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 April 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, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
(Check one):
  Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer x (Do not
      check if a smaller reporting company)
                Smaller
      reporting company  ̈
 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 May 30, 2008 was
24,246,165.
  TABLE OF CONTENTS
  DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  Table of Contents
  
  Page
      No.PART I
              FINANCIAL INFORMATIONITEM 1  FINANCIAL STATEMENTS
              3Consolidated Statements of Operations for the Three and Nine
      Months ended April 26, 2008 and April
      28, 2007
              3Consolidated Balance Sheets - April 26, 2008 and July 28,
      2007
              4-5Consolidated Statements of Cash Flows for the Nine Months
      ended April 26, 2008 and April 28, 2007
              6Notes to Consolidated Financial
    Statements
              7-15Item 2.
              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS
      OF OPERATIONS
              15-23Item 3.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              23Item 4T.
              CONTROLS AND PROCEDURES
              23PART II
              OTHER INFORMATIONItem 1.
              LEGAL PROCEEDINGS
              23-25Item 1A.
              RISK FACTORS
              25Item 4.
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
              25Item 6.
              EXHIBITS
              26SIGNATURES
              27
 
 2
 TABLE OF CONTENTS
  PART
      I
              FINANCIAL
      INFORMATIONITEM
      1
              FINANCIAL
      STATEMENTS
  DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (DOLLARS
IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 (UNAUDITED)
  
  Three
      Months Ended
              
              
              Nine
      Months EndedApril
      26, 2008
              
              
              April 28,
      2007
              
              
              April
      26,2008
              
              
              April
      28,2007NET
      SALES
              
              $
              24,450
              
              
              $
              27,122
              
              
              $
              81,059
              
              
              $
              73,179COST
      OF SALES
              
              
              18,735
              
              
              
              21,097
              
              
              
              61,424
              
              
              
              56,408GROSS
      MARGIN
              
              
              5,715
              
              
              
              6,025
              
              
              
              19,635
              
              
              
              16,771Selling,
      general and administrative
              
              
              4,335
              
              
              
              3,465
              
              
              
              12,300
              
              
              
              10,455Research
      and development
              
              
              677
              
              
              
              540
              
              
              
              1,814
              
              
              
              1,508Goodwill
      impairment
              
              
              1,911
              
              
              
              -
              
              
              
              1,911
              
              
              
              -Total
      operating expenses
              
              
              6,923
              
              
              
              4,005
              
              
              
              16,025
              
              
              
              11,963OPERATING
      INCOME (LOSS)
              
              
              (1,208
              )
              
              
              2,020
              
              
              
              3,610
              
              
              
              4,808Interest
      expense, net of interest income of $26 and $115 for the three and nine
      months ended in 2008, respectively and $44 for the three and nine months
      ended in 2007
              
              
              (80
              )
              
              
              (197
              )
              
              
              (229
              )
              
              
              (885
              )Other
      income (loss)
              
              
              (26
              )
              
              
              (34
              )
              
              
              29
              
              
              
              (62
              )INCOME
      (LOSS) BEFORE INCOME TAX PROVISION
              
              
              (1,314
              )
              
              
              1,789
              
              
              
              3,410
              
              
              
              3,861INCOME
      TAX PROVISION
              
              
              324
              
              
              
              733
              
              
              
              2,515
              
              
              
              2,210NET
      INCOME (LOSS)
              
              $
              (1,638
              )
              
              $
              1,056
              
              
              $
              895
              
              
              $
              1,651NET
      INCOME (LOSS) PER BASIC SHARE
              
              $
              (0.07
              )
              
              $
              0.06
              
              
              $
              0.04
              
              
              $
              0.12Weighted
      average shares outstanding
              
              
              24,197,755
              
              
              
              17,221,706
              
              
              
              24,179,577
              
              
              
              13,509,306NET
      INCOME (LOSS) PER DILUTED SHARE
              
              $
              (0.07
              )
              
              $
              0.06
              
              
              $
              0.04
              
              
              $
              0.12Weighted
      average shares outstanding
              
              
              24,197,755
              
              
              
              17,577,210
              
              
              
              24,715,789
              
              
              
              13,808,630
 
 See notes
to consolidated financial statements.
  3
 TABLE OF CONTENTS
 DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (DOLLARS
IN THOUSANDS EXCEPT PAR VALUE)
 (UNAUDITED)
  ASSETS
  April
      26, 2008
              
              
              July
      28, 2007CURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              6,741
              
              
              $
              7,860Trade
      receivables (net of allowance for doubtful accounts of $1,829 and $1,569
      at April 26, 2008 and July 28, 2007, respectively)
              
              
              24,703
              
              
              
              21,221Inventories
              
              
              20,996
              
              
              
              21,930Prepaid
      expenses and other current assets
              
              
              1,068
              
              
              
              1,180Total
      current assets
              
              
              53,508
              
              
              
              52,191NON-CURRENT
      ASSETS:Property,
      plant and equipment, net
              
              
              7,269
              
              
              
              6,511Deferred
      income taxes
              
              
              954
              
              
              
              1,011Goodwill
              
              
              4,526
              
              
              
              6,437Other
      assets
              
              
              146
              
              
              
