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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934


[X] ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended August 2, 2003

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.)

|                                         |  |  |  |           
|---------------------------------------- |  |  |  | ----------
|One Commerce Park, Valhalla, NY          |  |  |  | 10595     
|                                        
|(Address of Principal Executive Offices) |  |  |  | (Zip Code)

Registrants telephone number, including area code (914) 686-3600

Securities registered pursuant to Section 12(b) of the Act:

|                         |  |                                               
|------------------------ |  | ----------------------------------------------
|Title of each class
None |  | Name of each exchange on which registered
None
|                         |  |                                               

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.10 par value (Common Stock)




(Title of Class)


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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [  ]     No [X]

State the aggregate market value of the voting and non-voting common
equity held by non affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked prices of such common
equity, as of the last business day of the registrants most
recently completed second
fiscal quarter.





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The aggregate market value of the registrants common stock held by
non-affiliates of the Registrant as of February 1, 2003, was
$41,039,797.50.
Solely for the purposes of this calculation, shares held by directors
and executive officers of the Registrant have been excluded. Such exclusion
should not be deemed a determination or an admission by the Registrant
that such individuals are, in fact, affiliates of the Registrant.

Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date.

As of October 14, 2003, there were 10,332,548 shares of the registrants
common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12 and 13 of Part III incorporate by reference information
from the registrants proxy statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
registrants 2004 Annual Meeting of Stockholders.





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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. BUSINESS                                                                             
|                                                   | ITEM 2. PROPERTIES                                                                           
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                           
|                                                   | ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS            
|                                                   | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                   | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                   | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                                   | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|PART III                                          
|                                                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                   | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT                     
|                                                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                   | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                              
|PART IV                                           
|                                                   | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES                                        
|AMENDMENT TO CHANGE OF CONTROL AGREEMENT          
|WAIVER & 3RD AMENDMENT TO THE LOAN & SECURITY AGR.
|CONSENT                                           
|SECTION 302 CERTIFICATION OF CEO                  
|SECTION 302 CERTIFICATION OF CFO                  
|SECTION 906 CERTIFICATION OF CEO                  
|SECTION 906 CERTIFICATION OF CFO                  



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PART I




ITEM 1.          BUSINESS

Del Global Technologies Corp., a New York corporation, was incorporated in
1954. Unless otherwise specifically indicated, Del Global, the Company,
we, our, ours, and us refers to Del Global Technologies Corp. and its
consolidated subsidiaries. We are a leader in developing, manufacturing and
marketing medical imaging equipment and power conversion subsystems and
components worldwide. Our products include stationary and portable medical
diagnostic imaging equipment; high voltage power systems; and electronic
systems and components such as electronic filters, transformers and capacitors.

OPERATING SEGMENTS

The operating businesses that we report as segments consist of the Medical
Systems Group and the Power Conversion Group. For fiscal 2003, the Medical
Systems Group segment accounted for approximately 57% of our revenues and the
Power Conversion Group segment accounted for approximately 43% of our revenues.
Our consolidated financial statements include a non-operating segment which
covers unallocated corporate costs. None of our customers, in either the
Medical Systems Group or the Power Conversion Group accounted for more than 10%
of consolidated revenues nor is either segment dependent upon a single customer
or a few customers, the loss of any one or more of which would have a material
adverse effect on such segment. For further information concerning our
operating segments, see Note 8 in the Notes to Consolidated Financial
Statements in Part II, Item 8 of this Annual Report on Form 10-K for the fiscal
year ended August 2, 2003 (this Annual Report). Our operating segments and
businesses are summarized in the following table:

|                                |  |                                                |  |                                           |  |                                         
|------------------------------- |  | ---------------------------------------------- |  | ----------------------------------------- |  | ----------------------------------------
|Division                        |  | Brands                                         |  | Subsidiaries                              |  | Facilities                              
|                                |  |                                                |  |                                           |  |                                         
|Medical Systems Group:          |  |                                                |  |                                           |  |                                         
|                                |  |                                                |  |                                           |  |                                         
|Medical Imaging                 |  | Del Medical, Villa,
UNIVERSAL, DynaRad         |  | Del Medical Imaging Corp.                 |  | Franklin Park, IL                       
|                                |  |                                                |  |                                           |  |                                         
|                                |  |                                                |  | Villa Sistemi Medicali S.p.A.
(80% owned) |  | Milan, Italy                            
|                                |  |                                                |  |                                           |  |                                         
|Power Conversion Group:         |  |                                                |  |                                           |  |                                         
|                                |  |                                                |  |                                           |  |                                         
|High Voltage Power              |  | Del High Voltage, Bertan
High Voltage, DynaRad |  | Bertan High Voltage Corp.                 |  | Valhalla, NY
Hicksville, NY
(Until 2003)
|                                |  |                                                |  |                                           |  |                                         
|Electronic Systems
& Components |  | RFI, Filtron, Sprague,
Stanley                 |  | RFI Corporation                           |  | Bayshore, NY                            

MEDICAL SYSTEMS GROUP

Our Medical Systems Group designs, manufactures, markets and sells medical
imaging and diagnostic systems consisting of stationary and portable imaging
systems, radiographic/





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fluoroscopic systems, dental imaging systems and mammography systems.
Approximately 53% of this segments revenues are attributed to Villa Sistemi
Medicali S.p.A. (Villa).

Medical imaging systems of the types we manufacture use x-ray technology
to produce images of matter beneath an opaque surface. An imaging system
principally consists of a high voltage power supply, an x-ray tube, a patient
positioning system, and an image recording system, which is either film or a
digital detector. X-rays are generated as a result of high voltage being
applied to the x-ray tube.

The performance of the x-ray system, including image resolution, is
directly linked to the precision performance of the high voltage power supply.
The object to be imaged is placed between the x-ray tube and the image
recording system. X-rays, which are not reflected by opaque surfaces, pass
through the object and expose the film or image recording system. However, if
the object is comprised of areas of varying densities or chemical compositions,
x-rays will be absorbed in proportion to the density or chemical composition of
the matter. As a result, the film will be exposed to a varying degree, thereby
producing an image of the density or chemical variation within the object. For
example, because bone has a greater density than the surrounding tissue in the
body, x-rays can be used to produce an image of a skeleton. X-ray systems are
differentiated by a number of key characteristics such as image resolution,
accuracy, portability, size and cost. The design of an x-ray system requires
complex engineering, which determines the performance factors required of the
various system components.

This segment designs, manufactures, markets and sells medical imaging and
diagnostic systems worldwide in the following markets:

Medical Systems Group Markets Served

|                       |  |                           
|---------------------- |  | --------------------------
|Hospitals              |  | Veterinary Clinics        
|Teaching Institutions  |  | Chiropractic Clinics      
|Medical Clinics        |  | Dental Offices            
|Private Practitioners  |  | Military                  
|National Buying Groups |  | Home Health Care Providers
|Orthopedic Facilities  |  |                           

Our medical imaging systems are sold under the Del, Villa, UNIVERSAL, and
DynaRad brand names. The prices of our medical imaging systems range from
approximately $5,000 to $250,000 per unit, depending on the complexity and
flexibility of the system. The following is a description of our product lines
in this segment.

PRODUCTS

General Radiographic System For more than 100 years, conventional
projection radiography has used film to capture X-ray images. Conventional
technology requires that X-ray film be exposed and then chemically processed to
create a visible image for diagnosis.

General
Radiography represents approximately 40% - 60% of the Medical
Systems Groups revenues depending on the product mix within each period. We
produce a broad line of conventional radiographic products used in outpatient
facilities, as well as more

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sophisticated and expensive X-ray systems typically used in hospitals and
clinics. For example, our higher-end DRV system is designed to meet the broad
requirements of a hospital or teaching universitys radiographic room, while
our mid-range Del Medical and Villa Medical systems are suited more to the
needs of smaller hospitals, outpatient clinics and private practitioners.

We also have a broad range of products serving medical practitioners,
veterinarians and chiropractors through our UNIVERSAL brand product line.
These units are designed for durability, are space efficient, rugged and are
priced more economically. Our UNIVERSAL medical products include a variety of
configurations that can be constructed to best suit the needs of the desired
work environment. Our UNIVERSAL VetTek veterinary line of products are
designed with many of the same attributes as the medical line. Our UNIVERSAL
chiropractic line, consisting of our ChiroEZ and Raymaster product, combine
precision alignment and positioning with a versatile chiro imaging system.

During fiscal 2003, we expanded our product portfolio with a new digital
radiographic offering branded under the DRV product line. This new system
enables radiologists to obtain better patient images within a fraction of the
time and with lower overall costs than traditional film-based systems.

We also produce a full product line of high frequency medical x-ray
generators which economically provide superior quality x-ray generation,
resulting in lower patient dosage, extended tube life and less blurring due to
patient motion when compared to single phase generators.

Radiographic/Fluoroscopic Systems We produce a wide range of
radiographic/ fluoroscopic, or R/F, systems able to perform complex x-ray
analyses with contrast liquids for sequential images. Our Vision, Mercury and
Symphony systems include tilting tables for the patient being x-rayed. These
tables can be used easily with digital imaging systems. R/F systems are often
used for diagnostic gastrointestinal procedures to image the progress of a
radiopaque solution (typically barium) as it travels through the digestive
tract. Remote Controlled R/F tables (Mercury and Symphony) are also widely
used, in connection with our digital acquisition system DIVA, to perform real
time angiographic examinations.

Portable Medical X-Ray Systems We sell portable x-ray equipment under
our DynaRad brand HF-110A and PHANTOM systems, for the Military and Home Health
Care Provider markets. Both of these portable systems utilize high frequency,
microprocessor-controlled technology to produce consistent quality x-rays with
the added advantages of being smaller, lighter in weight and more
cost-effective than stationary x-ray systems.

Dental Systems We produce a broad range of DC and AC powered intra-oral
(commonly known as bite wing) x-ray systems. In addition, our Rotograph Plus
and Strato-2000 systems are utilized to perform panoramic images for dental
applications. The most recent addition to the dental product line is a Direct
Digital version of Strato 2000, which captures panoramic images directly in
digital format and can be connected to a PC for image reviewing and
post-examination processing.

Mammography Systems We currently resell the Melody system principally
outside of the U.S. The Melody unit is manufactured by a European-based
manufacturer and although we have exclusive use of the Melody name, our
supplier markets a similar product in several competing markets. In addition,
we also resell a small amount of other European manufactured mammography
systems in the U.S. on a non-exclusive basis.

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Marketing and Distribution:Our medical imaging systems are sold in the
U.S. and foreign countries, principally by a network of over 200 distributors
worldwide. Medical imaging systems distributors are supported by our regional
managers, product line managers and technical support groups, who train
distributor sales personnel and participate in customer calls. Technical
support in the selection, use and maintenance of our products is provided to
distributors and professionals by customer service representatives. We also
maintain telephone hotlines to provide technical assistance to distributors and
professionals during regular business hours. Additional product and
distributor support is provided through participation in medical equipment
exhibitions and trade advertising. We typically exhibit our products at annual
conferences, including the Radiological Society of North American Conference in
Chicago, the MEDICA Medical Conference in Düsseldorf, Germany, the European
College of Radiology Conference in Vienna, Austria, and the International
Dental Show (IDS) in Cologne, Germany.

Raw Materials and Principal Suppliers: The Medical Systems Group in most
cases uses two or more alternative sources of supply for each of its raw
materials, which consist primarily of mechanical subassemblies, electronic
components, x-ray tubes and x-ray generators. In certain instances, however,
the Medical Systems Group will use a single source of supply when directed by a
customer or by need. In order to ensure the consistent quality of the Medical
System Groups products, the Company follows strict supplier evaluation and
qualification procedures, and where possible, enters into strategic
partnerships with its suppliers to assure a continuing supply of high quality
critical components.

With respect to those items which are purchased from single sources, we
believe that comparable items would be available in the event that there was a
termination of our existing business relationships with any such supplier.
Actual experience could differ materially from this belief as a result of a
number of factors, including the time required to locate an alternate source
for the material.

Competition:Based on industry data, we believe our Medical Systems Group
is the largest supplier, measured by market share, to the independent
distributors of radiographic equipment in North America. Our Medical Systems
Group competes in two major segments of the highly competitive, world-wide
conventional radiographic and R/F products marketplace. Our top-tier
conventional radiographic products are sold through multi-hospital buying
networks, general purchasing organizations and major independent distributors.
The three major competitors in this market segment are GE Medical Systems, a
division of General Electric Company, Siemens Medical Solutions, a division of
Siemens AG and Philips Medical Systems, a division of Koninklijke Philips
Electronics N.V. and they compete with us on customer support, features and
breadth of product offerings. These larger competitors primarily sell directly
to large hospitals and teaching institutions and sell a broader range of
products designed to outfit a hospitals entire imaging requirements.

Our lower-tier conventional radiographic products principally compete with
ten or fewer small companies based primarily in the U.S. and Europe. Most of
these companies sell through independent distributors and compete with us
primarily on price, quality and performance. We believe that we can be
differentiated from our competitors based on our combination of price, quality
and performance, together with the strength and breadth of our independent
distribution network, and the variety of our product portfolio.

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The markets for our products are highly competitive and subject to
technological change and evolving industry requirements and standards. We
believe that these trends will continue into the foreseeable future. Some of
our current and potential competitors have substantially greater financial,
marketing and other resources than we do. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than we can. Competition could increase if new companies enter the
market or if existing competitors expand their product lines or intensify
efforts within existing product lines. Although we believe that our products
are more cost-effective than those of our primary competitors, certain
competing products may have other advantages which may limit our market. There
can be no assurance that continuing improvements in current or new competing
products will not make them technically equivalent or superior to our products
in addition to providing cost or other advantages. There can be no assurance
that our current products, products under development or ability to introduce
new products will enable us to compete effectively.

Product Development:It is generally accepted that digital radiography
will become the dominant technology used in hospitals and imaging clinics
throughout the world over the next 10 to 15 years. Currently, there are a
number of competing technologies available in connection with the digitization
of x-ray images. In addition, there are substantial hurdles which need to be
addressed in terms of transitioning radiology practices from the current analog
environment to a digital environment. These ancillary issues include image
storage and retrieval and record keeping. However, due to the high cost of
this technology, many institutions have not yet adopted digital technology. In
addition, there is uncertainty as to which technology system will be accepted
as the industry-leading protocol for image digitization and communication.

Consequently, our current research and development spending is focused
primarily on enhancing our existing conventional radiographic products while we
study the developments in the digital marketplace. We believe these studies
will help us to assure the investments we make in this area are appropriate.
Spending for research and development for our Medical Systems Group was
approximately $1.6 million, $1.4 million and $1.6 million during fiscal years
2003, 2002 and 2001, respectively.

We currently have two digital radiographic solutions and are committed to
expanding our selection to include a wider range of low-cost offerings for
customers. While many of our competitors have invested heavily into developing
a digital detector, we have chosen to align with technology leaders who have
already made digital investments and could benefit from our X-Ray platform
design, our systems integration capabilities and our worldwide dealer network.
This strategy also accelerates our time-to-market with new digital solutions
and avoids the significant development costs being incurred by our competitors.

Trademarks and Patents:The majority of the Medical System Groups
products are based on technology that is not protected by patent or other
rights. Within the Medical System Group, certain of our products and brand
names are protected by trademarks, both in the U.S. and internationally.
Because we do not have patent rights in our products, our technology may not
preclude or inhibit competitors from producing products that have identical
performance as our products. Our future success is dependent primarily on the
technological expertise and management abilities of our employees and the
strength of our relationship with our worldwide dealer network.

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Government Regulation:Our medical imaging systems are medical devices
and, therefore, are subject to regulation by the U.S. Food and Drug
Administration (the FDA) and to regulation by foreign governmental
authorities. We also are subject to state and local regulation. Regulatory
requirements include registration as a manufacturer, compliance with
established manufacturing practices, procedures and quality standards, strict
requirements dealing with the safety, effectiveness and other properties of the
products, conformance with applicable industry standards, product traceability,
adverse event reporting, distribution, record keeping, reporting, compliance
with advertising and packaging standards, labeling, and radiation emitting
qualities of these products. Failure to comply can result in, among other
things, the imposition of fines, criminal prosecution, recall and seizure of
products, injunctions restricting or precluding production or distribution, the
denial of new product approvals and the withdrawal of existing product
approvals.

FDAs Pre-market Clearance and Approval Requirements

In the U.S., medical devices are classified into three different
categories over which the FDA applies increasing levels of regulation: Class I,
Class II, and Class III. The FDA has classified all of our products as Class
II devices. Before a new Class II device can be introduced into the U.S.
market, the manufacturer must obtain FDA clearance or approval through either
premarket notification under Section 510(k) of the Federal Food, Drug, and
Cosmetic Act, or a premarket approval under Section 515 of that Act, unless the
product is otherwise exempt from the requirements.

A Section 510(k) premarket notification must contain information
supporting the claim of substantial equivalence, which may include laboratory
results or the results of clinical studies. Following submission of a 510(k)
application, a manufacturer may not market the device until the FDA finds the
product is substantially equivalent for a specific or general intended use.
FDA clearance generally takes from four to twelve months, may take longer, and
there is no assurance the FDA will ultimately grant a clearance. The FDA may
determine that a device is not substantially equivalent and may require
submission and approval of a premarket approval application, or require further
information before it is able to make a determination regarding substantial
equivalence.

After a device receives 510(k) clearance, any modification made to the
device requires the manufacturer to determine whether the modification could
significantly affect its safety or effectiveness. If it does not, the
manufacturers decision must be documented. If the modification could
significantly affect the devices safety and effectiveness, then the
modification requires at least a new 510(k) clearance or, in some instances,
could require a premarket approval. The FDA requires each manufacturer to make
this determination, but the FDA can review any manufacturers decision. If the
FDA disagrees with a manufacturers decision, the agency may retroactively
require the manufacturer to seek 510(k) clearance or premarket approval. The
FDA also can require the manufacturer to cease marketing the modified device or
recall the modified device (or both) until 510(k) clearance or premarket
approval is obtained. We have made minor modifications to our products and,
using the guidelines established by the FDA, have determined that these
modifications do not require us to file new 510(k) submissions. If the FDA
disagrees with our determinations, we may not be able to sell one or more of
our products until the FDA has cleared new 510(k) submissions for these
modifications.

All of our products to date have met the appropriate FDA requirement for
marketing, either because they were exempt from submission or through 510(k)
clearance. We continuously evaluate our products for any required new
submission for changes or modifications.

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Pervasive and Continuing FDA Regulation

Numerous FDA regulatory requirements apply to our products as well as to
components manufactured by some of our suppliers. These requirements include:



| |  |  | the FDAs quality system regulation which requires manufacturers to
create, implement and follow numerous design, testing, control,
documentation and other quality procedures; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Medical device reporting regulations, which require that manufacturers
report to the FDA certain types of adverse and other events involving
their products.                       

Class II devices may also be subject to special controls, such as
performance standards, post-market surveillance, patient registries and FDA
guidelines that may not apply to Class I devices. Our products are currently
subject to FDA guidelines for 510(k) cleared devices and are not subject to any
other form of special controls. We believe we are in compliance with the
applicable FDA guidelines, but we could be required to change our compliance
activities or be subject to other special controls if the FDA changes its
existing regulations or adopts new requirements.

We and some of our suppliers are subject to inspection and market
surveillance by the FDA to determine compliance with regulatory requirements.
If the FDA finds that either we or a supplier have failed to adequately comply,
the agency can institute a wide variety of enforcement actions, ranging from a
public warning letter to more severe sanctions such as: fines, injunctions and
civil penalties; recall or seizure of our products; the imposition of operating
restrictions, partial suspension or total shutdown of production; the refusal
of our requests for 510(k) clearance or premarket approval of new products; the
withdrawal of 510(k) clearance or premarket approval already granted; and
criminal prosecution.

The FDA also has the authority to require repair, replacement or refund of
the cost of any medical device manufactured or distributed by us. Our failure
to comply with applicable requirements could lead to an enforcement action that
may have an adverse effect on our financial condition and results of
operations.

Other Federal and State Regulations

As a participant in the health care industry, we are subject to extensive
and frequently changing regulation under many other laws administered by
governmental entities at the federal, state and local levels, some of which
are, and others of which may be, applicable to our business. For example, our
facility is also licensed as a medical product manufacturing site by the state
of Illinois and is subject to periodic state regulatory inspections. Our
health care service provider customers are also subject to a wide variety of
laws and regulations that could affect the nature and scope of their
relationships with us.

Foreign Government Regulation

Our products are also regulated outside the U.S. as medical devices by
foreign governmental agencies, similar to the FDA, and are subject to
regulatory requirements, similar to the FDAs, in the countries in which we
plan to sell our products. We work with our foreign distributors to obtain the
foreign regulatory approvals necessary to market our products outside of the
U.S. In certain foreign markets, it may be necessary or advantageous to obtain
ISO 9001 certification, which is analogous to compliance with the FDAs Good
Manufacturing Practices requirements. We have obtained ISO 9001 certification
for all of our medical systems manufacturing facilities. The time and cost

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required to obtain market authorization from other countries and the
requirements for licensing a product in another country may differ
significantly from FDA requirements.

No assurance can be given that the FDA or foreign regulatory agencies will
give the requisite approvals or clearances for any of our medical imaging
systems and other products under development on a timely basis, if at all.
Moreover, after clearance is given, both in the case of our existing products
and any future products, these agencies can later withdraw the clearance or
require us to change the system or our manufacturing process or labeling, to
supply additional proof of its safety and effectiveness, or to withdraw,
recall, repair, replace or refund the cost of the medical system, if it is
shown to be hazardous or defective.

POWER CONVERSION GROUP

Our Power Conversion Group designs, manufactures, markets and sells high
voltage power conversion systems and electronic noise suppression components
for a variety of applications. These products are utilized by original
equipment manufacturers OEMs who build systems that are used in a broad range
of markets. Our products are sold under the following industry brands: Del
High Voltage, Bertan High Voltage, DynaRad, RFI, Filtron, Sprague and Stanley.
This segment has two divisions: High Voltage Power and Electronic Systems and
Components.

Approximately 70% of this segments revenues are attributed to our high
voltage power division. Our high voltage systems are offered in standard or
custom designed configurations, primarily for security, medical, scientific,
military and industrial OEM applications. Output voltages from 500V to 200kV,
and power from 1W to 90kW are available in modular, bench-top and rack-mount
configurations. High voltage power conversion systems transform commercially
available AC power into very stable, high voltage DC power, tailored for a wide
range of sophisticated electronic devices including explosive detection,
medical equipment and semiconductor manufacturing equipment. In these
applications, slight variations in the high voltage source would significantly
degrade the performance of the system.

Our electronics systems and components division designs and manufactures
key electronic components such as transformers, noise suppression filters and
high voltage capacitors for use in precision regulated high voltage
applications. Noise suppression filters and components are used to help
isolate and reduce the electromagnetic interference (commonly referred to as
noise) among the different components in a system sharing the same power
source. Examples of systems that use our noise suppression products include
aviation electronics, mobile and land-based telecommunication systems and
missile guidance systems.

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The Power Conversion Group provides subsystems and components which are
used in the manufacture of products for security, medical, military and
industrial applications as follows:

Power Conversion Group Markets Served

High Voltage Power Division



SecurityAirport Explosive Detection SystemsExplosive Trace DetectionX-Ray Baggage InspectionMedicalRadiation OncologyCT Scanning
Magnetic Resonance Imaging (MRI)Bone DensitometryPositron Emission Tomography (PET) ScanningBlood AnalysisLaser / MilitaryCRT DisplayRadar




Analytical InstrumentationMass SpectrometryCapillary ElectrophoresisSpectroscopyX-Ray DiffractionSemiconductorIon ImplantationMask RepairX-Ray InspectionE-Beam LithographyHigh Powered E-BeamSterilizationNon Destructive TestingFood InspectionPC Board InspectionStructural Inspection




Electronics Systems & Components Division



MilitaryGuidance & Weapons SystemsCommunicationsCommercialPower SystemsTelecommunicationsSatelliteMeteorological




IndustrialInduction HeatingAutomotiveCapital EquipmentMedicalRadiation OncologyMRI




PRODUCTS

Security Applications

The security market we address is comprised of three components: Explosive
Detection Systems (EDS), Explosive Trace Detection (ETD) and X-Ray Baggage
Inspection. EDS refers to the FAA-approved, CT-based (commonly known as CAT
scan), baggage inspection equipment used in airports for the automatic
detection of explosives in checked baggage. The ETD market segment includes
machines used in airports to detect vapors and residues of explosives on
luggage and parcels. ETD machines are less expensive and take up much less
room than EDS machines do, but they are less sensitive and less accurate in
detecting explosive materials.

The X-Ray Inspection market consists of various types of technologies used
in the inspection of aircraft carry-on and check-in baggage, as well as cargo
and freight. Areas of use for X-Ray Inspection Equipment include airports,
corporate buildings, cruise ships,

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currency printers, customs, embassies, entertainment, government
buildings, hazardous materials, jails, mail rooms, schools and transportation.

In addition to the increased demand for these products in the U.S., there
has also been an increased focus on aviation security outside the U.S. This
demand is expected to continue to grow as more countries around the world
attempt to reduce the terroristic threats associated with commercial flight.

Medical Applications Our high voltage power supplies deliver precisely
regulated output power while operating over a very wide range of temperatures,
altitudes, humidity, shock and vibration conditions. We have designed power
supplies that deliver power over a range from several watts up to 60 kilowatts
with output voltage ranging from hundreds of volts up to several hundred
thousand volts. Operating frequencies range from 60 hertz up to 100 kilohertz.
These subsystems are integrated into equipment for CAT scans, MRI, bone
densitometry, radiography, blood analysis, laser surgery, nuclear medicine and
PET scanning.

Military Applications Through our relationships with many of the federal
governments top defense suppliers, such as Raytheon, Boeing, Lockheed Martin
and Northrop Grumman, we supply high voltage subsystems and electronic
components for various classified and unclassified programs including radar
systems, guidance systems, weapons systems and communication electronics.

