the amount of labor and overhead
costs related to finished goods inventories.  As of January 26, 2008,
finished goods represented approximately 20.4% of the gross carrying value of
our total gross inventory.  We believe the estimation methodologies
used to be appropriate and are consistently applied.
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  Goodwill
  The
Company’s goodwill is subject to, at a minimum, an annual fourth fiscal quarter
impairment assessment of its carrying value. Goodwill impairment is deemed to
exist if the net book value of a reporting unit exceeds its estimated fair
value. Estimated fair values of the reporting units are estimated using an
earnings model and a discounted cash flow valuation model. The discounted cash
flow model incorporates the Company’s estimates of future cash flows, future
growth rates and management’s judgment regarding the applicable discount rates
used to discount those estimated cash flows. If the Company’s estimates and
assumptions used in the discounted cash flow valuation model should prove
inaccurate at some future date, the results of operations for the period could
be materially affected by an impairment of goodwill.  The Company has
noted that fiscal 2008 operating results for one particular reporting unit,
which carries $1.9 million of goodwill, has not met the cash flow projections
used in the last annual assessment.
  
 CONSOLIDATED
RESULTS OF OPERATIONS
  Three
Months and Six Months Ended January 26, 2008 Compared to three Months and Six
Months Ended January 27, 2007
  Consolidated
net sales of $29.9 million for the second quarter of fiscal 2008 increased by
$3.1 million or 11.7% from fiscal 2007 second quarter net sales of $26.8 million
due to increased sales in our Medical Systems Group.  The Medical
Systems Group’s second quarter fiscal 2008 sales of $27.2 million were $3.3
million or 13.9% more than the prior year’s second quarter with increases
primarily due to increased international sales volume of several medical system
product lines, particularly the Apollo line.  The Power Conversion
Group’s sales for the second quarter of fiscal 2008 of $2.7 million were
approximately $0.2 less than prior year’s sales due to weaker sales bookings in
the current period.
  Consolidated
net sales of $56.6 million for the first six months of fiscal 2008 increased by
$10.6 million or 22.9% from fiscal 2007 net sales of $46.0 million, due to
increased sales in our Medical Systems Group.  The Medical Systems
Group’s sales for the first half of fiscal 2008 of $51.3 million increased $10.8
million or 26.6% from the prior year’s first half.  Net sales
increases were primarily driven by  increased international sales
volume of several medical system product lines, particularly the Apollo line, as
noted above.  The Power Conversion Group’s sales for the first half of
fiscal 2008 of $5.3 million were approximately $0.2 less than prior year’s sales
due to weaker sales bookings in the current period.
  Consolidated
backlog at January 26, 2008 was $29.4 million versus backlog at July 28, 2007 of
approximately $28.4 million.  The backlog in the Power Conversion
Group of $7.8 million increased $1.1 million from levels at the beginning of the
fiscal year, while there was a $0.1 million decrease in the second quarter
backlog of the Company’s Medical Systems segment from July 28, 2007, reflecting
lower bookings during the three month period in international
markets.  Substantially all of the backlog should result in shipments
within the next 12 to 15 months.
  Gross
margins as a percent of sales were 25.1% for the second quarter of fiscal 2008,
compared to 25.2% in the second quarter of fiscal 2007.  The Power
Conversion Group’s margins for the second quarter of fiscal 2008 were 35.9%,
versus 31.2% in the prior year quarter, reflecting increased margins in product
mix and decreased production costs.  For the Medical Systems Group,
second quarter of fiscal 2008 gross margins of 24.0% were lower than gross
margins of 24.5% in the second quarter of fiscal 2007 due primarily to increased
sales returns and slightly increased production costs.
  Gross
margins as a percent of sales were 24.6% for the first six months of fiscal
2008, compared to 23.3% for the first six months of fiscal 2007, due to
increased margins in product mix and decreased production costs at the Power
Conversion Group, offset by lower margins associated with increased sales
returns and slightly increased production costs at the Medical Systems Group, as
noted above.