              189Total
      non-current assets
              
              
              12,895
              
              
              
              14,148TOTAL
      ASSETS
              
              $
              66,403
              
              
              $
              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
  April
      26, 2008
              
              
              July
      28, 2007CURRENT
      LIABILITIES:Current
      portion of long-term debt
              
              $
              1,545
              
              
              $
              1,086Accounts
      payable – trade
              
              
              13,001
              
              
              
              17,125Accrued
      expenses
              
              
              8,166
              
              
              
              7,432Income
      taxes payable
              
              
              1,304
              
              
              
              1,570Total
      current liabilities
              
              
              24,016
              
              
              
              27,213NON-CURRENT
      LIABILITIES:Long-term
      debt, less current portion
              
              
              5,005
              
              
              
              5,398Deferred
      income taxes
              
              
              -
              
              
              
              292Other
      long-term liabilities
              
              
              3,345
              
              
              
              3,240Total
      non-current liabilities
              
              
              8,350
              
              
              
              8,930Total
      liabilities
              
              
              32,366
              
              
              
              36,143COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Common
      stock, $.10 par value;Authorized
      50,000,000; issued-24,897,723 and 24,753,526 at April 26, 2008 and July
      28, 2007, respectively
              
              
              2,490
              
              
              
              2,475Additional
      paid-in capital
              
              
              80,308
              
              
              
              79,726Treasury
      shares – 654,464 and 622,770 shares, at cost at April 26, 2008 and July
      28, 2007, respectively
              
              
              (5,615
              )
              
              
              (5,546
              )Accumulated
      other comprehensive income
              
              
              4,291
              
              
              
              1,880Accumulated
      deficit
              
              
              (47,437
              )
              
              
              (48,339
              )Total
      shareholders' equity
              
              
              34,037
              
              
              
              30,196TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
              
              $
              66,403
              
              
              $
              66,339
 
 See
      notes to consolidated financial
statements.
  5
 TABLE OF CONTENTS
  DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (DOLLARS
IN THOUSANDS)
 (UNAUDITED)
  Nine
      Months EndedApril
      26, 2008
              
              
              April
      28, 2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              895
              
              
              $
              1,651Adjustments
      to reconcile net income to net
                cash
      provided by (used in) operating activities:
                Depreciation and
      amortization
              
              
              736
              
              
              
              673Deferred
      income tax provision
              
              
              209
              
              
              
              188Imputed
      interest – subordinated note
              
              
              -
              
              
              
              185Stock
      based compensation expense
              
              
              382
              
              
              
              167Goodwill
      impairment
              
              
              1,911
              
              
              
              -Other
              
              
              9
              
              
              
              60Changes
      in operating assets and liabilities:Trade receivables
              
              
              (814
              )
              
              
              (2,210
              )Inventories
              
              
              3,258
              
              
              
              (4,990
              )Prepaid
      expenses and other current assets
              
              
              213
              
              
              
              (360
              )Other
      assets
              
              
              51
              
              
              
              79Accounts
      payable – trade
              
              
              (5,732
              )
              
              
              3,934Accrued
      expenses
              
              
              48
              
              
              
              1,458Payment
      of accrued litigation settlement costs
              
              
              -
              
              
              
              (200
              )Income
      taxes payable
              
              
              (779
              )
              
              
              1,331Other
      long-term liabilities
              
              
              (390
              )
              
              
              136Net
      cash provided by (used in) operating activities
              
              
              (3
              )
              
              
              2,102CASH
      FLOWS FROM INVESTING ACTIVITIES:Property,
      plant and equipment purchases
              
              
              (736
              )
              
              
              (553
              )Net
      cash used in investing activities
              
              
              (736
              )
              
              
              (553
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Borrowings
      under short-term credit facilities
              
              
              -
              
              
              
              37,193Repayments
      under short-term credit facilities
              
              
              -
              
              
              
              (43,247
              )Borrowing
      of long-term debt
              
              
              -
              
              
              
              3,079Repayment
      of long-term debt
              
              
              (950
              )
              
              
              (5,794
              )Proceeds
      from rights offering, net of related costs
              
              
              -
              
              
              
              12,367Proceeds
      from stock option exercises
              
              
              44
              
              
              
              27Proceeds
      from warrant exercises
              
              
              101
              
              
              
              551Net
      cash provided by (used in) financing activities
              
              
              (805
              )
              
              
              4,176EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
              
              
              425
              
              
              
              61CASH
      AND CASH EQUIVALENTS INCREASE (DECREASE) FOR THE PERIOD
              
              
              (1,119
              )
              
              
              5,786CASH
      AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
              
              
              7,860
              
              
              
              333CASH
      AND CASH EQUIVALENTS, END OF THE PERIOD
              
              $
              6,741
              
              
              $
              6,119SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid forInterest
              
              $
              305
              
              
              $
              744Taxes
              
              
              3,073
              
              
              
              837
 
 See notes
to consolidated financial statements.
  6
 TABLE OF CONTENTS
 DEL
GLOBAL TECHNOLOGIES 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 March
2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133.  The
Statement requires enhanced disclosures about an entity’s derivative and hedging
activities.  The Statement is effective for fiscal years and interim
periods beginning after November 15, 2008.  The Company is currently
evaluating the requirements of SFAS 161, but does not expect it to have a
material impact.
  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 August 2, 2009. The Company is
currently evaluating the requirements of SFAS 160 but does not expect it to have
a material impact.
  In
December 2007, the FASB issued 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 August 2, 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.
  7
 TABLE OF CONTENTS
  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
for fiscal years beginning after November 15, 2007, 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.
 