Industrial Applications Our high voltage power subsystems are used in
many leading-edge high technology scientific and industrial applications by
OEMs, universities and private research laboratories. Some industrial
applications using high voltage subsystems include DNA sequencing, molecular
analysis, printed circuit board inspection, structural inspection, food and
mail sterilization and semiconductor capital equipment.

Marketing, Sales and Distribution:We market our Power Conversion Group
products through in-house sales personnel, independent sales representatives in
the U.S., and international agents in Europe, Asia, the Middle East, Canada,
Australia and South Africa. Our sales representatives are compensated
primarily on a commission basis and the international agents are compensated
either on a commission basis or act as independent distributors. Our marketing
efforts emphasize our ability to custom engineer products to optimal
performance specifications. We emphasize team selling where our sales
representatives, engineers and management personnel all work together to market
our products. We also market our products through catalogs and trade journals
and participation in industry shows.

Raw Materials and Principal Suppliers: The Power Conversion Group in most
cases uses two or more alternative sources of supply for each of its raw
materials, which consist primarily of electronic components and subassemblies,
metal enclosures for its products and certain other materials. In certain
instances, however, the Power Conversion Group will use a single source of
supply when directed by a customer or by need. In order to ensure the
consistent quality of the Power Conversion Groups products, the Company
performs certain supplier evaluation and qualification procedures, and where
possible, enters into strategic partnerships with its suppliers to assure a
continuing supply of high quality critical components.

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With respect to those items which are purchased from single sources, we
believe that comparable items would be available in the event that there was a
termination of our existing business relationships with any such supplier.
Actual experience could differ materially from this belief as a result of a
number of factors, including the time required to locate an alternate source
for the material.

Competition:Our Power Conversion Group competes primarily with fewer
than 10 small, privately owned suppliers of high voltage power supplies and
electronic systems and components. From our perspective, competition is
primarily based on each companies design, service and technical capabilities,
and secondarily on price. Excluding the OEMs that manufacture their own
components, based on market intelligence we have gathered, we believe that we
are among the top two or three in market share in supplying these products.

The markets for our products are highly competitive and subject to
technological change and evolving industry requirements and standards. We
believe that these trends will continue into the foreseeable future. Some of
our current and potential competitors have substantially greater financial,
marketing and other resources than we do. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than we can. Competition could increase if new companies enter the
market or if existing competitors expand their product lines or intensify
efforts within existing product lines. Although we believe that our products
are more cost-effective than those of our primary competitors, certain
competing products may have other advantages which may limit our market. There
can be no assurance that continuing improvements in current or new products
will not make them technically equivalent or superior to our products in
addition to providing cost or other advantages. There can be no assurance that
our current products, products under development or our ability to introduce
new products will enable us to compete effectively.

Product Development:We have an ongoing research and development program
in our Power Conversion Group. Our technical and scientific employees are
generally employed in engineering departments at our business units, and split
their time, depending on business mix and their own technical background,
between supporting existing production and development and research efforts for
new product variations or new customer specifications. We develop certain new
products as standard products for the industry at large after we have evaluated
their potential. These products include standardized high voltage, high
frequency rack mounted power supplies and associated modules for use as
precision test equipment by industrial laboratories, universities and research
facilities. Research and development spending for the Power Conversion Group
was $0.6 million, $1.5 million and $1.3 million in fiscal years 2003, 2002 and
2001, respectively. Fiscal 2003 expenditures were lower because our technical
and scientific employees were focused on the operational issues of
consolidating the Hicksville facility production into our Valhalla plant and
reshaping our production and quality practices at our Bayshore plant.

Trademarks and Patents:The majority of the Power Conversion Groups
products are based on technology that is not protected by patent or other
rights. Within the Power Conversion Group, certain of our products and
brand names are protected by trademarks,

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both in the U.S. and internationally. Because we do not have patent
rights in our products, our technology may not preclude or inhibit competitors
from producing products that have identical performance as our products. Our
future success is dependent primarily on the technological expertise and
management abilities of our employees.

Government Regulation:We are subject to various U.S. government
guidelines and regulations relating to the qualification of our non-medical
products for inclusion in government-qualified product lists in order to be
eligible to receive purchase orders from a government agency or for inclusion
of a product in a system which will ultimately be used by a governmental
agency. We have had many years of experience in designing, testing and
qualifying our products for sale to governmental agencies. Certain government
contracts are subject to cancellation rights at the Governments election. We
have experienced no material termination of any government contract and are not
aware of any pending terminations of government contracts.

In March 2002, RFI Corporation, our Electronic Systems and Components
subsidiary (RFI) was served a subpoena in connection with an investigation by
the U.S. Department of Defense (DOD). See Part I, Item 3, Legal
Proceedings of this Annual Report.

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SEASONALITY

Revenue in both operating segments is typically lower during the first
quarter of each fiscal year due to the shutdown of operations in our Milan,
Italy (Medical Systems Group) and Bayshore, New York (Power Conversion Group)
facilities for part of August as a result of both vacation schedules and
year-end physical inventories. In addition, our Valhalla, New York (Power
Conversion Group) location typically shuts down for several days in August for
the taking of year-end physical inventories.

BACKLOG

Consolidated backlog at August 2, 2003 was $26.3 million versus backlog at
August 3, 2002 of approximately $31 million. Backlog in the Power Conversion
Group at August 2, 2003 was $17.7 million versus backlog at August 3, 2002 of
approximately $23.7 million. The decline in backlog from beginning of year
levels is mostly attributable to high shipments of EDS orders. Backlog in the
Medical Systems Segment at August 2, 2003 was $8.6 million versus backlog at
August 3, 2002 of approximately $7.6 million with increases at both operating
units. Substantially all of the backlog should result in shipments within the
next 12 months.

EMPLOYEES

As of August 2, 2003 we had 462 employees. We believe that our employee
relations are good. None of our approximately 338 U.S. based employees are
represented by a labor union. Employment by functional area as of August 2,
2003 is as follows:

|                    |  |  |     | 
|------------------- |  |  | --- | 
|Executive           |  |  | 6   | 
|Administration      |  |  | 33  | 
|Manufacturing       |  |  | 324 | 
|Engineering         |  |  | 49  | 
|Sales and Marketing |  |  | 50  | 
|                    |  |  |     | 
|Total               |  |  | 462 | 
|                    |  |  |     | 

SUBSEQUENT EVENT

On October 10, 2003, the Company announced the appointment of Walter F.
Schneider as President and Chief Executive Officer to replace Samuel E. Park,
effective as of such date.

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RISK FACTORS

Prospective investors should carefully consider the following risk
factors, together with the other information contained in this Annual Report,
in evaluating the Company and its business before purchasing our securities. In
particular, prospective investors should note that this Annual Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and that actual results could differ
materially from those contemplated by such statements. The factors listed
below represent certain important factors which we believe could cause such
results to differ. These factors are not intended to represent a complete list
of the general or specific risks that may affect us. It should be recognized
that other risks may be significant, presently or in the future, and the risks
set forth below may affect us to a greater extent than indicated.

RISKS RELATED TO THE COMPANYS PAST FAILURE TO COMPLY WITH THE UNITED STATES
SECURITIES LAWS AND OTHER INVESTIGATIONS AND LITIGATION

Our failure to settle our ongoing enforcement action could have a negative
impact on our business.

On December 11, 2000, the Division of Enforcement of the U.S. Securities
and Exchange Commission (SEC) issued a formal Order Directing Private
Investigation (the SEC Order), designating SEC officers to take testimony and
requiring the production of certain documents, in connection with matters
giving rise to the need to restate our previously issued financial statements,
specifically for the fiscal years 1997 through 1999 and the first three
quarters of fiscal 2000.

We have reached an agreement in principle with the Staff of the SEC to
settle the SECs claims against us. The settlement will include a penalty of
up to $400,000, and issuance of an injunction against any future violations of
the antifraud, periodic reporting, books and records and internal accounting
control provisions of the federal securities laws. The proposed settlement may
be subject to, among other things, any necessary future restatement of our
historical financial statements or other material adjustments. Management is
not aware of any restatements or adjustments required with respect to the
financial statements filed with the SEC since April 2002. In addition, the
proposed settlement will require approval by the SEC and by the appropriate
U.S. District Court. We can give no assurance that this proposed settlement
will be approved by either the SEC or the appropriate U.S. District Court, or
that the terms will not be changed.

Although we have not reached a binding agreement with the SEC on this
settlement proposal, management believes that this agreement in principle is a
reasonable basis on which it can now estimate the financial impact of this SEC
investigation. As a result, we recorded a charge in the fourth quarter of
fiscal 2002 related to this agreement in principle with the SEC staff, plus
associated legal costs. If we are not able to reach an acceptable settlement
with the SEC, we may incur substantial additional penalties and fines. See
Part I, Item 3, Legal Proceedings of this Annual Report.

Our common stock has been delisted from the NASDAQ National Market and we
cannot predict when or if ever it will be listed on any national securities
exchange.

Our common stock was suspended from trading on the Nasdaq National Market
in December 2000. Current pricing information on our common stock has been
available in the pink sheets published by National Quotation Bureau, LLC.
The pink sheets is an

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over-the-counter market which generally provides significantly less
liquidity than established stock exchanges or the Nasdaq National Market, and
quotes for stocks included in the pink sheets are not listed in the financial
sections of newspapers. Therefore, prices for securities traded solely in the
pink sheets may be difficult to obtain, and shareholders may find it
difficult to resell their shares. In order to be re-listed, we will need to
meet certain listing requirements. There can be no assurance that we will be
able to meet such listing requirements.

The DOD is investigating part of our Power Conversion Group business, which
could result in loss of business and monetary fines.

On March 8, 2002, our subsidiary, RFI, part of our Power Conversion Group
segment, was served with a subpoena by the U.S. Attorney for the Eastern
District of New York in connection with an investigation by the DOD. RFI
supplies noise suppression filters for communications and defense applications.
RFIs total business accounted for approximately $12 million of our revenues
in each of fiscal 2003 and fiscal 2002.

In June 2003, the Company was advised that the U.S. Government is willing
to enter into negotiations regarding a comprehensive settlement of the ongoing
DOD investigation of RFI. We believe that a potential comprehensive settlement
will include the Companys pleading guilty to certain criminal charges, and
agreeing to pay certain fines and restitution to the Government in an amount
which could be material to the Company. Prior to the preliminary discussions
with the U.S. Government in June 2003, we had no basis to estimate the
financial impact of this investigation. Based on preliminary settlement
discussions with the U.S. Government, discussions with the Companys legal
advisors, consideration of settlements reached by other parties in
investigations of this nature, and consideration of the Companys capital
resources, management had then developed an estimate of the low end of the
potential range of the financial impact. Accordingly, during the third quarter
of fiscal 2003, the Company recorded a charge of $2,347,000, which represents
its estimate of the low end of a range of potential fines and legal and
professional fees. In October 2003, based on discussions with the U.S.
Government, the Company was advised that the U.S. Government is currently
seeking up to approximately $5 million in the fines and restitution portion of
any comprehensive settlement. The Company is continuing to negotiate with the
U.S. Government regarding a comprehensive settlement, including the amount of
such fines.

The Company believes that any settlement could cause the DOD to seek to
limit the ability of the Company to do business with U.S. Government entities.
Such limitations could include seeking a debarment or exclusion from doing
business with U.S. Government entities for a period of time. Because management
believes that it has been responsive in addressing the problems that affected
RFI in the past, and RFI is the sole source provider of certain products, the
Company is hopeful that as a result of the potential settlement, its ability to
service the governmental and defense sectors of its business will not be
interrupted.

There can be no assurance that such a settlement will be reached and, even
if reached that the ultimate fines and outcome of any settlement will not vary
significantly from the Companys original estimate and expectations. In
addition, such a settlement, even on the most favorable terms, may have a
material adverse impact on the Companys financial condition, liquidity and
operations. See Part I, Item 3, Legal Proceedings of this Annual Report.

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Recent events may cause loss of existing and potential customers and suppliers.

We have received inquiries from some of our customers and suppliers
relating to the recent proxy contest, our previously disclosed accounting
irregularities and litigation arising out of such irregularities. As a
consequence, our relationships with existing customers and suppliers may be
strained. In addition, our ability to develop potential customers or suppliers
to maintain and grow our business may be adversely affected.

RISKS RELATED TO OUR BUSINESS

Our business is based on technology that is not protected by patent or other
rights.

The technology and designs underlying our products are unprotected by
patent rights. Our future success is dependent primarily on unpatented trade
secrets and on the innovative skills, technological expertise and management
abilities of our employees. Because we do not have patent rights in our
products, our technology may not preclude or inhibit competitors from producing
products that have identical performance as our products. In addition, we
cannot guarantee that any protected trade secret could ultimately be proven
valid if challenged. Any such challenge, with or without merit, could be time
consuming to defend, result in costly litigation, divert our managements
attention and resources and, if successful, require us to pay monetary damages.

We may not be able to compete successfully.

A number of companies have developed, or are expected to develop, products
that compete or will compete with our products. Many of these competitors
offer a range of products in areas other than those in which we compete, which
may make such competitors more attractive to hospitals, radiology clients,
general purchasing organizations and other potential customers. In addition,
many of our competitors and potential competitors are larger and have greater
financial resources than we do and offer a range of products broader than our
products. Some of the companies with which we now compete or may compete in
the future have or may have more extensive research, marketing and
manufacturing capabilities and significantly greater technical and personnel
resources than we do, and may be better positioned to continue to improve their
technology in order to compete in an evolving industry.

We may not be able to meet our financial covenants under our credit facility.

In the fourth quarter of fiscal 2003, we breached the tangible net worth
financial covenants contained in our Loan and Security Agreement, dated June
10, 2002, with Transamerica Business Capital Corporation (Transamerica), as
amended (the Transamerica Agreement). In October 2003, we received a waiver
of such default from Transamerica and signed a Third Amendment with
Transamerica. This Third Amendment includes revisions to the tangible net
worth financial covenant as well as adjustments to the other financial
covenants. While we expect to be able to meet these revised covenants, there
can be no assurance that we will be able to continue to meet them. If we were
to breach our covenants, Transamerica could accelerate the amounts due under
and foreclose on assets securing our credit facility and we would be forced to
seek alternative sources of funding for our debt repayment obligations and
growth.

The valuation of our deferred tax assets and the recognition of tax benefits in
each period assumes future taxable income and profitability.

During fiscal 1999 through fiscal 2002, we recognized substantial pre-tax
losses. Some of these pre-tax losses resulted in a short-term tax benefit, in
that those losses are also tax

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deductible losses, and enabled us to claim a refund for taxes previously
paid, which we recognized on our balance sheet as income tax receivable. As of
February 1, 2003, we have received substantially all of the income tax
receivable recognized on our balance sheet. In addition to the short-term
benefit that we recognize as income tax receivable, our net operating losses
for tax purposes gave rise to deferred tax assets, which represented the
monetary value of future utilization of tax loss carryforwards to reduce future
income taxes.

One critical element in the valuation of deferred tax assets is
managements expectations about our future profitability. If we have tax loss
carryforwards, but we do not expect to have taxable income in the future, we
would value our deferred tax assets at a lower amount (possibly zero) because
those tax loss carry forwards could expire before they can be used.

During February and March 2003, as part of our customary six month
planning and review cycle, management updated each business units forecasts
for the second half of fiscal 2003 and began preliminary planning for fiscal
2004. After reviewing the second half expectations, and taking into account
lower than expected first half gross margins and the uncertain economic
outlook, management concluded that it was prudent to establish a valuation
allowance of $4.7 million against long term deferred tax assets. The valuation
allowance was computed by considering the amount of future taxable income
expected over the net operating loss carry-forward period, considering recent
performance and other actions we have taken to improve profitability. During
October 2003, we reviewed the actual second half performance versus our
previous expectations. Based on lower than expected second half performance
and the size of the operating losses incurred for the full fiscal year 2003, we
concluded an additional valuation allowance of $3.2 million against long term
deferred tax assets was warranted.

Although we continue to believe that in the future we will have sufficient
taxable income to absorb these remaining tax loss carry-forwards, this
situation could change if the profitability of our U.S. business is less than
what we expect. If so, we may not be able to realize the benefit of our
remaining deferred tax asset. See Deferred Income Tax Asset discussion in
Note 11 of the Notes to Consolidated Financial Statements included in Part II,
Item 8 this Annual Report.

Our delay or inability to obtain any necessary U.S. or foreign regulatory
clearances or approvals for our products could harm our business and prospects.

Our medical imaging products, with the exception of certain veterinary
lines, are the subject of a high level of regulatory oversight. Any delay in
our obtaining or our inability to obtain any necessary U.S. or foreign
regulatory approvals for new products could harm our business and prospects.
There is a limited risk that any approvals or clearances, once obtained, may be
withdrawn or modified which could create delays in shipping our product,
pending re-approval. Medical devices cannot be marketed in the U.S. without
clearance or approval by the FDA. Our Medical Systems group businesses must be
operated in compliance with FDA Good Manufacturing Practices, which regulate
the design, manufacture, packing, storage and installation of medical devices.
Our manufacturing facilities and business practices are subject to periodic
regulatory audits and quality certifications and we do self audits to monitor
our compliance. In general, corrective actions required as a result of these
audits do have a significant impact on our manufacturing operation; however
there is a limited risk that delays caused by a potential response to extensive
corrective actions could impact our operations. Virtually all of our products
manufactured or sold overseas are also subject to approval and regulation by
foreign regulatory and safety agencies. If we do not obtain these approvals,
we could be precluded from selling our products or required to make
modifications to our products which could

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delay bringing our products to market. Because our U.S. products lines
are mature, new product changes are in general relatively minor and accordingly
regulatory approval is more streamlined. Our Italian subsidiary, Villa, is
developing a remote imaging system that we believe represents a significant
future sales prospect. Due to the innovative nature of this system, and the
need to go through full regulatory clearance, we estimate there is a 50%
possibility this product introduction could be delayed for up to six months.

We must rapidly develop new
products in order to compete effectively.

Technology in our industry, particularly in the x-ray and medical imaging
businesses, evolves rapidly, and making timely product innovations is essential
to our success in the marketplace. The introduction by our competitors of
products with improved technologies or features may render our existing
products obsolete and unmarketable. If we cannot develop products in a timely
manner in response to industry changes, or if our products do not perform well,
our business and financial condition will be adversely affected. Also, our new
products may contain defects or errors which give rise to product liability
claims against us or cause the products to fail to gain market acceptance.

It is generally accepted that digital radiography will become the dominant
technology used in hospitals and imaging clinics throughout the world over the
next 10 to 15 years. Currently, there are a number of competing technologies
available in connection with the digitization of x-ray images. However, due to
the high cost of this technology, many institutions have not yet adopted
digital technology. In addition, there is uncertainty as to which technology
system will be accepted as the industry-leading protocol for image digitization
and communication. Lack of an adequate digital capability could impact our
business and result in a loss of market share.

We must conduct our business operations without infringing on the proprietary
rights of third parties.

Although we believe our products do not infringe on the intellectual
property rights of others, there can be no assurance that infringement claims
will not be asserted against us in the future or that, if asserted, any
infringement claim will be successfully defended. A successful claim, or any
claim, against us could distract our managements attention from other business
concerns and adversely affect our business, financial condition and results of
operations.

Payments required under certain change of control agreements with our key
executives could unduly burden our company.

We have entered into agreements with all of our executive officers
providing for substantial severance payments to them in the event that they are
terminated in connection with certain changes of control. The Companys
employment agreement with Samuel E. Park, the former CEO of the Company,
provides for payments upon certain changes of control. The Companys newly
elected Board of Directors has reviewed the change of control provisions
regarding payments totaling up to approximately $1,800,000 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 believes 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. If paid in a lump sum, these payments may have a material adverse
effect on the Companys liquidity. In the event Mr. Park seeks to assert a
claim for these payments, it is not possible to predict the
outcome of any such claim.

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In the
event the change of control provisions under these various
agreements were all triggered (including Mr. Parks), the total payments required could be in excess
of $3.9 million. While we believe these agreements are important to ensure the
continued dedication of our key employees, the large payments required pursuant
to these change of control agreements could unduly burden us or serve as a
barrier to a potential acquirer. This, in turn, could limit the ability of our
shareholders to sell their shares at a favorable price.

There is a risk that our insurance will not be sufficient to protect us from
product liability claims, or that in the future product liability insurance
will not be available to us at a reasonable cost, if at all.

Our business involves the risk of product liability claims inherent to the
medical device business. We maintain product liability insurance subject to
certain deductibles and exclusions. There is a risk that our insurance will
not be sufficient to protect us from product liability claims, or that product
liability insurance will not be available to us at a reasonable cost, if at
all. An uninsured or underinsured claim could materially harm our operating
results or financial condition.

We face risks associated with handling hazardous materials and products.

Our research and development activity involves the controlled use of
hazardous materials, such as toxic and carcinogenic chemicals. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local regulations,
we cannot completely eliminate the risk of accidental contamination or injury
from these materials. In the event of an accident, we could be held liable for
any resulting damages, and such liability could be extensive. We are also
subject to substantial regulation relating to occupational health and safety,
environmental protection, hazardous substance control, and waste management and
disposal. The failure to comply with such regulations could subject us to,
among other things, fines and criminal liability.

Our business could be harmed if our products contain undetected errors or
defects or do not meet customer specifications.

We are continuously developing new products and improving our existing
products. Newly introduced or upgraded products can contain undetected errors
or defects. In addition, these products may not meet their performance
specifications under all conditions or for all applications. If, despite our
internal testing and testing by our customers, any of our products contains
errors or defects, or any of our products fails to meet customer
specifications, we may be required to recall or retrofit these products. We
may not be able to do so on a timely basis, if at all, and may only be able to
do so at considerable expense. In addition, any significant reliability
problems could result in adverse customer reaction and negative publicity and
could harm our business and prospects.

The seasonality of our revenue may adversely impact the market prices for our
shares.

Our revenue is typically lower during the first quarter of each fiscal
year due to the shut-down of operations in our Milan, Italy and Bayshore, New
York facilities for part of August. This seasonality causes our operating
results to vary from quarter to quarter and these fluctuations could adversely
affect the market price of our common stock.

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RISKS RELATED TO OUR COMMON STOCK

A significant number of our shares will be available for future sale and could
depress the market price of our stock.

As of October 14, 2003, an aggregate of 10,332,548 shares of our common
stock were outstanding. In addition, as of October 14, 2003, there were
outstanding warrants to purchase 1,065,000 shares of our common stock and
options to purchase 2,116,815 shares of our common stock, 1,661,289 of which
were fully vested. Sales of large amounts of our common stock in the market
could adversely affect the market price of the common stock and could impair
our future ability to raise capital through offerings of our equity securities.
A large volume of sales by holders exercising the warrants or options could
have a significant adverse impact on the market price of our common stock.

We have a limited trading market and
our stock price may be volatile.

There is
a limited public trading market for our common stock in the pink sheets.
We cannot assure you that a regular trading market for our common
stock will ever develop or that, if developed, it will be sustained.

The experiences of other small companies indicate that the market price
for our common stock could be highly volatile. Many factors could cause the
market price of our common stock to fluctuate substantially, including:



| |  |  | future announcements concerning us, our competitors or other
companies with whom we have business relationships;
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in government regulations applicable to our business;                                                   
|
| |  |  | overall volatility of the stock market and general economic conditions;                                         
|
| |  |  | changes in our earnings estimates or recommendations by analysts; and                                           
|
| |  |  | changes in our operating results from quarter to quarter.                                                       

Accordingly, substantial fluctuations in the price of our common stock
could limit the ability of our current shareholders to sell their shares at a
favorable price.

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ITEM 2.          PROPERTIES

The following is a list of our principal properties, classified by segment
and subsidiary:

|                                        |  |                   |  |         |  |                                                  |  |                 |  |    
|--------------------------------------- |  | ----------------- |  | ------- |  | ------------------------------------------------ |  | --------------- |  | ---
|                                        |  |                   |  | Approx. |  |                                                  |  |                 |  |    
|                                        |  |                   |  | Floor   |  |                                                  |  | Owned/Leased    |  |    
|                                        |  |                   |  | Area in |  |                                                  |  | (Expiration     |  |    
|                                        |  | Location          |  | Sq. Ft. |  | Principal Uses                                   |  | Date If Leased) |  |    
|                                        |  |                   |  |         |  |                                                  |  |                 |  |    
|Medical Systems Group:                  |  |                   |  |         |  |                                                  |  |                 |  |    
|Del Medical Imaging Corp.               |  | Franklin Park, IL |  | 68,000  |  | Design and manufacturing                         |  | Leased (2005)   |  |    
|Villa                                   |  | Milan, Italy      |  | 67,000  |  | Design and manufacturing                         |  | Leased (2011)   |  | (1)
|Power Conversion Group:                 |  |                   |  |         |  |                                                  |  |                 |  |    
|Corporate and Del
High Voltage division |  | Valhalla, NY      |  | 44,000  |  | Corporate headquarters,
design and manufacturing |  | Leased (2006)   |  |    
|RFI                                     |  | Bayshore, NY      |  | 55,000  |  | Design and manufacturing                         |  | Owned           |  |    
|Bertan                                  |  | Hicksville, NY    |  | 38,000  |  | Design and manufacturing                         |  | Leased (2004)   |  | (2)

(1)  We have the option to purchase this property at the conclusion of this
lease.

(2)  We intend to close this facility, and have moved its production to our
Valhalla plant.

We believe that our current facilities are sufficient for our present
requirements. Our U.S. credit facility with Transamerica is secured, in part,
by a mortgage on RFIs property.




ITEM 3.          LEGAL PROCEEDINGS

SEC Investigation- On December 11, 2000, the Division of Enforcement of
the SEC issued the SEC Order, designating SEC officers to take testimony and
requiring the production of certain documents, in connection with matters
giving rise to the need to restate the Companys previously issued financial
statements. The Company has provided numerous documents to and continues to
cooperate fully with the SEC staff.