  Selling,
General and Administrative expenses (“SG&A”) for the second quarter of
fiscal 2008 were $4.2 million (14.1% of sales) compared to $3.6 million (13.6%
of sales) in the prior year’s second quarter.  The increase is
primarily due to increased international selling expenses and higher stock based
compensation expenses related to increased volume of stock options vesting
during the second quarter of fiscal 2008.
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  SG&A
for the first half of fiscal 2008 were $8.0 million (14.1% of sales) compared to
$7.0 million (15.2% of sales) in the prior year’s first half.  The
increase is primarily due to increased international selling expenses and higher
stock based compensation expenses related to increased volume of stock options
vested during the second quarter of fiscal 2008.
  As a
result of the above, the Company recognized a second quarter fiscal 2008
operating income of $2.6 million compared to an operating income of $2.5 million
in the second quarter of fiscal 2007.  The Medical Systems Group
posted a second quarter fiscal 2008 operating profit of $2.7 million and the
Power Conversion Group showed operating profit of $0.3 million, offset by
unallocated corporate costs of $0.4 million.  The Medical Systems
Group posted a second quarter fiscal 2007 operating profit of $2.6 million and
the Power Conversion Group showed operating profit of $0.3 million, offset by
unallocated corporate costs of $0.4 million.
  Operating
income for the first half of fiscal 2008 was $4.8 million compared to an
operating income of $2.8 million in the prior year period.  The
Medical Systems Group had an operating profit of $5.0 million and the Power
Conversion Group achieved an operating profit of $0.6 million, offset by
unallocated corporate costs of $0.8 million.  The Medical Systems
Group had an operating profit of $3.2 million for the first half of fiscal 2007
and the Power Conversion Group achieved an operating profit of $0.6 million,
offset by unallocated corporate costs of $1.0 million.
  Net
interest expense of $0.1 million for the second quarter of fiscal 2008 was $0.3
million lower than the prior year’s second quarter due to a reduction in
borrowings resulting from the paydown of US based debt with proceeds of a March
2007 Rights Offering, partially offset by additional borrowings in Italy to
support its day-to-day operations.
  Interest
expense for the first half of fiscal 2008 of $0.4 million was lower than the
prior year’s first half by $0.3 million for the same reasons.
  On a
consolidated basis, the Company recorded a second quarter fiscal 2008 pretax
income of $2.6 million, comprised of foreign pretax income of $3.1 million,
offset by a US pretax loss of $0.5 million.  The related second
quarter fiscal 2008 income tax expense of $1.2 million was primarily due to
foreign taxes on the profits of Villa.  During the same period in
fiscal 2007, the Company recorded pretax income of $2.2 million, which included
foreign pretax income of $2.4 million, offset by a US pretax loss of $0.2
million.  The related second quarter fiscal 2007 income tax expense of
$1.1 million was also due to foreign taxes on the profits of
Villa.  The Company has not provided for any income tax benefits
related to the US pretax losses in the second quarter of either fiscal 2008 or
fiscal 2007 due to uncertainty regarding the realizability of its US net
operating loss carryforwards as explained in Critical Accounting Policies
above.
  On a
consolidated basis, the Company recorded a first half of fiscal 2008 pretax
income of $4.7 million, comprised of foreign pretax income of $5.7 million,
offset by a US pretax loss of $1.0 million.  The related first half
income tax expense of $2.2 million was primarily due to foreign taxes on the
profits of Villa.  During the same period in fiscal 2007, the Company
recorded pretax income of $2.1 million, which included foreign pretax income of
$3.3 million, offset by a US pretax loss of $1.2 million.  The related
first half of fiscal 2007 income tax expense of $1.5 million was due to foreign
taxes on the profits of Villa.  The Company has not provided for any
income tax benefits related to the US pretax losses in the first half of either
fiscal 2008 or 2007 due to uncertainty regarding the realizability of its US net
operating loss carryforwards as explained in Critical Accounting Policies
above.