 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 April 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
April 26, 2008, finished goods represented approximately 22.3% 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 April 26, 2008 and July 28, 2007 is as follows:
  April
      26, 2008
              
              
              July
      28, 2007Raw
      materials and purchased parts
              
              $
              15,801
              
              
              $
              15,237Work-in-process
              
              
              3,827
              
              
              
              3,910Finished
      goods
              
              
              5,646
              
              
              
              6,65225,274
              
              
              
              25,799Less
      allowance for obsolete and excess inventories
              
              
              (4,278
              )
              
              
              (3,869
              )Total
      inventories
              
              $
              20,996
              
              
              $
              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.
  8
 TABLE OF CONTENTS
  The
activity in the warranty reserve accounts in the first three and six months of
fiscal 2008 and 2007 is as follows:
  
  Three
      Months Ended
              
              
              Nine
      Months EndedApril,
      26, 2008
              
              
              April
      28, 2007
              
              
              April
      26, 2008
              
              
              April
      28, 2007Balance
      at beginning of period
              
              $
              1,330
              
              
              $
              862
              
              
              $
              1,065
              
              
              $
              1,010Provision
      for anticipated warranty claims
              
              
              109
              
              
              
              64
              
              
              
              474
              
              
              
              506Costs
      incurred related to warranty claims
              
              
              (90
              )
              
              
              (40
              )
              
              
              (268
              )
              
              
              (666
              )Effect
      of foreign currency fluctuation
              
              
              24
              
              
              
              12
              
              
              
              102
              
              
              
              48Balance
      at end of period
              
              $
              1,373
              
              
              $
              898
              
              
              $
              1,373
              
              
              $
              898
 
 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
included a charge to reduce the carrying value of the foreign subsidiary’s net
deferred income tax assets 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 fiscal quarter ended January 26, 2008.
  The net
impact of these two tax adjustments was a $0.1 million benefit recorded during
the second quarter of fiscal 2008.
  GOODWILL
IMPAIRMENT
  Due
primarily to continued operating results below planned levels and management’s
resulting revaluation of its strategic plan for the Company’s domestic Medical
Systems Group’s reporting unit, the Company completed a special assessment of
the reporting unit’s goodwill realization.  The Company’s scheduled
assessment of goodwill is during the fourth quarter of each fiscal
year.
  As part
of its assessment, the Company estimated the fair value of the reporting unit
based on internal cash flows expected to be earned by the business and an
appropriate risk-adjusted discount rate.  While such estimates are
subject to significant uncertainties and actual results could be materially
different, the analysis resulted, pursuant to the implementation guidance of
FASB No. 142, Accounting for Goodwill and Intangible Assets, in a complete
impairment of the unit’s goodwill balance.  Accordingly, the Company
recorded a $1,911 impairment charge during the third quarter of fiscal
2008.
  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
              
              
              Nine
      Months EndedApril
      26, 2008
              
              
              April
      28, 2007
              
              
              April
      26, 2008
              
              
              April
      28, 2007Net
      income (loss)
              
              $
              (1,638
              )
              
              $
              1,056
              
              
              $
              895
              
              
              $
              1,651Foreign
      currency translation adjustments
              
              
              1,206
              
              
              
              137
              
              
              
              2,411
              
              
              
              127Comprehensive
      income (loss)
              
              $
              (432
              )
              
              $
              1,193
              
              
              $
              3,306
              
              
              $
              1,778
  9
 TABLE OF CONTENTS
  INCOME
(LOSS) PER SHARE
  Common
shares outstanding exclude 654,464 and 622,770 shares of treasury stock for the
periods ended April 26, 2008 and April 28, 2007, respectively.  The
computation of dilutive securities includes the assumed conversion of warrants
and employee stock options to purchase Company stock if such conversion is
dilutive.
  Three
      Months Ended
              
              
              Nine
      Months EndedApril
      26, 2008
              
              
              April
      28, 2007
              
              
              April
      26, 2008
              
              
              April
      28, 2007Numerator:Net
      income
              
              $
              (1,638
              )
              
              $
              1,056
              
              
              $
              895
              
              
              $
              1,651Denominator:
      (shares in thousands)Weighted
      average number of common shares outstanding used for basic income per
      share
              
              
              24,198
              
              
              
              17,222
              
              
              
              24,180
              
              
              
              13,509Effect
      of dilutive securities
              
              
              -
              
              
              
              355
              
              
              
              536
              
              
              
              299Denominator for
      diluted income per share
              
              
              24,198
              
              
              
              17,577
              
              
              
              24,716
              
              
              
              13,808Income
      (loss) per common share:Basic
              
              $
              (0.07
              )
              
              $
              0.06
              
              
              $
              0.04
              
              
              $
              0.12Diluted
              
              $
              (0.07
              )
              
