##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  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 July 31, 2004 OR  [  ]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934Commission file number 0-3319  For the transition period from  to DEL GLOBAL TECHNOLOGIES CORP. 
  New York
    
    13-1784308(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 One Commerce Park, Valhalla, NY        10595 
  Registrants telephone number, including area code (914) 686-3650 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class
    
    Name of Each Exchange on Which RegisteredNone
    
    None
 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value (Common Stock) 
  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]




---



##### Table of Contents



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 price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter. The aggregate market value of the registrants Common Stock held by
non-affiliates of the Registrant as of October 27, 2004, was
$17,039,487.60 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 27, 2004, there were 10,345,413 shares of the registrants
common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Items 10, 11, 12, 13 and 14 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 2005 Annual Meeting of Stockholders.




---



TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSPART IIITEM 5. MARKET FOR  REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSIGNATURESCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSEX-23.1: CONSENT OF DELOITTE & TOUCHE LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 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 and electronic systems and components such as
electronic filters, transformers and capacitors. The Company is headquartered in Valhalla, NY. The mailing address of our
headquarters is One Commerce Park, Valhalla, NY 10595 and our telephone number
is 914 686-3650. Our Website is www.delglobaltech.com. Through the Investor
Relations section of our Website, we make our filings with the Securities and
Exchange Commission (SEC) available as soon as practicable after they are
electronically filed with the SEC. These include our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. As of July 31, 2004, the Company had committed to dispose of the Del High
Voltage Division (DHV) which was part of our Power Conversion Group Segment.
Accordingly, this business is presented as a discontinued operation throughout
this Annual Report on Form 10-K for the fiscal year ended July 31, 2004 (this
Annual Report). The Sale of DHV was consummated on October 1, 2004 as
described in Note 2 of the Notes to Consolidated Financial Statements in Part
II, Item 8 of this Annual Report. On October 4, 2004, the Company announced that it had entered into
non-binding letters of intent for the sale of both the Medical Systems Group
Segment and the remainder of the Power Conversion Group Segment. The Company
intends to call a meeting of stockholders to seek approval under New York law
for the sale of the Medical Systems Group Segment in the event a definitive
agreement is entered into for such sale. There can be no assurance that these
non-binding letters of intent will result in the consummation of the sale of
these segments or that the strategic alternatives process initiated by the
Company will lead to any other transactions. The Company may seek stockholder
approval of a plan of liquidation; however, the Board of Directors of the
Company has not yet approved any plan of liquidation. Any proceeds that may be
received by stockholders of the Company as a result of any plan of liquidation
may be greater or less than the current market price of the Common Stock of the
Company. See Note 1 of the Notes to Consolidated Financial Statements in
Part II, Item 8 of this Annual Report. OPERATING SEGMENTS  CONTINUING OPERATIONS The operating businesses that we report as segments consist of the Medical
Systems Group and the Power Conversion Group. For fiscal 2004, the Medical
Systems Group segment accounted for approximately 84% of our revenues and the
Power Conversion Group segment accounted for approximately 16% 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 1




---



##### Table of Contents



adverse effect on such segment. For further information concerning our
operating segments, see Note 9 of the Notes to Consolidated Financial
Statements in Part II, Item 8 of this Annual Report. Our operating segments
and businesses are summarized in the following table: Division
    
    Brands
    
    Subsidiaries
    
    FacilitiesMedical Systems Group:Medical Imaging
    
    Del Medical, Villa,
    
    Del Medical Imaging
    
    Franklin Park, ILUNIVERSAL, DynaRad
    
    Corp (Del Medical)Villa Sistemi Medicali
    
    Milan, ItalyS.p.A. (Villa)(80% owned)Power Conversion Group:Electronic Systems
    
    RFI, Filtron, Sprague,& Components
    
    Stanley
    
    RFI Corporation (RFI)
    
    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/ fluoroscopic systems, dental imaging systems and
mammography systems. Approximately 65% of this segments revenues are
attributed to 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: 2




---



##### Table of Contents



Medical Systems Group Markets Served Hospitals
    
    Veterinary ClinicsTeaching Institutions
    
    Chiropractic ClinicsMedical Clinics
    
    Dental OfficesPrivate Practitioners
    
    MilitaryNational Buying Groups
    
    Home Health Care ProvidersOrthopedic 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 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 2004 we continued to expand our product portfolio with a
digital radiographic offering branded under the DRV product line. This system
enables radiologists to obtain better patient images within a fraction of the
time and with lower overall costs than traditional film-based systems. In
addition, we entered into an agreement with Hologic, Inc., a medical imaging
systems manufacturer (Nasdaq: HOLX) to manufacture and market medical Epex
digital x-ray systems during fiscal 2004. 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. 3




---



##### Table of Contents



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, Viromatic,
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. R/F systems (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 US. 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 US on a non-exclusive basis. Marketing and Distribution:Our medical imaging systems are sold in the
US 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. Sales of the Companys products are
typically on open account with 30 day terms, with longer terms given for
customers of our Villa operation as is customary in international business.
Sales to certain international customers are secured by letters of credit to
mitigate any potential credit risks. 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 4




---



##### Table of Contents



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. The majority of the Medical System Groups raw materials are purchased on
open account from vendors pursuant to various individual or blanket purchase
orders. Procurement lead times are such that the Company is not required to
hold significant amounts of inventory in order to meet customer demand. The
Company believes its sources of supply for the Medical Systems Group are
adequate to meet its needs. 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
several small companies based primarily in the US 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. 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. 5




---



##### Table of Contents



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, $1.6 million and $1.4 million during fiscal years
2004, 2003 and 2002, 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 US 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. Government Regulation:Our medical imaging systems are medical devices
and, therefore, are subject to regulation by the US 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 US, 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 6




---



##### Table of Contents



all of our products as Class II devices. Before a new Class II device can
be introduced into the US 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 marketed in the US have met the appropriate FDA
requirements 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. 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 7




---



##### Table of Contents



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
Del Medical Imaging 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 US 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 US.
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
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. 8




---



##### Table of Contents



POWER CONVERSION GROUP  CONTINUING OPERATIONS Our Power Conversion Group designs, manufactures, markets and sells high
voltage precision components and sub-assemblies 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: RFI, Filtron, Sprague and Stanley. This segment is
comprised of Electronic Systems and Components. This segment 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. 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 Electronics Systems & Components Division Military
    
    IndustrialGuidance & Weapons Systems
    
    Induction HeatingCommunications
    
    AutomotiveCommercial
    
    Capital EquipmentPower Systems
    
    MedicalTelecommunications
    
    Radiation OncologySatellite
    
    Magnetic ResonanceMeteorological
    
    Imaging (MRI)
 PRODUCTS 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 electronic components for various classified
and unclassified programs including radar systems, guidance systems, weapons
systems and communication electronics. Industrial Applications Our high voltage power components and EMI
filters 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 US, and international agents in Europe, Asia, the Middle East, Canada and
Australia. 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 9




---



##### Table of Contents



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. Sales of the Companys products are
typically on open account with 30 day terms. New accounts are established with
cash on delivery or cash in advance terms. 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. 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. The majority of the Power Conversion Groups raw materials are purchased
on open account from vendors pursuant to various individual or blanket purchase
orders. Procurement lead times are such that the Company is not required to
hold significant amounts of inventory in order to meet customer demand. The
Company believes its sources of supply for the Power Conversion Group are
adequate to meet its needs Competition:Our Power Conversion Group competes with several small,
privately owned suppliers of electronic systems and components. From our
perspective, competition is primarily based on each companys 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 subject to limited technological changes
and gradually evolving industry requirements and standards. We believe that
these trends will continue into the foreseeable future. Some of our current
and potential competitors may 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. 10




---



##### Table of Contents



Product Development:We have a well developed engineering and technical
staff in our Power Conversion Group. Our technical and scientific employees
are generally employed in the engineering departments at our RFI business unit,
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. Our
products include 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.
No significant engineering related time was charged to research and development
spending for the continuing operations of the Power Conversion Group in fiscal
years 2004, 2003 or 2002. These time allocations were minimal because our
technical and scientific employees were focused on 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, both in the US and internationally. Our
future success is dependent primarily on the technological expertise and
management abilities of our employees. Government Regulation:We are subject to various US 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 US Department of Defense (DOD). See Part I, Item 3, Legal Proceedings
of this Annual Report. DISCONTINUED OPERATIONS: As of July 31, 2004, the DHV division has been classified as a
discontinued operation. This division manufactures and sells high voltage
power systems, primarily for security, medical, scientific, military and
industrial OEM applications. The results of this operation are segregated on the accompanying financial
statements as income or loss from discontinued operations. See Note 2 of the
Notes to Consolidated Financial Statements included in Part II, Item 8, of this
Annual Report. DHV recorded net losses of $5.1 million including, impairment losses of
$4.9 million for the fiscal year ended July 31, 2004. The division recorded
income of $0.1 million for the fiscal year 11




---



##### Table of Contents



ended
August 2, 2003 and a loss of $2.1 million for the fiscal year ended
August 3, 2002. The sale of this division was consummated on October 1, 2004. 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. BACKLOG Consolidated backlog for continuing operations at July 31, 2004 was
$25.9 million versus backlog at July 31, 2004 of approximately $16.3 million.
Backlog in the Power Conversion Group at July 31, 2004 of $7.7 million was
comparable to backlog at August 2, 2003. Backlog in the Medical Systems
Segment at July 31, 2004 was $18.2 million versus backlog at August 2, 2003 of
approximately $8.6 million with increases at both operating units.
Substantially all of the backlog should result in shipments within the next 12
months. EMPLOYEES As of July 31, 2004 we had 332 employees in continuing operations. We
believe that our employee relations are good. None of our approximately 210 US
based employees are represented by a labor union. Employment by functional
area as of July 31, 2004, excluding approximately 80 employees at Del High
Voltage division, is as follows: Executive
    
    
    4Administration
    
    
    22Manufacturing
    
    
    245Engineering
    
    
    39Sales and Marketing
    
    
    22Total
    
    
    332
 GEOGRAPHIC AREAS For further information about Geographic areas the Company operates in as well
as other Segment related disclosures refer to Note 9 of the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report. 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 12




---



##### Table of Contents



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. There can be no assurance that the Company will complete the sale of its
remaining businesses. The proceeds that may be received by stockholders as the
result of any plan of liquidation may be greater or less than the current
market price of the Companys common stock. On October 4, 2004, the Company announced that it had entered into
non-binding letters of intent for the sale of both the Medical Systems Group
Segment and the remaining business of its Power Conversion Group Segment. The
Company intends to call a meeting of stockholders to seek approval under New
York law for the sale of the Medical Systems Group Segment in the event a
definitive agreement is entered into for such sale. There can be no assurance
that these non-binding letters of intent will result in the consummation of the
sale of these segments or that the strategic alternatives process initiated by
the Company will lead to any other transactions. The Company may seek
stockholder approval of a plan of liquidation; however, the Board of Directors
of the Company has not yet approved any plan of liquidation. Any proceeds that
may be received by stockholders of the Company as a result of any plan of
liquidation may be greater or less than the current market price of the Common
Stock of the Company. 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. Due to our past failure to comply with the United States Securities Laws,
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 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. Final court approval of fines and possible debarment against RFI doing business
with government entities in conjunction with a Department of Defense
Investigation remains open. On March 8, 2002, RFI, a subsidiary of the Company and the remaining part
of the Power Conversion Group segment, was served with a subpoena by the US
Attorney for the Eastern District of New York in connection with an
investigation by the DOD. RFI supplies electro magnetic interference 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. 13