  Reflecting
the above, the Company recorded net income of $1.4 million, or $0.06 per basic
and diluted share, in the second quarter of fiscal 2008 as compared to net
income of $1.1 million, or $0.09 per basic and diluted share for the same period
in fiscal 2007.  The average shares outstanding for the fiscal 2008
period were more than double the shares outstanding for the fiscal 2007 period
due to shares issued in a March 2007 Rights Offering.
  The
Company recorded net income of $2.5 million or $0.10 per share (basic and
diluted) in the first half of fiscal 2008, as compared to net income of $0.6
million or $0.05 per share (basic and diluted) in the first half of the prior
year, again, on more than double the average shares outstanding for the fiscal
2007 period.
  FINANCIAL
CONDITION
  LIQUIDITY
AND CAPITAL RESOURCES
  The
Company funds it’s investing and working capital needs through a combination of
cash flow from operations, short-term credit facilities and the proceeds of the
Rights Offering described below.
  Working
Capital — At January 26, 2008 and July 28, 2007, our working capital was
approximately $28.3 million and $25.0 million, respectively.  The
increase in working capital for the first half of fiscal 2008 compared to the
same period of fiscal 2007 related primarily to increases in ending cash and
equivalents and accounts receivable (due to higher sales) offset partially by
increases in accrued expenses due to quarter end inventory
activity.
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  At
January 26, 2008 and July 28, 2007, we had approximately $10.4 million and $7.9
million, respectively, in cash and cash equivalents.  This increase is
primarily due to cash provided by operating activities as a result of higher net
income and an increase of accrued expenses and a decrease in
inventories.  As of January 26, 2008, we had approximately $9.0
million of excess borrowing availability under our domestic revolving credit
facility compared to $2.1 million at January 27, 2007.
  In
addition, as of January 26, 2008 and July 29, 2006, our Villa subsidiary had an
aggregate of approximately $12.0 million and $11.6 million, respectively, of
excess borrowing availability under its various short-term credit
facilities.  Terms of the Italian credit facilities do not permit the
use of borrowing availability to directly finance operating activities at our US
subsidiaries.
  Cash
Flows from Operating Activities – For the six months ended January 26, 2008, the
Company generated approximately $3.0 million of cash from operations, compared
to $5.6 million of cash provided by operations in the comparable prior fiscal
year period.  The decrease is largely due to stretching accounts
payable more in the 2007 period which offset higher earnings and less inventory
build in the 2008 period.
  Cash
Flows from Investing Activities — The Company made $0.4 million of facility
improvements and capital equipment expenditures for the quarterly period ended
January 26, 2008, which was equal to the comparable prior fiscal year
period.
  Cash
Flows from Financing Activities — During the six month period ended January 26,
2008, we repaid a total of approximately $0.6 million of indebtedness on our
domestic and Italian borrowings, as compared to $4.9 million in the comparable
prior fiscal year period.    During the comparable period of
fiscal 2007, we borrowed $3.1 million in a domestic term loan as part of our
North Fork Facility, which was repaid with the proceeds from a Rights Offering
discussed above during fiscal 2007’s third quarter.
  In
addition, the Company received $0.1 million in payment of the exercise price of
warrants in the six months ended January 26, 2008.
  The
Company’s contractual obligations, including debt and operating leases, as
previously disclosed on our Annual Report on Form 10-K for the fiscal year ended
July 28, 2007, has not changed materially at January 26, 2008.
  As of
January 26, 2008 and July 28, 2007, we did not have any outstanding borrowings
under our revolving credit facilities in the US or Italy.  The US term
loan was extinguished and the revolver was paid down to $0 with a portion of the
proceeds received from a March 2007 Rights Offering.
  Credit
Facility and Borrowing — On August 1, 2005, the Company entered into a
three-year revolving credit and term loan facility with North Fork Business
Capital (the “North Fork Facility”) and repaid the prior facility.