              $
              0.06
              
              
              $
              0.04
              
              
              $
              0.12
 
 Antidilutive
securities excluded from above computations:
  Three
      Months Ended
              
              
              Nine
      Months EndedApril
      26, 2008
              
              
              April
      28, 2007
              
              
              April
      26, 2008
              
              
              April
      28, 2007Employee
      stock options
              
              
              1,357
              
              
              
              1,187
              
              
              
              1,140
              
              
              
              1,193Warrants
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
 
 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 nine months of 2007, an average
of $1,382 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
April 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.
  10
 TABLE OF CONTENTS
  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 April 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 April 26, 2008 is
$0.  Interest rates on these facilities are variable and currently
range from 3.7% – 13.75%.
  Long term
debt at April 26, 2008 and July 28, 2007 is summarized as follows:
  April
      26, 2008
              
              
              July
      28, 2007Italian
      capital lease obligations
              
              $
              2,764
              
              
              $
              2,650Italian
      credit facilities
              
              
              2,824
              
              
              
              2,699Italian
      government loans
              
              
              962
              
              
              
              1,135Total
      long term debt
              
              
              6,550
              
              
              
              6,484Less
      current portion of long-term bank debt
              
              
              (1,545
              )
              
              
              (1,086
              )Long
      term debt, less current portion
              
              $
              5,005
              
              
              $
              5,398
 
 In
October 2006, Villa entered into a 1.0 million Euro loan for financing of
research and development projects, with an option for an additional 1 million
Euro upon completion of 50% of the projects.  In April 2008, the
Company renounced the option for additional financing and demonstrated
successful completion of the project triggering a more favorable interest
rate.  Interest, previously payable at Euribor 3 months plus 1.3
points, 5.917% as of April 26, 2008, was reduced in the fourth quarter of
fiscal  2008 to Euribor plus 1.04 points.  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, 5.677% as of April 26,
2008.  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 April 26, 2008, total principal due is 0.6 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, consisting of the
Del Medical Imaging Corp.("Del Medical”) and Villa Subsidiaries; Power
Conversion Group, consisting of the RFI Corporation (“RFI”) subsidiary; and
Other.  The “Other” segment includes unallocated corporate
costs.  Interim segment information is as follows:
  For
      three months ended
                  April
      26, 2008
              
              Medical
      Systems Group
              
              
              Power
      Conversion Group
              
              
              Other
              
              
              TotalNet
      Sales to external customers
              
              $
              20,920
              
              
              $
              3,530
              
              
              
              -
              
              
              $
              24,450Cost
      of sales
              
              
              16,630
              
              
              
              2,105
              
              
              
              -
              
              
              
              18,735Gross
      margin
              
              
              4,290
              
              
              
              1,425
              
              
              
              
              
              
              
              5,715Operating
      expenses
              
              
              6,247
              
              
              
              646
              
              
              
              30
              
              
              
              6,923Operating
      income (loss)
              
              $
              (1,957
              )
              
              $
              779
              
              
              $
              (30
              )
              
              $
              (1,208
              )
  11
 TABLE OF CONTENTS
  For
      three months ended
                    April
      28, 2007
                
                Medical
      Systems Group
                
                
                Power
      Conversion Group
                
                
                Other
                
                
                TotalNet
      Sales to external customers
                
                $
                23,185
                
                
                $
                3,937
                
                
                
                -
                
                
                $
                27,122Cost
      of sales
                
                
                18,646
                
                
                
                2,451
                
                
                
                -
                
                
                
                21,097Gross
      margin
                
                
                4,539
                
                
                
                1,486
                
                
                
                -
                
                
                
                6,025Operating
      expenses
                
                
                3,280
                
                
                
                549
                
                
                
                176
                
                
                
                4,005Operating
      income (loss)
                
                $
                1,259
                
                
                $
                937
                
                
                $
                (176
                )
                
                $
                2,020
 
 For
      nine months ended
                  April
      26, 2008
              
              Medical
      Systems Group
              
              
              Power
      Conversion Group
              
              
              Other
              
              
              TotalNet
      Sales to external customers
              
              $
              72,233
              
              
              $
              8,826
              
              
              
              -
              
              
              $
              81,059Cost
      of sales
              
              
              55,941
              
              
              
              5,483
              
              
              
              -
              
              
              
              61,424Gross
      margin
              
              
              16,292
              
              
              
              3,343
              
              
              
              -
              
              
              
              19,635Operating
      expenses
              
              
              13,280
              
              
              
              1,930
              
              
              
              815
              
              
              
              16,025Operating
      income (loss)
              
              $
              3,012
              
              
              $
              1,413
              
              
              $
              (815
              )
              
              $
              3,610
  For
      nine months ended
                  April
      28, 2007
              
              Medical
      Systems Group
              
              
              Power
      Conversion Group
              
              
              Other
              
              
              TotalNet
      Sales to external customers
              
              $
              63,706
              
              
              $
              9,473
              
              
              
              -
              
              
              $
              73,179Cost
      of sales
              
              
              50,169
              
              
              
              6,239
              
              
              
              -
              
              
              
              56,408Gross
      margin
              
              
              13,537
              
              
              