---



##### Table of Contents



In June 2003, the Company was advised that the US Government was willing
to enter into negotiations regarding a comprehensive settlement of this
investigation. 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 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 $2.3 million, which represented its estimate of the low end of a
range of potential fines and legal and professional fees. Following negotiations, Del Global reached a global settlement in February
2004 with the US Government that resolves the civil and criminal matters
relating to the DODs investigation. The settlement included the Company
pleading guilty to one criminal count and agreeing to pay fines and restitution
to the US Government of $4.6 million if paid by June 30, 2004 and $5.0 million
if paid by September 30, 2004. In connection with this settlement, Del Global recognized an additional
charge of approximately $3.2 million in the second quarter of fiscal 2004.
This charge represents the difference between the $2.3 million charge taken
during the third quarter of fiscal 2003, and the up to $5.0 million in fines
and restitution, plus estimated legal and professional fees related to this
settlement. The liability associated with these charges is included in
Litigation settlement reserves on the accompanying balance sheet. On September 30, 2004,
pursuant to the terms of the settlement, Del Global fulfilled its obligation
under this agreement by paying to the US Government the sum of $5 million
representing fines and restitution. On October 7, 2004, RFI entered a criminal
guilty plea to a single count conspiracy charge pursuant to the settlement and a
criminal plea agreement. Sentencing will occur at a later date to be
determined. There can be no assurance that the court will not impose additional
fines or restitution, or that the combined civil and criminal restitution imposed
by the court will not vary significantly from the amount of fines and restitution
the Company has paid to date. Del Global has been working
with the Defense Logistics Agency, a component of the DOD, to avoid any
future limitations on the ability of the Company to do business with US
Government entities. Such limitations could include the US Government
seeking a debarment or exclusion of the Company from doing
business with US Government entities for a period of time.
The Company has made a written and oral submission to that
agency detailing the remedial measures that the Company
has taken to help ensure future compliance. If the US Government decides
not to debar RFI, Del Global, RFI and the US Government will need to
execute a written compliance agreement. No assurance can be given that
the Company, RFI and the US Government will enter into any such agreement or
that debarment will be avoided. 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 announcement regarding the signing of non-binding
letters of intent for sales of our remaining businesses and the possibility
that the Company may seek stockholder approval of a plan of liquidation. 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. 14




---



##### Table of Contents



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 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 2004, we breached the tangible net worth
financial covenants contained in our Loan and Security Agreement, dated June
10, 2002, with GE Business Capital Corporation f/k/a Transamerica Business
Capital Corporation (GECC), as amended (the GECC Facility). In September
2004, we received a waiver of such default from GECC and signed a Fifth
Amendment with GECC. This Fifth Amendment includes revisions to the tangible
net worth financial covenant as well as an adjusted earnings covenant. 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, GECC could accelerate the amounts due under the GECC Facility and
foreclose on assets securing the GECC Facility and we would be forced to seek
alternative sources of funding for our debt repayment obligations and growth. Our delay or inability to obtain any necessary US 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 US 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 US 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 not have a significant impact on our manufacturing operations;
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 15




---



##### Table of Contents



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 delay bringing our products to
market. Because our US products lines are mature, new product changes are in
general relatively minor, and accordingly regulatory approval is more
streamlined. 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. On November 17, 2003, the Company filed a complaint against
Mr. Park seeking a declaratory judgment that no change in control payment was
or is due to Mr. Park, and that an amendment to the employment contract with
Mr. Park regarding advancement and reimbursement of legal fees is invalid and
unenforceable. Mr. Park answered the complaint and asserted counterclaims
seeking payment from the Company based on his position that a change in
control occurred in June 2003. Mr. Park is also seeking other 16




---



##### Table of Contents



consideration he believes he is owed under his employment agreement. The
Company filed a reply to Mr. Parks counterclaims denying that he is entitled
to any of these payments. The suit is now in the discovery phase. The parties
are in the process of exchanging documents, and depositions are to be conducted
in November, 2004. If Mr. Park prevails on his claims and the payments he
seeks are required to be paid in a lump sum, these payments may have a material
adverse effect on the Companys liquidity. 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 $3.7 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. In August, 2004, the Company entered into a settlement agreement and
release with its former CFO whereby he provided a general
release to the Company, including a release from any potential claim under his
change in control agreement, in exchange for a payment of approximately $0.2 million. 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. 17




---



##### Table of Contents



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. A significant number of our shares will be available for future sale and could
depress the market price of our stock. As
of October 27, 2004, an aggregate of 10,345,413 shares of our common
stock were outstanding. In addition, as of October 14, 2004, there were
outstanding warrants to purchase 1,065,000 shares of our common stock and
options to purchase 2,123,050 shares of our common stock, 1,935,550 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. 18




---



##### Table of Contents



ITEM 2. PROPERTIES The following is a list of our principal properties, classified by segment
and subsidiary: Approx.Floor
    
    
    
    
    
    Owned/LeasedArea in
    
    
    
    
    
    (ExpirationSegment
    
    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
    
    Valhalla, NY
    
    
    9,188
    
    
    Corporate headquarters,
    
    Leased (2006)(2)RFI
    
    Bayshore, NY
    
    
    55,000
    
    
    Design and manufacturing
    
    Owned
  (1)
    
    Villa has the option to purchase this property at the conclusion of this
lease.(2)
    
    The Company originally occupied 43,750 square feet in this building.
The buyer of the DHV business signed a lease for 34,562 square feet of
this space on October 1, 2004. The Company intends to sublet or assign
approximately 5,000 square feet of the remaining 9,188 square feet
Corporate headquarters space to a third party. No assurance can be given
that the Company will be able to sublease or surrender such space on terms
acceptable to the Company or at all. We believe that our current facilities are sufficient for our present
requirements. The GECC Facility is secured, in part, by a mortgage on RFIs
property. 
 ITEM 3. LEGAL PROCEEDINGS DOD Investigation- On March 8, 2002, RFI, a subsidiary of the Company and
the remaining part of the Power Conversion Group segment, was served with a
subpoena by the US Attorney for the Eastern District of New York in connection
with an investigation by the DOD. RFI supplies electro magnetic interference
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 was willing
to enter into negotiations regarding a comprehensive settlement of this
investigation. 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 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 19




---



##### Table of Contents



financial impact. Accordingly, during the third quarter of fiscal 2003,
the Company recorded a charge of $2.3 million, which represented its estimate
of the low end of a range of potential fines and legal and professional fees. Following negotiations, Del Global reached a global settlement in February
2004 with the US Government that resolves the civil and criminal matters
relating to the DODs investigation. The settlement included the Company
pleading guilty to one criminal count and agreeing to pay fines and restitution
to the US Government of $4.6 million if paid by June 30, 2004 and $5.0 million
if paid by September 30, 2004. In connection with this settlement, Del Global recognized an additional
charge of approximately $3.2 million in the second quarter of fiscal 2004.
This charge represents the difference between the $2.3 million charge taken
during the third quarter of fiscal 2003, and the up to $5.0 million in fines
and restitution, plus estimated legal and professional fees related to this
settlement. The liability associated with these charges is included in
Litigation settlement reserves on the accompanying balance sheet. On September 30, 2004,
pursuant to the terms of the settlement, Del Global fulfilled its obligation
under this agreement by paying to the US Government the sum of $5 million
representing fines and restitution. On October 7, 2004, RFI entered a criminal
guilty plea to a single count conspiracy charge pursuant to the settlement and a
criminal plea agreement. Sentencing will occur at a later date to be
determined. There can be no assurance that the court will not impose additional
fines or restitution, or that the combined civil and criminal restitution imposed
by the court will not vary significantly from the amount of fines and restitution
the Company has paid to date. Del Global has been working
with the Defense Logistics Agency, a component of the DOD, to avoid any
future limitations on the ability of the Company to do business with US
Government entities. Such limitations could include the US Government
seeking a debarment or exclusion of the Company from doing
business with US Government entities for a period of time.
The Company has made a written and oral submission to that
agency detailing the remedial measures that the Company
has taken to help ensure future compliance. If the US Government decides
not to debar RFI, Del Global, RFI and the US Government will need to
execute a written compliance agreement. No assurance can be given that
the Company, RFI and the US Government will enter into any such agreement or
that debarment will be avoided. Employment Matters The Company had an employment agreement with Samuel
Park, the previous Chief Executive Officer (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 recorded a charge of $0.2 million during the first
quarter of fiscal 2004 to accrue the balance remaining under Mr. Parks
employment agreement. In addition, the Companys Board of Directors elected at the Companys
Annual Meeting of Shareholders held on May 29, 2003 had previously reviewed the
change of control provisions regarding payments totaling up to approximately
$1.8 million under the employment agreement between the Company and Mr. Park.
As a result of this review and based upon, among other things, the advice of
special counsel, the Companys Board of Directors determined that no obligation
to pay these amounts has been triggered. Prior to his departure from the
Company 20




---



##### Table of Contents



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. On November 17, 2003, the Company
filed a complaint against Mr. Park seeking a declaratory judgment that no
change in control payment was or is due to Mr. Park, and that an amendment to
the employment contract with Mr. Park regarding advancement and reimbursement
of legal fees is invalid and unenforceable. Mr. Park answered the complaint
and asserted counterclaims seeking payment from the Company based on his
position that a change in control occurred in June 2003. Mr. Park is also
seeking other consideration he believes he is owed under his employment
agreement. The Company filed a reply to Mr. Parks counterclaims denying that
he is entitled to any of these payments. The suit is now in the discovery
phase. The parties are in the process of exchanging documents, and depositions
are to be conducted in November, 2004. If Mr. Park prevails on his claims and
the payments he seeks are required to be paid in a lump sum, these payments may
have a material adverse effect on the Companys liquidity. It is not possible
to predict the outcome of these claims. However, the Companys Board of
Directors does not believe that such a claim is reasonably likely to result in
a material decrease in the Companys liquidity in the foreseeable future. During fiscal 2004, the Company began employment termination proceedings
against an executive of the Company. Subsequently, the executive instituted
legal proceedings alleging certain damages based on change in control
provisions of the executives employment contract and various additional actions
or damages. The Company believes the former executives change in control
provision has not been triggered and that such termination was justified.
Thereafter, the court issued an order directing  a subsidiary of the
Company to pay damages. The Company believes it has meritorious defenses to
this matter and has filed an appeal. However, based on the courts order, the
Company has recorded a charge in Fiscal 2004 of approximately $0.4 million in
connection with this matter included in Litigation Settlement reserves in the
accompanying financial statements. Other
Legal Matters The Company is a defendant in several other legal actions in various US
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. 
 PART II 
  ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 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 on the pink sheets, or over-the-counter market,
under the symbol DGTC.PK and our warrants are traded 21




---



##### Table of Contents



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 October 21, 2004, there were approximately 904 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
    
    LowFiscal 2004First Quarter
    
    $
    2.50
    
    
    $
    1.75Second Quarter
    
    
    2.83
    
    
    
    1.95Third Quarter
    
    
    2.80
    
    
    
    2.00Fourth Quarter
    
    
    3.00
    
    
    
    2.05Fiscal 2003First Quarter
    
    $
    3.78
    
    
    $
    2.35Second Quarter
    
    
    4.01
    
    
    
    1.90Third Quarter
    
    
    4.12
    
    
    