  On June
1, 2007, the North Fork Facility was amended and restated.  As
restated, the North Fork Facility provides for a $7.5 million formula based
revolving credit facility based on the Company’s eligible accounts receivable
and inventory as defined in the credit agreement and a capital expenditure loan
facility up to $1.5 million.  Interest on the revolving credit and
capital expenditure borrowings is payable at prime plus 0.5% or alternatively at
a LIBOR rate plus 2.5%. Other changes to the terms and conditions of the
original loan agreement include the modification of covenants, removal of the
Villa stock as loan collateral and the removal of daily collateral reporting
which was part of the previous asset-based facility requirements.
  As of
January 26, 2008 and July 28, 2007, no amounts were outstanding and the Company
had approximately $9.0 million of availability under the North Fork Facility, of
which North Fork has reserved $1 million against possible litigation
settlements.
  The North
Fork Facility is subject to commitment fees of 0.5% per annum on the
daily-unused portion of the facility, payable monthly.  The Company
granted a security interest to the lender on its US credit facility in
substantially all of its accounts receivable, inventory, property, plant and
equipment, other assets and intellectual property in the US.
  As of the
end of the first quarter of fiscal 2007, the Company was non-compliant with the
tangible net worth covenant under the North Fork Facility.  On
December 6, 2006, North Fork waived the non-compliance with this covenant for
the first quarter of fiscal 2007 and adjusted the covenant levels going forward
through the maturity of the credit facility.  As of January 26, 2008
and July 28, 2007, the Company was in compliance with all covenants under the
North Fork Facility.
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  The
Company received a dividend from its Villa subsidiary in October 2006 of
approximately $1.560 million which was used to pay down amounts outstanding
under the North Fork Facility, in accordance with provisions of the
facility.
  Our Villa
subsidiary maintains short term credit facilities which are renewed annually
with Italian banks.  Currently, these facilities are not being
utilized and the balance due at January 26, 2008 is $0.  Interest
rates on these facilities are variable and currently range from 3.7 –
14.25%.
  In
October 2006, Villa entered into a 1.0 million Euro loan for financing of
R&D projects, with an option for an additional 1 million Euro upon
completion of 50% of the projects.  Interest is payable at Euribor 3
months plus 1.3 points, currently 5.984%.  The spread may be reduced
to 1.04 points upon completion of the project if objectives are
achieved.  The note is repayable over a 7 year term, with
reimbursement starting in September 2008.  The note contains a
financial covenant which provides that the net equity of Villa cannot fall below
5.0 million Euros.  This covenant could limit Villa’s ability to pay
dividends to the US parent company in the event future losses, future dividends
or other events should cause Villa’s equity to fall below the defined
level.
  In
December 2006, Villa entered into a 1.0 million Euro loan with interest payable
at Euribor 3 months plus 0.95 points, currently 5.634%.  The loan is
repayable in 4 years.
  Villa is
also party to two Italian government long-term loans with a fixed interest rate
of 3.425% with principal payable annually through maturity in February and
September 2010.  At January 26, 2008, total principal due is 0.7
million Euro.  Villa’s manufacturing facility is subject to a capital
lease obligation which matures in 2011 with an option to
purchase.  Villa is in compliance with all related financial covenants
under these short and long-term financings.
  On
December 12, 2006, the Company filed a registration statement for a subscription
rights offering with the SEC that became effective January 30,
2007.  Under terms of this rights offering, the Company distributed to
shareholders of record as of February 5, 2007, non-transferable subscription
rights to purchase one share of the Company’s common stock for each share owned
at that date at a subscription price of $1.05 per share.  On March 12,
2007, the Company completed the rights offering, selling 12,027,378 shares of
its common stock at $1.05 per share.  Total proceeds to the Company,
net of $0.3 million of expenses related to the rights offering, were $12.4
million.
  The
purpose of this rights offering was to raise equity capital in a cost-effective
manner.  Approximately $7.6 million of the proceeds were used for debt
repayment and the remainder invested in short-term money market securities for
anticipated working capital needs and general corporate purposes.  A
portion of  the net proceeds may also ultimately be used to acquire or
invest in businesses, products and technologies that Company management believes
are complementary to the Company’s business.