The Company has reached an agreement in principle with the Staff of the
SEC for a settlement of the SECs claims against the Company that will include
a penalty of up to $400,000 and an injunction against future violations of the
antifraud, periodic reporting, books and records and internal accounting
control provisions of the federal securities law. The proposed settlement may
be subject to, among other things, any necessary future restatement of
historical financial statements for the Company, or other material adjustments.
Management is not aware of any restatements or adjustments required with
respect to financial statements filed with the SEC since April 2002. In
addition, the proposed settlement will require approval by the SEC and by the
appropriate U.S. District Court. We can give no assurance that this proposed
settlement will be approved by either the SEC or the appropriate U.S. District
Court, or that the terms will not be changed.

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Although the Company has not reached a binding agreement with the SEC on
this settlement proposal, management believes that this agreement in principle
is a reasonable basis on which it can now estimate the financial impact of this
SEC investigation. As a result, the Company recorded a charge of $685,000 in
the fourth quarter of fiscal 2002 related to the agreement in principle with
the SEC staff, which includes associated legal costs. If the Company is not
able to reach an acceptable settlement with the SEC, the Company may incur
substantial additional penalties and fines. See Part I, Item I,
Business-Risk Factors and Note 12 of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report.

DOD Investigation- On March 8, 2002, RFI, a subsidiary of the Company and
part of the Power Conversion Group segment, was served with a subpoena by the
U.S. Attorney Eastern District of New York in connection with an investigation
by the DOD. RFI supplies noise suppression filters for communications and
defense applications. Since March 2002, the DOD has been investigating certain
past practices at RFI which date back more than six years and pertain to RFIs
Military Specification testing, record keeping and general operating
procedures. Management retained special counsel to represent the Company on
this matter. The Company has cooperated fully with this investigation,
including voluntarily providing employees to be interviewed by the Defense
Criminal Investigative Services division of the DOD.

In June 2003, the Company was advised that the U.S. Government is willing
to enter into negotiations regarding a comprehensive settlement of this
investigation. Management believes that a potential comprehensive settlement
will include the Companys pleading guilty to certain criminal charges, and
agreeing to pay certain fines and restitution to the Government in an amount
which could be material to the Company. Prior to the preliminary discussions
with the U.S. Government in June 2003, the Company had no basis to estimate the
financial impact of this investigation. Based on preliminary settlement
discussions with the U.S. Government, discussions with the Companys legal
advisors, consideration of settlements reached by other parties in
investigations of this nature, and consideration of the Companys capital
resources, management had then developed an estimate of the low end of the
potential range of the financial impact. Accordingly, during the third quarter
of fiscal 2003, the Company recorded a charge of $2,347,000 which represents
its estimate of the low end of a range of potential fines and legal and
professional fees. The liability associated with this charge is included in
Litigation settlement reserves on the accompanying balance sheet as of August
2, 2003. In October 2003, based on discussions with the U.S. Government, the
Company was advised that the U.S. Government is currently seeking approximately
$5 million in the fines and restitution portion of any comprehensive
settlement. The Company is continuing to negotiate with the U.S. Government
regarding a comprehensive settlement, including the amount of such fines.

The Company believes that any settlement could cause the DOD to seek to
limit the ability of the Company to do business with U.S. Government entities.
Such limitations could include seeking a debarment or exclusion from doing
business with U.S. Government entities for a period of time. Because
management believes that it has been responsive in addressing the problems that
affected RFI in the past, and RFI is the sole source provider of certain
products, the Company is hopeful that as a result of the potential settlement,
its ability to service the governmental and defense sectors of its business
will not be interrupted.

There can be no assurance that such a settlement will be reached and, even
if reached, that the ultimate fines and outcome of any settlement will not vary
significantly from the

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Companys original estimate and expectations. In addition, such a
settlement, even on the most favorable terms, may have a material adverse
impact on the Companys financial condition, liquidity and operations. See
Part I, Item 1, Business-Risk Factors of this Annual Report.

Other
Legal Matters- On October 6, 2003, Carmelo Giuseppe
Ammendola, a minority shareholder of Villa, served a summons on Villa
in the Civil Court of Milan, Italy, challenging the terms of certain
related party transactions between Villa and the Company relating to
intercompany pricing and a management fee. Villa is vigorously
defending against this claim, believes that there is no merit to the
case, and that Villa has meritorious defenses. Although there can be
no assurances, management believes that the impact of this action
will not have a material adverse effect on the financial position or
results of operations of either Villa or the Company.

The Company is a defendant in several other legal
actions in various U.S. and foreign jurisdictions arising from the normal
course of business. 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 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Companys Annual Meeting of Shareholders held on May 29, 2003 (the
Annual Meeting), the Companys shareholders elected five members to the
Companys five-member Board of Directors. Four of the five new directors
(Wallace Barnes, Gerald M. Czarnecki, Suzanne M. Hopgood, and David W. Wright)
were nominees of Steel Partners II, L.P. (Steel Nominees), an institutional
shareholder of the Company. One incumbent director was re-elected to the Board
of Directors (Edgar J. Smith, Jr.).

The votes cast for all nominees were as follows:

|                    |  |     |           |          |  |  |        | 
|------------------- |  | --- | --------- | -------- |  |  | ------ | 
|Steel Nominees:     |  | For |           | Withheld
|Wallace Barnes      |  |     | 5,227,494 |          |  |  | 11,332 | 
|Gerald M. Czarnecki |  |     | 5,227,815 |          |  |  | 11,011 | 
|Suzanne M. Hopgood  |  |     | 5,225,387 |          |  |  | 13,439 | 
|David W. Wright     |  |     | 5 227,684 |          |  |  | 11,142 | 

|                      |  |     |           |          |  |  |         | 
|--------------------- |  | --- | --------- | -------- |  |  | ------- | 
|Company Nominees:     |  | For |           | Withheld
|Frank J. Brady        |  |     | 3,188,680 |          |  |  | 97,083  | 
|Glenda K. Burkhart    |  |     | 3,184,205 |          |  |  | 101,558 | 
|Samuel E. Park        |  |     | 3,180,809 |          |  |  | 104,954 | 
|Edgar J. Smith, Jr.   |  |     | 3,188,785 |          |  |  | 96,978  | 
|Stephen N. Wertheimer |  |     | 3,186,974 |          |  |  | 98,789  | 

The votes cast for, against, and abstain for the approval of the Companys
2003 Equity Incentive Plan were as follows:

|         |  |  |           | 
|-------- |  |  | --------- | 
|For:     |  |  | 2,056,295 | 
|Against: |  |  | 6,309,512 | 
|Abstain: |  |  | 158,782   | 

The votes cast for, against and abstain to ratify the appointment of
Deloitte & Touche LLP as the Companys independent auditors for the fiscal year
ending August 2, 2003 were as follows:

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|         |  |  |           | 
|-------- |  |  | --------- | 
|For:     |  |  | 8,010,311 | 
|Against: |  |  | 97,814    | 
|Abstain: |  |  | 416,464   | 

Subsequent to the Annual Meeting, the Board of Directors appointed Mr.
Gerald M. Czarnecki as Chairman of the Board and established Committee members
and Chairs as follows:



| | Audit Committee                                                                                 
| | ------------------------------------------------------------------------------------------------
|
| | Suzanne M. Hopgood, Chair
Edgar J. Smith, Jr.
David W. Wright                                   
|
| | Compensation and Stock Option Committee                                                         
|
| | David W. Wright, Chair
Wallace Barnes
Suzanne M. Hopgood                                        
|
| | Nomination and Governance Committee                                                             
|
| | Gerald M. Czarnecki, Chair
Wallace Barnes
Suzanne M. Hopgood
Edgar J. Smith, Jr.
David W. Wright

On October, 10, 2003 the Board of Directors announced the appointment of
Suzanne M. Hopgood as Chairman of the Board and Gerald M. Czarnecki, Chair of
the Audit Committee.

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PART II




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

SHAREHOLDER MATTERS

Our common stock was suspended from trading on the Nasdaq National Market
on December 19, 2000 because we had not filed an annual report for the year
ended July 29, 2000 within the SECs prescribed time period. In December 2000,
the Nasdaq National Market delisted our common stock and since that time, our
common stock has been traded in the pink sheets, or over-the-counter market,
under the symbol DGTC.PK and our warrants are traded under the symbol
DGTCW.PK. The pink sheets is an over-the-counter market which provides
significantly less liquidity than established stock exchanges or the Nasdaq
National Market, and quotes for stocks included in the pink sheets are not
listed in the financial sections of newspapers as are those for established
stock exchanges and the Nasdaq National Market.

As of
August 2, 2003, there were approximately 955 holders of record
of our common
stock. The following table shows the high and low closing bid prices per share
of our common stock for the past eight quarters, as reported by the over the
counter market. The over-the-counter market quotations listed below reflect
inter-dealer prices, without retail mark-up, mark down or commission and may
not represent actual transactions.

|              |                |      |   |      |  |  |   |      | 
|------------- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|Fiscal Period |                | High |   | Low 
|              |                |      |   |     
|Fiscal 2003   |                |      |   |      |  |  |   |     
|              | First Quarter  |      | $ | 3.78 |  |  | $ | 2.35 | 
|              | Second Quarter |      |   | 4.01 |  |  |   | 1.90 | 
|              | Third Quarter  |      |   | 4.12 |  |  |   | 2.30 | 
|              | Fourth Quarter |      |   | 3.50 |  |  |   | 1.75 | 
|Fiscal 2002   |                |      |   |      |  |  |   |     
|              | First Quarter  |      | $ | 3.00 |  |  | $ | 1.13 | 
|              | Second Quarter |      |   | 4.35 |  |  |   | 2.50 | 
|              | Third Quarter  |      |   | 3.45 |  |  |   | 1.50 | 
|              | Fourth Quarter |      |   | 4.25 |  |  |   | 2.00 | 

We have not paid any cash dividends, except for the payment of cash in
lieu of fractional shares, since 1983. The payment of cash dividends is
prohibited under the Transamerica Facility. We do not intend to pay any cash
dividends for the foreseeable future.

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The following table summarizes the securities authorized for issuance
under equity compensation plans as of the end of Fiscal 2003:

|                                                            |                                                                 |            |                   |            |                   |           |                     |      |            |  |                |         | 
|----------------------------------------------------------- | --------------------------------------------------------------- | ---------- | ----------------- | ---------- | ----------------- | --------- | ------------------- | ---- | ---------- |  | -------------- | ------- | 
|                                                            |                                                                 |            | Number of         |            |                   |           |                     |      | Number of 
|                                                            |                                                                 |            | Securities to be  |            |                   |           |                     |      | securities
|                                                            |                                                                 |            | issued upon       |            | Weighted-average  |           | remaining available
|                                                            |                                                                 |            | exercise of       |            | exercise price of |           | for future issuance
|                                                            |                                                                 |            | outstanding       |            | outstanding       |           | under equity       
|                                                            |                                                                 |            | options, warrants |            | options, warrants |           | compensation       
|Plan Category                                               |                                                                 | and rights |                   | and rights |                   | plans (1)
|Equity compensation
plans approved by
security holders:     |                                                                 |            |                   |            |                   |           |                     |      |            |  |                |        
|                                                            | Stock Option Plan                                               |            |                   | 2,116,815  |                   |           | $                   | 3.12 |            |  |                | 335,280 | 
|Equity compensation
plans not approved by
security holders: |                                                                 |            |                   |            |                   |           |                     |      |            |  |                |        
|                                                            | Warrants issued
in connection
with the
acquisition of
Villa (2) |            |                   | 50,000     |                   |           | $                   | 7.94 |            |  | None          
|                                                            | Warrants granted
for services
rendered (3)                      |            |                   | 15,000     |                   |           | $                   | 7.69 |            |  | None          
|                                                            | Warrants issued
in settlement of
class action
lawsuit (4)       |            |                   | 1,000,000  |                   |           | $                   | 2.00 |            |  | Not applicable



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Excludes securities to be issued upon exercise of outstanding
options, warrants and rights.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (2) These warrants were granted to the former majority shareholder of
Villa in connection with the acquisition of Villa in December 1999. They
expire in December 2005.                                                                                                                                                                                                                                                                                                                                
|
| | (3) These warrants were granted to consultants for services rendered in
1999. They expire in October 2004.                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (4) Pursuant to our class action settlement with our shareholders, we
issued 2.5 million shares of our common stock and one million warrants to
purchase our common stock at $2.00 per share. The issuance of these
securities was pursuant to a court order issued in connection with the
settlement of the class action lawsuit and therefore was exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section
3(a) (10) thereof. These warrants expire in March 2008.

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ITEM 6.          SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA

The selected income statement data presented for the fiscal years ended
August 2, 2003, August 3, 2002 and July 28, 2001 and the balance sheet data as
of August 2, 2003 and August 3, 2002 have been derived from our audited
consolidated financial statements included elsewhere in this Annual Report.
The balance sheet data as of July 28, 2001 and July 29, 2000 have been derived
from audited financial statements not included herein. Financial information
for the fiscal year ended July 31, 1999 is not presented herein, since the
financial statements for that year have been determined to be incorrect, have
not been, and will not be, restated and therefore should not be relied upon. This
selected financial data should be read in conjunction with the Consolidated
Financial Statements and related notes included in Part II, Item 8, Financial
Statements and Supplementary Data thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7
of this Annual Report.

|                                        |  |                    |         |             |  |             |         |             |  |   |         |   |  |   |        |  
|--------------------------------------- |  | ------------------ | ------- | ----------- |  | ----------- | ------- | ----------- |  | - | ------- | - |  | - | ------ | -
|                                        |  | Fiscal years ended
|                                        |  |                   
|                                        |  | August 2,          |         | August 3,   |  | July 28,    |         | July 29,   
|(In thousands except share amounts)     |  | 2003
(1)(6)        |         | 2002
(2)(6) |  | 2001
(3)(6) |         | 2000
(4)(6)
|                                        |  |                    |         |             |  |             |         |            
|Income Statement Data:                  |  |                    |         |             |  |             |         |             |  |   |         |   |  |   |        |  
|Net sales                               |  | $                  | 98,619  |             |  | $           | 98,784  |             |  | $ | 93,443  |   |  | $ | 80,008 |  
|Gross margin                            |  |                    | 21,123  |             |  |             | 19,136  |             |  |   | 18,449  |   |  |   | 14,330 |  
|                                       
|Selling, general and administrative     |  |                    | 21,933  |             |  |             | 21,254  |             |  |   | 16,838  |   |  |   | 14,941 |  
|Research and development                |  |                    | 2,218   |             |  |             | 2,919   |             |  |   | 2,876   |   |  |   | 4,388  |  
|Litigation settlement costs             |  |                    | 2,126   |             |  |             | 7,713   |             |  |   | 9,759   |   |  |   |       |  
|Facilities reorganization costs         |  |                    | 788     |             |  |             | 1,292   |             |  |   | 822     |   |  |   |       |  
|                                       
|Operating loss                          |  |                    | (5,942  | )           |  |             | (14,042 | )           |  |   | (11,846 | ) |  |   | (4,999 | )
|                                       
|Minority interest                       |  |                    | 115     |             |  |             | 197     |             |  |   | 379     |   |  |   | (77    | )
|                                       
|Provision (benefit) for income taxes    |  |                    | 8,233   |             |  |             | (3,242  | )           |  |   | (4,938  | ) |  |   | (2,034 | )
|                                       
|Net
loss(5)                             |  |                    | (15,045 | )           |  |             | (12,012 | )           |  |   | (8,521  | ) |  |   | (3,638 | )
|Net
loss per basic and diluted share(5) |  | $                  | (1.45   | )           |  | $           | (1.38   | )           |  | $ | (1.09   | ) |  | $ | (0.47  | )

|                                     |  |           |        |           |  |          |        |          |  |   |        |  |  |   |        | 
|------------------------------------ |  | --------- | ------ | --------- |  | -------- | ------ | -------- |  | - | ------ |  |  | - | ------ | 
|                                     |  | As of    
|                                     |  |          
|                                     |  | August 2, |        | August 3, |  | July 28, |        | July 29,
|                                     |  | 2003      |        | 2002      |  | 2001     |        | 2000    
|                                     |  |           |        |           |  |          |        |         
|Balance Sheet Data:                  |  |           |        |           |  |          |        |          |  |   |        |  |  |   |        | 
|Working capital                      |  | $         | 13,598 |           |  | $        | 18,648 |          |  | $ | 22,269 |  |  | $ | 27,331 | 
|Total assets                         |  |           | 60,492 |           |  |          | 77,697 |          |  |   | 81,658 |  |  |   | 82,805 | 
|Long-term
debt and subordinated note |  |           | 7,100  |           |  |          | 6,724  |          |  |   | 6,222  |  |  |   | 5,953  | 
|Shareholders equity                 |  |           | 22,979 |           |  |          | 37,141 |          |  |   | 41,791 |  |  |   | 46,062 | 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Net
loss for the year ended August 2, 2003 includes approximately $7,900 income
tax provision related to the establishment of a deferred tax valuation
allowance. In addition, net loss reflects the accrual of a $2,347 charge
related to an ongoing DOD Investigation of our RFI subsidiary. For more
information about the DOD investigation, see Part I, Item 3, and Legal
Proceedings of this Annual Report. Fiscal 2003 also includes $788 in
facilities reorganization costs, which were principally related to the
closing of our Hicksville, New York facility. See Notes to Consolidated
Financial Statements included in Part II, Item 8, Financial Statement and
Supplementary Data of this Annual Report.   
|
| | (2) Fiscal 2002 includes $1,292 in facilities reorganization costs,
which were principally related to the closing of our Hicksville, New York
facility. See Notes to Consolidated Financial Statements included in Part
II, Item 8, Financial Statements and Supplementary Data of this Annual
Report. Fiscal 2002 also includes $7,713 in litigation settlement costs,
principally for finalization of the settlement of a class action suit and
the agreement in principle to settle an SEC investigation.                                                                                                                                                                                                                   
|
| | (3) During fiscal 2001, we recorded $9,759 in litigation settlement
costs related to a class action lawsuit. During fiscal 2001, we also
decided to close two facilities and recorded a restructuring charge of $822.
See Notes to Consolidated Financial Statements included in Part II, Item 8,
Financial Statements and Supplementary Data of this Annual Report.                                                                                                                                                                                                                                                                                                                                                           
|
| | (4) In December 1999, we acquired Villa. See Notes to Consolidated
Financial Statements included in Part II, Item 8, Financial Statements and
Supplementary Data of this Annual Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (5) Effective
August 4, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets, which establishes new accounting
and reporting requirements for goodwill and other intangible assets.
Under SFAS No. 142, all goodwill amortization ceased
effective August 4, 2002. Assuming goodwill was not amortized
pursuant to SFAS No. 142, the net loss would have been
$11,881, $8,390 and $3,501 in 2002, 2001 and 2000, respectively. Net
loss per basic and diluted share would have been $1.37, $1.07 and
$.45 in 2002, 2001 and 2000, respectively.                                                                                                        
|
| | (6) The Company
records shipping and handling fees billed to customers in accordance
with the provisions of the Emerging Issues Task Force
(EITF) No. 00-10, Accounting for Shipping and
Handling Fees and Costs. The EITF provides that shipping and
handling fees billed to customers be reflected in net sales and
requires additional disclosure if costs incurred for shipping and
handling are not included in costs of sales. The amount of shipping
and handling fees recorded as revenues was $465 for fiscal year 2003.
Shipping and handling fees of $652, $488 and $418 for fiscal years
2002, 2001, and 2000, respectively, have been reclassified to net
sales to conform with the current years presentation.

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

In addition to other information in this Annual Report, 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, favorable
determinations in various legal and regulatory matters, including a settlement
of the DOD investigation on terms that we can afford and that does not include
a debarment from doing business with the U.S. Government, and favorable general
economic conditions. 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 SEC including the Companys Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K.

OVERVIEW

The Company is a leader in developing, manufacturing and marketing medical
imaging equipment and power conversion subsystems and components worldwide.
Our products include stationary and portable medical diagnostic imaging
equipment, high voltage power systems and electronic systems and components
such as electronic filter, transformers and capacitors. We manage our business
in two operating segments; our Medical Systems Group and our Power Conversion
Group. In addition, we have a third reporting segment, Other, comprised of
certain unallocated corporate General and Administrative expenses. See Part I,
Item 1, Business-Operating Segments of this Annual Report for discussions of
the Companys segments.

Management has made significant progress in resolving previous SEC and
shareholder matters giving rise to the need to restate financial statements
issued by the previous management as described in Note 10, Commitments and
Contingencies to the Notes to Consolidated Financial Statements included in
Part II, Item 8, Financial Statements and Supplementary Data of this Annual
Report. We have reached an agreement in principle with the SEC to settle its
claims against the Company.

On May 29, 2003 we held our first annual shareholder meeting since 2000.
Our shareholders elected five independent directors to our five person Board,
including four nominees proposed by an institutional shareholder group and one
incumbent director. In addition, our shareholders ratified the appointment of
our auditors and voted against an equity incentive plan. See Part I, Item 4,
Submission of Matters to a Vote of Security Holders of this Annual Report for
full voting results.

As
described in Part I, Item 3, Legal Proceedings of this Annual Report,
in June 2003 we began preliminary discussions with the U.S. Government
regarding a potential comprehensive settlement of the ongoing DOD investigation
of our RFI subsidiary. We believe that the potential comprehensive settlement
will include the Companys pleading guilty to certain criminal charges, and
agreeing to pay certain fines and restitution to the

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Government. Based on these preliminary discussions with the U.S.
Government, discussions with our legal advisors, consideration of settlements
reached by other parties in investigations of this nature, and consideration of
our capital resources, we recorded a charge of $2.3 million, which represents
our estimate of the low end of a range of potential fines and legal and
professional fees.

In
October 2003, based on discussions with the U.S. Government, the
Company was advised that the U.S. Government is currently seeking up
to approximately $5 million in the fines and restitution portion of
any comprehensive settlement. The Company is continuing to negotiate
with the U.S. Government regarding a comprehensive settlement,
including the amount of such fines.

It is possible that the DOD could seek a debarment or exclusion of the
Company from doing business with U.S. Government entities for a period of time.
Because management believes that it has been responsive in addressing the
problems that affected RFI in the past, and RFI is the sole source provider of
certain products, we are hopeful that our ability to service the governmental
and defense sectors will not be interrupted as a result of the potential
settlement.

There can be no assurance that such a settlement will be reached and, even
if reached that the ultimate fine and outcome of any settlement will not vary
significantly from our estimate and expectations. In addition, such a
settlement, even on the most favorable terms, may have a material adverse
impact on our financial condition, liquidity and operations.

Management believes the resolution of these legal and SEC matters are
important steps towards closure of the past legal, regulatory and financial
reporting matters confronting the Company. We are guardedly optimistic that we
can resolve the settlement negotiations with the DOD on terms that will be
mutually acceptable to both parties and allow us to continue to provide our
technology to the defense industry.

Our businesses continue to compete vigorously and we continue to enjoy
good relationships with our customers. We continued with the consolidation of
the Hicksville facility into Valhalla during fiscal 2003. This completes a
strategic initiative to reduce overhead by consolidating seven businesses and
facilities into four, strengthen engineering and manufacturing methods and
target our selling activity.

CRITICAL ACCOUNTING POLICIES

Complete descriptions of significant accounting policies are outlined in
Note 1 of the Notes to Consolidated Financial Statements included in Part II,
Item 8, Financial Statements and Supplementary Data of this Annual Report.
Within these policies, we have identified the accounting for deferred tax
assets and the allowance for obsolete and excess inventory as being critical
accounting policies due to the significant amount of estimates involved. In
addition, for interim periods, we have identified the valuation of finished
goods inventory as being critical due to the amount of estimates involved.

Deferred Taxes

We account for deferred taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, whereby
we recognize an asset related to our net operating loss carry forwards and
other temporary differences between financial reporting basis and income tax
basis. As of August 2, 2003, this deferred tax asset represented approximately
14% of our total assets.

We reevaluated our deferred tax assets in March and again in October 2003.
Due to current results being lower than originally anticipated, and
uncertainty about near term economic conditions, we concluded it was not
prudent to place reliability on the forecast component of our analyses as we
had in the past. Based on these analyses, management

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concluded it was prudent to establish a valuation allowance of $8.0
million against long-term deferred tax assets created prior to fiscal 2003.

This valuation allowance was computed by considering the amount of future
U.S. taxable income expected over the net operating loss carryforward period,
considering recent performance and other specific actions the Company has taken
to improve profitability. The valuation allowance recorded is the estimate of
the amount of deferred tax assets that more likely than not will not be
realized.

Likewise, a valuation allowance of $2.1 million was also established
offsetting the current year tax benefits that arose from the current years
operating losses. As result of these allowances recorded during fiscal 2003,
the net deferred income tax asset was reduced from $16.6 million at August 3,
2002 to $8.7 million at August 2, 2003, with $2.6 million classified as a
current asset, and the balance of $6.1 million as a long-term asset.

No assurances can be given that the Companys results of operations will
generate profits in the future.

Obsolete and excess inventory

Another significant estimate is our allowance for 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 and do happen.

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 August 2, 2003, finished goods represented
approximately 15% of the gross carrying value of our total gross inventory. We
believe the estimation methodologies used to be appropriate and are
consistently applied.

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CONSOLIDATED RESULTS OF OPERATIONS

Fiscal 2003 Compared to Fiscal 2002

Consolidated net sales of $98.6 million for fiscal 2003 were comparable to
fiscal 2002 net sales of $98.8 million, with increases at our Medical Systems
Group, partially offset by decreases at the Power Conversion Group. The
Medical Systems Groups fiscal 2003 sales of $56.1 million improved by 2% from
fiscal 2002 levels due to increased domestic shipments and favorable exchange
rate effects on international sales made in euros. However, on a proforma
basis, factoring out the approximately $5.2 million effect of favorable rate
changes, the Medical Systems Groups fiscal 2003 sales would have posted a
decline of approximately $4.1 million due to weaker euro denominated
international shipments. The Power Conversion Groups fiscal 2003 sales of
$42.5 million decreased by 3% from fiscal 2002 levels, as a $8 million increase
in EDS business was offset by decreases in sales of other products, primarily
reflecting a shift to in-house production of components formerly purchased from
us by a large customer and the decline in sales to the semiconductor capital
equipment market.