    2.30Fourth Quarter
    
    
    3.50
    
    
    
    1.75
 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 GECC Facility. We may seek stockholder approval of a plan
of liquidation, however, the Board of Directors of the Company has not yet
approved any such plan of liquidation. As part of any such plan of liquidation, we
may distribute cash to our stockholders in a single distribution or in a series
of distributions. Any such proceeds that may be received by our stockholders
as a result of any plan of liquidation may be greater or less than the current
market price of our Common Stock. Other than in connection with any such plan
of liquidation, we do not intend to pay any cash dividends in the foreseeable
future. The following table summarizes the securities authorized for issuance
under equity compensation plans as of the end of Fiscal 2004: Number of
    
    
    
    
    
    Number ofSecurities to be
    
    
    
    
    
    securitiesissued upon
    
    Weighted-average
    
    remaining availableexercise of
    
    exercise price of
    
    for future issuanceoutstanding
    
    outstanding
    
    under equityoptions, warrants
    
    options, warrants
    
    compensationPlan Category
    
    and rights
    
    and rights
    
    plans(1)Equity compensation plans
approved by security holders:Stock Option Plan
    
    
    2,133,415
    
    
    $
    3.15
    
    
    
    316,180Equity compensation plans not
approved by security holders:Warrants issued in
connection with the
acquisition of Villa (2)
    
    
    50,000
    
    
    $
    7.94
    
    
    NoneWarrants granted for
services rendered (3)
    
    
    15,000
    
    
    $
    7.69
    
    
    NoneWarrants issued in
settlement of class
action
lawsuit (4)
    
    
    1,000,000
    
    
    $
    1.50
    
    
    Not applicable
 22




---



##### Table of Contents



(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
concerning allegations that the Company had violated federal Securities
laws, 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 this class action lawsuit in January 2002, and therefore was
exempt from the registration requirements of the Securities Act of 1933
pursuant to Section 3(a) (10) thereof. These warrants were originally set
to expire in March 2008. In a motion filed in February 2004, a plaintiff class claimed damages
due to Del Globals failure to timely complete a registration statement for
the shares of common stock issuable upon exercise of these warrants. The
class sought damages of $1.25 million together with interest and costs, and
a declaration that $2 million in subordinated notes issued as part of the
2002 class action settlement were immediately due and payable. In
settlement of this matter, Del Global modified the exercise, or strike,
price of the warrants issued in 2002 from $2.00 to $1.50 per share, and
extended the expiration date of such warrants by one year to March 28, 2009. 23




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA The selected income statement data presented for the fiscal years ended
July 31, 2004, August 2, 2003 and August 3, 2002 and the balance sheet data as
of July 31, 2004 and August 2, 2003 have been derived from our audited
consolidated financial statements included elsewhere in this Annual Report.
The income statement data for the years ended July 28, 2001 and July 29, 2000
and the balance sheet data as of August 3, 2002, July 28, 2001 and July 29,
2000 have been derived from audited financial statements not included herein.
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 endedJuly 31,
    
    August 2,
    
    August 3,
    
    July 28,
    
    July 29,(In thousands, except share amounts)
    
    2004(1)
    
    2003(2)
    
    2002(3)
    
    2001(4)
    
    2000Income Statement Data:Net sales
    
    $
    83,827
    
    
    $
    68,212
    
    
    $
    68,288
    
    
    $
    70,441
    
    
    $
    60,509Gross margin
    
    
    21,315
    
    
    
    15,670
    
    
    
    14,715
    
    
    
    14,029
    
    
    
    12,395Selling, general and administrative
    
    
    15,907
    
    
    
    17,904
    
    
    
    16,041
    
    
    
    9,424
    
    
    
    9,178Research and development
    
    
    1,562
    
    
    
    1,593
    
    
    
    1,502
    
    
    
    2,392
    
    
    
    1,288Litigation settlement costs
    
    
    3,652
    
    
    
    2,126
    
    
    
    7,713
    
    
    
    9,759
    
    
    
    Facilities reorganization costs
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    822
    
    
    
    Operating income (loss)
    
    
    194
    
    
    
    (6,081
    )
    
    
    (10,541
    )
    
    
    (8,368
    )
    
    
    1,929Minority interest
    
    
    559
    
    
    
    115
    
    
    
    197
    
    
    
    379
    
    
    
    (77
    )Provision (benefit) for income taxes
    
    
    8,691
    
    
    
    8,233
    
    
    
    (1,982
    )
    
    
    (3,470
    )
    
    
    439Income (loss) from
continuing operations
    
    
    (10,729
    )
    
    
    (15,173
    )
    
    
    (9,919
    )
    
    
    (5,671
    )
    
    
    1,162Discontinued operations
    
    
    (5,095
    )
    
    
    128
    
    
    
    (2,093
    )
    
    
    (2,850
    )
    
    
    (4,800
    )Net loss (5)
    
    
    (15,824
    )
    
    
    (15,045
    )
    
    
    (12,012
    )
    
    
    (8,521
    )
    
    
    (3,638
    )Net income (loss) per basic and
diluted shareContinuing operations
    
    $
    (1.04
    )
    
    $
    (1.46
    )
    
    $
    (1.14
    )
    
    $
    (0.73
    )
    
    $
    0.14Discontinued operations
    
    
    (0.49
    )
    
    
    0.01
    
    
    
    (0.24
    )
    
    
    (0.36
    )
    
    
    (0.61
    )Net loss per basic and diluted share(5)
    
    $
    (1.53
    )
    
    $
    (1.45
    )
    
    $
    (1.38
    )
    
    $
    (1.09
    )
    
    $
    (0.47
    )
 24




---



##### Table of Contents



As ofJuly 31,
    
    August 2,
    
    August 3,
    
    July 28,
    
    July 29,2004
    
    2003
    
    2002
    
    2001
    
    2000Balance Sheet Data:Working capital
    
    $
    7,764
    
    
    $
    13,598
    
    
    $
    18,646
    
    
    $
    22,269
    
    
    $
    27,331Total assets
    
    
    49,261
    
    
    
    60,492
    
    
    
    77,697
    
    
    
    81,658
    
    
    
    82,805Long-term
debt and subordinated note
    
    
    7,038
    
    
    
    7,100
    
    
    
    6,724
    
    
    
    6,222
    
    
    
    5,953Shareholders equity
    
    
    7,775
    
    
    
    22,979
    
    
    
    37,141
    
    
    
    41,791
    
    
    
    46,062
 (1) Net loss for the year ended July 31, 2004 includes $9,794 income
tax provision related to the establishment of a deferred tax valuation
allowance. In addition, net loss reflects the accrual of a $3,199 charge
related to the DOD investigation of our RFI subsidiary and $454 related to a
motion filed in February 2004 related to the warrants to purchase common
stock that were issued in fiscal year 2002. For more information about
these legal charges, see Part I, Item 3 Legal Proceedings of this Annual
Report. (2) Net loss for the year ended August 2, 2003 includes approximately
$7,967 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. See Notes to Consolidated Financial
Statements included in Part II, Item 8, of this Annual Report. (3) Fiscal 2002 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. See Notes to
Consolidated Financial Statements included in Part II, Item 8, of this
Annual Report. (4) 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. (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. 25




---



##### Table of Contents



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 court
approval of a settlement of the DOD investigation on terms that we can afford
and that does not include a debarment from doing business with the US
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 primarily engaged in the design, manufacture and marketing
of cost-effective medical imaging and diagnostic systems consisting of
stationary and portable x-ray systems, radiographic/fluoroscopic systems,
dental imaging systems and proprietary high-voltage power conversion subsystems
for medical and other critical industrial applications. The Company also
manufactures electronic filters, high voltage capacitors, pulse modulators,
transformers and reactors, and a variety of other products designed for
industrial, medical, military and other commercial applications. 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. As of July 31, 2004 the Companys Board committed to a plan to dispose of DHV
and on October 1, 2004, we sold this division for a purchase price of $3.1
million, plus the assumption of approximately $0.8 million of liabilities.
Accordingly, the results of operations have been restated to show this division
as a discontinued operation. On October 4, 2004, the Company announced that it had entered into non-binding
letters of intent for the sale of both the Medical Systems Group Segment and
the remainder of the Power Conversion Group Segment. The Company intends to
call a meeting of stockholders to seek approval under New York law for the
sale of the Medical Systems Group Segment in the event a definitive agreement
is entered into for such sale. There can be no assurance that these
non-binding letters of intent will result in the consummation of the sale of
these segments or that the strategic alternatives process initiated by the
Company will lead to any other transactions. The Company may seek stockholder
approval of a plan of liquidation; however, the Board of Directors of the
Company has not yet approved any plan of liquidation. Any proceeds that may be
received by stockholders of the Company as a result of any plan of liquidation
may be greater or less than the current market price of the Common Stock of the
Company. 26




---



##### Table of Contents



As described in Part I, Item 3, Legal Proceedings of this Annual Report
in June 2003, the Company was advised that the US Government was willing to
enter into negotiations regarding a comprehensive settlement of this
investigation. 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 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 $2.3 million, which represented its estimate of the low end of a
range of potential fines and legal and professional fees. Following negotiations, Del Global reached a global settlement in February
2004 with the US Government that resolves the civil and criminal matters
relating to the DODs investigation. The settlement included the Company
pleading guilty to one criminal count and agreeing to pay fines and restitution
to the US Government of $4.6 million if paid by June 30, 2004 and $5.0 million
if paid by September 30, 2004. In connection with this settlement, Del Global recognized an additional
charge of approximately $3.2 million in the second quarter of fiscal 2004.
This charge represents the difference between the $2.3 million charge taken
during the third quarter of fiscal 2003, and the up to $5.0 million in fines
and restitution, plus estimated legal and professional fees related to this
settlement. The liability associated with these charges is included in
Litigation settlement reserves on the accompanying balance sheet. On September 30, 2004,
pursuant to the terms of the settlement, Del Global fulfilled its obligation
under this agreement by paying to the US Government the sum of $5 million
representing fines and restitution. On October 7, 2004, RFI entered a criminal
guilty plea to a single count conspiracy charge pursuant to the settlement and a
criminal plea agreement. Sentencing will occur at a later date to be
determined. There can be no assurance that the court will not impose additional
fines or restitution, or that the combined civil and criminal restitution imposed
by the court will not vary significantly from the amount of fines and restitution
the Company has paid to date. Del Global has been working
with the Defense Logistics Agency, a component of the DOD, to avoid any
future limitations on the ability of the Company to do business with US
Government entities. Such limitations could include the US Government
seeking a debarment or exclusion of the Company from doing
business with US Government entities for a period of time.
The Company has made a written and oral submission to that
agency detailing the remedial measures that the Company
has taken to help ensure future compliance. If the US Government decides
not to debar RFI, Del Global, RFI and the US Government will need to
execute a written compliance agreement. No assurance can be given that
the Company, RFI and the US Government will enter into any such agreement or
that debarment will be avoided. Management believes a resolution of this legal matters would be an
important step towards closure of the past legal, regulatory and financial
reporting matters confronting the Company. Our businesses continue to compete vigorously and we continue to enjoy
good relationships with our customers. 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 27