  The
Company had an employment agreement with Samuel Park, a previous Chief Executive
Officer (“CEO”), for the period May 1, 2001 to April 30, 2004.  The
employment agreement provided for certain payments in the event of a change in
the control of the Company.  On October 10, 2003, the Company
announced the appointment of Walter F. Schneider as President and CEO to replace
Mr. Park, effective as of such date.  As a result, the Company
recorded a charge of $0.2 million during the first quarter of fiscal 2004 to
accrue the balance remaining under Mr. Park’s employment agreement.
  The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes in control.  The Company’s Board of Directors, elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1.8 million under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On November 17, 2003, the Company filed a complaint in the
United States District Court, Southern District of New York, against Mr. Park
seeking a declaratory judgment that no change in control payment was or is due
to Mr. Park, and that an amendment to the employment contract with Mr. Park
regarding advancement and reimbursement of legal fees is invalid and
unenforceable.  Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
“change in control” occurred in June 2003.  Mr. Park is also seeking
other consideration he believes he is owed under his employment
agreement.  The Company filed a reply to Mr. Park’s counterclaims
denying that he is entitled to any of these payments.  Discovery in
this matter was conducted and completed.  Following discovery, the
Company and Mr. Park filed motions for summary judgment on the issues related to
the change in control and the amendment to the employment agreement, which
motions have been fully submitted to the court for consideration.  To
date, no decision has been issued by the court on these motions.  If
Mr. Park prevails on his claims and the payments he seeks are required to be
paid in a lump sum, these payments may have a material adverse effect on the
Company’s liquidity.  It is not possible to predict the outcome of
these claims.  However, the Company’s Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company’s liquidity in the foreseeable future.  The Company has
not recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.
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 Table of Contents
  On June
28, 2002, Jeffrey N. Moeller, the former Director of Quality Assurance and
Regulatory Affairs of Del Medical, commenced an action in the Circuit Court of
Cook County, Illinois, against the Company, Del Medical and Walter Schneider,
the former President of Del Medical.  In the most current iteration of
this pleading, the third amended complaint, Mr. Moeller alleges four claims
against the defendants in the action: (1) retaliatory discharge from employment
with Del Medical, allegedly in response to Mr. Moeller’s complaints to officers
of Del Medical about purported prebilling and his stopping shipment of a product
that allegedly did not meet regulatory standards, (2) defamation, (3)
intentional interference with his employment relationship with Del Medical and
prospective employers, and (4) to hold the Company liable for any misconduct of
Del Medical under a theory of piercing the corporate veil.  By order
dated September 15, 2006, the Court denied in part and granted in part
defendants’ motion requesting summary judgment dismissing the third amended
complaint.  The Court granted the motion only to the extent of
dismissing that part of Mr. Moeller’s claim of interference with his employment
relationship with Del Medical and his relationship with prospective employers,
addressed to alleged interference with his relationship with prospective
employers.  The parties appeared for mediation in January 2007 but the
mediation did not result in a disposition of the action.  Accordingly,
it appears that the action will proceed to a trial.  A status
conference before the Court was held March 8, 2007, and subsequently, a trial
date had been scheduled for October 1, 2007.  The trial date has been
postponed due to the unavailability of a witness for the plaintiff.  A
trial date has been scheduled of April 7, 2008.  The Company and Del
Medical intend to defend vigorously against Mr. Moeller’s claims.  Mr.
Moeller is seeking $2.37 million in damages consisting of alleged income loss,
including salary and benefits, and the present value of his alleged lost income
and benefits in the future after lump sum tax adjustments.  In fiscal
2007, the Company recorded an accrual of $0.1 million relating to potential
liability in the settlement of these claims.
  Diamond v. Allied Diagnostic
Imaging Resources, Inc., et al. (Superior Court, County of Los Angeles;
Case No. BC362544). This action is brought against numerous defendants,
including the Company. While the action commenced in late 2006, plaintiff first
served the summons and complaint on the Company in December 2007. The plaintiff
alleges that she is the wife of a chiropractor who died in June 2005. Plaintiff
alleges that her husband was exposed to chemical products in developing x-ray
films and cleaning film processing machines and worked with the x-ray film
processing machines and x-ray machines, and that the defendants manufactured,
supplied or serviced the chemical products and machines.  The
complaint further alleges that the decedent was exposed to toxic chemicals and
radiation from the chemical products used on or in the machines, which caused
“serious injuries to his internal organs, including acute myelogenous leukemia”,
resulting in his death.