Consolidated backlog at August 2, 2003 was $26.3 million versus backlog at
August 3, 2002 of approximately $31 million. The decline in backlog from
beginning of year levels is mostly attributable to high shipments of EDS orders
in the Power Conversion Group offset by an increase in the backlog at our
Medical Systems Segment. Substantially all of the backlog should result in
shipments within the next 12 months.

Gross margins as a percent of sales were 21% for fiscal 2003, compared to
19% in fiscal 2002. The Power Conversion Groups fiscal 2003 margins were 21%,
versus 16% in the prior year period, reflecting the effects of unfavorable
inventory adjustments in the prior year, offset by inventory writedowns and adjustments primarily related to the consolidation of the
Hicksville facility. The Power Conversion Groups fiscal 2003 margins also
reflected favorable margins on the EDS business and the beginning of savings
due to the Hicksville consolidation, partially offset by depressed margins at
RFI in the first quarter due to the DOD investigations. Despite expected
operating efficiencies due to increased shipments, the Medical Systems Groups
gross margins of 22% were comparable to the

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prior year period, primarily due to the higher margins in the prior year
from shipment of previously written off product. Within Fiscal 2003 our
quarterly consolidated gross margin trend is as follows:

Selling, general & administrative (SG&A) expenses for fiscal 2003 of
$21.9 million (or 22% of sales) included unusually high legal and accounting
fees of $2.3 million, incurred in connection with current legal matters
(including $0.4 million of legal costs associated with a proxy contest). For
more information, see Part I, Item 3, Legal Proceedings of this Annual Report
and Note 12, Commitments and Contingencies to the Notes to Consolidated
Financial Statements included in Part II, Item 8, Financial Statements and
Supplementary Data of this Annual Report. In addition, we incurred
approximately $0.6 million of other costs related to a proxy contest, including
the reimbursement of costs to an institutional shareholder group. SG&A
expenses for fiscal 2002 were $21.2 million and included $3.7 million of
unusually high accounting and consulting fees. Excluding the unusually high
legal, accounting fees and proxy contest costs, SG&A for fiscal 2003 increased
by $1.5 million from the same period last year, reflecting the factors
discussed above, plus a payment of $0.2 million during the first quarter
related to the separation of the former president of Villa.

Facilities reorganization costs relate to the continued phase out of the
Power Conversion Groups Hicksville facility and integration into the Valhalla
facility, which was started in the fourth quarter of fiscal 2002. The
reorganization of the Valhalla facility and personnel, as well as the balance
of the physical move of Hicksville inventory, equipment and personnel was
completed in the second half of fiscal 2003. As such, we do not expect to
record any additional facilities reorganization expenses subsequent to fiscal
2003. We are attempting to sublet the Hicksville facility through the end of
our lease in May 2004. Any remaining rental obligations or other expenses
related to terminating our tenancy will be charged against a balance sheet
accrual established during fiscal 2002.

During the third quarter of fiscal 2003, we received approximately $0.4
million in settlement of claims against a former CEO of the Company. After
netting related legal fees incurred in the third quarter, we recorded a
recovery of $0.2 million during that period. Prior

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year amounts include a $0.3 million insurance recovery of class action
litigation related legal costs.

In June 2003, as described in Part I Item 3, Legal Proceedings of this
Annual Report, we began preliminary discussions with the U.S. Government
regarding a potential comprehensive settlement of the ongoing DOD investigation
of our RFI subsidiary. Based on preliminary settlement discussions with the
U.S. Government, discussions with our legal advisors, consideration of
settlements reached by other parties in investigations of this nature, and
consideration of our capital resources, management has now developed an
estimate of the low end of the potential range of the financial impact.
Accordingly, during the third quarter of fiscal 2003, we recorded a charge of
$2.3 million, which represents our estimate of the low end of a range of
potential fines and legal and professional fees. The liability associated with
this charge is included in the litigation settlement reserves on the
accompanying balance sheet as of August 2, 2003. In
October 2003, based on discussions with the
U.S. Government, the Company was advised that the
U.S. Government is currently seeking up to approximately
$5 million in the fines and restitution portion of any
comprehensive settlement. The Company is continuing to negotiate with
the U.S. Government regarding a comprehensive settlement,
including the amount of such fines. The Company has not recorded an
additional charge as a result of the $5 million requested by the
U.S. Government. It is possible the ultimate
fine and outcome of any potential settlement, if reached, could vary
significantly from our estimate and expectations.

During the third quarter of fiscal 2002, as a result of obtaining the
final court approval of the class action settlement agreement, we recognized an
additional non-cash charge of $7.1 million attributable to the final valuation
of the shares and warrants to be issued in that settlement. These shares and
warrants were originally valued at $4.4 million in July 2001 pending final
court approval but as of the final settlement date January 29, 2002 were
revalued upward by $7.1 million to $11.5 million. The Company also incurred
additional legal expenses of approximately $0.2 million bringing the total
charge to $7.2 million in the third quarter of fiscal 2002.

As a result of the foregoing, we recognized a fiscal 2003 operating loss
of $5.9 million compared to a loss of $14.0 million in fiscal 2002. The Medical
Systems Group posted a fiscal 2003 operating profit of $1.0 million, offset by
a $2.5 million operating loss at the Power Conversion Group, and unallocated
corporate costs of $4.4 million reflecting the higher legal and accounting
costs as described above. The prior years results reflect a $7.2 million
charge related to the class action settlement, as described above.

Interest expense for fiscal 2003 was higher than the prior years,
reflecting decreased interest rates offset by higher average borrowing levels.

Other income includes a recovery in the first quarter of fiscal 2003 of
$0.5 million related to the settlement of a dispute in connection with a 1999
product line acquisition and $0.1 million related to foreign exchange gains on
a deposit denominated in euros.

Provision for income taxes for fiscal 2003 reflects the establishment of a
total of $7.9 million of deferred tax valuation allowances as discussed in
Critical Accounting Policies, above. We expect to be profitable in future
periods; however management periodically evaluates the likelihood of the
recoverability of the deferred tax asset recognized on our balance sheet.
Based on management analysis, we believe it is more likely than not that the
remaining deferred tax assets will be realized. Other than establishing a
valuation allowance, we recorded no adjustments to our current or net deferred
tax accounts during fiscal 2003, with the exception of tax provisions and
adjustments recorded at Villa, our Italian subsidiary.

Reflecting
the above, we recorded net losses of $15.0 million or $1.45 per
share in fiscal 2003 compared to a net loss of $12.0 million or $1.38 per share
in fiscal 2002. Current year

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earnings per share amounts reflect the 2,500,000 additional shares issued
in conjunction with the shareholder settlement.

Fiscal 2002 Compared to Fiscal 2001

Net sales for fiscal 2002 were $98.8 million, as compared to $93.4 million
for fiscal 2001. The Medical Systems Groups net sales to external customers
increased by approximately $8.1 million, primarily as a result of delivery on a
major contract in Eastern Europe.

The
Power Conversion Groups net sales to external customers declined $2.8 million
from fiscal 2001 to fiscal 2002. Within the Power Conversion Group,
the Electronic Systems and Components Division (our RFI subsidiary) achieved a
modest increase in sales of approximately $500,000 across a broad range of
customers and products. The $3.4 million decline in sales in fiscal 2002 in
our High Voltage Power Division was caused principally by a shift of our
portable X-Ray product line from our Deer Park, New York facility (which had
been included in the Power Conversion Group) to our Medical Systems Groups
facility in Franklin Park, Illinois. In addition, we experienced a decline in
the sales of standard catalogue products, and a decline of sales in the
semiconductor capital equipment markets. These declines in sales were offset
by increases in sales of contract manufactured power supplies that we
provided to major OEMs, where typically margins are lower. This shift in
product mix (as well as the decline in volume, and the negative effects of
operating leverage) contributed to the decline in margin in this segment noted
below.

Gross margins for fiscal 2002 versus fiscal 2001 declined slightly from
19.7% to 19.4%. Gross margin at the Medical Systems Group increased from
approximately 19% to approximately 22%. Most of the improvement in margin in
our Medical Systems Group was achieved at the U.S. operations due to improved
sales and better absorption of fixed costs. Gross margins in fiscal 2002 were
impacted by a $0.6 million provision for excess and obsolete inventory as
compared to a provision of $0.9 million in fiscal 2001. The fiscal year 2001
provision was higher, reflecting older inventories purchased in prior years
becoming obsolete under application of our policy as described in the
Accounting Policy note to the accompanying financial statements.

We experienced a 4.5% decline in gross margin for the Power Conversion
Group, representing a loss in income of approximately $2.0 million (estimated
as the 4.5% decline in gross margin percentage times the $43.8 million sales in
the Power Conversion Group segment in fiscal 2002). More than half of this
decline in gross margin occurred at our Electronic Systems and Components
Division (our RFI subsidiary). In March of 2002, RFI was served with a
subpoena by the U.S. Attorney for the Eastern District of New York in
connection with an investigation by the DOD.

The DOD investigation led us to undertake our own internal examination of
that business, and we began to completely reengineer RFIs quality control
practices, which short term resulted in lower Gross margin for this business in
the fourth quarter of fiscal 2002.

As a result of our examination of RFIs quality control practices, we also
recognized a non-cash charge of approximately $297,000 to write off certain
inventory we determined did not meet all relevant DOD specifications.

The remainder of the decline in the Power Conversion Groups gross margin
in fiscal 2002 is due to our High Voltage Power Division for the following
reasons:



| | 1. |  | Reorganization of Facilities We recorded a provision of
$770,000 for closure costs in fiscal 2001 when we made the
announcement to close our Deer Park facility. We experienced some
inefficiencies in the completion of the closure of
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |    |  | this facility in the first and second quarters of fiscal 2002, and
recognized those inefficiencies as current costs.                                                                                                                                                                                                                                               
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Unfavorable Product Mix Change In fiscal 2002, we experienced
a decline in the sales of standard catalogue products, and a decline
of sales to the semiconductor capital equipment markets. These
declines in sales were offset by increases in sales of contract
manufactured power supplies that we provided to major OEMs, where
typically margins are lower.
|
| | 3. |  | Decline in Sales A decline in sales overall leads to lower
gross margin. (Material costs generally maintain the same relation
to sales volume, other overhead costs are generally fixed in nature
and, as volume declines, fixed costs do not generally decline as
rapidly as the sales volume).                                                                  

Research and development expenses were $2.9 million in fiscal 2002 and
fiscal 2001, with a small decline in the Medical Systems offset by a small
increase in our Power Conversion Group in fiscal 2002. In our U.S. Medical
Systems operations, we reduced headcount in our engineering and development
department. In our High Voltage Power Division, we increased spending in
connection with certain power supply technology we are developing for radiation
oncology systems.

Selling, general and administrative expenses were $21.2 million in fiscal
2002 as compared to $16.8 million in fiscal 2001. The increase is due
primarily to increased audit and other accounting fees of approximately $2.5
million, increased legal fees associated with the items discussed below (other
than those included in litigation settlement costs) of approximately $500,000,
and increased consulting fees associated with organizational development,
strategic planning and management information systems of approximately $1.2
million.

The following comments relate to the line item Litigation Settlement
Costs included in our Statement of Operations:



| | 1. |  | As a result of obtaining the final court approval of the class
action settlement agreement, we recognized a non-cash charge of $7.1
million in the third quarter of fiscal 2002 attributable to the final
valuation of the shares and warrants issued in the settlement. These
shares and warrants were originally valued at $4.4 million in July
2001 pending final court approval, but, as of the settlement date on
January 29, 2002, were revalued upwards by $7.1 million for a total
of $11.5 million. When we recorded these non-cash charges in the
third quarter, we also recognized approximately $200,000 of related
legal costs. These costs were offset by a recovery from insurance of
$258,000, attributable to legal costs from the class action
litigation since its inception, recognized in the first quarter of
fiscal 2002.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | In the first quarter of fiscal 2003, we announced an agreement
in principle with the staff of the SEC to settle the SECs
investigation of financial statements issued by our previous
management. The proposed settlement will include a penalty of up to
$400,000, and an injunction against future violations of the
antifraud, periodic reporting, books and records and internal
accounting control provisions of the federal securities law. The
settlement may be subject to, among other things, any future
restatement of our historical financial statements or other material
adjustments. However, we are not aware of any restatements or
adjustments required with respect to financial statements filed with
this Annual Report. In addition, the proposed settlement will
require approval by the SEC                           

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| |  |  | and by the appropriate U.S. District Court. There can be no assurance
that this proposed settlement will be approved by either the SEC or
the appropriate U.S. District Court. Although we have not reached a
binding agreement with the SEC on this settlement proposal, we believe
that this agreement in principle is a reasonable basis on which it can
now estimate the financial impact of this SEC investigation. As a
result, we recorded a charge of $685,000 in the fourth quarter of
fiscal 2002 related to this agreement in principle with the SEC staff,
which includes associated legal costs.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In July 2002, we announced the closure of our Bertan facility in
Hicksville, New York, which will occur during fiscal 2003. As a result of this
closure, we have accrued for various facilities reorganization costs of $1.3
million in fiscal 2002, including severance pay and future lease costs. During
the previous year, we announced the closure of our DynaRad facility in Deer
Park, New York and accrued approximately $770,000 in closure costs. In
addition, in fiscal 2001 we recorded a charge of approximately $50,000 for the
closure of a small Medical Systems Group facility.

Net interest expense was $1.2 million in fiscal 2002. Interest income was
$449,000 in fiscal 2002, as compared to $164,000 in the prior year. This
increase was primarily a result of interest earned on income tax refunds.
Gross interest expense was $1.6 million in fiscal 2002 as compared to $1.5
million in fiscal 2001. We replaced our prior credit agreement in June 2002.
Until that time, our prior line of credit had been in default and we paid
additional penalty interest charges on the outstanding balances due to this
default.

Income tax benefit as a percent of pre-tax losses for fiscal 2002 was
approximately 22%, as compared to 38% for fiscal 2001. The decrease in tax
benefit was due to, among other things, the impact of the completion of an
audit by the Internal Revenue Service for tax years 1997 through 1999. In
addition, the tax benefit recognized by us was reduced by the loss of Foreign
Sales Corporation tax benefits.

The net loss for fiscal 2002 was $12.0 million, as compared to $8.5
million in the prior year. The increased loss is primarily due to the higher
audit, accounting and consulting fees incurred during fiscal 2002 and a
decrease in income tax benefits, offset by a higher gross margin from increased
sales, and a reduction in litigation settlement costs.

Basic and diluted loss per share for fiscal 2002 was $1.38 as compared to
$1.09 in fiscal 2001. The weighted average number of common shares outstanding
was 8,680,848 for fiscal 2002, as compared to 7,847,515 in the prior year. The
increase in the weighted average number of shares outstanding is a result of
the issuance of shares in May 2002 in connection with the settlement of the
class action lawsuit.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal 2003 Compared to Fiscal 2002

We fund our investing and working capital needs through a combination of
cash flow from operations and short-term credit facilities.

Working Capital - At August 2, 2003 and August 3, 2002, our working
capital was approximately $13.6 million and $18.6 million, respectively. At
such dates we had approximately $1.4 million and $0.9 million, respectively, in
cash and cash equivalents. As of August 2, 2003 we had approximately $3.8
million of excess borrowing availability under our domestic revolving credit
facility.

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As a result of the potential settlement of the DOD investigation, we have
taken a temporary reduction of $0.5 million against our excess domestic
borrowing availability under the Transamerica Facility. At this time, we do
not expect these temporary reductions of borrowing availability to have a
material detrimental impact on our ability to finance working capital
requirements. However, there can be no assurance that the ultimate outcome of
the DOD investigation matters will not differ materially from our estimates or the
amount of the temporary reduction.

In addition, as of August 2, 2003, our Villa subsidiary has an aggregate
of approximately $6.7 million of excess borrowing availability under its
various short-term credit facilities. Terms of the Italian credit facilities
do not permit using borrowing availability to finance operating activities at
our U.S. subsidiaries.

Cash Flows from Operating Activities  For the year ended August 2, 2003
the Company generated approximately $4.9 million of cash from operations,
compared to a generation of $6.3 million in last years period. Contributing
to this years cash generation were a decrease in trade receivables of
approximately $3.8 million; a reduction in inventory of approximately $3.6
million; and collection of approximately $4.1 million in income tax receivable.
This income tax receivable was the result of filing amended tax returns and
carryback claims for fiscal 1997 through 2001 due to a change in the tax laws
permitting loss carry backs of five years from two years.

Cash Flows from Investing Activities - We continue to invest in capital
equipment and improvements, principally for manufacturing operations, in order
to improve our manufacturing capability and capacity. We have expended
approximately $2.0 million in facility improvements and capital equipment for
the year ended August 2, 2003, principally at the Power Conversion Groups
Valhalla facility related to the consolidation of the Hicksville product lines.
In addition, our Villa subsidiary made improvements to its HVAC system. We
anticipate fiscal 2004 capital expenditures will be lower than the expenditures in
fiscal 2003 due to the completion of the facility consolidation work in
Valhalla and the HVAC system in Italy during fiscal 2003.

Cash Flows from Financing Activities - During fiscal 2003, we repaid a
total of approximately $2.6 million of indebtedness on our domestic and Italian
borrowings.

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The following table summarizes our contractual obligations, including debt
and operating leases at August 2, 2003:

|                                   |  |          |       |        |  |        |       |       |  |       |       |         |  |   |       |  |  |   |       | 
|---------------------------------- |  | -------- | ----- | ------ |  | ------ | ----- | ----- |  | ----- | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|                                   |  |          |       |        |  | Within |       | 2-3   |  | 4-5   |       | After 5
|Obligations                        |  | Total(1) |       | 1 Year |  | Years  |       | Years |  | Years
|                                   |  |          |       |        |  |        |       |       |  |      
|Long-Term Debt Obligations         |  | $        | 2,895 |        |  | $      | 508   |       |  | $     | 1,037 |         |  | $ | 771   |  |  | $ | 579   | 
|Capital Lease Obligations          |  |          | 3,072 |        |  |        | 148   |       |  |       | 358   |         |  |   | 641   |  |  |   | 1,925 | 
|Subordinated Note                  |  |          | 2,000 |        |  |        |      |       |  |       |      |         |  |   | 2,000 |  |  |   |      | 
|Operating Lease Obligations        |  |          | 1,873 |        |  |        | 959   |       |  |       | 897   |         |  |   | 17    |  |  |   |      | 
|                                   |  |          |      |        |  |        |      |       |  |       |      |         |  |   |      |  |  |   |      | 
|Total Contractual Cash Obligations |  | $        | 9,840 |        |  | $      | 1,615 |       |  | $     | 2,292 |         |  | $ | 3,429 |  |  | $ | 2,504 | 



|(1) |  | In addition, as of August 2, 2003 we had approximately $6.2 million
revolving credit debt in the U.S. and $0.2 million in Italy. The Italian
credit facilities are generally renewed on a yearly basis and the
Transamerica Facility matures in fiscal 2005. The maturity of the
Transamerica Facility is subject to acceleration upon certain events of
default as defined in the credit agreement, including uncured covenant
defaults. Upon maturity, the Company anticipates refinancing any balances
remaining on the U.S. facility.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Credit
Facility and Borrowing - The Company has a $10 million senior
revolving credit agreement with Transamerica under the Transamerica Facility
dated as of June 10, 2002. This facility has a term of three years and
interest under this U.S. credit facility is at prime plus 3/4%, or at the
Companys option, at a rate tied to LIBOR. The interest rate on the revolving
line of credit is 4.75% at August 2, 2003. The Transamerica Facility is
subject to commitment fees of 3/8% on the daily unused portion of the facility,
payable monthly. Under terms of the Transamerica Facility, interest is
calculated based on the higher of the actual balance, or a floor revolving
credit balance of $5 million. The Transamerica Facility is secured by
substantially all of the Companys accounts receivable, inventory, and fixed
assets in the U.S. The terms of the Transamerica Facility require the Company
to comply with various operational and financial covenants and place
limitations on the Companys ability to make capital expenditures and to pay
dividends.

In the fourth quarter of fiscal 2003, we breached the tangible net worth
financial covenants contained in our Loan and Security Agreement, dated June
10, 2002, with Transamerica Business Capital Corporation (Transamerica), as
amended (the Transamerica Agreement). In October 2003, we received a waiver
of such default from Transamerica and signed a Third Amendment with
Transamerica. This Third Amendment includes revisions to the tangible net
worth financial covenant as well as adjustments to the other financial
covenants. Previously, in the first quarter of fiscal 2003, the Company
obtained a waiver of non-compliance with the adjusted earnings, adjusted U.S.
earnings, senior debt ratio and fixed charge coverage ratio financial covenants
contained in the Transamerica Facility. In December 2002, the Company signed a
Second Amendment with Transamerica, which includes revisions of those covenants
previously breached. For more discussion on the Transamerica Facility, see
Notes to Consolidated Financial Statements in Part II, Item 8, Financial
Statements and Supplementary Data of this Annual Report.

Our Villa subsidiary is a party to various short-term credit facilities
with interest rates ranging from 6% to 14%. These facilities generally renew on
a yearly basis and include overdraft, receivables and import export financing
facilities.

In addition, Villa a party to various medium-term commercial and Italian
Government long-term loans. Medium term facilities have interest rates ranging
from 3 to 6%, with principal

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payable semi-annually through maturity in March 2007, and interest payable
quarterly. The Government long-term facilities have an interest rate of 3.4%
with principal payable annually through September 2010. 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.

As of August 2, 2003, the Company has a minimum liability and
corresponding debit in other comprehensive income to account for the unfunded
status of its defined benefit plan, in accordance with SFAS No. 87. In
accordance with SFAS No. 88, at the time of final settlement of the pension
plan, the Company will recognize an expense to the statement of operations for
the amount of such debit to other comprehensive income, adjusted for the
difference between the cost to buy the annuities necessary to settle the
pension obligation and the amount of the recorded net liability. The Company
expects to settle this plan by the end of calendar year 2004, at which point it
expects to recognize a related charge of approximately $0.5 million. At time
of settlement, the Company estimates the cash disbursement to purchase the
annuity will be approximately $0.2 million.

During fiscal 2004 we intend to complete a registration statement with the
SEC covering the issuance of one million shares of our common stock underlying
warrants that were issued to certain shareholders in connection with the
previous shareholder litigation. Prior to completing this amended registration
statement and having it declared effective, we must satisfactorily respond to
questions raised by the SEC in its review of the registration statement, and
there can be no assurances that the SEC will declare the registration statement
effective in fiscal 2004. Should the SEC declare this registration statement
effective, shareholders would be able to exercise the warrants issued as part
of the shareholder litigation settlement and purchase the Companys common
stock at a price of $2 per share. These warrants are also callable by the
Company at a price of $0.25 per warrant, if the Common Stock trades at or above
$4 per share for ten (10) consecutive days. We anticipate using any proceeds
received from exercise of the warrants to pay down our Transamerica Facility.

As described in Part I, Item 3, Legal Proceedings of this Annual Report,
management had developed an estimate of the low end of the potential range of
the financial impact of a potential comprehensive settlement with the DOD
regarding an ongoing investigation of our RFI subsidiary. Accordingly, during
the third quarter of fiscal 2003, we recorded a charge of $2.3 million, which
represents our estimate of the low end of a range of potential fines and legal
and professional fees. The liability associated with this charge is included
in Litigation settlement reserves on the accompanying balance sheet as of
August 2, 2003. In October 2003, based on discussions with the U.S.
Government, the Company was advised that the U.S. Government is currently
seeking approximately $5 million in the fines and restitution portion of any
comprehensive settlement. The Company is continuing to negotiate with the U.S.
Government regarding a comprehensive settlement, including the amount of such
fines.