              3,234
              
              
              
              -
              
              
              
              16,771Operating
      expenses
              
              
              9,081
              
              
              
              1,684
              
              
              
              1,198
              
              
              
              11,963Operating
      income (loss)
              
              $
              4,456
              
              
              $
              1,550
              
              
              $
              (1,198
              )
              
              $
              4,808
 
 STOCK
OPTION PLAN AND WARRANTS
  During
the third quarter of fiscal year 2008, the Company granted options to purchase
84,000 shares of common stock under the 2007 Incentive Stock Plan at an exercise
price of $2.60 per share.  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.  The options under these grants vest 25% immediately and 25%
per year over the next three years.  The aggregate fair value of these
options was $556.  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 67% to 72%, risk free
interest rate of 3.6% to 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 over the
next three years.  During the third quarter of fiscal year 2007, the
Company granted options to purchase 39,000 shares of common stock under the 2007
Incentive Stock Plan at an exercise price of $2.11 per share that vest over four
years.  The aggregate fair value of these options was
$386.  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% to 71%, risk free interest rate of 4.49%
to 4.75% and the assumption that no dividends will be paid.
  In the
third quarter of fiscal 2008 and 2007, the Company recorded $127 and $59,
respectively, of compensation expense related to stock options.  In
the nine months ended April 26, 2008 and April 28, 2007, the Company recorded
$382 and $167, respectively, of compensation expense related to stock
options.  No stock options were granted during the first quarter of
fiscal 2008.
  12
 TABLE OF CONTENTS
  During
the third quarter of fiscal 2008, 80,681 stock options were exercised for cash
proceeds to the Company of $40,000 and 31,694 shares valued at $69 (added to
treasury) and an intrinsic value of $68.  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, 880 warrants were exercised for cash proceeds to the Company of
$1.  During the third quarter of fiscal 2008, 12,609 warrants were
exercised for cash proceeds to the Company of $32.  As of April 26,
2008 and April 28, 2007, 512,500 and 573,518 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 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
his complaint, the third amended complaint, Mr. Moeller alleged four claims
against the defendants in the action: for (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.  In
their answer to the third amended complaint, the defendants denied the
substantive allegations of each of these claims and denied that they have any
liability to Mr. Moeller.  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.
  In fiscal
2007, the Company recorded an accrual of $0.1 million relating to potential
liability in the settlement of these claims.  The parties appeared for
mediation in January 2007 but the mediation did not result in a disposition of
the action.A trial was held in April 2008 and on April 17, 2008, the jury
returned a verdict in favor of Mr. Moeller for $1.8 million for lost earnings,
back pay, front pay and benefits on the retaliatory discharge claim, and
$200,000 for emotional distress/reputation damages and $200,000 in punitive
damages on the defamation claim.  The Company intends to vigorously
pursue available post-trial remedies, including appeal.  On May 19,
2008, counsel for the defendants filed their motion for judgment in their favor
notwithstanding the jury verdict, or, alternatively, for a new trial, on those
claims on which the jury found the respective defendants
liable.  However, as a result of the verdict, the Company adjusted its
accrual for potential liability in the settlement of these claims as deemed
appropriate.
  13
 TABLE OF CONTENTS
  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.  In its answer
to the complaint, the Company denied the substantive allegations of the
complaint and denied that it has any liability to plaintiff.  The
Company intends to defend vigorously against plaintiff’s 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 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 other legal actions arising from the
normal course of business in various U.S. 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.
  14
 TABLE OF CONTENTS
  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.
  Item2.
              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: the Medical Systems
Group and the 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 April 26, 2008 (this “Quarterly Report”) for financial information
regarding 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.
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  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 income tax assets and liabilities for temporary
differences between financial reporting basis and income tax basis and for net
operating loss carryforwards.
  The
Company periodically assesses the realization of its 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 U.S. deferred income tax assets.  For the quarter
ended April 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 assets at April 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 fiscal quarter ended January 26, 2008 income tax
expense included a charge to reduce the carrying value of the foreign
subsidiary’s net deferred income tax assets 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 fiscal quarter ended January 26, 2008.
  The net
impact of these two tax adjustments on the results of the fiscal quarter ended
January 26, 2008 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.
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  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 United
States.
  It is the
Company’s practice to recognize interest and/or penalties related to income tax
matters in tax expense.  As of April 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 April 26, 2008,
finished goods represented approximately 22.3% of the gross carrying value of
our total gross inventory.  We believe the estimation methodologies
used to be appropriate and are consistently applied.
  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.
  Due