  The
complaint alleges the following six claims against the defendants: (1)
negligence in manufacturing. and distributing the chemical products and
machines, and servicing the machines, and failing adequately to warn decedent of
the hazards of the chemical products and machines, (2) violation of a California
statute and regulation by failing to determine whether the chemical products
caused health hazards and failing to label or identify in material safety data
sheets a health hazard relating to acute myelogenous leukemia, (3) strict
products liability for failing to warn adequately of the chemical products’ and
machines’ health hazards, (4) strict products liability for defects in the
design of the chemical products and machines, (5) fraudulent concealment of the
toxic and carcinogenic nature of the chemical products and the machines, and (6)
breach of implied warranties as to the fitness of the chemical products and
machines for intended uses, merchantability, and lack of defects.
  While the
complaint does not allege a total amount of damages sought, plaintiff alleges
that she has suffered damages consisting of medical, funeral, and burial
expenses, the decedent’s lost earnings prior to and lost wages after his death,
lost benefits after his death, the value of his services in managing his
family’s home, and loss of companionship and similar losses. The plaintiff also
requests punitive damages.  The Company has not recorded an accrual
for any potential settlement of this claim as it has no basis upon which to
estimate either the outcome or amount of loss, if any.  The Company
intends to defend vigorously against these claims.
  On May
24, 2007, the Company’s RFI subsidiary was served with a subpoena to testify
before a grand jury of the United States District Court of New York and to
provide items and records from its Bay Shore NY offices in connection with U.S.
Department of Defense contracts.  A search warrant from the United
States District Court, Eastern District of New York was issued and executed with
respect to such offices.  The Company believes that it is in full
compliance with the quality standards that its customers require and is fully
cooperating with investigators to assist them with their review.  The
Company’s RFI subsidiary is continuing to ship products to the U.S. Government
as well as to its commercial customers.
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  The
Company is a defendant in several other legal actions arising from the normal
course of business in various US and foreign
jurisdictions.  Management believes the Company has meritorious
defenses to such actions and that the outcome will not be material to the
Company’s consolidated financial statements.
  We
anticipate that cash generated from operations and amounts available from credit
facilities will be sufficient to satisfy currently projected operating cash
needs for at least the next twelve months, and for the foreseeable
future.
  OFF
BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
  The
Company has not had any investments in unconsolidated variable interest entities
or other off balance sheet arrangements during any of the periods presented in
this Quarterly Report on Form 10-Q.
  Item
      3.
              QUANTITATIVEAND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK
  We do not
hold market risk sensitive instruments for trading purposes.  We do,
however, recognize market risk from interest rate and foreign currency exchange
exposure.  There have been no changes in financial market risks as
described in the Company’s Annual Report on Form 10-K for the fiscal year ended
July 28, 2007.
  Item
      4T.
              CONTROLSAND
  PROCEDURES
  The
Company, under the supervision and with the participation of the Company’s
management, including James A. Risher, Chief Executive Officer, and Mark Zorko,
Chief Financial Officer, has evaluated the effectiveness of the design and
operation of the Company’s “disclosure controls and procedures”, as such term is
defined in Rules 13a-15e and 15d-15e promulgated under the Securities Exchange
Act of 1934, as amended, as of the end of the period covered by this Quarterly
Report.  Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company’s disclosure controls
and procedures were effective as of the end of the period covered by this
Quarterly Report to provide reasonable assurance that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
  In the
ordinary course of business, the Company routinely enhances its information
systems by either upgrading its current systems or implementing new
systems.  As required by Rule 13a-15(d), the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, also
conducted an evaluation of the Company’s internal control over financial
reporting as defined in Rule 13a-15(f) to determine whether any changes occurred
during the quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.  There were no changes in the Company’s internal controls
or in other factors that could significantly affect these controls, during the
Company’s second fiscal quarter of 2008 ended January 26, 2008, that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
  A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute assurance that the objectives of the control system are
met.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.