---



##### Table of Contents



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. The valuation of our deferred tax assets and the recognition of tax
benefits in each period assumes future taxable income and profitability. We
periodically evaluate the likelihood of the recoverability of our deferred tax
asset recognized, based upon our actual operating results and expectations of
future operating profits. During February and again in August 2004, as part of our customary six
month planning and review cycle, management updated each business units
forecast and operating results, and concluded that it was prudent to record
additional valuation allowances of $9.8 million, thereby increasing the total
valuation allowance to $19.9 million against 100% of both long and short-term
US .domestic deferred tax assets. The valuation allowance was computed by
estimating the amount of future taxable income expected over the net operating
loss carry forward period, and that estimate was based principally on the
Companys recent performance. The valuation allowance recorded is the estimate
of the amount of deferred tax assets that are more likely than not to go
unrealized by the Company. A corresponding amount was recorded as an income tax provision during the
second and fourth quarters of fiscal 2004. We anticipate it is more likely
than not the remaining deferred tax asset which relates to our Villa subsidiary
will be utilized against future operating profits or as an offset to dividend
income received from our Villa subsidiary. However, we can make no assurances
that our business 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 28




---



##### Table of Contents



related to finished goods inventories. As of July 31, 2004, finished
goods represented approximately 21% of the gross carrying value of our total
gross inventory. We believe the estimation methodologies used to be
appropriate and are consistently applied. CONSOLIDATED RESULTS OF OPERATIONS  CONTINUING OPERATIONS Fiscal 2004 Compared to Fiscal 2003 Consolidated net sales of $83.8 million for fiscal year 2004 increased by $15.6
million or 22.9% from fiscal 2003 net sales of $68.2 million. The Medical
Systems Group fiscal 2004 sales of $70.8 million improved by $14.7 million or
26.1%, with most of the increase at our international location offsetting a
decline at domestic locations, plus favorable exchange rate effects from the
translation of Villas financial statements from euros to dollars of
approximately $1.4 million. This increase in sales included the second quarter
fiscal 2004 shipment of $8.2 million of medical equipment to the Ministry of
Social Services in Mexico. The Power Conversion Group fiscal 2004 sales of
$13.1 million improved by $1.0 million or 8.0%. Prior year Power Conversion
Group sales were lower due to effects of the DOD investigation. Consolidated backlog at July 31, 2004 was $25.9 million versus backlog at
August 2, 2003 of approximately $16.3 million. The backlog in the Medical
Systems Segment increased by $9.6 million on strong international orders, and
Power Conversion Group backlog remained even levels at the beginning of the
fiscal year. Substantially all of the backlog should result in shipments
within the next 12 months. Gross
margins as a percent of sales were 24.5% in fiscal 2004, compared to
23.0% in fiscal 2003. The Power Conversion Groups margins for fiscal 2004
were 30.2% versus 28.9% in the prior year. The fiscal 2004 margins increased
due to improvements in procurement practices resulting in lower average
material costs. The Medical Systems Groups fiscal 2004 gross margins were
24.5% compared to 21.7% in fiscal 2003 due to higher margins domestically as a
result of cost control measures. Selling, General and Administrative expenses (SG&A) for fiscal 2004 were
$15.9 million (19.0% of sales), compared to $17.9 million (26.2% of sales) in
the same period in the prior year. The decline in SG&A during fiscal 2004 is a
result of reduced corporate legal and accounting costs. During fiscal 2004, we reached a settlement with the US government regarding
the civil and criminal aspects of the previously disclosed Department of
Defense (DOD) investigation of our RFI subsidiary (See Item 3 Legal
Proceedings). The settlement included the Company pleading guilty to one
criminal count and agreeing to pay fines and restitution to the US Government
of $5.0 million if paid by September 30, 2004. In connection with this settlement, Del Global recognized an additional charge
for Litigation settlement costs of approximately $3.2 million in the second
quarter of fiscal 2004. This charge represents the difference between the $2.3
million charge taken during the third quarter of fiscal 2003, and the up to
$5.0 million in fines and restitution, plus estimated legal and professional
fees, related to this settlement. The liability associated with these charges
is included in Litigation settlement reserves on the accompanying balance
sheet. During the first quarter of fiscal 2005, the Company paid the US
Government $5.0 million pursuant to a written settlement agreement with the
DOD, as explained more fully in Liquidity and Capital Resources, below. 29




---



##### Table of Contents



In February 2004, a plaintiff class filed a motion claiming damages due to Del
Globals failure to timely complete a registration statement for the shares of
common stock issuable upon exercise of warrants which were issued in
conjunction with a class action settlement approved by the courts in January
2002. In settlement of this matter, Del Global modified the exercise, or
strike, price of the warrants issued in 2002 from $2.00 to $1.50 per share,
and extended the expiration date of such warrants by one year to March 28,
2009. During the fourth quarter of Fiscal 2004, the Company recorded a charge
of approximately $0.5 million to Litigation Settlement Costs in recognition of
the modification to the warrants and the related legal and professional fees
incurred. As
a result of the foregoing, we recognized operating income of $0.2 million in
fiscal 2004 as compared to an operating loss of $6.1 million in fiscal 2003.
The Medical Systems Group posted operating income of $5.4 million in fiscal
2004 as compared to $1.0 million in fiscal 2003. This was offset by operating
losses of $1.6 million and $1.3 million at the Power Conversion Group in 2004
and 2003, respectively. Unallocated corporate costs were $3.7 million in
fiscal 2004 as compared to $5.8 million in fiscal 2003. Interest expense for fiscal 2004 was higher than the prior years comparable
period reflecting $0.6 million in fees related to an amendment of the GECC
Facility. During fiscal 2003, the Company recognized other income 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. During fiscal year 2004, the Company recognized other
income of $0.1 million, which included $0.2 million of income related to
favorable settlements of product royalty disputes, offset by other losses. The provision for income taxes for 2004 reflects the establishment of a $9.8
million deferred tax valuation allowance as discussed in Critical Accounting
Policies, above. As of July 31, 2004 the Companys domestic deferred tax
assets are subject to a 100% valuation allowance based on managements analysis
of the likelihood of the recoverability of the remaining domestic deferred tax
assets. Any remaining deferred tax assets on our balance sheet as of July 31,
2004 relate to our Villa subsidiary which has been historically profitable.
During fiscal 2003, the Company established a $7.9 million valuation allowance,
as discussed above. Minority interest for fiscal 2004 was $0.6 million as compared to $0.1 million
in fiscal 2003. This increase reflects the improved operating results of our
foreign subsidiary in the Medical Systems Group. As discussed above, Discontinued Operations are related to our Del High Voltage
Division, which was sold on October 1, 2004. Discontinued operations in fiscal
2004 included a write down of assets to net realizable value of $3.5 million
and losses from operations of $1.6 million. In fiscal 2003, discontinued
operations had net income of $0.1 million. Reflecting the above, we recorded a net loss of $15.8 million, or $1.53 per
share, in fiscal 2004 as compared to a net loss of $15.0, or $1.45 per share
million in fiscal 2003. Fiscal 2003 Compared to Fiscal 2002  Continuing Operations Consolidated net sales of $68.2 million for fiscal 2003 were comparable to
fiscal 2002 net sales of $68.3 million, with increases at our Medical Systems
Group, 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 euros. However, on a proforma basis, 30




---



##### Table of Contents



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
$12.1 million decreased by 9% from fiscal 2002 levels, primarily reflecting
disruptions due to the DOD investigation. Consolidated backlog at August 2, 2003 was $16.3 million versus backlog at
August 3, 2002 of approximately $14.1 million. The increase in backlog from
beginning of year levels was across all business units. Substantially all of
the backlog should result in shipments within the next 12 months. Gross margins as a percent of sales were 23% for fiscal 2003, compared to
22% in fiscal 2002. The Power Conversion Groups fiscal 2003 margins were 29%,
versus 18% 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 were, partially offset by
depressed margins at RFI in the first quarter due to the DOD investigation.
Despite expected operating efficiencies due to increased shipments, the Medical
Systems Groups gross margins of 22% were comparable to the prior year period,
primarily due to the higher margins in the prior year from shipment of
previously written off product. Selling, general & administrative (SG&A) expenses for fiscal 2003 of
$17.9 million (or 26% of sales) included unusually high legal and accounting
fees of $2.3 million, incurred in connection with legal matters (including $0.4
million of legal costs associated with a proxy contest). 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 $16.0 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 $2.7 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 of $128 for fiscal 2003 relate to the
build out of corporate office space within the facility in Valhalla shared by
the discontinued DHV division. 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 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 US Government
regarding a potential comprehensive settlement of the ongoing DOD investigation
of our RFI subsidiary. Based on preliminary settlement discussions with the US
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 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. 31




---



##### Table of Contents



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 $10.5 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 against our domestic
deferred tax assets as discussed in Critical Accounting Policies, above. Any
remaining deferred tax activity recorded in fiscal 2003 relates to adjustments
recorded at Villa. Discontinued Operations As discussed above, Discontinued Operations are related to our Del High Voltage
Division, which was sold on October 1, 2004. In fiscal 2003, discontinued
operations had net income of $0.1 million as compared to a loss of $2.1 million
in fiscal 2002. 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 earnings per share amounts reflect the 2,500,000
additional shares issued in conjunction with the shareholder settlement. LIQUIDITY AND CAPITAL RESOURCES Fiscal 2004 Compared to Fiscal 2003 We fund our investing and working capital needs through a combination of cash
flow from operations and short-term credit facilities. Working Capital  At July 31, 2004 and August 2, 2003, our working capital was
approximately $7.8 million and $13.6 million, respectively. At such dates, we
had approximately $4.8 million and $1.4 million, respectively, in cash and cash
equivalents, the majority of which is at our Villa Subsidiary in Italy. As of
July 31, 2004, we had approximately $5.8 million of excess borrowing
availability under our domestic revolving credit facility compared to $3.8
million at August 2, 2003. In addition, as of July 31, 2004, our Villa subsidiary had an aggregate of
approximately $7.5 million of excess borrowing availability under its various
short-term credit facilities compared to $6.7 million of excess borrowing
availability at August 2, 2003. Terms of the Italian credit 32




---



##### Table of Contents



facilities do not permit the use of borrowing availability to finance operating
activities at our US subsidiaries. Cash Flows from Operating Activities  For the year ended July 31, 2004, the
Company generated approximately $6.0 million of cash from operations, compared
to a generation of $4.8 million in prior fiscal year. Contributing to cash
generation in the fiscal 2004 were increases in trade payables and accrued
liabilities. Fiscal 2003 included the 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 have expended approximately $0.5
million for facility improvements and capital equipment for the year ended July
31, 2004 compared to $2.0 million for the prior fiscal year. Fiscal 2004
capital expenditures were 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 the year ended July 31, 2004, we
repaid a total of approximately $4.2 million of indebtedness on our domestic
and Italian borrowings. In addition the Villa subsidiary paid a dividend of
approximately $2.5 million, of which $0.5 million was paid to Villas minority
shareholders. The remaining $2.0 million, net of withholding taxes was an
intercompany transaction with the Parent Company and eliminated in the
accompanying consolidated financial statements. The following table summarizes our contractual obligations, including debt and
operating leases at July 31, 2004 (in thousands): Within
    
    2-3
    
    4-5
    
    After 5Obligations
    
    Total (1)
    
    1 Year
    
    Years
    
    Years
    
    YearsLong-Term Debt Obligations
    
    $
    2,733
    
    
    $
    564
    
    
    $
    1,155
    
    
    $
    568
    
    
    $
    446Capital Lease Obligations
    
    
    3,073
    
    
    
    368
    
    
    
    897
    
    
    
    994
    
    
    