primarily to continued operating results below planned levels and management’s
resulting revaluation of its strategic plan for the Company’s domestic Medical
Systems Group’s reporting unit, the Company completed a special assessment of
the reporting unit’s goodwill realization.  The Company’s scheduled
assessment of goodwill is during the fourth quarter of each fiscal
year.
  As part
of its assessment, the Company estimated the fair value of the reporting unit
based on internal cash flows expected to be earned by the business and an
appropriate risk-adjusted discount rate.  While such estimates are
subject to significant uncertainties and actual results could be materially
different, the analysis resulted, pursuant to the implementation guidance of
FASB No. 142, Accounting for Goodwill and Intangible Assets, in a complete
impairment of the unit’s goodwill balance.  Accordingly, the Company
recorded a $1,911 impairment charge during the third quarter of fiscal
2008.
  CONSOLIDATED
RESULTS OF OPERATIONS
  Three
Months and Nine Months Ended April 26, 2008 Compared to Three Months and Nine
Months Ended April 28, 2007
  Consolidated
net sales of $24.4 million for the third quarter of fiscal 2008 decreased by
$2.7 million or 9.9 % from fiscal 2007 third quarter net sales of $27.1 million
due primarily to lower sales in our Medical Systems Group.  The
Medical Systems Group’s third quarter fiscal 2008 sales of $20.9 million were
$2.3 million or 9.8% lower than the prior year’s third quarter with decreases
primarily due to decreased international sales volume and reduced sales of the
domestic digital product line.  The Power Conversion Group’s sales for
the third quarter of fiscal 2008 of $3.5 million were approximately $0.4 less
than prior year’s sales due to reduced bookings in the current
period.
  Consolidated
net sales of $81.1 million for the first nine months of fiscal 2008 increased by
$7.9 million or 10.8% from fiscal 2007 net sales of $73.2 million, due to
increased sales in our Medical Systems Group.  The Medical Systems
Group’s sales for the first nine months of fiscal 2008 of $72.2 million
increased $8.5 million or 13.4% from the prior year’s first nine
months.  Net sales increases were primarily driven by increased
international sales volume of several medical system product lines, particularly
the Apollo line, offset by reduced sales of the domestic digital product line as
noted above.  The Power Conversion Group’s sales for the first nine
months of fiscal 2008 of $8.9 million were approximately $0.6 less than prior
year’s sales for the same period due to reduced sales bookings in the current
period.
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  Consolidated
backlog at April 26, 2008 was $28.1 million versus backlog at July 28, 2007 of
approximately $28.4 million.  The backlog in the Power Conversion
Group of $7.0 million increased $0.4 million from levels at the beginning of the
fiscal year, while there was a $0.7 million decrease in the third quarter
backlog of the Company’s Medical Systems segment from July 28, 2007, reflecting
lower bookings during the nine 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 23.4% for the third quarter of fiscal 2008,
compared to 22.2% in the third quarter of fiscal 2007.  The Power
Conversion Group’s margins for the third quarter of fiscal 2008 were 40.3%,
versus 37.7% in the prior year quarter, reflecting increased margins in product
mix and decreased production costs.  For the Medical Systems Group,
third quarter of fiscal 2008 gross margins of 20.5% were higher than gross
margins of 19.6% in the third quarter of fiscal 2007 due primarily to increased
sales in the Del legacy product lines which have lower selling prices but
greater gross margins.
  Gross
margins as a percent of sales were 24.2% for the first nine months of fiscal
2008, compared to 22.9% for the first nine months of fiscal 2007, due to
increased margins in product mix and decreased production costs at the Power
Conversion Group and increased sales in the Del legacy product lines at the
Medical Systems Group, which have lower selling prices but greater gross
margins, offset by lower margins associated with increased sales returns in the
Medical Systems Group.
  Research
and development expenses (“R&D”) for the third quarter of fiscal 2008 were
$0.7 million (2.8% of sales) compared to $0.5 million (2.0% of sales) in the
prior year’s third quarter.  The increase is primarily due to
increased international development efforts during the third quarter of fiscal
2008.
  R&D
expenses for the first nine months of fiscal 2008 were $1.8 million (2.2% of
sales) compared to $1.5 million (2.1% of sales) in the prior year’s first nine
months is primarily due to international product development efforts as noted
above.
  Selling,
General and Administrative expenses (“SG&A”) for the third quarter of fiscal
2008 were $4.3 million (18.0% of sales) compared to $3.5 million (12.8% of
sales) in the prior year’s third quarter.  The increase is primarily
due to increased business acquisition expenses, higher stock based compensation
expenses related to increased volume of stock options issued/vesting during the
third quarter of fiscal 2008 and legal expenses related to the Moeller case
discussed elsewhere in this report.
  SG&A
for the first nine months of fiscal 2008 were $12.3 million (15.0% of sales)
compared to $10.5 million (14.3% of sales) in the prior year’s first nine
months.  The increase is primarily due to higher stock based
compensation expenses related to increased volume of stock options vesting
during the nine months of fiscal 2008, legal expenses related to the Moeller
case discussed elsewhere in this document and increased business acquisition
expenses.
  As
discussed above, during the third quarter of fiscal 2008, the Company recognized
a goodwill impairment loss of $1.9 million on the carrying value of the goodwill
of the Medical Systems Group’s U.S. medical business.
  As a
result of the above, the Company recognized a third quarter fiscal 2008
operating loss of $(1,3) million compared to operating income of $2.0 million in
the third quarter of fiscal 2007.  The Medical Systems Group posted a
third quarter fiscal 2008 operating loss of $2.1 million and the Power
Conversion Group showed operating profit of $0.8 million, offset by unallocated
corporate costs of $0.1 million.  The Medical Systems Group posted a
third quarter fiscal 2007 operating profit of $1.3 million and the Power
Conversion Group showed operating profit of $0.9 million, offset by unallocated
corporate costs of $0.2 million.
  Operating
income for the first nine months of fiscal 2008 was $3.6 million compared to an
operating income of $4.8 million in the prior year period.  The