  This
management evaluation report does not include an attestation report of the
Company’s registered public accounting firm regarding internal control over
financial reporting as this report is not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission.
  PART
II - OTHERINFORMATION
 Item
      1.
              LEGALPROCEEDINGS
  Employment Matters- The
Company had an employment agreement with Samuel Park, a previous Chief Executive
Officer (“CEO”), for the period May 1, 2001 to April 30, 2004.  The
employment agreement provided for certain payments in the event of a change in
the control of the Company.  On October 10, 2003, the Company
announced the appointment of Walter F. Schneider as President and CEO to replace
Mr. Park, effective as of such date.  As a result, the Company
recorded a charge of $0.2 million during the first quarter of fiscal 2004 to
accrue the balance remaining under Mr. Park’s employment agreement.
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  The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes in control.  The Company’s Board of Directors elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1.8 million under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On November 17, 2003, the Company filed a complaint in the
United States District Court, Southern District of New York, against Mr. Park
seeking a declaratory judgment that no change in control payment was or is due
to Mr. Park, and that an amendment to the employment contract with Mr. Park
regarding advancement and reimbursement of legal fees is invalid and
unenforceable.  Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
“change in control” occurred in June 2003.  Mr. Park is also seeking
other consideration he believes he is owed under his employment
agreement.  The Company filed a reply to Mr. Park’s counterclaims
denying that he is entitled to any of these payments.  Discovery in
this matter was conducted and completed.  Following discovery, the
Company and Mr. Park filed motions for summary judgment on the issues related to
the change in control and the amendment to the employment agreement, which
motions have been fully submitted to the court for consideration.  To
date, no decision has been issued by the court on these motions.  If
Mr. Park prevails on his claims and the payments he seeks are required to be
paid in a lump sum, these payments may have a material adverse effect on the
Company’s liquidity.  It is not possible to predict the outcome of
these claims.  However, the Company’s Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company’s liquidity in the foreseeable future.  The Company has
not recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.
  On June
28, 2002, Jeffrey N. Moeller, the former Director of Quality Assurance and
Regulatory Affairs of Del Medical, commenced an action in the Circuit Court of
Cook County, Illinois, against the Company, Del Medical and Walter Schneider,
the former President of Del Medical.  In the most current iteration of
this pleading, the third amended complaint, Mr. Moeller alleges four claims
against the defendants in the action: (1) retaliatory discharge from employment
with Del Medical, allegedly in response to Mr. Moeller’s complaints to officers
of Del Medical about purported prebilling and his stopping shipment of a product
that allegedly did not meet regulatory standards, (2) defamation, (3)
intentional interference with his employment relationship with Del Medical and
prospective employers, and (4) to hold the Company liable for any misconduct of
Del Medical under a theory of piercing the corporate veil.  By order
dated September 15, 2006, the Court denied in part and granted in part
defendants’ motion requesting summary judgment dismissing the third amended
complaint.  The Court granted the motion only to the extent of
dismissing that part of Mr. Moeller’s claim of interference with his employment
relationship with Del Medical and his relationship with prospective employers,
addressed to alleged interference with his relationship with prospective
employers.  The parties appeared for mediation in January 2007 but the
mediation did not result in a disposition of the action.  Accordingly,
it appears that the action will proceed to trial.  A status conference
before the Court was held March 8, 2007, and subsequently, a trial date had been
scheduled for October 1, 2007.  The trial date has been postponed due
to the unavailability of a witness for the plaintiff.  A trial date
has been scheduled for April 7, 2008.  The Company and Del Medical
intend to defend vigorously against Mr. Moeller’s claims.  Mr. Moeller
is seeking $2.4 million consisting of alleged income loss, including salary and
benefits, and the present value of his lost income and benefits in the future
after lump sum tax adjustments.  In fiscal 2007, the Company recorded
an accrual of $0.1 million relating to potential liability in the settlement of
these claims.