It is possible that the DOD could seek a debarment or exclusion of the
Company from doing business with U.S. Government entities for a period of time.
Because management believes that it has been responsive in addressing the
problems that affected RFI in the past, and RFI is the sole source provider of
certain products to several critical defense programs, we are hopeful that our
ability to service the
governmental and defense sectors will not be interrupted as a result of
the potential settlement. There can be no assurance that such a settlement
will be reached and, even if such a settlement is reached that the ultimate
fines and outcome of any settlement will not vary significantly from the
Companys original estimate and expectations. In addition, such a settlement,
even on the most
-42-Table of Contentsfavorable terms, may have a material adverse impact on the Companys
financial condition, liquidity and operations.The Companys newly elected Board of Directors has reviewed the change in
control provisions regarding payments totaling up to approximately $1.8
million under the employment agreement between the Company and its former Chief
Executive Officer, Mr. Samuel E. 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 believes 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. If paid in a lump sum, these payments may have a material adverse
effect on the Companys liquidity. In the event Mr. Park seeks to assert a
claim for these payments, it is not possible to predict the
outcome of any such claim; 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 outcome of the elections at the Companys Annual Meeting of
Shareholders held on May 29, 2003 represents a change in control under change
in control agreements between the Company and each of four other members of
executive management. However, as each of these agreements contains
double-triggers requiring the termination of the individual, no change in
control payments are currently due to any such individuals.We anticipate that cash generated from operations and amounts available
from credit facilities will be sufficient to satisfy our currently projected
operating cash needs for at least the next twelve months, and for the
foreseeable future. In the event the potential settlement of the DOD
investigation is materially higher than anticipated we will consider all
available alternatives. However, there is no assurance that any alternatives
will be available to the Company on acceptable terms at such time.Fiscal 2002 Compared To Fiscal 2001Working Capital  At August 3, 2002 and July 28, 2001, our working capital
was approximately $18.6 million and $22.3 million, respectively. At such
dates, we had approximately $895,000 and $1.4 million, respectively, in cash
and cash equivalents. The decline in cash was principally in our U.S.
operations. Until June 2002, because we were in default of our former credit
facility and there was no ability to borrow any additional funds under that
facility, we kept higher balances in cash and cash
equivalents for working capital requirements. Since obtaining the
Transamerica Facility, lower cash balances are required.We have achieved a substantial improvement in our working capital
management during the last fiscal year. From the end of fiscal 2001 to the end
of fiscal 2002, our inventory-43-Table of Contentsdeclined by approximately $6.6 million, while our sales increased 5.6%.
Most of the improvement in inventory turnover was in our Power Conversion
Group.Subordinated
Note  In connection with our class action settlement, the
Company issued a $2.0 million subordinated note in April 2002, (the
Subordinated Note). The present value, computed at 12%,
of the future principal and interest due under this Subordinated Note
is $1.6 million as of August 3, 2002. The Subordinated Note is due in
March 2007 and carries a nominal interest rate of 6%, which is
payable at maturity.Capital Expenditures  In fiscal 2002, we expended approximately $1.2
million for capital equipment and $677,000 during fiscal 2001.Issuance of Shares and Warrants  In connection with our shareholder class
action settlement, we issued common shares and warrants to purchase common
shares to certain shareholders. The equity portion of the settlement in common
shares totaled $9.8 million. The portion attributable to warrants of $1.7
million is reflected in Paid in Capital.In July 2001, when we first reached an agreement in principle to settle
this litigation, the common shares portion of the settlement was initially
valued at $3.8 million and warrants at $660,000. These shares and warrants
were revalued at January 29, 2002 when the final court approval was received.
The increase in value of the settlement securities of $7.1 million ($6.0
million common share value increase, $1.1 million warrant value increase)
resulted in a non-cash charge in the third quarter of fiscal 2002. The common
shares and warrants were issued and distributed in May 2002.Effects of New Accounting PronouncementsSFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections was issued in April 2002.
This pronouncement rescinded SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, SFAS No. 64, Extinguishments of Debt to Satisfy
Sinking-Fund Requirements, and SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers, and changed the accounting treatment for capital lease
modifications by amending SFAS No. 13, Accounting for Leases. This
pronouncement also amends the existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of SFAS No. 145 are
effective for financial statements issued for fiscal years beginning after May
15, 2002. The adoption of this statement did not have a material
effect on
the Companys consolidated financial statements.SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in June 2002. SFAS No. 146 revises the accounting and
reporting for costs associated with exit or disposal activities to be
recognized when a liability for such cost is incurred rather than when an
entity commits to an exit plan. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 does not
impact previously recorded liabilities and, therefore, the initial
adoption of this standard did not have a material effect on the Companys
consolidated financial statements.In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and interpretation of FASB Statements No
5, 57 and 107 and Recession of FASB Interpretation No 34. which, among other
things, requires additional-44-Table of Contentsproduct warranty disclosures. The Company has provided the additional
disclosure required in the Notes to the Companys consolidated financial
statementsIn
January 2003, the FASB issued FASB Interpretation No. 46
Consolidation of Variable Interest Entities (VIE),
an Interpretation of ARB No. 51. FIN 46 requires
certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from
other parties. FIN 46 was effective immediately for new VIEs
established or purchased subsequent to January 31, 2003. For
VIEs entered into prior to February 1, 2003, FIN 46 was
originally effective for interim periods beginning after
June 15, 2003. In October 2003, the FASB deferred this effective
date until interim or annual periods ending after December 15,
2003. Early adoption is permitted. The adoption of FIN 46 for
these VIEs is not expected to have a material impact on the
Companys consolidated financial condition or results of
operations. FIN 46 further requires the disclosure of certain
information related to VIEs in which the Company holds a significant
variable interest. As of August 2, 2003, the Company did not own
any such interests that required disclosure.SFAS No. 148, Accounting for Stock-based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123, amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS No. 123 to require prominent
disclosure in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company has elected to continue to account for
stock-based awards to employees using the intrinsic value method of accounting
in accordance with Accounting Principles Board Opinion No 25, Accounting for
Stock Issued to Employees. The Companys practice in granting these awards to
employees is to set the exercise price of the stock options equal to the
market price of our underlying stock on the date of grant. Therefore under the
intrinsic value method, no compensation expense is recognized in the Companys
Consolidated Statements of Operations.In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is applied prospectively and is effective for contracts
entered into or modified after June 30, 2003, except for SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003 and certain provisions relating to forward purchases and
sales on securities that do not yet exist. The adoption of this
statement did not have a material effect on the Companys
consolidated financial statements.During May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS 150 clarifies the
accounting for certain financial instruments with characteristics of both
liabilities and equity and requires that those instruments be classified as
liabilities in statements of financial position. Previously, many of those
financial instruments were classified as equity. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company anticipates that there will be no material
effect on
its consolidated financial statements upon the adoption of SFAS 150.-45-Table of Contents

|         |  |                                                           
|-------- |  | ----------------------------------------------------------
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not ordinarily hold market risk sensitive instruments for trading
purposes. We do, however, recognize market risk from interest rate and foreign
currency exchange exposure.

Interest rate risk

Our U.S. and foreign revolving credit facilities and certain of our
Italian subsidiarys long-term debt incur interest charges that fluctuate with
changes in market interest rates. See Note 6 of Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report. Based
on the balances as of August 2, 2003, an increase of 1/2 of 1% in interest
rates would increase interest expense by approximately $50,000 annually. There
is no assurance that interest rates will increase or decrease over the next
fiscal year. Because we believe this risk is not material, we do not undertake
any specific steps to reduce or eliminate this risk.

Foreign currency risk

The financial statements of Villa are denominated in Euros. Based on our
historical results and expected future results, Villa accounts for
approximately 30% to 45% of our total revenues, based in part on the rate at
which Villas Euro denominated financial statements have been or will be
converted into U.S. dollars. In addition, over the last 3 years, Villa has
contributed positive operating income, as compared to our consolidated
operating losses. Having a portion of our future income denominated in Euros
exposes us to market risk with respect to fluctuations in the U.S. dollar value
of future Euro earnings. A 10% decline in the value of the Euro in fiscal
2003, for example, would have reduced sales by approximately $2.7 million, and
would have increased our consolidated operating loss by approximately $124,000
(due to the reduction in the U.S. dollar value of Villas operating income.)




|        |  |                                            
|------- |  | -------------------------------------------
|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company, including the notes
to all such statements and other supplementary data are included in this report
beginning on page F-1.




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

Not applicable.

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|         |  |                        
|-------- |  | -----------------------
|ITEM 9A. |  | CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of the
Companys management, including Walter F. Schneider, Chief Executive Officer
and Thomas V. Gilboy, 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 this Annual
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 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 Act 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. There were no changes in the Companys internal controls or in other
factors that could significantly affect these controls, during the Companys
fourth fiscal quarter ended August 2, 2003 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.

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##### Table of Contents






PART III




|         |  |                                                   
|-------- |  | --------------------------------------------------
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 for all directors and executive
officers of the Company is incorporated herein by reference to the Companys
definitive Proxy Statement pursuant to Regulation 14A for the 2004 Annual
Meeting of Stockholders, which Proxy Statement will be filed with the SEC not
later than 120 days after the end of the fiscal year covered by this Annual
Report.




|         |  |                       
|-------- |  | ----------------------
|ITEM 11. |  | EXECUTIVE COMPENSATION

The information required by this Item 11 with respect to executive
compensation is incorporated herein by reference to the Companys definitive
Proxy Statement pursuant to Regulation 14A for the 2004 Annual Meeting of
Stockholders, which Proxy Statement will be filed with the SEC not later than
120 days after the end of the fiscal year covered by this Annual Report.




|         |  |                                                               
|-------- |  | --------------------------------------------------------------
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 with respect to security
ownership of directors, executive officers and substantial stockholders is
incorporated herein by reference to the Companys definitive Proxy Statement
pursuant to Regulation 14A for the 2004 Annual Meeting of Stockholders, which
Proxy Statement will be filed with the SEC not later than 120 days after the
end of the fiscal year covered by this Annual Report.




|         |  |                                               
|-------- |  | ----------------------------------------------
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 with respect to certain
relationships and transactions between directors and executive officers and
substantial stockholders of the Company with the Company is incorporated by
reference to the Companys definitive Proxy Statement pursuant to Regulation
14A for the 2004 Annual Meeting of Stockholders, which Proxy Statement will be
filed with the SEC not later than 120 days after the end of the fiscal year
covered by this Annual Report.




|         |  |                                       
|-------- |  | --------------------------------------
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Pursuant to SEC Release No. 33-8183 (as corrected by Release No 33-8183A), the
disclosure requirements of this Item are not effective until the Annual Report
on Form 10-K for the first fiscal year ending after December 15, 2003.

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PART IV




|         |  |                                                                 
|-------- |  | ----------------------------------------------------------------
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |    |  |                      |    |             |  |                                                                                      |  |  |          | 
|--- |  | -- |  | -------------------- | -- | ----------- |  | ------------------------------------------------------------------------------------ |  |  | -------- | 
|(a) |  | 1. |  | Financial Statements |    | Page Number
|    |  |    |  |                      |    |            
|    |  |    |  |                      |    |             |  | CONSOLIDATED FINANCIAL STATEMENTS OF DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES: |  |  |          | 
|    |  |    |  |                      |    |             |  | Independent Auditors Report                                                         |  |  | F1       | 
|    |  |    |  |                      |    |             |  | Consolidated Balance Sheets as of August 2, 2003 and August 3, 2002                  |  |  | F2 - F3  | 
|    |  |    |  |                      |    |             |  | Consolidated Statements of Operations for the Fiscal Years Ended                     |  |  |          | 
|    |  |    |  |                      |    |             |  | August 2, 2003, August 3, 2002 and July 28, 2001                                     |  |  | F4       | 
|    |  |    |  |                      |    |             |  | Consolidated Statements of Cash Flows for the Fiscal Years Ended                     |  |  |          | 
|    |  |    |  |                      |    |             |  | August 2, 2003, August 3, 2002 and July 28, 2001                                     |  |  | F5       | 
|    |  |    |  |                      |    |             |  | Consolidated Statements of Shareholders Equity for the Fiscal Years Ended           |  |  |          | 
|    |  |    |  |                      |    |             |  | August 2, 2003, August 3, 2002 and July 28, 2001                                     |  |  | F6 - F7  | 
|    |  |    |  |                      |    |             |  | Notes to Consolidated Financial Statements for the Fiscal Years Ended                |  |  |          | 
|    |  |    |  |                      |    |             |  | August 2, 2003, August 3, 2002 and July 28, 2001                                     |  |  | F8 - F31 | 
|    |  |    |  |                      | 2. |             |  | Financial Statement Schedules                                                        |  |  |          | 
|    |  |    |  |                      |    |             |  | Schedule II Valuation and Qualifying Accounts                                        |  |  | F-32     | 
|    |  |    |  |                      | 3. |             |  | Exhibits                                                                             |  |  |          | 

|        |  |                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                               
|Number  |  | Description of Document                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                               
|2.1     |  | Stock Purchase Agreement (related to the acquisition of Villa
Sistemi Medicali S.p.A.) dated as of December 28, 1999. Filed as
Exhibit 2.1 to Del Global Technologies Corp. Current Report on
Form 8-K dated May 4, 2000 and incorporated herein by reference.
|        |  |                                                                                                                                                                                                                                                               
|3.1     |  | Certificate of Incorporation dated October 25, 1954. Filed as
Exhibit to Del Electronics Corp. Registration Statement on Form
S-1 (No. 2-16839) and incorporated herein by reference.                                                                         
|        |  |                                                                                                                                                                                                                                                               
|3.2     |  | Certificate of Amendment of Certificate of Incorporation dated
January 26, 1957. Filed as Exhibit to Del Electronics Corp.
Registration Statement on Form S-1 (No. 2-16839) and incorporated
herein by reference.                                             
|        |  |                                                                                                                                                                                                                                                               
|3.3     |  | Certificate of Amendment of Certificate of Incorporation dated
July 12, 1960. Filed as Exhibit to Del Electronics Corp.
Registration Statement on Form S-1 (No. 2-16839) and incorporated
herein by reference.                                                

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|        |  |                                                                                                                                                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                            
|Number  |  | Description of Document                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                            
|3.4     |  | Certificate of Amendment of Certificate of Incorporation dated
March 18, 1985. Filed as Exhibit 3.5 to Del Electronics Corp.
Form 10-K for the year ended August 2, 1989 and incorporated
herein by reference.                                                             
|        |  |                                                                                                                                                                                                                                                                            
|3.5     |  | Certificate of Amendment of Certificate of Incorporation dated
January 19, 1989. Filed as Exhibit 4.5 to Del Electronics Corp.
Form S-3 (No. 33-30446) filed August 10, 1989 and incorporated
herein by reference.                                                         
|        |  |                                                                                                                                                                                                                                                                            
|3.6     |  | Certificate of Amendment of the Certificate of Incorporation of
Del Electronics Corp., dated February 5, 1991. Filed with Del
Electronics Corp. Proxy Statement dated January 22, 1991 and
incorporated herein by reference.                                               
|        |  |                                                                                                                                                                                                                                                                            
|3.7     |  | Certificate of Amendment of the Certificate of Incorporation of
Del Electronics Corp. dated February 14, 1996. Filed as Exhibit
3.6 to Del Global Technologies Corp. Annual Report on Form 10-K
for the year ended August 1, 1998 and incorporated herein by
reference.    
|        |  |                                                                                                                                                                                                                                                                            
|3.8     |  | Certificate of Amendment of Certificate of Incorporation of Del
Global Technologies Corp. dated February 13, 1997. Filed as
Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended
February 1, 1997 and incorporated herein by reference.                      
|        |  |                                                                                                                                                                                                                                                                            
|3.9     |  | Amended and Restated By-Laws of Del Global Technologies Corp.
Filed as Exhibit 3.1 to Current Report on Form 8-K dated September
5, 2001 and incorporated herein by reference.                                                                                             
|        |  |                                                                                                                                                                                                                                                                            
|3.10    |  | Amendment No. 1 to the Amended and Restated By-Laws of Del Global
Technologies Corp. dated July 17, 2003. Filed as Exhibit 3.01 to
Current Report on Form 8-K dated July 30, 2003 and incorporated
herein by reference.                                                    
|        |  |                                                                                                                                                                                                                                                                            
|4.1     |  | Intentionally Omitted.                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                            
|4.2     |  | Intentionally Omitted.                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                            
|4.8     |  | Warrant Certificate of Laurence Hirschhorn. Filed as Exhibit 4.1
to Del Global Technologies Corp. Quarterly Report on Form 10-Q for
the quarter ended January 29, 2000 and incorporated herein by
reference.                                                               
|        |  |                                                                                                                                                                                                                                                                            
|4.9     |  | Warrant Certificate of Steven Anreder. Filed as Exhibit 4.2 to
Del Global Technologies Corp. Quarterly Report on Form 10-Q for
the quarter ended January 29, 2000 and incorporated herein by
reference.                                                                    
|        |  |                                                                                                                                                                                                                                                                            
|4.10    |  | Warrant Certificate of UBS Capital S.p.A. dated as of December 28,
1999. Filed as Exhibit 4 to Del Global Technologies Corp.
Quarterly Report on Form 10-Q for the quarter ended January 29,
2000 and incorporated herein by reference.                                    
|        |  |                                                                                                                                                                                                                                                                            
|4.11*   |  | Del Global Technologies Corp. Amended and Restated Stock Option
Plan (as adopted effective as of January 1, 1994 and as amended
December 14, 2000). Filed as Exhibit 4.11 to Del Global
Technologies Corp. Annual Report on Form 10-K for the year ended
August 3, 2002 and

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|        |  |                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                              
|Number  |  | Description of Document                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                              
|        |  | incorporated herein by reference.                                                                                                                                                                                                                                                                                            
|       
|4.12*   |  | Stock Purchase Plan. Filed as Exhibit 4.9 to Del Electronics
Corp. Annual Report on Form 10-K for the year ended July 29, 1989
and incorporated herein by reference.                                                                                                                                                         
|       
|4.13*   |  | Option Agreement, substantially in the form used in connection
with options granted under the Plan. Filed as Exhibit 4.8 to Del
Electronics Corp. Annual Report on Form 10-K for the year ended
July 29, 1989 and incorporated herein by reference.                                                                          
|       
|4.14*   |  | Option Agreement dated as of December 28, 1999. Filed as Exhibit
4.2 to Del Global Technologies Corp. Current Report on Form 8-K
dated May 4, 2000 and incorporated herein by reference.                                                                                                                                     
|       
|4.15    |  | Warrant Agreement substantially in the form used for 1,000,000
warrants issued in connection with the settlement of the Class
Action Lawsuit on January 29, 2002. Filed as Exhibit 10.12 to Del
Global Technologies Corp. Annual Report on Form 10-K for the year
ended August 3, 2002 and incorporated herein by reference. 
|       
|10.1*   |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                       
|       
|10.2    |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                       
|       
|10.3    |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                       
|       
|10.4    |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                       
|       
|10.5    |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                       
|       
|10.6    |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                       
|       
|10.7    |  | Lease Agreement dated April 7, 1992 between Messenger Realty Del
Electronics Corp. Filed as Exhibit 6(a) to Del Electronics Corp.
Quarterly Report on Form 10-Q for the quarter ended May 2, 1992
and incorporated herein by reference.                                                                                      
|       
|10.8    |  | Lease and Guaranty of Lease dated May 25, 1994 between Leshow
Enterprises and Bertan High Voltage Corp. Filed as Exhibit 2.5 to
Del Electronics Corp. Current Report on Form 8-K dated June 10,
1994 and incorporated herein by reference.                                                                                   
|       
|10.9    |  | Lease dated January 4, 1993 between Curto Reynolds Oelerich Inc.
and Del Medical Imaging Corp. (formerly knows as Gendex-Del
Medical Imaging Corp.). Filed as Exhibit 10.21 to the Del Global
Technologies Corp. Registration Statement on Form S-2 (No.
333-2991) dated April 30, 1997 and incorporated herein by
reference.

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.10   |  | Loan and Security Agreement dated June 10, 2002, in the principal
amount of $10,000,000, between Del Global Technologies Corp.,
Bertan High Voltage Corp., RFI Corporation and Del Medical Imaging
Corp. (Borrowers) and Transamerica Business Capital Corporation.
The Company agrees to furnish supplementally a copy of any omitted
exhibits or schedules to the SEC upon request. Filed as Exhibit
99.01 to Del Global Technologies Corp. Current Report on Form 8-K
filed on November 4, 2002 and incorporated herein by reference.
|       
|10.11   |  | Subordinated Promissory Note substantially in the form used for a
total principal amount of $2 million issued in connection with the
settlement of the Class Action Lawsuit on January 29, 2002. Filed
as Exhibit 10.11 to Del Global Technologies Corp. Annual Report on
Form 10-K for the year ended August 3, 2002 and incorporated
herein by reference.                                                                                                                                                                             
|       
|10.12   |  | Intentionally Omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|10.13*  |  | Executive Employment Agreement dated May 1, 2001, by and between
Del Global Technologies Corp. and Samuel E. Park. Filed as
Exhibit 99.1 to Del Global Technologies Corp. Current Report on
Form 8-K filed on August 1, 2001 and incorporated herein by
reference.                                                                                                                                                                                                                                                                      
|       
|10.14*  |  | Change of Control Agreement substantially in the form used by the
Company for the current executive officers as named in Item 11,
except for Samuel E. Park (see Exhibit 10.13). Filed as Exhibit
10.14 to Del Global Technologies Corp. Annual Report on Form 10-K
for the year ended August 3, 2002 and incorporated herein by
reference.                                                                                                                                                                                             
|       
|10.15   |  | Extension and Modification Agreement (lease agreement) dated as of
July 30, 2002 between Praedium II Valhalla LLC and Del Global
Technologies Corp. Filed as Exhibit 10.15 to Del Global
Technologies Corp. Annual Report on Form 10-K for the year ended
August 3, 2002 and incorporated herein by reference.                                                                                                                                                                                                                          
|       
|10.16   |  | Grant Decree No. 0213 between the Ministry of Industry, Trade and
Handicrafts and Villa Sistemi Medicali S.p.A. dated September 6,
1995. Filed as Exhibit 10.16 to Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 3, 2002 and
incorporated herein by reference.                                                                                                                                                                                                                                     
|       
|10.17   |  | Financial Property Lease Contract no. 21136 dated March 30, 2000
between ING Lease (Italia) S.p.A. and Villa Sistemi Medicali
S.p.A. Filed as Exhibit 10.17 to Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 3, 2002 and
incorporated herein by reference.                                                                                                                                                                                                                                         
|       
|10.18   |  | Declaration of Final Obligation between the Ministry of Productive
Industry and Villa Sistemi Medicali S.p.A. dated May 6, 2002.
Filed as Exhibit 10.18 to Del Global Technologies Corp. Annual
Report on Form 10-K for the year ended August 3, 2002 and
incorporated herein by reference.                                                                                                                                                                                                                                             

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Number  |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.19   |  | Private Contract between Banca Mediocredito S.p.A and Villa
Sistemi Medicali S.p.A. dated November 4, 1998 in the principal
amount of 3 billion Lire. Filed as Exhibit 10.19 to Del Global
Technologies Corp. Annual Report on Form 10-K for the year ended
August 3, 2002 and incorporated herein by reference.                                                                                                                                                                                                                                                                           
|       
|10.20*  |  | Change of Control Agreement as approved by the Board of Directors
on October 24, 2002, substantially in the form used by its current
executive officers (in the case of Walter F. Schneider, as amended
pursuant to Exhibit 10.22 hereof). Filed as Exhibit 10.20 to Del
Global Technologies Corp. Annual Report on Form 10-K for the year
ended August 3, 2002 and incorporated herein by reference.                                                                                                                                                                                      
|       
|10.21   |  | Waiver and First Amendment to Loan and Security Agreement dated as
of November 1, 2002 among Del Global Technologies Corp., Bertan
High Voltage Corp., RFI Corporation and Del Medical Imaging Corp.
(Borrowers) and Transamerica Business Capital Corporation. Filed
as Exhibit 99.02 to Del Global Technologies Corp. Current Report
on Form 8-K filed on November 4, 2002 and incorporated herein by
reference.                                                                                                                                                                         
|       
|10.22   |  | Second Amendment to the Loan and Security Agreement dated
December 17, 2002 among Del Global Technologies Corp., Bertan
High Voltage Corp., RFI Corporation and Del Medical Imaging Corp.
(Borrowers) and Transamerica Business Capital Corporation. Filed as
Exhibit 10.1 to Del Global Technologies Corp. Quarterly Report
on Form 10-Q for the quarter ended November 2, 2002 and
incorporated herein by reference.                                                                                                                                                                     
|       
|10.23   |  | Settlement Agreement and Release dated March 10, 2003 by and
between Del Global Technologies Corp. and its affiliates,
subsidiaries, present and former directors, officers, agents,
accountants, attorneys, stockholders, predecessors and the agents and
attorneys of its present and former directors, and Leonard A. Trugman
and each of his heirs, administrators, liquidators, executors,
successors, and assigns. Filed as Exhibit 10.22 to Del Global
Technologies Corp. Quarterly Report on Form 10-Q for the quarter
ended February 1, 2003 and incorporated herein by reference.
|       
|10.24   |  | Separation Agreement and General Release of Claims dated
April 9, 2003, by and between James M. Tiernan and Del Global
Technologies Corp. Filed as Exhibit 99.01 to Del Global
Technologies Corp. Amendment to Current Report on Form 8-K/A
filed on April 23, 2003 and incorporated herein by reference.                                                                                                                                                                                                                                                                                  
|       
|10.25   |  | Separation Agreement and General Release of Claims dated
April 9, 2003, by and between David Michael, David Michael &
Co., P.C. and Del Global Technologies Corp. Filed as
Exhibit 99.02 to Del Global Technologies Corp. Amendment to
Current Report on Form 8-K/A filed on April 23, 2003 and
incorporated herein by reference.                                                                                                                                                                                                                                                          
|       
|10.26   |  | Form of Indemnification Agreement. Filed as Exhibit 10.22 to Del
Global Technologies Corp. Amendment #1 to Registration Statement on
Form S-1/A, filed on May 1, 2003 and incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                
|       
|10.27   |  | Amendment to Executive Employment Agreement dated May 28, 2003
by and between Del Global Technologies Corp. and Samuel E. Park.
Filed as Exhibit 10.23 to Del Global Technologies Corp. quarterly
report on Form 10-Q for the quarterly period ended May 3,
2003 and incorporated herein by reference.                                                                                                                                                                                                                                                                                     
|       
|10.28   |  | Amendment dated October 10, 2003 to Change of Control Agreement
for Walter F. Schneider (1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|10.29   |  | Waiver and Third Amendment to the Loan and Security Agreement dated
as of October 30, 2003, among Del Global Technologies Corp.,
Bertan High Voltage Corp., RFI Corporation and Del Medical Imaging
Corp. (Borrowers) and Transamerica Business Capital Corporation (1).                                                                                                                                                                                                                                                                                                                   
|       
|14.1    |  | Del Global Technologies Corp. Code of Business Conduct and Ethics.
Filed as an exhibit to the Del Global Technologies Corp. Definitive
Proxy Statement on Schedule 14A filed on April 29, 2003 and
incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                       
|       
|21      |  | Subsidiaries of Del Global Technologies Corp. Filed as Exhibit 21
to Del Global Technologies Corp. Annual Report on Form 10-K for
the year ended August 3, 2002 and incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                      
|       
|23.1    |  | Consent of Deloitte & Touche LLP.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|31.1    |  | Certification of Chief Executive Officer, Walter F. Schneider,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1).                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|31.2    |  | Certification of Chief Financial Officer, Thomas V. Gilboy,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|32.1    |  | Certification of the Chief Executive Officer, Walter F. Schneider,
pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002(1).                                                                                                                                                                                                                                                                                                                                                                                                                
|       
|32.2    |  | Certification of the Chief Financial Officer, Thomas V. Gilboy,
pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002(1).                                                                                                                                                                                                                                                                                                                                                                                                                   



---

|*   |  | Represents a management contract or compensatory plan or arrangement.
|--- |  | ---------------------------------------------------------------------
|   
|(1) |  | Filed herewith.                                                      
|   
|(b) |  | Reports on Form 8-K -                                                

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##### Table of Contents



On June 9, 2003 Del Global Technologies Corp. filed a Current Report on
Form 8-K reporting under Item 5, Other Events.