Medical Systems Group had an operating profit of $3.0 million and the Power
Conversion Group achieved an operating profit of $1.4 million, offset by
unallocated corporate costs of $0.8 million.  The Medical Systems
Group had an operating profit of $4.5 million for the first nine months of
fiscal 2007 and the Power Conversion Group achieved an operating profit of $1.5
million, offset by unallocated corporate costs of $1.2 million.
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  Net
interest expense of $0.1 million for the third quarter of fiscal 2008 was $0.1
million lower than the prior year’s third 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 nine months of fiscal 2008 of $0.2 million was lower than
the prior year’s first nine months by $0.9 million for the same
reasons.
  On a
consolidated basis, the Company recorded a third quarter fiscal 2008 pretax loss
of $(1.3) million, including foreign pretax income of $0.4
million.  The related third quarter fiscal 2008 income tax expense of
$0.3 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 $1.8 million, which included foreign pretax income of $1.6
million, and a U.S. pretax income of $0.2 million.  The related third
quarter fiscal 2007 income tax expense of $0.7 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 U.S. pretax losses in the third quarter of
fiscal 2008 due to uncertainty regarding the realizability of its U.S. net
operating loss carryforwards as explained in Critical Accounting Policies
above.
  On a
consolidated basis, the Company recorded pretax income of $3.4 million for the
first nine months of fiscal 2008, comprised of foreign pretax income of $6.2
million, offset by a US pretax loss of $2.8 million.  The related
income tax expense of $2.5 million for the first nine months of fiscal 2008 was
primarily due to foreign taxes on the profits of Villa.  During the
same period in fiscal 2007, the Company recorded pretax income of $3.9 million,
which included foreign pretax income of $5.0 million, offset by a U.S. pretax
loss of $1.1 million.  The related first nine months of fiscal 2007
income tax expense of $2.2 million was due to foreign taxes on the profits of
Villa.  The Company has not provided for any income tax benefits
related to the U.S. pretax losses in the first nine months of either fiscal 2008
or 2007 due to uncertainty regarding the realizability of its U.S. net operating
loss carryforwards as explained in Critical Accounting Policies
above.
  Reflecting
the above, the Company recorded a net loss of $(1.6) million, or $(0.07) per
basic and diluted share, in the third quarter of fiscal 2008 as compared to net
income of $1.1 million, or $0.06 per basic and diluted share for the same period
in fiscal 2007.  The average shares outstanding for the fiscal 2008
period was significantly higher than the shares outstanding for the fiscal 2007
period due to shares issued in a March 2007 Rights Offering.
  The
Company recorded net income of $0.9 million or $0.04 per share (basic and
diluted) in the first nine months of fiscal 2008, as compared to net income of
$1.7 million or $0.12 per share (basic and diluted) in the first nine months of
the prior year, again, on a significantly higher average shares outstanding for
the fiscal 2008 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 April 26, 2008 and July 28, 2007, our working capital was
approximately $29.5 million and $25.0 million, respectively.  The
increase in working capital for the first nine months of fiscal 2008 compared to
the same period of fiscal 2007 related primarily to increases in accounts
receivable (due to higher sales) and decreases in accrued expenses due to
quarter end inventory activity offset partially by a decrease in ending cash and
equivalents and inventories.
  At April
26, 2008 and July 28, 2007, we had approximately $6.7 million and $7.9 million,
respectively, in cash and cash equivalents.  This decrease is
primarily due to cash used in financing activities directly associated with long
term debt reduction as discussed in Cash Flows from Financing Activities
below.  As of April 26, 2008, we had approximately $9.0 million of
excess borrowing availability under our domestic revolving credit
facility.
  In
addition, as of April 26, 2008 and July 28, 2007, our Villa subsidiary had an
aggregate of approximately $13.3 million and $11.0 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 nine months ended April 26, 2008, the
Company’s operating activities were cash neutral, compared to $2.1 million of
cash provided by operations in the comparable prior fiscal year
period.  The decrease is largely due to payment of accounts payable in
the 2008 period offset by and the effect of reduced inventory
levels.
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  Cash
Flows from Investing Activities — The Company made $0.7 million of facility
improvements and capital equipment expenditures for the nine months ended April
26, 2008, compared to $0.6 million in the comparable prior year fiscal
period.
  Cash
Flows from Financing Activities — During the nine month period ended April 26,
2008, the Company repaid a total of approximately $1.0 million of indebtedness
on our domestic and Italian borrowings, as compared to $8.8 million in the
comparable prior fiscal year period.During the comparable period of fiscal 2007,
the Company received $12.4 million of proceeds from a Rights Offering discussed
below.
  In
addition, the Company received $0.1 million in payment of the exercise price of
warrants in the nine months ended April 26, 2008 compared to $0.6 million in the
comparable prior fiscal year period.
  The
Company’s contractual obligations, including debt and operating leases, as
previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
July 28, 2007, has not changed materially at April 26, 2008.
  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
April 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 April 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 $1.6 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 April 26, 2008 is $0.  Interest rates
on these facilities are variable and currently range from 3.7% –
13.75%.
  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.  In April, 2008, the Company
declined the option for additional financing and demonstrated successful
completion of the project triggering a more favorable interest
rate.  Interest, previously payable at Euribor 3 months plus 1.3
points, currently 5.917%, will be reduced in the fourth fiscal quarter of 2008
to Euribor plus 1.04 points.  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 5.677%.  The loan is
repayable in 4 years.