  Other Legal
Matters  –Diamond v. Allied
Diagnostic Imaging Resources, Inc., et al. (Superior Court, County of Los
Angeles; Case No. BC362544). This action is brought against numerous defendants,
including the Company. While the action commenced in late 2006, plaintiff first
served the summons and complaint on the Company in December 2007. The plaintiff
alleges that she is the wife of a chiropractor who died in June 2005. Plaintiff
alleges that her husband was exposed to chemical products in developing x-ray
films and cleaning film processing machines and worked with the x-ray film
processing machines and x-ray machines, and that the defendants manufactured,
supplied or serviced the chemical products and machines.  The
complaint further alleges that the decedent was exposed to toxic chemicals and
radiation from the chemical products used on or in the machines, which caused
“serious injuries to his internal organs, including acute myelogenous leukemia”,
resulting in his death.
  The
complaint alleges the following six claims against the defendants: (1)
negligence in manufacturing. and distributing the chemical products and
machines, and servicing the machines, and failing adequately to warn decedent of
the hazards of the chemical products and machines, (2) violation of a California
statute and regulation by failing to determine whether the chemical products
caused health hazards and failing to label or identify in material safety data
sheets a health hazard relating to acute myelogenous leukemia, (3) strict
products liability for failing to warn adequately of the chemical products’ and
machines’ health hazards, (4) strict products liability for defects in the
design of the chemical products and machines, (5) fraudulent concealment of the
toxic and carcinogenic nature of the chemical products and the machines, and (6)
breach of implied warranties as to the fitness of the chemical products and
machines for intended uses, merchantability, and lack of defects.
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  While the
complaint does not allege a total amount of damages sought, plaintiff alleges
that she has suffered damages consisting of medical, funeral, and burial
expenses, the decedent’s lost earnings prior to and lost wages after his death,
lost benefits after his death, the value of his services in managing his
family’s home, and loss of companionship and similar losses. The plaintiff also
requests punitive damages.  The Company has not recorded an accrual
for any potential settlement of this claim as it has no basis upon which to
estimate either the outcome or amount of loss, if any.  The Company
intends to defend vigorously against these claims.
  On May
24, 2007, the Company’s RFI subsidiary was served with a subpoena to testify
before a grand jury of the United States District Court of New York and to
provide items and records from its Bay Shore NY offices in connection with U.S.
Department of Defense contracts.  A search warrant from the United
States District Court, Eastern District of New York was issued and executed with
respect to such offices.  The Company believes that it is in full
compliance with the quality standards that its customers require and is fully
cooperating with investigators to assist them with their review.  The
Company’s RFI subsidiary is continuing to ship products to the U.S. Government
as well as to its commercial customers.
  In
addition, the Company is a defendant in several other legal actions arising from
the normal course of business in various US and foreign
jurisdictions.  Management believes the Company has meritorious
defenses to such actions and that the outcomes will not be material to the
Company’s consolidated financial statements.
  Item
      1A.
              RISKFACTORS
  The risk
factors included in our Annual Report on Form 10-K for fiscal year ended July
28, 2007 have not materially changed.
  Item
      6.
              EXHIBITS
  Exhibits31.1*
                Certification
      of the Chief Executive Officer, James A. Risher, pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.31.2*
                Certification
      of Chief Financial Officer, Mark Zorko, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1*
                Certification
      of the Chief Executive Officer, James A. Risher, pursuant to 18 U.S.C.
      Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2*
                Certification
      of the Chief Financial Officer, Mark Zorko, pursuant to 18 U.S.C. Section
      1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.*
      Filed herewith
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 DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  SIGNATURES
  Pursuant
to the requirements of the Securities and Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
  DEL
      GLOBAL TECHNOLOGIES CORP./s/
      James A. RisherJames
      A. RisherChief
      Executive Officer
 
 /s/
      Mark A. ZorkoMark
      A. ZorkoChief
      Financial Officer
 
 Dated:  February
28, 2008
   25