On June 20, 2003 Del Global Technologies Corp. filed a Current Report on
Form 8-K reporting under Item 5, Other Events.

On June 25, 2003 Del Global Technologies Corp. filed a Current Report on
Form 8-K reporting under Item 9, Information Furnished Pursuant to Item 12 of
Form 8-K - Results of Operations and Financial Condition.

On July 30, 2003, Del Global Technologies Corp. filed a Current Report on
Form 8-K reporting under Item 5, Other Events.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
|                 |  |                               |  |                        
|November 3, 2003 |  | By:                           |  | /s/ Walter F. Schneider
|                 |  |                               |  | Walter F. Schneider    
|                 |  |                               |  | Chief Executive Officer
|                 |  |                               |  |                        
|November 3, 2003 |  | By:                           |  | /s/ Thomas V. Gilboy   
|                 |  |                               |  | Thomas V. Gilboy       
|                 |  |                               |  | Chief Financial Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                             |  |                     |  |                 
|-------------------------------------------- |  | ------------------- |  | ----------------
|/s/ Suzanne M. Hopgood

Suzanne M. Hopgood   |  | Director - Chairman |  | November 3, 2003
|                                             |  |                     |  |                 
|/s/ Wallace Barnes
Wallace Barnes            |  | Director            |  | November 3, 2003
|                                             |  |                     |  |                 
|/s/ Gerald M. Czarnecki

Gerald M. Czarnecki |  | Director            |  | November 3, 2003
|                                             |  |                     |  |                 
|/s/ David W. Wright

David W. Wright         |  | Director            |  | November 3, 2003
|                                             |  |                     |  |                 
|/s/ Edgar J. Smith, Jr.

Edgar J. Smith, Jr. |  | Director            |  | November 3, 2003

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INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders of
Del Global Technologies Corp.
Valhalla, New York We have audited the accompanying consolidated balance sheets of Del Global
Technologies Corp. and subsidiaries as of August 2, 2003 and August 3, 2002,
and the related consolidated statements of operations, shareholders equity and
cash flows for each of the three fiscal years in the period ended August 2,
2003. Our audits also included the financial statement schedule listed in the
Index at Item 15(a)2. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Del Global Technologies Corp. and
subsidiaries at August 2, 2003 and August 3, 2002, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended August 2, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein. As discussed in Note 1 to
the consolidated financial statements, the Company has changed its
method of accounting for goodwill and other intangible assets to
conform to Statement of Financial Accounting Standards No. 142. /s/ DELOITTE & TOUCHE LLP New York, New York
November 3, 2003 F-1




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)  August 2,
    
    
    August 3,2003
    
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,381
    
    
    $
    895Marketable securities
    
    
    
    
    
    
    45Trade receivables (net of allowance for
doubtful accounts of $1,232 and
$1,127 for 2003 and 2002, respectively)
    
    
    17,063
    
    
    
    19,252Inventory (net of allowance of $3,847 and
$3,430 for 2003 and 2002, respectively)
    
    
    18,448
    
    
    
    20,956Income tax receivable
    
    
    
    
    
    
    3,992Deferred income tax assets  current
    
    
    2,591
    
    
    
    2,590Prepaid expenses and other current assets
    
    
    730
    
    
    
    1,644Total current assets
    
    
    40,213
    
    
    
    49,374NON-CURRENT ASSETS:Refundable income taxes
    
    
    55
    
    
    
    148Fixed assets, net
    
    
    9,293
    
    
    
    9,152Deferred income tax assets  non-current
    
    
    6,148
    
    
    
    13,982Goodwill
    
    
    3,239
    
    
    
    3,239Other intangible assets, net
    
    
    333
    
    
    
    477Other assets
    
    
    1,211
    
    
    
    1,325Total non-current assets
    
    
    20,279
    
    
    
    28,323TOTAL ASSETS
    
    $
    60,492
    
    
    $
    77,697
 See notes to consolidated financial statements F-2




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except share data)  August 2,
    
    
    August 3,2003
    
    
    2002LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Short-term credit facilities
    
    $
    6,446
    
    
    $
    7,992Current portion of long-term debt
    
    
    655
    
    
    
    792Accounts payable  trade
    
    
    8,990
    
    
    
    10,127Accrued liabilities
    
    
    7,730
    
    
    
    10,774Litigation settlement reserves
    
    
    2,553
    
    
    
    685Income taxes payable
    
    
    241
    
    
    
    356Total current liabilities
    
    
    26,615
    
    
    
    30,726NON-CURRENT LIABILITIES:Long-term debt
    
    
    5,312
    
    
    
    5,114Subordinated note
    
    
    1,788
    
    
    
    1,610Other long-term liabilities
    
    
    2,545
    
    
    
    2,158Total non-current liabilities
    
    
    9,645
    
    
    
    8,882Total liabilities
    
    
    36,260
    
    
    
    39,608COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN SUBSIDIARY
    
    
    1,253
    
    
    
    948SHAREHOLDERS EQUITY:Common stock  $.10 par value; authorized - 20,000,000
shares; issued  10,976,081 shares at August 2, 2003
and August 3, 2002
    
    
    1,097
    
    
    
    1,097Additional paid-in capital
    
    
    63,682
    
    
    
    63,547Accumulated other comprehensive income (loss)
    
    
    563
    
    
    
    (229
    )Accumulated deficit
    
    
    (36,817
    )
    
    
    (21,772
    )Less common stock in treasury  643,533 shares at
August 2, 2003 and 628,566 at August 3, 2002
    
    
    (5,546
    )
    
    
    (5,502
    )Total shareholders equity
    
    
    22,979
    
    
    
    37,141TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    60,492
    
    
    $
    77,697
 See notes to consolidated financial statements F-3




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, except per share amounts)  Fiscal years EndedAugust 2,
    
    
    August 3,
    
    
    July 28,2003
    
    
    2002
    
    
    2001NET SALES
    
    $
    98,619
    
    
    $
    98,784
    
    
    $
    93,443COST OF SALES
    
    
    77,496
    
    
    
    79,648
    
    
    
    74,994GROSS MARGIN
    
    
    21,123
    
    
    
    19,136
    
    
    
    18,449Selling, general and administrative
    
    
    21,933
    
    
    
    21,254
    
    
    
    16,838Research and development
    
    
    2,218
    
    
    
    2,919
    
    
    
    2,876Litigation settlement costs
    
    
    2,126
    
    
    
    7,713
    
    
    
    9,759Facilities reorganization costs
    
    
    788
    
    
    
    1,292
    
    
    
    822Total operating expenses
    
    
    27,065
    
    
    
    33,178
    
    
    
    30,295OPERATING LOSS
    
    
    (5,942
    )
    
    
    (14,042
    )
    
    
    (11,846
    )Interest expense (net of interest income of
$10, $449, and $164 in 2003, 2002 and 2001,
respectively)
    
    
    (1,388
    )
    
    
    (1,198
    )
    
    
    (1,308
    )Other income
    
    
    633
    
    
    
    183
    
    
    
    74LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST
    
    
    (6,697
    )
    
    
    (15,057
    )
    
    
    (13,080
    )INCOME TAX PROVISION (BENEFIT)
    
    
    8,233
    
    
    
    (3,242
    )
    
    
    (4,938
    )LOSS BEFORE MINORITY INTEREST
    
    
    (14,930
    )
    
    
    (11,815
    )
    
    
    (8,142
    )MINORITY INTEREST
    
    
    115
    
    
    
    197
    
    
    
    379NET LOSS
    
    $
    (15,045
    )
    
    $
    (12,012
    )
    
    $
    (8,521
    )NET LOSS PER BASIC AND DILUTED SHARE
    
    $
    (1.45
    )
    
    $
    (1.38
    )
    
    $
    (1.09
    )
 See notes to consolidated financial statements F-4




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)  August 2,
    
    
    August 3,
    
    
    July 28,CASH FLOWS FROM OPERATING ACTIVITIES
    
    2003
    
    
    2002
    
    
    2001Net loss
    
    $
    (15,045
    )
    
    $
    (12,012
    )
    
    $
    (8,521
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activitiesDepreciation and amortization
    
    
    2,611
    
    
    
    2,717
    
    
    
    2,955Deferred income tax provision (benefit)
    
    
    7,950
    
    
    
    (3,592
    )
    
    
    (5,207
    )Loss on sale of fixed assets
    
    
    42
    
    
    
    
    
    
    
    9Non cash facilities reorganization charge
    
    
    
    
    
    
    
    
    
    
    499Loss (gain) on sale of marketable securities and investment
    
    
    
    
    
    
    40
    
    
    
    (82
    )Non cash litigation settlement costs
    
    
    
    
    
    
    7,050
    
    
    
    5,929Non cash pension cost
    
    
    
    
    
    
    
    
    
    
    22Non cash compensation expense
    
    
    
    
    
    
    
    
    
    
    249Imputed interest  subordinated note
    
    
    177
    
    
    
    91
    
    
    
    Minority interest
    
    
    115
    
    
    
    197
    
    
    
    379Stock based compensation expense
    
    
    135
    
    
    
    150
    
    
    
    150Other
    
    
    (29
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities:Decrease (Increase) in trade receivables
    
    
    3,783
    
    
    
    1,079
    
    
    
    (525
    )Decrease in inventory
    
    
    3,587
    
    
    
    7,110
    
    
    
    1,165Decrease (Increase) in prepaid expenses and other current assets
    
    
    1,018
    
    
    
    (1,184
    )
    
    
    835Decrease (Increase) in other assets
    
    
    216
    
    
    
    (129
    )
    
    
    (69
    )Decrease (Increase) in income tax receivable
    
    
    4,086
    
    
    
    1,282
    
    
    
    (488
    )(Decrease) Increase in accounts payable  trade
    
    
    (2,104
    )
    
    
    1,558
    
    
    
    (3,839
    )(Decrease) Increase in accrued liabilities
    
    
    (1,559
    )
    
    
    2,087
    
    
    
    2,274(Decrease) in deferred compensation liability
    
    
    
    
    
    
    (21
    )
    
    
    (1,349
    )(Decrease) Increase in income taxes payable
    
    
    (126
    )
    
    
    (137
    )
    
    
    142Increase (Decrease) in other long-term liabilities
    
    
    84
    
    
    
    (18
    )
    
    
    (332
    )Net cash provided by (used in) operating activities
    
    
    4,941
    
    
    
    6,268
    
    
    
    (5,804
    )CASH FLOWS FROM INVESTING ACTIVITIESFixed assets purchases
    
    
    (1,971
    )
    
    
    (1,150
    )
    
    
    (677
    )Proceeds from sale of marketable securities and investment
    
    
    45
    
    
    
    294
    
    
    
    1,301Net cash (used in) provided by investing activities
    
    
    (1,926
    )
    
    
    (856
    )
    
    
    624CASH FLOWS FROM FINANCING ACTIVITIESProceeds from bank borrowings
    
    
    
    
    
    
    201
    
    
    
    7,539Repayment of bank borrowings
    
    
    (2,630
    )
    
    
    (5,848
    )
    
    
    (1,734
    )Stock repurchase
    
    
    
    
    
    
    
    
    
    
    (108
    )Debt and other issuance costs
    
    
    
    
    
    
    (338
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (2,630
    )
    
    
    (5,985
    )
    
    
    5,697EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    101
    
    
    
    66
    
    
    
    (3
    )CASH AND CASH EQUIVALENTS INCREASE (DECREASE)
FOR THE YEAR
    
    
    486
    
    
    
    (507
    )
    
    
    514CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
    
    
    895
    
    
    
    1,402
    
    
    
    888CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
    
    $
    1,381
    
    
    $
    895
    
    
    $
    1,402SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    999
    
    
    $
    1,220
    
    
    $
    1,229Cash paid during the period for income taxes
    
    
    429
    
    
    
    361
    
    
    
    488
 See notes to consolidated financial statements F-5




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in Thousands)  Obligation
    
    AccumulatedCommon
    
    Additional
    
    to issue
    
    Other Compre-Stock Issued
    
    Paid-In
    
    Shares &
    
    hensive Income
    
    Accumulated
    
    Treasury StockShares
    
    Amount
    
    Capital
    
    Warrants
    
    (Loss)
    
    Deficit
    
    Shares
    
    Amount
    
    TotalBALANCE, JULY 30, 2000
    
    
    8,557,951
    
    
    $
    856
    
    
    $
    52,139
    
    
    
    
    
    
    $
    (189
    )
    
    $
    (1,239
    )
    
    
    629,437
    
    
    $
    (5,505
    )
    
    $
    46,062Shares and warrants to be issued for
litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,410Shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,500
    
    
    
    (108
    )
    
    
    (108
    )Compensation cost of non-employee
stock options and warrants issued
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Stock option exercise reversal
    
    
    (81,870
    )
    
    
    (9
    )
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,371
    )
    
    
    111
    
    
    
    Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,521
    )
    
    
    
    
    
    
    
    
    
    
    (8,521
    )Foreign exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,723
    )BALANCE, JULY 28, 2001
    
    
    8,476,081
    
    
    
    847
    
    
    
    52,187
    
    
    
    4,410
    
    
    
    (391
    )
    
    
    (9,760
    )
    
    
    628,566
    
    
    
    (5,502
    )
    
    
    41,791Settlement of class action lawsuit:Issuance of stock
    
    
    2,500,000
    
    
    
    250
    
    
    
    9,500
    
    
    
    (3,750
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    1,710
    
    
    
    (660
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050Compensation cost of non-employee
stock options and warrants issued
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,012
    )
    
    
    
    
    
    
    
    
    
    
    (12,012
    )Accumulated unfunded obligation for
pension trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (423
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (423
    )Foreign exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585Total compre-hensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,850
    )BALANCE, AUGUST 3, 2002
    
    
    10,976,081
    
    
    $
    1,097
    
    
    $
    63,547
    
    
    $
    
    
    
    $
    (229
    )
    
    $
    (21,772
    )
    
    
    628,566
    
    
    $
    (5,502
    )
    
    $
    37,141
 F-6




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DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in Thousands)  Obligation
    
    AccumulatedCommon
    
    Additional
    
    to issue
    
    Other Compre-Stock Issued
    
    Paid-In
    
    Shares &
    
    hensive Income
    
    Accumulated
    
    Treasury StockShares
    
    Amount
    
    Capital
    
    Warrants
    
    (Loss)
    
    Deficit
    
    Shares
    
    Amount
    
    TotalBALANCE, AUGUST 3, 2002
    
    
    10,976,081
    
    
    $
    1,097
    
    
    $
    63,547
    
    
    $
    
    
    
    $
    (229
    )
    
    $
    (21,772
    )
    
    
    628,566
    
    
    $
    (5,502
    )
    
    $
    37,141Shares received in legal settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,967
    
    
    
    (44
    )
    
    
    (44
    )Compensation cost of non-employee
stock options and warrants issued
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,045
    )
    
    
    
    
    
    
    
    
    
    
    (15,045
    )Accumulated unfunded obligation for
pension trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Foreign exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    776
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    776Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,253
    )BALANCE, AUGUST 2, 2003
    
    
    10,976,081
    
    
    $
    1,097
    
    
    $
    63,682
    
    
    $
    
    
    
    $
    563
    
    
    $
    (36,817
    )
    
    
    643,533
    
    
    $
    (5,546
    )
    
    $
    22,979
 See notes to consolidated financial statements F-7




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)   1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Activities- Del Global Technologies Corp. (Del
Global) together with its subsidiaries (collectively, the Company), is
engaged in two major lines of business: Medical Systems Group and Power
Conversion Group. The Medical Systems Group segment designs, manufactures and
markets imaging and diagnostic systems consisting of stationary and portable
x-ray imaging systems, radiographic/fluoroscopic systems, mammography systems
and dental systems. The Power Conversion Group segment designs, manufactures
and markets proprietary precision power conversion and noise suppression
subsystems and products for medical as well as critical industrial
applications. Principles of Consolidation- The consolidated financial statements are
prepared on the accrual basis of accounting, which conforms to accounting
principles generally accepted in the United States of America, (U.S. GAAP)
and include the accounts of Del Global and its subsidiaries. All material
intercompany accounts and transactions have been eliminated. Use of Estimates- The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated balance
sheets, as well as reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant estimates underlying the accompanying consolidated financial
statements include the allowance for doubtful accounts, allowance for obsolete
and excess inventory, realizability of deferred income tax assets,
recoverability of intangibles and other long-lived assets, and future
obligations associated with the Companys litigation. Accounting Period- The Companys fiscal year-end is based on a 52/53-week
cycle ending on the Saturday nearest to July 31. The process of converting
Italian statutory financial statements to U.S. GAAP added several days to the
normal close cycle for our 80% owned subsidiary Villa Sistemi Medicali S.p.A.
(Villa), and this delay would delay the Companys consolidated reporting.
Therefore the Company determined that starting in fiscal 2001, Villas
reporting would be changed to a 1-month lag versus the Companys 52/53 week
fiscal year. Hence, Villas results are consolidated into Del Globals
consolidated financial statements based on a fiscal year that ends on June 30.
As a result, the financial statements for fiscal 2001 include eleven months of
Villas results, from August 2000 through and including June 2001, and twelve
months in fiscal 2002 and 2003. The difference did not have a material impact
on the consolidated financial statements. Cash and Cash Equivalents- The Company considers highly liquid instruments
readily convertible to known amounts of cash with original maturities of three
months or less (measured from their acquisition date) to be cash equivalents. F-8




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Inventories- Inventories are stated at the lower of cost or market value.
Cost is comprised of direct materials and, where applicable, direct labor costs
and those overheads that have been incurred in transporting the inventories to
their present location and condition. Engineering costs incurred to set up
products to be manufactured for a customer purchase order are capitalized when
the scope of the purchase order indicates that such costs are recoverable.
Such costs are included in work-in-process inventory and amortized on a units
shipped basis over the life of the customer order from the date of first
shipment. Cost is calculated using the FIFO method. Market value represents
the estimated selling price less all estimated costs to completion and costs to
be incurred in marketing, selling and distribution. Fixed Assets, Net- Fixed assets, net are stated at cost less accumulated
depreciation and amortization. Replacements and major improvements are
capitalized; maintenance and repairs are expensed as incurred. Gains or losses
on asset dispositions are included in the determination of net income or loss.
Depreciation is computed utilizing the straight-line method. The cost of
leasehold improvements is amortized over the shorter of the useful life or the
term of the lease. Depreciable lives are generally as follows: Description
    
    Useful LivesBuildings
    
    
    25-33Machinery and equipment
    
    
    5-15Furniture and fixtures
    
    
    5-10Transportation equipment
    
    
    3-4Computer and other equipment
    
    
    3-7
 Recoverability of Long-Lived Assets- The Company evaluates the carrying
amounts of long-lived assets (including intangibles) to determine if events
have occurred which would require modification to the carrying values. In
evaluating carrying values of long-lived assets, the Company reviews certain
indicators of potential impairment, such as undiscounted projected cash flows
and business plans. In accordance with the provisions of SFAS 144, in the
event that impairment has occurred, the fair value of the related asset is
determined and the Company records a charge to operations calculated by
comparing the assets carrying value to the estimated fair value. The Company
estimates fair value based on the best information available making whatever
estimates, judgments and projections are considered necessary. Deferred Financing Costs, Net- Financing costs, including fees, commission and
legal expenses are capitalized and amortized on a straight line basis, which
approximates the interest method, over the term or expected term of the
relevant loan. Amortization of deferred financing costs is included in
interest expense. Goodwill- Goodwill represents the excess of the cost of acquisitions over the
fair value of the identifiable assets acquired and liabilities
assumed. Effective August 4, 2002, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, which establishes
new accounting and reporting requirements for goodwill and other
intangible assets. Under
the provisions of SFAS No 142, the Company ceased all goodwill amortization
effective August 4, 2002. Prior to the beginning of fiscal 2003, the Company
followed the provisions of APB Opinion No 17, which required that goodwill, be
amortized by systematic charges to income over the expected period of benefit.
In accordance with this former standard goodwill was amortized on a straight
line basis over 15 to 25 years. F-9




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The following table shows
the Companys fiscal 2003, 2002 and 2001 results as if
SFAS 142 had been adopted at the beginning of each period
presented:


For fiscal years endedAugust 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Net loss  as reported:
    
    $
    (15,045
    )
    
    $
    (12,012
    )
    
    $
    (8,521
    )Add: goodwill amortization, net
of taxes
    
    
    ( -
    )
    
    
    131
    
    
    
    131Net loss  as adjusted
    
    $
    (15,045
    )
    
    $
    (11,881
    )
    
    $
    (8,390
    )Loss per share  Basic and dilutedAs reported
    
    $
    (1.45
    )
    
    $
    (1.38
    )
    
    $
    (1.09
    )Add goodwill amortization
    
    
    -
    
    
    
    .01
    
    
    
    .02As adjusted
    
    $
    (1.45
    )
    
    $
    (1.37
    )
    
    $
    (1.07
    )
 Other Intangibles, Net- Other intangible assets are the Companys distribution
network and non-compete agreements acquired with the purchase of certain assets
of a subsidiary. Intangibles are being amortized on a straight-line basis over
their estimated useful lives, which range from 5 to 10 years. Accumulated
amortization for other intangibles was $1,222 and $1,078 at August 2, 2003 and
August 3, 2002, respectively. The cost of registering or renewing patents and
trademarks are charged to the operations as incurred. In connection with the
fiscal 2003 adoption of SFAS 142, the Company reviewed the useful life and
classification of these assets and determined that they continue to be
appropriate, and accordingly will continue to be amortized in future periods. 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 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. The Company records
shipping and handling fees billed to customers in accordance with the
provisions of the Emerging Issues Task Force (EITF)
No. 00-10, Accounting for Shipping and Handling Fees and
Costs. The EITF provides that shipping and handling fees billed
to customers be reflected in net sales and requires additional
disclosure if costs incurred for shipping and handling are not
included in costs of sales. The amount of shipping and handling fees
recorded as revenues was $465, $652, and $488 for fiscal years 2003,
2002 and 2001, respectively. Research and Development Costs-Research and development costs are recognized
as an expense in the period in which they are incurred. Income Taxes- Deferred income tax assets and liabilities represents the
effects of the differences between the income tax basis and financial reporting
basis of assets and liabilities at the tax rates expected at the time the
deferred tax liability or asset is expected to be settled or realized.
Management provides valuation allowances against the deferred tax asset for
amounts which are not considered more likely than not to be realized. Net Loss Per Share Net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the year. Options
to purchase common stock have been excluded from the calculation of loss per
share because their inclusion would be anti-dilutive. F-10




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Concentration of Credit Risk- Financial instruments which potentially subject
the Company to concentrations of credit risk are cash equivalents, investments
in marketable securities and trade receivables. With respect to accounts
receivable, the Company limits its credit risk by performing ongoing credit
evaluations and, when deemed necessary, requiring letters of credit, guarantees
or collateral. Management does not believe significant risk exists in
connection with the Companys concentrations of credit at August 2, 2003. Stock-Based Compensation- The Company accounts for stock based employee
compensation arrangements in accordance with Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB 25, compensation expense is based on the difference,
if any, between the fair value of the Companys stock and the exercise price of
the option. Options are generally granted at the fair market value at the date
of grant. The Company accounts for equity instruments issued to non-employees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force (EITF) Issue No. 96-18 Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. The
measurement date of the fair value of the equity instruments issued is the date
on which the counter partys performance is complete. Had compensation cost for the Companys stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the methods recommended by SFAS No. 123, the Companys net loss
and net loss per share for the fiscal years ended August 2, 2003, August 3,
2002, and July 28, 2001 would have been stated at the pro forma amounts
indicated below: For fiscal years endedAugust 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Net loss  as reported:
    
    $
    (15,045
    )
    
    $
    (12,012
    )
    
    $
    (8,521
    )Add: Total stock-based awards
under fair value method
    
    
    (644
    )
    
    
    (538
    )
    
    
    (606
    )Pro forma net loss
    
    $
    (15,689
    )
    
    $
    (12,550
    )
    
    $
    (9,127
    )Loss per share  Basic and dilutedAs reported
    
    $
    (1.45
    )
    
    $
    (1.38
    )
    
    $
    (1.09
    )Pro forma
    
    $
    (1.52
    )
    
    $
    (1.45
    )
    
    $
    (1.16
    )Weighted average number of shares
outstanding
    
    
    10,341,430
    
    
    
    8,680,848
    
    
    
    7,847,515
 The fair value of the options used for the above proforma disclosures were
determined on the date of grant using a Black-Scholes option pricing model.
These options were valued based on the following assumptions: an estimated life
of seven years, volatility ranging from 40% to 90%, risk free interest rate
from 5% to 6.8%, and no dividend yield. F-11




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##### Table of Contents



Recent Accounting Pronouncements-

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections was issued in April 2002.
This pronouncement rescinded SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, SFAS No. 64, Extinguishments of Debt to Satisfy
Sinking-Fund Requirements, and SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers, and changed the accounting treatment for capital lease
modifications by amending SFAS No. 13, Accounting for Leases. This
pronouncement also amends the existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of SFAS No. 145 are
effective for financial statements issued for fiscal years beginning after May
15, 2002. The adoption of this statement did not have a material
effect on
the Companys consolidated financial statements.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in June 2002.SFAS No. 146 revises the accounting and reporting for
costs associated with exit or disposal activities to be recognized when a
liability for such cost is incurred rather than when an entity commits to an
exit plan. SFAS No. 146 is effective for exit or disposal activities initiated
after December 31, 2002. SFAS No. 146 does not impact previously recorded
liabilities and, therefore, the initial adoption of this standard did not have
a material effect on the Companys consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and interpretation of FASB Statements No
5, 57 and 107 and Recession of FASB Interpretation No 34. which, among other
things, requires additional product warranty disclosures.