    814Subordinated Note
    
    
    2,000
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    953
    
    
    
    514
    
    
    
    421
    
    
    
    18
    
    
    
    Total Contractual Cash Obligations
    
    $
    8,759
    
    
    $
    1,446
    
    
    $
    4,473
    
    
    $
    1,580
    
    
    $
    1,260
  (1)
    
    In addition, as of July 31, 2004 we had approximately $2.7 million in
revolving credit debt in the US and $0.3 million in Italy. The Italian
credit facilities are generally renewed on a yearly basis and the GECC
Facility, as amended matures in August 2005. The maturity of the GECC
Facility is subject to acceleration upon certain events of default as
defined in the credit agreement, including uncured covenant defaults. The
maturity is also subject to acceleration upon the consummation of the
transactions contemplated by the non-binding letters of intent the Company
signed in October 2004 for the sale of the Companys remaining businesses. Credit Facility and Borrowing  The Company has a $5 million senior revolving
credit agreement, as amended, entered into on June 10, 2002 with Transamerica
Corporation. In January 2004, GECC completed the acquisition of Transamerica
Corporation and assumed the ownership and administration of our US credit
facility. This facility, as amended, expires on the earlier of August 1, 2005
or the sale of substantially all of the assets or stock of RFI or the Medical 33




---



##### Table of Contents



Systems Group Segment. Interest under the GECC facility is based on thirty day
commercial paper rates plus a margin of 3.5%. The interest rate on the
revolving line of credit was 4.75% at August 2, 2003 and 5.0% at July 31, 2004.
The GECC Facility is subject to commitment fees of 3/8% on the daily unused
portion of the facility, payable monthly. Under terms of the GECC Facility,
interest is calculated based on the higher of the actual balance, or a floor
revolving credit balance of $5 million. The GECC Facility is secured by
substantially all of the Companys accounts receivable, inventory, and fixed
assets in the US The terms of the GECC 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. As of January 31, 2004, the Company was out of compliance with the Adjusted
Earnings, Adjusted US Earnings, Senior Debt Ratio, and Fixed Charge Coverage
Ratio covenants of the GECC Facility. In March 2004, the Company received a
waiver of these covenant defaults from GECC and signed a Fourth Amendment to
the credit facility with GECC. This Fourth Amendment (i) includes revisions to
the financial covenants, (ii) provides for a $100,000 waiver fee payable
immediately and a $500,000 fee (the Performance Fee) payable to GECC earned
immediately but payable on the earlier to occur of (a) the expiration date of
the GECC Facility and/or (b) the date of repayment of all amounts outstanding
under and the termination of the GECC Facility, (iii) includes the elimination
of the early termination fee under the GECC facility, (iv) contains the consent
of GECC for the Company to obtain funding from a junior lender to fund the
proposed settlement regarding the DOD matter, (v) replaces the existing prime
rate and LIBOR pricing with pricing based on 30 day Commercial Paper plus 3.5%
and (vi) requires the Company to have entered into a written settlement
agreement regarding the DOD matter on terms acceptable to GECC and to have paid
the US Government an amount not to exceed $5.0 million with respect to such
settlement by September 30, 2004. As of July 31, 2004 the Company was out of compliance with the Fixed Charge
Coverage Ratio and Net Worth covenants of the GECC Facility due to the
impairment charges related to the treatment of DHV as a discontinued operation
and the expected selling price of DHV business unit. In September 2004, the
Company received a waiver of these covenants as well as a consent to sell the
assets of the DHV business as described herein and signed a Fifth Amendment to
the credit facility with GECC. This Fifth Amendment (i) authorizes the
borrowers to use up to $2.0 million of GECC facility borrowings to pay the
fines and restitution pursuant to the DOD settlement,(ii) (a)provides a consent
to the Company obtaining a $0.6 million intercompany loan from Villa (the
Villa Loan), (b)provides a consent for the Company to cancel approximately
$0.1 million of intercompany debt due from Villa, (c) provides a consent that
proceeds of the Villa loan, repayment of intercompany indebtedness from Villa
and dividends paid from Villa to the Company, in an aggregate amount not to
exceed $3.0 million may be paid directly to the Company for use in payment of
the DOD settlement, (iii) provides a consent to the DHV sale and (iv) modified
the expiration of the credit facility to the earlier of (a) December 31, 2004
or (b) the sale of the assets or stock of RFI or the Medical Systems Group
segment. While the Company expects to be able to meet
covenants in the GECC Facility, there can be no assurance that the Company will
be able to continue to meet them. If the Company were to breach the covenants,
GECC could accelerate the amounts due under and foreclose on assets securing
the GECC Facility and the Company would be forced to seek alternative sources
of funding for its debt repayment obligations. Previously, the Company has
breached certain financial covenants in the GECC Facility, during fiscal 2003
and fiscal 2004, for which it has obtained waivers of non-compliance. On October 25, 2004, the Company signed a Sixth Amendment to the GECC Facility.
This Sixth Amendment; (i) extends the maturity of the credit facility to the
earlier of (a) August 1, 2005 or (b) the sale of substantially all of the
assets or stock of RFI or the Medical Systems 34




---



##### Table of Contents



Group segment, (ii) reduces the maximum formula based borrowing cap from $10
million to $5 million (iii) accelerates the payment of the $500,000 Performance
Fee immediately upon signing as a charge against the credit facility, (iv)
provides for a $50,000 extension fee payable immediately as a charge against
the facility and (v) provides for an additional fee of $10,000 per month for
each month the credit facility remains outstanding subsequent to December 2004. 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 is 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 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 May 1, 2004, the Company has a frozen defined benefit plan that is under
funded. In accordance with SFAS No. 88, at the time of final settlement of the
pension plan, the Company will recognize an expense to recognize its unfunded
status. In September 2004, the Company began the process of terminating this
plan. At time of settlement, which is expected in the third quarter of fiscal
2005, the Company expects to recognize a related charge of approximately $0.5
million, including a cash disbursement of approximately $0.1 million. On March 23, 2004, we filed 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. The SEC declared this registration statement effective on May 7,
2004. Shareholders are able to exercise the warrants issued as part of the
shareholder litigation settlement and purchase the Companys common stock at a
price, as amended of $1.50 per share subject to compliance with applicable blue
sky laws. 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 the exercise
of the warrants to pay down our GECC Facility. On February 6, 2004,
a motion was filed for summary judgment to enforce a January 2002 class action
settlement agreement entered into by the Company. The motion sought damages in
the amount of $1,250,000, together with interest, costs and disbursements, and
a declaration that $2,000,0000 in promissory notes issued as part of the class
action settlement are immediately due and payable, as the value of damages due
to the Companys failure to complete the registration statement noted above. In July 2004, in settlement of this matter, Del Global modified the exercise,
or strike, price of the warrants issued in 2002 from $2.00 to $1.50 per
share, and extended the expiration date of such warrants by one year to March
28, 2009. During the fourth quarter of Fiscal 2004, the Company recorded a
charge of approximately $0.5 million to Litigation Settlement Costs in
recognition of the modification to the warrants and the related legal and
professional fees incurred As
described in Legal Proceedings Part I, Item 3 of this Annual Report, on March 8, 2002,
RFI, a subsidiary of the Company and the remaining part of the Power Conversion
Group segment, was served with a subpoena by the US Attorney for the Eastern
District of New York in connection with an 35




---



##### Table of Contents



investigation by the DOD. RFI supplies electro magnetic interference
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 was willing
to enter into negotiations regarding a comprehensive settlement of this
investigation. 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 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 $2.3 million, which represented its estimate of the low end of a
range of potential fines and legal and professional fees. Following negotiations, Del Global reached a global settlement in February
2004 with the US Government that resolves the civil and criminal matters
relating to the DODs investigation. The settlement included the Company
pleading guilty to one criminal count and agreeing to pay fines and restitution
to the US Government of $4.6 million if paid by June 30, 2004 and $5.0 million
if paid by September 30, 2004. In connection with this settlement, Del Global recognized an additional
charge of approximately $3.2 million in the second quarter of fiscal 2004.
This charge represents the difference between the $2.3 million charge taken
during the third quarter of fiscal 2003, and the up to $5.0 million in fines
and restitution, plus estimated legal and professional fees related to this
settlement. The liability associated with these charges is included in
Litigation settlement reserves on the accompanying balance sheet. On September 30, 2004,
pursuant to the terms of the settlement, Del Global fulfilled its obligation
under this agreement by paying to the US Government the sum of $5 million
representing fines and restitution. On October 7, 2004, RFI entered a criminal
guilty plea to a single count conspiracy charge pursuant to the settlement and a
criminal plea agreement. Sentencing will occur at a later date to be
determined. There can be no assurance that the court will not impose additional
fines or restitution, or that the combined civil and criminal restitution imposed
by the court will not vary significantly from the amount of fines and restitution
the Company has paid to date. Del Global has been working
with the Defense Logistics Agency, a component of the DOD, to avoid any
future limitations on the ability of the Company to do business with US
Government entities. Such limitations could include the US Government
seeking a debarment or exclusion of the Company from doing
business with US Government entities for a period of time.
The Company has made a written and oral submission to that
agency detailing the remedial measures that the Company
has taken to help ensure future compliance. If the US Government decides
not to debar RFI, Del Global, RFI and the US Government will need to
execute a written compliance agreement. No assurance can be given that
the Company, RFI and the US Government will enter into any such agreement or
that debarment will be avoided. The Company funded the $5 million paid pursuant to this settlement by a
combination of $2 million in borrowings under its GECC facility and the receipt
of a combination of dividends, return of intercompany amounts and a $0.6
million intercompany advance from the Companys Villa subsidiary, totaling $3.0
million. 36




---



##### Table of Contents



There can be no assurance that court approval will be reached and, that the
ultimate fines and outcome of any settlement will not vary significantly from
the amount of fines and restitution the Company has paid to date The Companys Board of Directors elected at the Companys Annual Meeting of
Shareholders held on May 29, 2003 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, Samuel Park. As a result of this review and based upon, among other
things, the advice of special counsel, the Companys Board of Directors has
determined that no obligation to pay these amounts has been triggered. Prior
to his departure from the Company on October 10, 2003, Mr. Park orally informed
the Company that, after reviewing the matter with his counsel, he believed that
the obligation to pay these amounts has been triggered. On October 27, 2003,
the Company received a letter from Mr. Parks counsel demanding payment of
certain sums and other consideration pursuant to the Companys employment
agreement with Mr. Park, including these change in control payments. On
November 17, 2003, the Company filed a complaint against Mr. Park seeking a
declaratory judgment that no change in control payment was or is due to Mr.
Park and that an amendment to the employment contract with Mr. Park regarding
advancement and reimbursement of legal fees is invalid and unenforceable. Mr.
Park answered the complaint and asserted counterclaims seeking payment from the
Company based on his position that a change in control occurred in June 2003.
Mr. Park is also seeking other consideration he believes he is owed under his
employment agreement. The Company filed a reply to Mr. Parks counterclaims
denying that he is entitled to any of these payments. On October 27, 2003, the
Company received a letter from Mr. Parks counsel demanding payment of certain
sums and other consideration pursuant to the Companys employment agreement
with Mr. Park, including these change of control payments. On November 17,
2003, the Company filed a complaint against Mr. Park seeking a declaratory
judgment that no change in control payment was or is due to Mr. Park, and that
an amendment to the employment contract with Mr. Park regarding advancement and
reimbursement of legal fees is invalid and unenforceable. Mr. Park answered
the complaint and asserted counterclaims seeking payment from the Company based
on his position that a change in control occurred in June 2003. Mr. Park is
also seeking other consideration he believes he is owed under his employment
agreement. The Company filed a reply to Mr. Parks counterclaims denying that
he is entitled to any of these payments. The suit is now in the discovery
phase. The parties are in the process of exchanging documents, and depositions
are to be conducted in November, 2004. If Mr. Park prevails on his claims and
the payments he seeks are required to be paid in a lump sum, these payments may
have a material adverse effect on the Companys liquidity. It is not
possible to predict the outcome of these claims; however, the Companys Board
of Directors does not believe that such a claim is reasonably likely to result
in a material decrease in the Companys liquidity in the foreseeable future. The 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. In August, 2004 the Company entered
into a settlement agreement and release with the former CFO whereby the former
officer provided a general release to the Company, including a release from any
potential claim under his change in control agreement, in exchange for
approximately $0.2 million. 37