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  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 April 26, 2008, total principal due is 0.6 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.
  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 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.
  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.
  Contingencies
  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
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  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
his complaint, the third amended complaint, Mr. Moeller alleged four claims
against the defendants in the action: for (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.  In
their answer to the third amended complaint, the defendants denied the
substantive allegations of each of these claims and denied that they have any
liability to Mr. Moeller.  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.
  In fiscal
2007, the Company recorded an accrual of $0.1 million relating to potential
liability in the settlement of these claims.  The parties appeared for
mediation in January 2007 but the mediation did not result in a disposition of
the action.A trial was held in April 2008 and on April 17, 2008, the jury
returned a verdict in favor of Mr. Moeller for $1.8 million for lost earnings,
back pay, front pay and benefits on the retaliatory discharge claim, and
$200,000 for emotional distress/reputation damages and $200,000 in punitive
damages on the defamation claim.  The Company intends to vigorously
pursue available post-trial remedies, including appeal.  On May 19,
2008, counsel for the defendants filed their motion for judgment in their favor
notwithstanding the jury verdict, or, alternatively, for a new trial, on those
claims on which the jury found the respective defendants
liable.  However, as a result of the verdict, the Company adjusted its
accrual  for potential liability in the settlement of these claims as
deemed appropriate.
  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.  In its answer
to the complaint, the Company denied the substantive allegations of the
complaint and denied that it has any liability to plaintiff.  The
Company intends to defend vigorously against plaintiff’s 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 subsidiary is continuing to ship products to the U.S. Government as
well as to its commercial customers.
  22
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  The
Company is a defendant in  other legal actions arising from the normal
course of business in various U.S. 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.
              QUANTITATIVE
      AND 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.
              CONTROLS
      AND 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 third fiscal quarter of 2008 ended April 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.
  PART II - OTHER INFORMATION
 Item 1.
              LEGAL
      PROCEEDINGS
  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.
  23
 TABLE OF CONTENTS
  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
his complaint, the third amended complaint, Mr. Moeller alleged four claims
against the defendants in the action: for (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.  In
their answer to the third amended complaint, the defendants denied the
substantive allegations of each of these claims and denied that they have any
liability to Mr. Moeller.  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.
  In fiscal
2007, the Company recorded an accrual of $0.1 million relating to potential
liability in the settlement of these claims.  The parties appeared for
mediation in January 2007 but the mediation did not result in a disposition of
the action.A trial was held in April 2008 and on April 17, 2008, the jury
returned a verdict in favor of Mr. Moeller for $1.8 million for lost earnings,
back pay, front pay and benefits on the retaliatory discharge claim, and
$200,000 for emotional distress/reputation damages and $200,000 in punitive
damages on the defamation claim.  The Company intends to vigorously
pursue available post-trial remedies, including appeal.  On May 19,
2008, counsel for the defendants filed their motion for judgment in their favor
notwithstanding the jury verdict, or, alternatively, for a new trial, on those
claims on which the jury found the respective defendants
liable.  However, as a result of the verdict, the Company adjusted its
accrual  for potential liability in the settlement of these claims as
deemed appropriate.
  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.
  24
 TABLE OF CONTENTS
  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.  In its answer
to the complaint, the Company denied the substantive allegations of the
complaint and denied that it has any liability to plaintiff.  The
Company intends to defend vigorously against plaintiff’s 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 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 other legal actions arising from the
normal course of business in various U.S. 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.
              RISK
      FACTORS
  The risk
factors included in our Annual Report on Form 10-K for fiscal year ended July
28, 2007 have not materially changed.
  Item 4 -
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  At the
Company’s Annual Meeting of Shareholders held on February 26, 2008 (the “Annual
Meeting”), the Company’s shareholders reelected four (4) members of the board of
directors of the Company (Gerald M. Czarnecki, James R. Henderson, General
Merrill A. McPeak, James A. Risher) all of whom were incumbent directors elected
at the Company’s Annual Meeting of Stockholders held on March 20,
2007.  The votes cast for all nominees were as follows:
  Nominees
              In
      Favor
              WithheldGerald
      M. Czarnecki
              19,580,231
              2,908,919James
      R. Henderson
              19,570,931
              2,918,219General
      Merrill A. McPeak
              19,892,850
              2,596,300James
      A. Risher
              20,404,557
              2,084,593
 
  The votes
cast for, against and abstain to ratify the appointment of BDO Seidman, LLP as
our independent registered public accountants for the fiscal year ending August
2, 2008 were as follows:
  FOR:  22,471,240
              AGAINST:  17,592
              ABSTAIN:  318
   25
 TABLE OF CONTENTS
  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
  26
 TABLE OF CONTENTS
  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:  June
10, 2008
  27
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