In January 2003, the FASB
issued FASB Interpretation No. 46 Consolidation of
Variable Interest Entities (VIE), an Interpretation of
ARB No. 51. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 was
effective immediately for new VIEs established or purchased
subsequent to January 31, 2003. For VIEs entered into prior to
February 1, 2003, FIN 46 was originally effective for interim
periods beginning after June 15, 2003. In October 2003, the FASB
deferred this effective date until interim or annual periods ending
after December 15, 2003. Early adoption is permitted. The
adoption of FIN 46 for these VIEs is not expected to have a material
impact on the Companys consolidated financial condition or
results of operations. FIN 46 further requires the disclosure of
certain information related to VIEs in which the Company holds a
significant variable interest. As of August 2, 2003, the Company
did not own any such interests that required disclosure.

SFAS No. 148, Accounting for Stock-based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123, amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS No. 123 to require prominent
disclosure in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company has elected to continue to account for
stock-based awards to employees using the intrinsic value method of accounting
in accordance with Accounting Principles Board Opinion No 25, Accounting for
Stock Issued to Employees. The Companys practice in granting these awards to
employees is to set the exercise price of the stock options equal to the market
price of our underlying stock on the date of grant. Therefore under the
intrinsic value method, no compensation expense is recognized in the Companys
Consolidated Statements of Operations.

In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts,

F-12



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and for hedging activities under SFAS No. 133. SFAS No. 149 is applied
prospectively and is effective for contracts entered into or modified after
June 30, 2003, except for SFAS No. 133 implementation issues that have been
effective for fiscal quarters that began prior to June 15, 2003 and certain
provisions relating to forward purchases and sales on securities that do not
yet exist. The adoption of this statement did not have a material
effect on
the Companys consolidated financial statements. During May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS 150 clarifies the accounting for certain
financial instruments with characteristics of both liabilities and equity and
requires that those instruments be classified as liabilities in statements of
financial position. Previously, many of those financial instruments were
classified as equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003 and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The Company
anticipates that there will be no material
effect on its consolidated
financial statements upon the adoption of SFAS 150. Reclassifications-Certain prior years amounts have been reclassified to
conform to the current year presentation.  2.
    
    INVENTORY Inventory consists of the following:August 2, 2003
    
    
    August 3, 2002Raw materials and purchased parts
    
    $
    15,161
    
    
    $
    15,113Work-in-process
    
    
    3,757
    
    
    
    4,828Finished goods
    
    
    3,377
    
    
    
    4,44522,295
    
    
    
    24,386Less: allowance for obsolete and excess inventory
    
    
    (3,847
    )
    
    
    (3,430
    )Total inventory, net
    
    $
    18,448
    
    
    $
    20,956
 The Company has pledged all of its inventories in the U.S. having a carrying
amount of approximately $11,391 and $14,530 at August 2, 2003 and August 3,
2002, respectively, to secure its credit facility with its lender.  3.
    
    FIXED ASSETS Fixed assets consist of the following: August 2, 2003
    
    
    August 3, 2002Land
    
    $
    694
    
    
    $
    694Buildings
    
    
    5,772
    
    
    
    5,255Machinery and equipment
    
    
    14,413
    
    
    
    13,954Furniture and fixtures
    
    
    1,814
    
    
    
    1,522Leasehold improvements
    
    
    2,353
    
    
    
    1,686Transportation equipment
    
    
    63
    
    
    
    44Computers and other equipment
    
    
    4,075
    
    
    
    3,79829,184
    
    
    
    26,953Less: accumulated depreciation and amortization
    
    
    (19,891
    )
    
    
    (17,801
    )Fixed assets, net
    
    $
    9,293
    
    
    $
    9,152
 F-13




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##### Table of Contents



The Company has pledged all of its fixed assets in the U.S. having a carrying
amount of approximately $4,657 and $5,089 at August 2, 2003 and August 3, 2002,
respectively, to secure its credit facility with its lender. Depreciation expense for fiscal 2003, 2002, and 2001 was $2,467, $2,289, and
$2,392, respectively.  4.
    
    GOODWILL AND OTHER INTANGIBLE ASSETS Effective August 4, 2002, the Company adopted SFAS 142, Goodwill and Other
Intangible Assets, which establishes new accounting and reporting requirements
for goodwill and other intangible assets. Under SFAS 142, all goodwill
amortization ceased effective August 4, 2002. Recorded goodwill was tested for
impairment by comparing the fair value to the carrying value for reporting
units within the Power Conversion Group and for the Medical Systems Group.
Fair value was determined using a discounted cash flow method as well as a
review of valuation parameters for comparable publicly traded companies. This
impairment test is required to be performed at adoption of SFAS 142 and at
least annually thereafter. Based on the initial impairment test and an update
to the discounted cash flow analysis conducted during the fourth quarter of
fiscal 2003, it was determined that none of the goodwill recorded was impaired.
Impairment adjustments recognized after adoption, if any, generally are
required to be recognized as operating expenses. In connection with the
adoption of SFAS 142, the Company reviewed the useful lives and the
classification of identifiable intangible assets and determined that they
continue to be appropriate. These identifiable assets were acquired in
connection with business combinations prior to July 1, 2001. The components of
our amortizable intangible assets are as follows: August 2, 2003
    
    
    August 3, 2002Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationNon-Compete
Agreements
    
    $
    902
    
    
    $
    738
    
    
    $
    902
    
    
    $
    659Distribution Network
    
    
    653
    
    
    
    484
    
    
    
    653
    
    
    
    419Total
    
    $
    1,555
    
    
    $
    1,222
    
    
    $
    1,555
    
    
    $
    1,078
 Amortization expense for intangible assets during fiscal 2003, 2002 and 2001
 was $144, $188, and $168 respectively. Estimated amortization expense for fiscal
2004 and the five succeeding fiscal years is as follows: 2004
    
    $
    1442005
    
    
    1442006
    
    
    452007
    
    
    2008
    
    
    2009
    
    
    
 F-14




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##### Table of Contents



There are no components of intangible assets that have an indefinite life.
There were no changes in goodwill balances during fiscal 2003, and
2002, except for amortization of goodwill in fiscal 2002.  5.
    
    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. During fiscal 2003 the
Company incurred payments of $881 related to warranty claims submitted
during the year and accrued $925 related to product warranties issued during fiscal
2003. The liability related to warranties is included in Accrued
expenses on the accompanying Consolidated Balance Sheets and is $670
and $626 at August 2, 2003 and August 3, 2002, respectively. F-15




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##### Table of Contents





|6. |  | SHORT-TERM CREDIT FACILITIES AND LONG-TERM DEBT
|-- |  | -----------------------------------------------

Short-term credit facilities are summarized as follows:

August 2, 2003
    
    
    August 3, 2002Revolving lines of credit:Domestic
    
    $
    6,246
    
    
    $
    6,943Foreign
    
    
    200
    
    
    
    1,049$
    6,446
    
    
    $
    7,992


The US credit facility is for $10 million, and for a term of 3 years from June
2002. Interest under the US credit facility is based on the prime rate, or at
the Companys option, at a rate tied to LIBOR. Borrowing availability under
the US facility is formula based, and dependent on the collateral value of the
Companys eligible domestic accounts receivable and inventory. The interest
rate on prime based revolving line of credit borrowings is at prime plus 0.75%,
which was 4.75% at August 2, 2003 and 5.5% at August 3, 2002. The credit
facility is subject to commitment fees of 3/8% on the daily-unused portion of
the facility, payable monthly. Management believes that its debt obligations
are stated at fair value, because the interest rates on its credit lines are
indexed with either the Prime Rate or LIBOR.

The Company granted a security interest to the lender on its US credit facility
in substantially all of its accounts receivable, inventory, fixed assets, and
intellectual property in the US. The Company incurred $338 in legal and other
fees associated with obtaining this new credit facility. These costs were
recorded as deferred charges, and because the Company anticipates that it will
replace this credit facility prior to maturity, these costs are being amortized
over a two year period.

Under the terms of the US credit facility, the Company is required to comply
with various operational and financial covenants, as defined, including (i)
minimum earnings levels as defined, (ii) fixed charge coverage ratio, (iii)
debt to earnings ratio and (iv) minimum tangible net worth. In addition, the
facility places limitations on the Companys ability to make capital
expenditures and to pay dividends.

In the first quarter of fiscal 2003, the Company obtained a waiver of
non-compliance with the adjusted earnings, adjusted US earnings, senior debt
ratio and fixed charge coverage ratio financial covenants contained in the US
credit facility. In December 2002, the Company signed a Second Amendment with
the lender, which includes revisions of those covenants previously breached.

As of August 2, 2003, the Company was not in compliance with the tangible net
worth financial covenant, as amended, in its U.S. credit facility. In October
of 2003, the Company obtained a waiver of non-compliance of this covenant, and
signed a Third Amendment with Transamerica, which includes revisions of the
tangible net worth covenant, and revisions to the adjusted earnings and
adjusted U.S. earnings covenants for the future.

F-16



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##### Table of Contents



In addition to the domestic credit facilities discussed above, the Company has
certain short-term credit facilities at its Villa subsidiary, with interest
rates ranging from 5.5% to 13.8%. The total amount outstanding on the Villa
short-term credit facilities at August 2, 2003 and August 3, 2002 was $200 and
$1,049 respectively. Long-Term Debt- Long-term debt was comprised of the following: August 2, 2003
    
    
    August 3, 2002
    
    
    Interest RateItalian subsidiarys total long-term debt:Capital lease obligation
    
    $
    3,072
    
    
    $
    2,736
    
    
    
    2.4%Medium-term credit facilities with
commercial institutions
    
    
    1,188
    
    
    
    1,273
    
    
    Euribor + 1.0%Italian Government long-term loans
    
    
    1,707
    
    
    
    1,659
    
    
    
    3.4%5,967
    
    
    
    5,668U.S. subsidiary long-term debt
    
    
    
    
    
    
    2385,967
    
    
    
    5,906Less: current portion
    
    
    (655
    )
    
    
    (792
    )Long-term debt
    
    $
    5,312
    
    
    $
    5,114
 The variable interest rate at August 2, 2003 and August 3, 2002 on the
medium-term credit facility, based on the formula Euribor + 1%, was 3.7% and
4.4%, respectively. The principal of the medium-term credit facility is payable on a semi-annual
basis and interest payments are due on a quarterly basis. Payments are due
from September 2002 until March 2007. Payments relating to the two Italian
Government long-term loans are due annually from February 2003 until February
2010, and from September 2003 until September 2010, respectively. Subordinated Note- In connection with the settlement reached on January 29,
2002 with the plaintiffs in the class action litigation, the Company recorded
the present value at 12% of a $2,000 subordinated note that was issued in April
2002 and matures in March 2007. The subordinated note does not pay interest
currently, but accrues interest at 6% per annum, and was recorded at issuance
at a discounted present value of $1,519. The balance at August 2, 2003 was $
1,788. The Company is obligated to make principal payments under its long-term debt,
subordinated note (Debt) and capital lease as follows: CapitalFiscal Year Ending
    
    Debt
    
    
    Lease
    
    
    Total2004
    
    $
    508
    
    
    $
    3502005
    
    
    515
    
    
    
    3502005
    
    
    522
    
    
    
    3812007
    
    
    2,318
    
    
    
    4732008
    
    
    241
    
    
    
    4732009 and beyond
    
    
    579
    
    
    
    1,301Purchase option
    
    
    
    
    
    
    891Total payments
    
    
    4,683
    
    
    
    4,219Less: amount representing interest
    
    
    
    
    
    
    (1,147
    )Total
    
    $
    4,683
    
    
    $
    3,072
    
    
    $
    7,755
 F-17




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##### Table of Contents



7.
    
    EMPLOYEE BENEFITS The Company has a Profit Sharing Plan that provides for contributions as
determined by the Board of Directors. The contributions can be paid to the
Plan in cash or common stock of the Company. No contributions were authorized
for fiscal year ended 2003, 2002 or 2001. The Profit Sharing Plan also incorporates a 401(k) Retirement Plan that is
available to substantially all employees, allowing them to defer a portion of
their salary. Effective February 2003, the Company started matching employee
contributions at a 50% rate up to a maximum of 2% of annual salary, and
recorded a related expense of $126 for fiscal 2003. The Company also has a defined benefit Plan, which was frozen effective
February 1, 1986. As of August 2, 2003, the Company has a minimum liability
and corresponding debit in other comprehensive income to account for the
unfunded status of its defined benefit plan, in accordance with SFAS No. 87.
In accordance with SFAS No. 88, at the time of final settlement of the pension
plan, the Company will recognize an expense to the statement of operations for
the amount of such debit to other comprehensive income, adjusted for the
difference between the cost to settle the pension obligations and the amount of
the recorded net liability. The Company plans to settle this plan by the end
of calendar year 2004, at which point it expects to recognize a related charge
of approximately $500. At time of settlement, the Company estimates the
required cash disbursement to close out the trust and transfer assets to the
participants will be approximately $200. In addition the
Companys Villa subsidiary, located in Italy, provides for
employee termination indemnities. Villa has established a reserve,
representing the liability for indemnities payable upon termination
of employment, accrued in accordance with labor laws and labor agreements in force.
This liability is subject to annual revaluation using the
officially-established indices. The liability for these indemnities
is carried in Other long-term liabilities on the accompanying
Consolidated Balance Sheets and was $2,207 and $1,820 at
August 2, 2003 and August 3, 2002, respectively. Provisions
for employee termination indemnities were
$364,
$256 and
$204 for Fiscal years 2003, 2002 and
2001, respectively.  8.
    
    SEGMENT REPORTING The Company has three reportable segments; the Medical Systems Group, the Power
Conversion Group and Other. The segment Other includes unallocated corporate
costs and litigation settlement costs. For each fiscal year presented herein,
corporate costs (which include certain shared services) were allocated to
domestic subsidiaries on the basis of a percentage of each units annual sales.
Corporate costs were allocated at a fixed dollar amount to the international
subsidiary based upon an intercompany management services agreement. The
percentages and the dollar amounts used to allocate actual corporate costs are
based on managements estimate of the benefits received by each operating
segment from corporate activities and shared services. Operating segments are defined as components of an enterprise, about which
separate financial information is available which is evaluated regularly by the
chief decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Companys chief operating decision
making group is comprised of the Chief Executive Officer and the senior
executives of the Companys operating segments. The Company evaluates its
operating segments based on operating income or loss. The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. On November 1, 2002, the Company changed its presentation of the segments from
two to three and according to the provisions of SFAS No. 131, it has restated
the corresponding information for earlier periods, as presented below. F-18




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##### Table of Contents



Selected financial data of these segments are as follows: Medical
    
    
    PowerFiscal Year Ended
    
    Systems
    
    
    ConversionAugust 2, 2003
    
    Group
    
    
    Group
    
    
    Other
    
    
    TotalNet sales to external customers
    
    $
    56,100
    
    
    $
    42,519
    
    
    $
    
    
    
    $
    98,619Cost of sales
    
    
    43,929
    
    
    
    33,567
    
    
    
    
    
    
    
    77,496Gross margin
    
    
    12,171
    
    
    
    8,952
    
    
    
    
    
    
    
    21,123Selling, general and administrative
    
    
    9,609
    
    
    
    7,829
    
    
    
    4,495
    
    
    
    21,933Research and development
    
    
    1,583
    
    
    
    635
    
    
    
    
    
    
    
    2,218Litigation settlement costs
    
    
    
    
    
    
    2,347
    
    
    
    (221
    )
    
    
    2,126Facilities reorganization costs
    
    
    
    
    
    
    660
    
    
    
    128
    
    
    
    788Total operating expenses
    
    
    11,192
    
    
    
    11,471
    
    
    
    4,402
    
    
    
    27,065Operating income (loss)
    
    $
    979
    
    
    $
    (2,519
    )
    
    $
    (4,402
    )
    
    
    (5,942
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,388
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    633Loss before
income taxes and
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,697
    )Depreciation
    
    $
    897
    
    
    $
    1,570
    
    
    $
    
    
    
    $
    2,467Amortization
    
    
    65
    
    
    
    79
    
    
    
    
    
    
    
    144Segment assets
    
    
    31,440
    
    
    
    20,259
    
    
    
    8,793
    
    
    
    60,492Expenditures for segment assets
    
    
    740
    
    
    
    1,231
    
    
    
    
    
    
    
    1,971
 Inter-segment sales were $785 for fiscal year ended August 2, 2003.
Approximately $21,209 of Medical Systems Group assets are located in Italy. Medical
    
    
    PowerFiscal Year Ended
    
    Systems
    
    
    ConversionAugust 3, 2002
    
    Group
    
    
    Group
    
    
    Other
    
    
    TotalNet sales to external customers
    
    $
    55,014
    
    
    $
    43,770
    
    
    $
    
    
    
    $
    98,784Cost of sales
    
    
    42,707
    
    
    
    36,941
    
    
    
    
    
    
    
    79,648Gross margin
    
    
    12,307
    
    
    
    6,829
    
    
    
    
    
    
    
    19,136Selling, general and administrative
    
    
    8,305
    
    
    
    8,555
    
    
    
    4,394
    
    
    
    21,254Research and development
    
    
    1,407
    
    
    
    1,512
    
    
    
    
    
    
    
    2,919Litigation settlement costs
    
    
    
    
    
    
    50
    
    
    
    7,663
    
    
    
    7,713Facilities reorganization costs
    
    
    
    
    
    
    1,292
    
    
    
    
    
    
    
    1,292Total operating expenses
    
    
    9,712
    
    
    
    11,409
    
    
    
    12,057
    
    
    
    33,178Operating income (loss)
    
    $
    2,595
    
    
    $
    (4,580
    )
    
    $
    (12,057
    )
    
    
    (14,042
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,198
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183Loss before income tax benefit
and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (15,057
    )Depreciation
    
    $
    657
    
    
    $
    1,632
    
    
    $
    
    
    
    $
    2,289Amortization
    
    
    276
    
    
    
    152
    
    
    
    
    
    
    
    428Segment assets
    
    
    32,038
    
    
    
    24,946
    
    
    
    20,713
    
    
    
    77,697Expenditures for segment assets
    
    
    574
    
    
    
    576
    
    
    
    
    
    
    
    1,150
 Inter-segment sales were $359 for fiscal year ended August 3, 2002.
Approximately $21,565 of Medical Systems Group assets are located in Italy. F-19




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##### Table of Contents



Medical
    
    
    PowerFiscal Year Ended
    
    Systems
    
    
    ConversionJuly 28, 2001
    
    Group
    
    
    Group
    
    
    Other
    
    
    TotalNet sales to external customers
    
    $
    46,825
    
    
    $
    46,618
    
    
    $
    
    
    
    $
    93,443Cost of sales
    
    
    37,764
    
    
    
    37,230
    
    
    
    
    
    
    
    74,994Gross margin
    
    
    9,061
    
    
    
    9,388
    
    
    
    
    
    
    
    18,449Selling, general and administrative
    
    
    7,101
    
    
    
    8,915
    
    
    
    822
    
    
    
    16,838Research and development
    
    
    1,552
    
    
    
    1,324
    
    
    
    
    
    
    
    2,876Litigation settlement costs
    
    
    
    
    
    
    
    
    
    
    9,759
    
    
    
    9,759Facilities reorganization costs
    
    
    52
    
    
    
    770
    
    
    
    
    
    
    
    822Total operating expenses
    
    
    8,705
    
    
    
    11,009
    
    
    
    10,581
    
    
    
    30,295Operating income (loss)
    
    $
    356
    
    
    $
    (1,621
    )
    
    $
    (10,581
    )
    
    
    (11,846
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,308
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )Loss before income tax benefit and
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,080
    )Depreciation
    
    $
    568
    
    
    $
    1,824
    
    
    $
    
    
    
    $
    2,392Amortization
    
    
    256
    
    
    
    307
    
    
    
    
    
    
    
    563Segment assets
    
    
    30,603
    
    
    
    32,786
    
    
    
    18,269
    
    
    
    81,658Expenditures for segment assets
    
    
    485
    
    
    
    192
    
    
    
    
    
    
    
    677
 Inter-segment sales were $33 for fiscal year ended July 28, 2001.
Approximately $19,502 of Medical Systems Group assets are located in Italy. Major Customers and Export Sales- During fiscal years ended 2003, 2002 and
2001, no one customer accounted for more than 10% of the Companys consolidated
net sales. Export sales were 30%, 34% and 26% of the Companys consolidated net sales in
fiscal years ended August 2, 2003, August 3, 2002 and July 28, 2001,
respectively. Net sales by geographic areas were: August 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001United States / Canada
    
    $
    69,221
    
    
    
    70
    %
    
    $
    64,846
    
    
    
    66
    %
    
    $
    69,516
    
    
    
    74
    %Europe
    
    
    21,532
    
    
    
    22
    %
    
    
    20,723
    
    
    
    21
    %
    
    
    17,900
    
    
    
    19
    %Far East
    
    
    4,727
    
    
    
    5
    %
    
    
    5,747
    
    
    
    6
    %
    
    
    2,765
    
    
    
    3
    %Mexico, Central and South America
    
    
    1,389
    
    
    
    1
    %
    
    
    3,392
    
    
    
    3
    %
    
    
    1,444
    
    
    
    2
    %Africa, Middle East and Australia
    
    
    1,750
    
    
    
    2
    %
    
    
    4,076
    
    
    
    4
    %
    
    
    1,818
    
    
    
    2
    %$
    98,619
    
    
    
    100
    %
    
    $
    98,784
    
    
    
    100
    %
    
    $
    93,443
    
    
    
    100
    %
 Revenues are attributable to geographic areas based on the location of the
customers. F-20




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##### Table of Contents



9.
    
    SHAREHOLDERS EQUITY Comprehensive Income (Loss)The components of comprehensive income (loss) are
as follows: AccumulatedForeign currency
    
    
    unfundedtranslation
    
    
    obligation forgains/(losses)
    
    
    pension trust
    
    
    TotalBalance as of July 30, 2000
    
    $
    (167
    )
    
    $
    (22
    )
    
    $
    (189
    )Net change
    
    
    (202
    )
    
    
    
    
    
    
    (202
    )Balance as of July 28, 2001
    
    
    (369
    )
    
    
    (22
    )
    
    
    (391
    )Net change
    
    
    585
    
    
    
    (423
    )
    
    
    162Balance as of August 3, 2002
    
    
    216
    
    
    
    (445
    )
    
    
    (229
    )Net change
    
    
    776
    
    
    
    16
    
    
    
    792Balance as of August 2, 2003
    
    $
    992
    
    
    $
    (429
    )
    
    $
    563
 Stock Buy-Back Program- In September 2000, the Board of Directors approved an
additional repurchase of $3,000 of the Companys common stock bringing the
total authorized to $7,500. The Company has not purchased any shares under
this program since fiscal 2001, when 11,500 shares were purchased for $108. As
of August 2, 2003, 489,806 shares had been purchased by the Company for $4,502
under this Stock Buy-Back Program. Stock Option Plan and Warrants- The Company has a stock option plan under
which a total of 3,874,293 options to purchase common stock may be granted.
Substantially all of the options granted under this Plan provide for graded
vesting and vest generally at a rate of 25% per year beginning one year from
the date of grant, expiring ten to fifteen years from the date they are
granted. The option price per share is determined by the Board of Directors,
but cannot be less than 85 percent of fair market value of a share at the date
of grant. All options to date have been granted at the fair market value of
the Companys stock at the date of grant. No options can be granted under this
plan subsequent to December 31, 2009. In December 2000, the Companys Board of Directors approved the rescission of
81,870 shares previously exercised by one of its members. The transaction has
been reflected in the consolidated statements of shareholders equity. Shares
originally used to exercise the option recorded as treasury have also been
adjusted and reflected in the consolidated statements of shareholders equity.
The Company recorded an expense in connection with the rescission, and deferred
tax assets were adjusted accordingly for the previous tax benefit recognized. In December 2000, the Board of Directors approved an extension of time to
exercise for all stock option holders. The extension covers all options which
would have expired during the period from the stock de-listing date up to the
date that the shares finally become re-listed. This extension will allow stock
option holders a period of six months from the date of re-listing to exercise
vested options which may have expired without the extension. F-21




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##### Table of Contents



Option Activity The following stock option information is as of: August 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Exercise
    
    
    Shares
    
    
    Exercise
    
    
    Shares
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceGranted and outstanding,
beginning of year
    
    
    1,990,055
    
    
    $
    3.45
    
    
    
    1,825,055
    
    
    $
    3.62
    
    
    
    1,503,683
    
    
    $
    5.88Granted
    
    
    275,000
    
    
    
    2.81
    
    
    
    165,000
    
    
    
    1.65
    
    
    
    936,870
    
    
    
    1.46Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled and forfeited
    
    
    (148,240
    )
    
    
    5.86
    
    
    
    
    
    
    
    
    
    
    
    (615,498
    )
    
    
    6.13Outstanding at end of year
    
    
    2,116,815
    
    
    
    3.12
    
    
    
    1,990,055
    
    
    
    3.45
    
    
    
    1,825,055
    
    
    
    3.62Exercisable at end of year
    
    
    1,661,289
    
    
    
    3.43
    
    
    
    1,471,779
    
    
    
    3.81
    
    
    
    1,064,935
    
    
    
    4.21
 Pct of
    
    
    
    
    
    
    Pct of
    
    
    
    
    
    
    Pct ofShares
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    SharesShares
    
    
    Granted
    
    
    Shares
    
    
    Granted
    
    
    Shares
    
    
    GrantedGranted to officers
    
    
    125,000
    
    
    
    45
    %
    
    
    155,000
    
    
    
    94
    %
    
    
    310,000
    
    
    
    33
    %
 As of August 2, 2003 the distribution of stock option exercise prices is as
follows: Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageExercise
    
    
    Number of
    
    
    Exercise
    
    
    Contractual
    
    
    Shares
    
    
    ExercisePrice Range
    
    
    Option Shares
    
    
    Price
    
    
    Life (Years)
    
    
    Exercisable
    
    
    Price$1.00$3.34
    
    
    
    1,398,958
    
    
    $1.30
    
    
    
    8.2
    
    
    
    1,023,955
    
    
    $1.35$4.00$6.60
    
    
    
    313,255
    
    
    
    4.85
    
    
    
    4.8
    
    
    
    272,007
    
    
    
    4.98$7.00$7.94
    
    
    
    240,175
    
    
    
    7.51
    
    
    
    11.1
    
    
    
    212,025
    
    
    
    7.46$8.00$10.00
    
    
    
    164,427
    
    
    
    8.93
    
    
    
    9.8
    
    
    
    153,302
    
    
    
    8.952,116,815
    
    
    $
    3.12
    
    
    
    
    
    
    
    1,661,289
    
    
    $
    3.43
 At August 2, 2003 and August 3, 2002 there were outstanding warrants of
1,065,000. Of these warrants, 1,000,000 were granted to the Companys
shareholders as part of litigation settlement in fiscal 2002, 50,000 were
granted to the former majority shareholder of Villa in connection with the
acquisition of Villa, and 15,000 were granted to consultants for services
rendered. As of August 2, 2003 the distribution of warrants is as follows: Exercise
    
    
    Number of
    
    
    ExpirationPrice
    
    
    Warrants
    
    
    Date$
    7.94
    
    
    
    50,000
    
    
    December 2005$
    7.69
    
    
    
    15,000
    
    
    October 2004$
    2.00
    
    
    
    1,000,000
    
    
    March 20081,065,000
 F-22




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##### Table of Contents



An expense has been recognized for the fair value of options and warrants
granted to such non-employees in the amounts of $135, $150 and $150 for fiscal
years ended 2003, 2002, and 2001, respectively. An expense of $1,050 and $660
has been recognized during the fiscal years ended 2002 and 2001,
respectively, as
litigation settlement cost for the fair value of warrants granted to the
Companys shareholders as part of the litigation settlement.  10.
    