---



##### Table of Contents



On October 1 2004, the Company completed the sale of its DHV division for $3.1
million plus the assumption of $0.8 million of liabilities as described more
fully in Note 2 of the Notes to the Consolidated Financial Statements included
in Part II, Item 8 of this Annual Report. Also during the first quarter of
fiscal 2005, the Company signed non-binding letters of intent for the sale of
the Medical Systems Group Segment and the remaining business of the Power
Conversion Group Segment. These letters of intent are non-binding and subject
to customary closing conditions, including , in the case of the Medical Systems
Group Segment, approval of the Companys stockholders. The Company also
announced in October 2005 that it may seek stockholder approval of a plan of
liquidation; however, the Board of Directors of the Company has not yet
approved any plan of liquidation. Any proceeds that may be received by
Stockholders of the Company as a result of any plan of liquidation may be
greater or less than the current market price of the Common Stock of the
Company. The Company has or had no investments in unconsolidated variable interest
entities or other off balance sheet arrangements during any of the periods
presented in this Annual Report on Form 10-K We anticipate that cash generated from strategic alternatives, including asset
sales and additional financings, operations and amounts available from credit
facilities will be sufficient to satisfy any remaining obligations under the
DOD Settlement and currently projected operating cash needs for at least the
next twelve months, and for the foreseeable future. However, there is no
assurance that any alternatives will be available to the Company on acceptable
terms at such time or at all. No assurances can be given that the Company will
be able to consummate the transactions outlined in the letters of intent, or
consummate a plan of liquidation. Effects of New Accounting Pronouncements 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 July 31, 2004
and August 2, 2003, the Company did not own any such interests that required
disclosure. 
 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 38




---



##### Table of Contents



Our US 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 July 31, 2004, 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 43% to 55% 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 US 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 US dollar value
of future Euro earnings. A 10% decline in the value of the Euro in fiscal
2004, for example, would have reduced sales by approximately $4.8 million, and
would have increased our consolidated loss from continuing operations by
approximately $464,000 (due to the reduction in the US 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. 
 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 Mark A Koch, Principal Accounting Officer, has evaluated the effectiveness
of the design and operation of the Companys disclosure controls and
procedures, as such term is defined in Rules 13a-15e and 15d-15e promulgated
under the Securities Exchange Act of 1934, as amended, as of the date of this
Annual Report. Based upon that evaluation, the Chief Executive Officer and
Principal Accounting 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, 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 July 31, 2004 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting. 39




---



##### 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 2005 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 2005 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 AND RELATED
STOCKHOLDER MATTERS 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 2005 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 2005 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 The information required by this Item 14 with respect to principal
accounting fees and services is incorporated by reference to the Companys
definitive Proxy Statement pursuant to Regulation 14A for the 2005 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. 40




---



##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Page Number(a) 1.
    
    Financial StatementsCONSOLIDATED FINANCIAL STATEMENTS OF DEL GLOBAL
TECHNOLOGIES CORP. AND SUBSIDIARIES:Report of Independent Registered Public Accounting Firm
    
    
    F1Consolidated Balance Sheets as of July 31, 2004 and August 2, 2003
    
    
    F2 - F3Consolidated Statements of Operations for the Fiscal Years Ended
July 31, 2004, August 2, 2003 and August 3, 2002
    
    
    F4Consolidated Statements of Cash Flows for the Fiscal Years Ended
July 31, 2004, August 2, 2003 and August 3, 2002
    
    
    F5Consolidated Statements of Shareholders Equity for the Fiscal Years Ended
July 31, 2004, August 2, 2003 and August 3, 2002
    
    
    F6  F7Notes to Consolidated Financial Statements for the Fiscal Years Ended
July 31, 2004, August 2, 2003 and August 3, 2002
    
    
    F8 - F312.
    
    Financial Statement SchedulesSchedule II Valuation and Qualifying Accounts
    
    
    F-32
  3.
    
    Exhibits ExhibitNumber
    
    Description of Document2.1
    
    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.2.2
    
    Asset Purchase Agreement dated as of October 1, 2004 by and between
Spellman High Voltage Electronics Corporation and Del Global
Technologies Corp. Filed as Exhibit 99.01 to Del Global
Technologies Corp. Current Report on Form 8-K filed October 7, 2004
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.
 41




---



##### Table of Contents



ExhibitNumber
    
    Description of Document3.2
    
    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.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.
 42




---



##### Table of Contents



ExhibitNumber
    
    Description of Document4.10
    
    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 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.4.16*
    
    Amendment No. 1 dated July 17, 2003 to the 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 4.1 to Del Global Technologies Corp. Quarterly Report on
Form 10-Q for the quarterly period ended November 1, 2003 and
incorporated herein by reference.10.1
    
    Intentionally Omitted10.2
    
    Intentionally Omitted.10.3
    
    Intentionally Omitted.10.4
    
    Intentionally Omitted.10.5
    
    Intentionally Omitted.10.6
    
    Intentionally Omitted.
 43




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10.7
    
    Lease Agreement dated April 7, 1992 between Messenger Realty and
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.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.
 44




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10.16
    
    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.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.
 45




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10.23
    
    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 filed as Exhibit 10.28 to Del Global
Technologies Corp. Annual Report on Form 10-K for the year ended
August 2, 2003 and incorporated herein by reference.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 filed as
Exhibit 10.29 to Del Global Technologies Corp. Annual Report on Form
10-K for the year ended August 2, 2003 and incorporated herein by
reference.
 46




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10.30
    
    Waiver, Consent and Fourth Amendment to the Loan and Security
Agreement dated as of March 12, 2004, by and among Del Global
Technologies Corp. and General Electric Capital Corporation, as
successor by assignment to Transamerica Business Corporation.
Filed as Exhibit 10.30 to Del Global Technologies Corp. Quarterly
Report on Form 10-Q for the quarterly period ended January 31, 2004
and incorporated herein by reference.10.31*
    
    Letter Agreement dated as of February 10, 2003 between Mark Koch
and Del Global Technologies Corp. Filed as Exhibit 99.01 to Del
Global Technologies Corp. Current Report on Form 8-K filed August
27, 2004 and incorporated herein by reference.10.32
    
    Non-Competition Agreement dated as of September 8, 2004 by and
between Del Global Technologies Corp. and Walter F. Schneider.
Filed as Exhibit 99.01 to Del Global Technologies Corp. Current
Report on Form 8-K filed September 10, 2004 and incorporated herein
by reference.10.33
    
    Separation Agreement and Release dated as of September 1, 2004
between Del Global Technologies Corp. and Thomas V. Gilboy. Filed
as Exhibit 99.01 to Del Global Technologies Corp. Current Report
on Form 8-K filed September 15, 2004 and incorporated herein by reference.10.34
    
    Amendment No. 1 dated as of September 15, 2004 to the Letter
Agreement dated February 10, 2003 between Mark Koch and Del Global
Technologies Corp. Filed as Exhibit 99.01 to Del Global
Technologies Corp. Current Report on Form 8-K filed September 20,
2004 and incorporated herein by reference.10.35
    
    Loan Agreement dated as of September 23, 2004 between Del Global
Technologies Corp. (Del Global) and Villa Sistemi Medicali
S.p.A., a subsidiary of Del Global. Filed as Exhibit 99.01 to Del
Global Technologies Corp. Current Report on Form 8-K filed
September 28, 2004 and incorporated herein by reference.10.36
    
    Waiver, Consent and Fifth Amendment to the Loan and Security
Agreement dated as of September 23, 2004, by and among Del Global
Technologies Corp., Bertan High Voltage Corp., RFI Corporation and
Del Medical Imaging Corp. (Borrowers) and General Electric Capital
Corporation, as successor by assignment to Transamerica Business
Capital Corporation. Filed as Exhibit 99.02 to Del Global
Technologies Corp. Current Report on Form 8-K filed September 28,
2004 and incorporated herein by reference.
 47




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10.37
    
    Settlement Agreement dated as of September 30, 2004, by and among
the United States of America, on behalf of the Department of
Defense, acting through the United States Attorneys Office for the
Eastern District of New York, Del Global Technologies Corp. and RFI
Corporation. Current Report on Form 8-K filed October 5, 2004 and
incorporated herein by reference.10.38
    
    Assignment, Assumption and Amendment of Lease dated as of October
1, 2004 among DP 16, LLC, Del Global Technologies Corp. and
Spellman High Voltage Electronics Corporation. Filed as Exhibit
99.02 to Del Global Technologies Corp. Current Report on Form 8-K
filed October 7, 2004 and incorporated herein by reference.10.39
    
    First Amendment to Villa Loan Agreement dated October 22, 2004
between Del Global Technologies Corp and Villa Sistemi Medicali,
S.p.A filed as Exhibit 99.01 to Del Global Technologies Corp .
Current Report on Form 8-K filed October 26, 2004 and incorporated
herein by reference.10.40
    
    Sixth Amendment to the Loan and Security Agreement dated as of
October 25, 2004 by and among Del Global Technologies Corp, Bertan
High Voltage Corp, RFI Corporation and Del Medical Imaging Corp
(Borrowers) and General Electric Capital Corporation as successor
to Transamerica Business Capital Corporation filed as Exhibit 99.02 to
Del Global Technologies Corp. Current Report on Form 8-K filed
October 26, 2004 and incorporated herein by reference.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 Principal Accounting Officer, Mark Koch, 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 USC. Section 1350 adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (1).
 48




---



##### Table of Contents



ExhibitNumber
    
    Description of Document32.2
    
    Certification of the Principal Accounting Officer, Mark Koch,
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  On May 7, 2004, Del Global Technologies Corp. filed a Current report on
Form 8-K reporting under Item 5, Other Events. On June 2, 2004, Del Global Technologies Corp. filed a Current report on
Form 8-K reporting under Item 5, Other Events. On June 11, 2004, Del Global Technologies Corp. filed a Current report on
Form 8-K reporting under Item 5, Other Events. On June 15, 2004, Del Global Technologies Corp. filed a Current report on
Form 8-K reporting under Item 5, Other Events. On June 13, 2004, Del Global Technologies Corp. filed a Current report on
Form 8-K reporting under Item 5, Other Events. 
 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.October 29, 2004
    By:
    /s/ Walter F. SchneiderWalter F. SchneiderPresident and Chief Executive Officer October 29, 2004
    By:
    /s/ Mark KochMark KochPrincipal Accounting Officer 49




---



##### Table of Contents



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
    
    Director  Chairman
    
    October 29, 2004Suzanne M. Hopgood/s/ Walter Schneider
    
    Director  President and
    
    October 29, 2004Chief Executive OfficerWalter Schneider/s/ Wallace Barnes
    
    Director
    
    October 29 2004Wallace Barnes/s/ Gerald M. Czarnecki
    
    Director
    
    October 29, 2004Gerald M. Czarnecki/s/ David W. Wright
    
    Director
    
    October 29, 2004David W. Wright/s/ Edgar J. Smith, Jr.
    
    Director
    
    October 29, 2004Edgar J. Smith, Jr./s/ James Henderson
    
    Director
    
    October 29, 2004James Henderson/s/ Michael Cheshire
    
    Director
    
    October 29, 2004Michael Cheshire
 50




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm 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 July 31, 2004 and August 2, 2003, and
the related consolidated statements of operations, shareholders equity and
cash flows for each of the three fiscal years in the period ended July 31,
2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Del Global Technologies Corp. and
subsidiaries at July 31, 2004 and August 2, 2003, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended July 31, 2004, 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 entered into non-binding letters of intent for the sale of both of its
operating segments. Additionally, the Company may seek stockholder approval of
a plan of liquidation; however, the Board of Directors has not yet approved any
plan of liquidation. The financial statements do not reflect any adjustments
which may be required should a plan of liquidation be adopted by the Board of
Directors and approved by the stockholders. /s/ DELOITTE & TOUCHE LLP New York, New York
October 28, 2004 F-1




---



##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
 July 31,
    
    August 2,2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,755
    
    
    $
    1,381Trade receivables (net of allowance for
doubtful accounts of $888 and $1,232
for 2004 and 2003, respectively)
    
    
    12,900
    
    
    
    17,063Inventory
    
    
    15,122
    
    
    
    18,448Assets attributable to discontinued
operation, at net realizable value
    
    
    4,369
    
    
    
    Deferred income tax assets  current
    
    
    
    
    
    
    2,591Prepaid expenses and other current assets
    
    
    1,068
    
    
    
    730Total current assets
    

    
    38,214
    
    
    
    40,213NON-CURRENT ASSETS:Refundable income taxes
    
    
    
    
    
    
    55Fixed assets, net
    
    
    6,907
    
    
    
    9,293Deferred income tax assets  non-current
    
    
    1,102
    
    
    
    6,148Goodwill
    
    
    1,911
    
    
    
    3,239Other intangible assets, net
    
    
    103
    
    
    
    333Other assets
    
    
    1,024
    
    
    
    1,211Total non-current assets
    
    
    11,047
    
    
    
    20,279TOTAL ASSETS
    
    $
    49,261
    
    
    $
    60,492
 See notes to consolidated financial statements F-2




---



##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except share data) July 31,
    
    August 2,2004
    
    2003LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Short-term credit facilities
    
    $
    2,699
    
    
    $
    6,446Current portion of long-term debt
    
    
    730
    
    
    
    655Accounts payable  trade
    
    
    10,926
    
    
    
    8,990Accrued liabilities
    
    
    8,920
    
    
    
    7,730Net liabilities attributable to discontinued operations
    
    
    958
    
    
    
    Litigation settlement reserves
    
    
    5,148
    
    
    
    2,553Income taxes payable
    
    
    1,069
    
    
    
    241Total current liabilities
    
    
    30,450
    
    
    
    26,615NON-CURRENT LIABILITIES:Long-term debt
    
    
    5,076
    
    
    
    5,312Subordinated note
    
    
    1,962
    
    
    
    1,788Other long-term liabilities
    
    
    2,462
    
    
    
    2,545Other liabilities attributable to discontinued operations
    
    
    147
    
    
    
    Total non-current liabilities
    
    
    9,647
    
    
    
    9,645Total liabilities
    
    
    40,097
    
    
    
    36,260COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN SUBSIDIARY
    
    
    1,389
    
    
    
    1,253SHAREHOLDERS EQUITY:Common stock  $.10 par value; authorized - 20,000,000
shares; issued  10,978,581 and 10,976,081 shares at
July 31, 2004 and August 2, 2003
    
    
    1,098
    
    
    
    1,097Additional paid-in capital
    
    
    64,072
    
    
    
    63,682Accumulated other comprehensive income
    
    
    792
    
    
    
    563Accumulated deficit
    
    
    (52,641
    )
    
    
    (36,817
    )Less common stock in treasury  643,533 shares at
July 31, 2004 and August 2, 2003
    
    
    (5,546
    )
    
    
    (5,546
    )Total shareholders equity
    
    
    7,775
    
    
    
    22,979TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    49,261
    
    
    $
    60,492
 See notes to consolidated financial statements F-3




---



##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, except per share amounts)
 Fiscal years EndedJuly 31,
    
    August 2,
    
    August 3,2004
    
    2003
    
    2002NET SALES
    
    $
    83,827
    
    
    $
    68,212
    
    
    $
    68,288COST OF SALES
    
    
    62,512
    
    
    
    52,542
    
    
    
    53,573GROSS MARGIN
    
    
    21,315
    
    
    
    15,670
    
    
    
    14,715Selling, general and administrative
    
    
    15,907
    
    
    
    17,904
    
    
    
    16,041Research and development
    
    
    1,562
    
    
    
    1,593
    
    
    
    1,502Litigation settlement costs
    
    
    3,652
    
    
    
    2,126
    
    
    
    7,713Facilities reorganization costs
    
    
    
    
    
    
    128
    
    
    
    Total operating expenses
    
    
    21,121
    
    
    
    21,751
    
    
    
    25,256OPERATING INCOME (LOSS)
    
    
    194
    
    
    
    (6,081
    )
    
    
    (10,541
    )Interest expense (net of interest income of
$20, $10 and $449 in 2004, 2003 and 2002,
respectively)
    
    
    (1,796
    )
    
    
    (1,340
    )
    
    
    (1,198
    )Other income
    
    
    123
    
    
    
    596
    
    
    
    35LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST
    
    
    (1,479
    )
    
    
    (6,825
    )
    
    
    (11,704
    )INCOME TAX PROVISION (BENEFIT)
    
    
    8,691
    
    
    
    8,233
    
    
    
    (1,982
    )LOSS FROM
CONTINUING OPERATIONS BEFORE MINORITY
INTEREST
    
    
    (10,170
    )
    
    
    (15,058
    )
    
    
    (9,722
    )MINORITY INTEREST
    
    
    559
    
    
    
    115
    
    
    
    197LOSS FROM CONTINUING OPERATIONS
    
    $
    (10,729
    )
    
    $
    (15,173
    )
    
    $
    (9,919
    )DISCONTINUED OPERATIONS
    
    
    (5,095
    )
    
    
    128
    
    
    
    (2,093
    )NET LOSS
    
    $
    (15,824
    )
    
    $
    (15,045
    )
    
    $
    (12,012
    )NET LOSS PER BASIC AND DILUTED SHAREContinuing operations
    
    $
    (1.04
    )
    
    $
    (1.46
    )
    
    $
    (1.14
    )Discontinued operations
    
    
    (0.49
    )
    
    
    0.01
    
    
    
    (0.24
    )Net loss per basic and diluted share
    
    $
    (1.53
    )
    
    $
    (1.45
    )
    
    $
    (1.38
    )
 See notes to consolidated financial statements F-4




---



##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
 Fiscal years EndedJuly 31,
    
    August 2,
    
    August 3,2004
    
    2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESLoss from continuing operations
    
    $
    (10,729
    )
    
    $
    (15,173
    )
    
    $
    (9,919
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activitiesDepreciation and amortization
    
    
    1,425
    
    
    
    2,611
    
    
    
    2,717Deferred income tax provision (benefit)
    
    
    7,678
    
    
    
    7,950
    
    
    
    (3,592
    )Loss on sale of fixed assets
    
    
    50
    
    
    
    42
    
    
    
    Loss on sale of marketable securities and investment
    
    
    
    
    
    
    
    
    
    
    40Non cash litigation settlement costs
    
    
    350
    
    
    
    
    
    
    
    7,050Non cash pension cost
    
    
    (9
    )
    
    
    
    
    
    
    Imputed interest  subordinated note
    
    
    175
    
    
    
    177
    
    
    
    91Minority interest
    
    
    559
    
    
    
    115
    
    
    
    197Stock based compensation expense
    
    
    38
    
    
    
    135
    
    
    
    150Other
    
    
    
    
    
    
    (29
    )
    
    
    Changes in operating assets and liabilities:Decrease in trade receivables
    
    
    309
    
    
    
    3,783
    
    
    
    1,079(Increase) Decrease in inventory
    
    
    (1,291
    )
    
    
    3,587
    
    
    
    7,110Decrease (Increase) in prepaid expenses and other current
assets
    
    
    (318
    )
    
    
    1,018
    
    
    
    (1,184
    )Decrease (Increase) in other assets
    
    
    225
    
    
    
    216
    
    
    
    (129
    )Decrease in income tax receivable
    
    
    54
    
    
    
    4,086
    
    
    
    1,282Increase (Decrease) in accounts payable  trade
    
    
    3,351
    
    
    
    (2,104
    )
    
    
    1,558Increase (Decrease) in accrued liabilities
    
    
    3,485
    
    
    
    (1,559
    )
    
    
    2,087Decrease in deferred compensation liability
    
    
    
    
    
    
    
    
    
    
    (21
    )Increase (Decrease) in income taxes payable
    
    
    833
    
    
    
    (126
    )
    
    
    (137
    )(Decrease) Increase in other long-term liabilities
    
    
    (194
    )
    
    
    84
    
    
    
    (18
    )Net cash provided by operating activities
    
    
    5,991
    
    
    
    4,813
    
    
    
    8,361DISCONTINUED OPERATIONS
    
    
    2,229
    
    
    
    128
    
    
    
    (2,093
    )CASH FLOWS FROM INVESTING ACTIVITIESFixed assets purchases
    
    
    (517
    )
    
    
    (1,971
    )
    
    
    (1,150
    )Proceeds from sale of fixed assets
    
    
    50
    
    
    
    
    
    
    
    Proceeds from sale of marketable securities and investment
    
    
    
    
    
    
    45
    
    
    
    294Net cash used in investing activities
    
    
    (467
    )
    
    
    (1,926
    )
    
    
    (856
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from bank borrowings
    
    
    
    
    
    
    
    
    
    
    201Repayment of bank borrowings
    
    
    (4,224
    )
    
    
    (2,630
    )
    
    
    (5,848
    )Exercise of stock options
    
    
    2
    
    
    
    
    
    
    
    Dividend paid to minority shareholders
    
    
    (430
    )Debt and other issuance costs
    
    
    
    
    
    
    
    
    
    
    (338
    )Net cash used in financing activities
    
    
    (4,652
    )
    
    
    (2,630
    )
    
    
    (5,985
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    273
    
    
    
    101
    
    
    
    66CASH AND CASH EQUIVALENTS INCREASE (DECREASE)
FOR THE YEAR
    
    
    3,374
    
    
    
    486
    
    
    
    (507
    )CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR
    
    
    1,381
    
    
    
    895
    
    
    
    1,402CASH AND CASH EQUIVALENTS, END OF THE YEAR
    
    $
    4,755
    
    
    $
    1,381
    
    
    $
    895SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    1,296
    
    
    $
    999
    
    
    $
    1,220Cash paid during the period for income taxes
    
    
    322
    
    
    
    429
    
    
    