    LOSS PER SHARE For fiscal years endedAugust 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Numerator:Net loss
    
    $
    (15,045
    )
    
    $
    (12,012
    )
    
    $
    (8,521
    )Denominator:Denominator for basic loss per share:Weighted average shares
outstanding
    
    
    10,341,430
    
    
    
    8,680,848
    
    
    
    7,847,515Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted loss per share
    
    
    10,341,430
    
    
    
    8,680,848
    
    
    
    7,847,515Loss per basic and diluted common share
    
    $
    (1.45
    )
    
    $
    (1.38
    )
    
    $
    (1.09
    )
 Common shares outstanding for the years ended August 2, 2003, August 3, 2002,
and July 28, 2001 were reduced by 643,533, 628,566 and 628,566 shares of
treasury stock, respectively. The computation of diluted shares outstanding does not include
the effect of the assumed conversion of 2,116,815, 1,990,055, and
1,825,055 employee stock options and 1,065,000, 1,065,000 and 65,000
warrants to purchase company common stock, outstanding as of
August 2, 2003, August 3, 2002 and July 28, 2001, respectively, because the effect of their assumed conversion would be
anti-dilutive.  11.
    
    INCOME TAXES The Companys consolidated loss before income tax benefit and minority interest
for fiscal years 2003, 2002 and 2001 of $6,697, $15,057, and $13,080,
respectively, reflects a U.S. pre-tax loss of $7,498, $17,645, and $14,565,
respectively, offset by foreign pre-tax net income of $801, $2,588, and $1,485
for fiscal years 2003, 2002, and 2001, respectively. Provision (Benefit) for income taxes consists of the following: For fiscal years endedAugust 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Current Tax Expense:Foreign
    
    $
    304
    
    
    $
    550
    
    
    $
    269Deferred (Benefit):Federal
    
    
    6,938
    
    
    
    (4,303
    )
    
    
    (4,325
    )State and local
    
    
    1,045
    
    
    
    (259
    )
    
    
    (798
    )Foreign
    
    
    (54
    )
    
    
    770
    
    
    
    (84
    )Net Provision (Benefit)
    
    $
    8,233
    
    
    $
    (3,242
    )
    
    $
    (4,938
    )
 F-23




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##### Table of Contents



The following is a reconciliation of the statutory Federal and effective income
tax rates: For fiscal years endedAugust 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Statutory Federal Income Tax Rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%State Tax (Benefit), less Federal tax effect
    
    
    10.3
    %
    
    
    (4.7
    )%
    
    
    (4.0
    )%Foreign
    
    
    .3
    %
    
    
    2.9
    %
    
    
    1.4
    %Valuation Allowance
    
    
    135.5
    %
    
    
    
    
    
    
    IRS Audit Adjustments
    
    
    
    
    
    
    12.7
    %
    
    
    Fines & Penalties
    
    
    9.1
    %
    
    
    
    
    
    
    Other
    
    
    1.7
    %
    
    
    1.6
    %
    
    
    (1.5
    )%Effective tax rate
    
    
    122.9
    %
    
    
    (21.5
    )%
    
    
    (38.1
    )%
 Deferred income tax assets (liabilities) are comprised of the following: August 2, 2003
    
    
    August 3, 2002Deferred income tax assets:Federal net operating loss carryforward
    
    $
    13,163
    
    
    $
    10,679Foreign deferred tax assets
    
    
    836
    
    
    
    702State tax credits and operating loss carryforward
    
    
    2,216
    
    
    
    2,317Reserve for inventory obsolescence
    
    
    1,164
    
    
    
    900Allowances and reserves not currently deductible
    
    
    1,381
    
    
    
    1,475Amortization
    
    
    153
    
    
    
    445Defined benefit pension
    
    
    60
    
    
    
    71Gross deferred income tax assets
    
    
    18,973
    
    
    
    16,589Deferred income tax liabilities:Other
    
    
    (168
    )
    
    
    (17
    )Gross deferred income tax liabilities
    
    
    (168
    )
    
    
    (17
    )Less: valuation allowance
    
    
    (10,066
    )
    
    
    Net deferred income tax assets
    
    $
    8,739
    
    
    $
    16,572
 Deferred income tax assets are recorded in the consolidated balance sheets as
follows: August 2, 2003
    
    
    August 3, 2002Deferred tax assets  current
    
    $
    2,591
    
    
    $
    2,590Deferred tax assets  non-current
    
    
    6,148
    
    
    
    13,982$
    8,739
    
    
    $
    16,572
 Deferred Income Tax Asset Deferred income tax assets and liabilities represent the effects of the
differences between the income tax basis and financial reporting basis of the
assets and liabilities at the tax rates expected at the time the deferred tax
liability or asset is expected to be settled or realized. The Company reevaluated its deferred tax assets in March and again in October
2003. Due to current results being lower than originally anticipated, and
uncertainty about near term economic conditions, management concluded it was
not prudent to place reliability on the F-24




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##### Table of Contents



forecast component of the analyses as it had in the past. Based on these
analyses, management concluded it was prudent to establish a valuation
allowance of $7,967 against long-term deferred tax assets created prior to
fiscal 2003. This valuation allowance was computed by considering the amount of future U.S.
taxable income expected over the net operating loss carry forward period,
considering recent performance and other specific actions the Company has taken
to improve profitability. The valuation allowance recorded is the estimate of
the amount of deferred tax assets that more likely than not will not be
realized. Likewise, a valuation allowance of $2,099 was also established offsetting the
current year tax benefits that arose from the current years operating losses.
As result of these allowances recorded during fiscal 2003, the net deferred
income tax asset was reduced from $16,572 at August 3, 2002 to $8,739 at August
2, 2003, with $2,591 classified as a current asset, and the balance of $6,148
as a long-term asset. No assurances can be given that the Companys results of
operations will generate profits in the future. At August 2, 2003, for income tax purposes, the Company had Federal net
operating loss carryforwards of approximately $38,714,state net operating loss
carryforwards of $31,206 which will expire in 2020 through 2023. For foreign tax purposes, the Companys Italian subsidiary has net operating
loss carryforwards of approximately $267,which will expire in 2004. Refundable income taxes were $3,992 at August 3, 2002, representing refunds
expected from federal and state government agencies upon filing the applicable
amended tax returns for the fiscal years 1997, 1998, 1999 and 2000, as well as
tax returns for fiscal 2001. Said refunds were collected during the first
quarter of fiscal 2003.  12.
    
    COMMITMENTS AND CONTINGENCIES  a.
    
    Securities and Exchange Commission (SEC) Investigation- On
December 11, 2000, the Division of Enforcement of the SEC issued the
SEC Order, designating SEC officers to take testimony and requiring the
production of certain documents, in connection with matters giving rise
to the need to restate the Companys previously issued financial
statements. The Company has provided numerous documents to and
continues to cooperate fully with the SEC staff.  The Company has reached an agreement in principle with the Staff of the
SEC for a settlement of the SECs claims against the Company that will
include a penalty of up to $400 and an injunction against future
violations of the antifraud, periodic reporting, books and records and
internal accounting control provisions of the federal securities law.
The proposed settlement may be subject to, among other things, any
necessary future restatement of historical financial statements for the
Company, or other material adjustments. Management is not aware of any
restatements or adjustments required with respect to financial
statements filed with the SEC since April 2002. In addition, the
proposed settlement will require approval by the SEC and by the
appropriate US District Court. The Company can give no assurance that
this proposed settlement will be approved by either the SEC or the
appropriate US District Court, or that the terms will not be changed.  Although the Company has not reached a binding agreement with the SEC on
this settlement proposal, management believes that this agreement in
principle is a F-25




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##### Table of Contents



reasonable basis on which it can now estimate the financial impact of
this SEC investigation. As a result, the Company recorded a charge of
$685 in the fourth quarter of fiscal 2002 related to the agreement in
principle with the SEC staff, which includes associated legal costs. If
the Company is not able to reach an acceptable settlement with the SEC,
the Company may incur substantial additional penalties and fines.  b.
    
    Department of Defense
(DOD) Investigation- On March 8, 2002,
RFI, a subsidiary of the Company and part of the Power Conversion Group
segment, was served with a subpoena by the US Attorney Eastern
District of New York in connection with an investigation by the DOD.
RFI supplies noise suppression filters for communications and defense
applications. Since March 2002, the DOD has been investigating certain
past practices at RFI which date back more than six years and pertain
to RFIs Military Specification testing, record keeping and general
operating procedures. Management retained special counsel to represent
the Company on this matter. The Company has cooperated fully with this
investigation, including voluntarily providing employees to be
interviewed by the Defense Criminal Investigative Services division of
the DOD.  In June 2003, the Company was advised that the US Government is willing
to enter into negotiations regarding a comprehensive settlement of this
investigation. Management believes that a potential comprehensive
settlement will include the Companys pleading guilty to certain
criminal charges, and agreeing to pay certain fines and restitution to
the Government in an amount which could be material to the Company. Prior to the preliminary discussions with the US Government in June
2003, the Company had no basis to estimate the financial impact of this
investigation. Based on preliminary settlement discussions with the US
Government, discussions with the Companys legal advisors, consideration
of settlements reached by other parties in investigations of this
nature, and consideration of the Companys capital resources, management
then developed an estimate of the low end of the potential range of the
financial impact. Accordingly, during the third quarter of fiscal 2003,
the Company recorded a charge of $2,347 which represents its estimate of
the low end of a range of potential fines and legal and professional
fees. The liability associated with this charge is included in
Litigation settlement reserves on the accompanying consolidated balance sheet as of
August 2, 2003. In October 2003, based on discussions with the U. S. Government, the
Company was advised that the U.S. Government is currently seeking up to
approximately $5 million in the fines and restitution portion of any
comprehensive settlement. The Company is continuing to negotiate with
the U.S. Government regarding a comprehensive settlement, including the
amount of such fines.  The Company believes that any settlement could cause the DOD to seek to
limit the ability of the Company to do business with US Government
entities. Such limitations could include seeking a debarment or
exclusion from doing business with US Government entities for a period
of time. Because management believes that it has been responsive in
addressing the problems that affected RFI in the past, and RFI is the
sole source provider of certain products, the Company is hopeful that as
a result of the potential settlement, its ability to service the
governmental and defense sectors of its business will not be
interrupted. F-26




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##### Table of Contents



There can be no assurance that such a settlement will be reached and,
even if reached, that the ultimate fines and outcome of any settlement
will not vary significantly from the fines and restitution included in
the $2,347 charge recognized in the third quarter of fiscal 2003. This
charge recorded in the third quarter represented the Companys original
estimate of its minimum liability. The Company has not recorded an
additional charge as a result of the $5,000 requested by the US
Government. In addition, such a settlement, even on the most favorable
terms, may have a material adverse impact on the Companys financial
condition, liquidity and operations.  c.
    
    ERISA Matters- During the year ended July 28, 2001, management of
the Company concluded that violations of the Employee Retirement Income
Security Act, (ERISA) existed relating to a defined benefit Plan for
which accrual of benefits had been frozen as of February 1, 1986. The
violations related to excess concentrations of the Common Stock of the
Company in the Plan assets. In July 2001, management of the Company
decided to terminate this Plan, subject to having available funds to
finance the plan in accordance with rules and regulations relating to
terminating pension plans. This plan has not been terminated yet, but
the Company plans to start the process of terminating this plan in
fiscal 2004.  d.
    
    Employment Matters- The Company had an employment agreement with a
former Chief Executive Officer (CEO) through July 2005. The
agreement provided a minimum base salary, deferred compensation and
bonuses, as defined. The Company accrued deferred compensation at a
rate of 5% of pretax income with a minimum of $100 and a maximum of
$125. In the third quarter of fiscal 2001, the employment of this
former CEO was terminated. In February 2002, the Company filed a
lawsuit against this former CEO alleging fraudulent and other wrongful
acts, including securities law violations, fraudulent accounting
practices, breaches of fiduciary duties, insider trading violations and
corporate mismanagement. The complaint sought damages in excess of $15
million.  This former CEO answered the Companys complaint, and
counterclaimed for damages based on the termination of his
employment by the Company.  In March of 2003, the Company and this former CEO reached a
settlement of these lawsuits. Under the terms of the settlement
and mutual release, this former CEO paid the Company $400 in cash
and transferred to the Company 14,967 shares of Company common
stock, valued at approximately $44 as of March 7, 2003. The
Company recognized the effect of this settlement in the third
quarter of Fiscal 2003, offset by associated legal cost incurred
during that quarter.  The Company had an employment agreement with Mr. Samuel Park,
the previous CEO, for the period May 1, 2001 to April 30, 2004.
The terms of this agreement provided a base salary, bonuses and
deferred compensation. The bonus provided by this agreement was
based on a percentage of the base salary, if certain performance
goals established by the board were achieved. In addition, the
employment agreement provided for certain payments in the event of
death, disability or 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 expects to record a charge of
approximately $200 during the first quarter of fiscal 2004 to accrue the
balance remaining under Mr. Parks employment agreement. F-27




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##### Table of Contents



In addition, the Companys newly elected Board of Directors had
previously 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 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 believes 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. If paid in a lump sum, these payments may have a
material adverse effect on the Company's liquidity. In the event Mr.
Park seeks to assert a claim for these payments, it is not possible
to predict the outcome of any such claim.  e.
    
    Indemnification Legal ExpensesPursuant to indemnification and
undertaking agreements with certain former officers, directors and
employees, the Company has advanced legal expenses in connection with
the Companys previously reported accounting irregularities shareholder
litigation and governmental enforcement actions. During fiscal 2003,
the Company spent approximately $310 in the advancement of legal
expenses pursuant to these agreements. Management is unable to
estimate at this time the amount of legal fees that the Company may
have to pay in the future related to these matters. Further, there can
be no assurance that those to whom we have been advancing expenses will
have the financial means to repay the Company pursuant to undertaking
agreements that they executed, if it is later determined that such
individuals were not entitled to be indemnified.  f.
    
    Lease Commitments- The Company leases facilities for its corporate
offices and manufacturing operations with expiration dates ranging from
2004 through 2008. In addition, the Company has various office
equipment and auto leases accounted for as operating leases. The
future minimum annual lease commitments as of August 2, 2003 are as
follows: Fiscal Years
    
    Amount2004
    
    $
    9592005
    
    
    5882006
    
    
    3092007
    
    
    142008
    
    
    3Total
    
    $
    1,873
  Rent expense for fiscal 2003, 2002, and 2001 was $1,229, $1,412, and
$1,241, respectively.  g.
    
    Other Legal Matters- On October 6, 2003, Carmelo Giuseppe
Ammendola, a minority shareholder of Villa, served a summons on Villa
in the Civil Court of Milan, Italy, challenging the terms of certain
related party transactions between Villa and the Company relating to
intercompany pricing and a management fee. Villa is vigorously
defending against this claim, believes that there is no merit to the
case, and that Villa has meritorious defenses. Although there can be
no assurances, management believes that the impact of this action will
not have a material adverse effect on the financial position or results
of operations of either Villa or the Company. F-28




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##### Table of Contents



In addition, the Company is a defendant in several other legal actions
arising from normal course of business in various US and foreign
jurisdictions. Management believes the Company has meritorious defenses
to such actions and that the outcomes will not be material to the
Companys consolidated financial statements  h.
    
    Class Action Litigation
Settlement- A consolidated class action
complaint against the Company, certain of its former officers and
certain of its former directors and its auditors was filed on February
16, 2001 in the U.S. District Court for the Southern District of New
York. The complaint alleged violations of the federal securities laws
and sought to recover damages on behalf of all purchasers of the
Companys common stock during the class period November 6, 1997 to
November 6, 2000.  On July 26, 2001, the Company and certain other defendants reached an
agreement in principle to settle the consolidated class action
complaint. Under the terms of the settlement, the Company provided the
plaintiffs: (i) a $2,000 subordinated note due five years from the date
of issuance with interest in arrears accrued at 6% per annum; (ii) 2.5
million shares of the Companys Common Stock; and, (iii) 1 million
warrants to purchase the Companys Common Stock at $2 per share. The
warrants are callable by the Company at $0.25 per share if the Company
stock trades at a price in excess of $4 per share for 10 days or more.
This settlement was approved by the U.S. District Court for the Southern
District of New York on January 29, 2002. It will be necessary for the
Company to register the common stock underlying these warrants before
the Company can allow for the exercise of these warrants.  Management of the Company believed the terms of the agreement in
principle provided a reasonable basis to estimate the value of the
Companys portion of the settlement as of July 2001, and, accordingly,
recorded a charge of $9,759 in fiscal 2001. This amount was calculated
using a discount factor of 12% to present value the subordinated note,
the per share price of $1.50 that was the closing price of the Companys
stock in the over the counter market on July 28, 2001, and an option
pricing model to value the warrants. Also included in the charge were
legal and other specialized fees incurred through July 2001 of $3,572
and an accrual for legal and related fees incurred in fiscal 2002 of
$821.  When the Court approved the class action settlement on January 29, 2002,
and opportunities for appeal expired on March 21, 2002, all uncertainty
regarding the final value of the securities issued by the Company in the
settlement had been eliminated. Therefore, in the third quarter of
fiscal 2002, the Company recognized an additional charge related to the
increase in the value of securities issued. This additional charge was
approximately $7,050.  13.
    
    FACILITIES REORGANIZATION COSTS In the fourth quarter of fiscal 2001, the Company recorded a facilities
reorganization charge of $770 in conjunction with the announced closure of the
Power Conversion Groups Deer Park, New York facility, and the consolidation of
product lines into the Companys other U.S. operations. In addition, the
Company recorded a reorganization charge of $52 in conjunction with the lease
termination of a surplus facility in Illinois, which was vacated during the
fourth quarter of fiscal 2001. An additional $77 of costs related to the Deer Park closedown were incurred
during 2002 and charged to expense in that year. F-29




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##### Table of Contents



During the fourth quarter of fiscal 2002, the Company announced the closure of
the Power Conversion Groups Hicksville, New York facility, planned to occur
during fiscal 2003. As a result of the decision to close this facility and
combine operations at its Valhalla, New York facility, the Company accrued for
various facilities reorganization costs, including severance and outplacement
expenses covering 68 individuals. The following table summarizes the charges related to facilities
reorganization: August 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Accrued for future periods:Expected employee termination costs
    
    
    
    
    
    $
    446
    
    
    $
    10Write-down of fixed assets
    
    
    
    
    
    
    
    
    
    
    349Non cancelable lease obligations
    
    
    
    
    
    
    769
    
    
    
    313Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    150subtotal
    
    
    
    
    
    
    1,215
    
    
    
    822Current period expenses:Actual employee termination costs
    
    $
    279
    
    
    
    77
    
    
    
    Write-down of fixed assets
    
    
    141
    
    
    
    
    
    
    
    Construction and related costs
    
    
    368
    
    
    
    
    
    
    
    Total facilities reorganization costs
    
    $
    788
    
    
    $
    1,292
    
    
    $
    822
 The following table summarizes the related liabilities which are included in
accrued expenses on the accompanying balance sheet: August 2, 2003
    
    
    August 3, 2002
    
    
    July 28, 2001Liability at beginning of period
    
    $
    1,215
    
    
    $
    271
    
    
    
    Accruals of reorganization costs
    
    
    
    
    
    
    1,215
    
    
    $
    822Payments of reorganization costs
    
    
    (774
    )
    
    
    (271
    )
    
    
    (551
    )Liability at end of period
    
    $
    441
    
    
    $
    1,215
    
    
    $
    271
 The Company expects that the costs accrued as of August 2, 2003 of
approximately $441 will be paid out in fiscal 2004.  14.
    
    RELATED PARTIES During fiscal 2002, Plus Ultra Incorporated was paid a total of $319 in fees
and expenses for organizational development and strategic planning consulting
services. The work was primarily performed by Edward Ferris, the President of
Plus Ultra and Damien Park. Mr. Park is the son of Samuel E. Park, who was the
Companys Chief Executive Officer until October 10, 2003. In July 2002, Mr.
Ferris accepted a full-time position with the Company as Senior Vice President,
Corporate Organizational Development. While Damien Park was associated with Plus Ultra, he received $97 out of the
total fees paid to Plus Ultra. Damien Park, as President of the Hibernian
Consulting Group, continued to act in a consulting capacity to the Company in
the area of business planning at the rate of $17 per month until January 31,
2003. For the period from July 2002 to January 31, 2003 the Company paid
Hibernian Consulting a total of $130 for Damien Parks consulting services. In
February 2003, Damien Park accepted a full-time position with the Company
reporting to Edward Ferris with responsibility for Corporate Planning, with an
annual base salary of $125. F-30




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##### Table of Contents



On September 30, 2003 Damien Parks employment relationship with the Company
was terminated and he has no continuing consulting relationship with the
Company. The Company incurred $15, $279 and $102 of fees and expenses with Battalia
Winston International, Inc. during fiscal years 2003, 2002 and 2001,
respectively, in connection with executive recruiting services. The Chief
Executive of Battalia Winston, and one of its owners, is Dale Winston, the wife
of Roger Winston, the former Chairman of the Board of Directors. The Company incurred $34, $23, and $14 of accounting fees with Michael Adest &
Company, PC during fiscal years 2003, 2002 and 2001, respectively, for tax
compliance services. David Michael, one of our former directors, had an
ownership interest in this accounting practice. F-31




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##### Table of Contents



15.
    
    SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)  YEAR ENDED August 2, 2003: QUARTERFirst
    
    
    Second
    
    
    Third
    
    
    Fourth (1)Net sales
    
    $
    25,733
    
    
    $
    26,135
    
    
    $
    23,039
    
    
    $
    23,712Gross margin
    
    $
    5,216
    
    
    $
    5,548
    
    
    $
    5,128
    
    
    $
    5,231Net loss
    
    $
    (606
    )
    
    $
    (6,255
    )
    
    $
    (3,926
    )
    
    $
    (4,258
    )Basic and diluted loss per share
    
    $
    (0.06
    )
    
    $
    (0.60
    )
    
    $
    (0.38
    )
    
    $
    (0.41
    )
  YEAR ENDED August 3, 2002: QUARTERFirst
    
    
    Second
    
    
    Third
    
    
    FourthNet sales
    
    $
    19,644
    
    
    $
    24,564
    
    
    $
    27,012
    
    
    $
    27,564Gross margin
    
    $
    3,632
    
    
    $
    6,233
    
    
    $
    6,177
    
    
    $
    3,094Net loss
    
    $
    (1,535
    )
    
    $
    (171
    )
    
    $
    (5,152
    )
    
    $
    (5,154
    )Basic and diluted loss per share
    
    $
    (0.20
    )
    
    $
    (0.02
    )
    
    $
    (0.66
    )
    
    $
    (0.50
    )
   (1)
    
    Net Loss for the fourth quarter of fiscal 2003, reflects the
establishment of an additional allowance against deferred tax assets of
$3,239. In addition the gross margin for the fourth quarter of fiscal
2003 reflects a change in the Companys estimate for obsolete inventory,
resulting in an additional provision of $517 charged to costs of sales F-32




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##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts
(Dollars in Thousands) Balance at
    
    
    Charged toBeginning of
    
    
    Costs and
    
    
    
    
    
    
    Balance atYear Ended August 2, 2003
    
    Year
    
    
    Expense
    
    
    Deductions
    
    
    End of YearAllowance for doubtful
accounts
    
    $
    1,127
    
    
    $
    407
    
    
    $
    302
    
    
    $
    1,232Allowance for obsolete
and excess inventory
    
    $
    3,430
    
    
    $
    1,742
    
    
    $
    1,325
    
    
    $
    3,847Year Ended August 3, 2002Allowance for doubtful
accounts
    
    $
    607
    
    
    $
    653
    
    
    $
    133
    
    
    $
    1,127Allowance for obsolete
and excess inventory
    
    $
    5,198
    
    
    $
    552
    
    
    $
    2,320
    
    
    $
    3,430Year Ended July 28, 2001Allowance for doubtful
accounts
    
    $
    604
    
    
    $
    257
    
    
    $
    254
    
    
    $
    607Allowance for obsolete
and excess inventory
    
    $
    6,421
    
    
    $
    890
    
    
    $
    2,113
    
    
    $
    5,198
 F-33