    361
 See notes to consolidated financial statements F-5




---



##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Dollars in Thousands)
 Obligation
    
    AccumulatedCommon
    
    Additional
    
    to issue
    
    Other Compre-
    
    
    
    Treasury StockStock Issued
    
    Paid-In
    
    Shares &
    
    hensive Income

    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Warrants
    
    (Loss)
    
    Deficit
    
    Shares
    
    Amount
    
    TotalBALANCE, JULY 29, 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
    )Foreign exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (423
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (423
    )Accumulated unfunded obligation for
pension trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,850
    )BALANCE, 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
 F-6




---



##### Table of Contents



DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in Thousands) Common
    
    
    
    
    
    Obligation
    
    AccumulatedStock Issued
    
    Additional
    
    to issue
    
    Other Compre-
    
    
    
    Treasury StockPaid-In
    
    Shares &
    
    hensive Income
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Warrants
    
    (Loss)
    
    Deficit
    
    Shares
    
    Amount
    
    TotalBALANCE, AUGUST 2, 2003
    
    
    10,976,081
    
    
    $
    1,097
    
    
    $
    63,682
    
    
    $
    
    
    
    $
    563
    
    
    $
    (36,817
    )
    
    
    643,533
    
    
    $
    (5,546
    )
    
    $
    22,979Issuance of stock on exercise of options
    
    
    2,500
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Compensation cost of non-employee stock
options and warrants issued
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Warrant modification costs
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,824
    )
    
    
    
    
    
    
    
    
    
    
    (15,824
    )Accumulated unfunded obligation for
pension trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Foreign exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,595
    )BALANCE, JULY 31, 2004
    
    
    10,978,581
    
    
    $
    1,098
    
    
    $
    64,072
    
    
    $
    
    
    
    $
    792
    
    
    $
    (52,641
    )
    
    
    643,533
    
    
    $
    (5,546
    )
    
    $
    7,775
 See notes to consolidated financial statements F-7




---



##### 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 key electronic components such as transformers, noise suppression
filters and high voltage capacitors for use in precision regulated high voltage
applications. As of July 31, 2004, the Companys Board committed to a plan to dispose of its
Del High Voltage Division (DHV) and on October 1, 2004, we sold this division
for a purchase price of $3.1 million, plus the assumption of approximately $0.8
million of liabilities. Accordingly, the results of operations have been
reclassified to show this division as a discontinued operation. See Note 2,
Discontinued Operations. On October 4, 2004, the Company announced that it had entered into non-binding
letters of intent for the sale of both the Medical Systems Group Segment and
the remainder of the Power Conversion Group Segment. At its stockholder
meeting, the Company intends to seek approval under New York law for the sale
of the Medical Systems Group Segment in the event a definitive agreement is
entered into for such sale. There can be no assurance that these non-binding
letters of intent will result in the consummation of the sale of these segments
or that the strategic alternatives process initiated by the Company will lead
to any other transactions. The Company may seek Stockholder approval of a plan
of liquidation; however, the Board of Directors of the Company has not yet
approved any plan of liquidation. Any proceeds that may be received by
Stockholders of the Company as a result of any plan of liquidation may be
greater or less than the current market price of the Common Stock of the
Company. 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. F-8




---



##### Table of Contents



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 Companys 80% owned
subsidiary Villa Sistemi Medicali S.p.A. (Villa), results are consolidated
into Del Globals consolidated financial statements based on a fiscal year that
ends on June 30 and reported on a one month lag. 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. 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 F-9




---



##### Table of Contents



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-10




---



##### Table of Contents



The following table shows the Companys fiscal 2004, 2003 and 2002 results as
if SFAS 142 had been adopted at the beginning of each period presented: For fiscal years endedJuly 31, 2004
    
    August 2, 2003
    
    August 3, 2002Net loss  as reported:
    
    $
    (15,824
    )
    
    $
    (15,045
    )
    
    $
    (12,012
    )Add: goodwill amortization, net of taxes
    
    
    
    
    
    
    
    
    
    
    131Net loss  as adjusted
    
    $
    (15,824
    )
    
    $
    (15,045
    )
    
    $
    (11,881
    )Loss per share  Basic and dilutedAs reported
    
    $
    (1.53
    )
    
    $
    (1.45
    )
    
    $
    (1.38
    )Add: goodwill amortization
    
    
    
    
    
    
    
    
    
    
    .01As adjusted
    
    $
    (1.53
    )
    
    $
    (1.45
    )
    
    $
    (1.37
    )
 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 $550 and $1,222 at July 31, 2004 and
August 2, 2003, respectively. 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 $181, $465, and $652 for fiscal years
2004, 2003 and 2002, respectively Research and Development Costs-Research and development costs are recognized
as an expense in the period in which they are incurred. F-11




---



##### Table of Contents



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. 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 July 31, 2004. 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 July 31, 2004, August 2, 2003
and August 3, 2002 would have been stated at the pro forma amounts indicated
below: For fiscal years endedJuly 31, 2004
    
    August 2, 2003
    
    August 3, 2002Net loss  as reported:
    
    $
    (15,824
    )
    
    $
    (15,045
    )
    
    $
    (12,012
    )Add: Total stock-based awards under fair
value method
    
    
    (456
    )
    
    
    (644
    )
    
    
    (538
    )Pro forma net loss
    
    $
    (16,280
    )
    
    $
    (15,689
    )
    
    $
    (12,550
    )Loss per share  Basic and dilutedAs reported
    
    $
    (1.53
    )
    
    $
    (1.45
    )
    
    $
    (1.38
    )Pro forma
    
    $
    (1.58
    )
    
    $
    (1.52
    )
    
    $
    (1.45
    )Weighted average number of shares outstanding
    
    
    10,333,668
    
    
    
    10,341,430
    
    
    
    8,680,848
 F-12




---



##### Table of Contents



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. Recent Accounting Pronouncements- In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities. In December 2003, the FASB
issued FIN No. 46 Revised (FIN 46-R) to address certain FIN 46 implementation
issues. This interpretation requires that the assets, liabilities, and results
of activities of a Variable Interest Entity (VIE) be consolidated into the
financial statements of the enterprise that has a controlling interest in the
VIE. FIN 46-R also requires additional disclosures by primary beneficiaries
and other significant variable interest holders. For entities acquired or
created before May 3, 2003, this interpretation is effective no later than the
end of the first interim or annual reporting period ending after March 15,
2004, except for those VIEs that are considered to be special purpose
entities, for which the effective date is no later than the end of the first
interim or annual reporting period ending after December 15, 2003. For all
entities that were acquired subsequent to May 1, 2003, this interpretation is
effective as of the first interim or annual period ending after December 31,
2003. The adoption of this interpretation did not have a material impact on
the Companys consolidated financial statements. Reclassifications-Certain prior years amounts have been reclassified to
conform to the current year presentation. 2. DISCONTINUED OPERATIONS On October 1, 2004, the Company completed the sale of its Del High Voltage
Division (DHV) for a purchase price of $3.1 million, plus the assumption of
approximately $0.8 million of liabilities. This division was formerly part
of the Power Conversion Group and designed, manufactured and marketed
proprietary precision power conversion subsystems for medical as well as
critical industrial applications. The results of operations of this division
are shown as discontinued operations in the accompanying financial statements. Certain information with respect to discontinued operations is summarized below: July 31,
    
    August 2,
    
    August 3,Years Ended
    
    2004
    
    2003
    
    2002Revenues
    
    $
    15,655
    
    
    $
    30,407
    
    
    $
    30,496Net income (loss) before income taxes
    
    
    (5,095
    )
    
    
    128
    
    
    
    (3,353
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    (1,260
    )Income (loss) from discontinued operations, net
    
    
    (5,095
    )
    
    
    128
    
    
    
    (2,093
    )
 Loss from discontinued operations, net for fiscal 2004 includes impairment
charges of $3,481 related to the write down of the DHV assets to net
realizable value and
includes a goodwill write off of $1,328 and intangible asset write off of $125
related to the DHV business recorded during the second quarter of fiscal year
2004. Assets attributable to discontinued operation consisting of
current assets of $4,369 at net realizable value, are classified as
current assets on the July 31, 2004 balance sheet. Net liabilities, consisting
of current liabilities of $958 assumed by the buyer, are classified as current
liabilities on the July 31, 2004 consolidated balance sheet. F-13




---



##### Table of Contents



3. INVENTORY July 31, 2004
    
    August 2, 2003Inventory consists of the following:Raw materials and purchased parts
    
    $
    10,839
    
    
    $
    15,161Work-in-process
    
    
    2,974
    
    
    
    3,757Finished goods
    
    
    3,845
    
    
    
    3,37717,658
    
    
    
    22,295Less: allowance for obsolete and excess inventory
    
    
    (2,536
    )
    
    
    (3,847
    )Total inventory, net
    
    $
    15,122
    
    
    $
    18,448
 The Company has pledged all of its inventories in the U.S. having a carrying
amount of approximately $5,193 and $11,392 at July 31, 2004 and August 2, 2003,
respectively, to secure its credit facility with its lender. 4. FIXED ASSETS Fixed assets consist of the following: July 31, 2004
    
    August 2, 2003Land
    
    $
    694
    
    
    $
    694Buildings
    
    
    5,983
    
    
    
    5,772Machinery and equipment
    
    
    6,074
    
    
    
    14,413Furniture and fixtures
    
    
    697
    
    
    
    1,814Leasehold improvements
    
    
    813
    
    
    
    2,353Transportation equipment
    
    
    72
    
    
    
    63Computers and other equipment
    
    
    3,934
    
    
    
    4,07518,267
    
    
    
    29,184Less: accumulated depreciation and amortization
    
    
    (11,360
    )
    
    
    (19,891
    )Fixed assets, net
    
    $
    6,907
    
    
    $
    9,293
 The Company has pledged all of its fixed assets in the U.S. having a carrying
amount of approximately $2,332 and $4,657 at July 31, 2004 and August 2, 2003,
respectively, to secure its credit facility with its lender. Depreciation expense for fiscal 2004, 2003, and 2002 was $1,359, $1,291, and
$1,038, respectively. 5. 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 F-14




---



##### Table of Contents



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. During fiscal year 2004, due to continuing operating losses at the Companys
Del High Voltage division, the Company concluded that sufficient indicators of
impairment were present to warrant a review of the goodwill and intangible
assets of this reporting unit. In accordance with the provisions of SFAS 142,
based on a recent valuation of this reporting unit, the Company compared the
implied fair value of the goodwill to the actual carrying value at January 31,
2004, and concluded an impairment loss of $1,328 had occurred. Accordingly, a
charge of $1,328 was recorded during the second quarter of fiscal year 2004
which is reflected in the loss from Discontinued Operations on the accompanying
financial statements. 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 Company also conducted an impairment test of the carrying value of
non-compete agreements related to the Del High Voltage division. In accordance
with the provision of SFAS 144, the Company compared the expected future cash
flows related to the non-compete agreements to the carrying value and concluded
an impairment loss of $125 had occurred. Accordingly, the Company recorded a
charge of $125 during the second quarter of fiscal year 2004 which is reflected
in the loss from Discontinued Operations on the accompanying consolidated
financial statements. The components of our amortizable intangible assets are as follows: July 31, 2004
    
    August 2, 2003Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmounts
    
    Amortization
    
    Amounts
    
    AmortizationNon-Compete Agreements
    
    $
    
    
    
    $
    
    
    
    $
    902
    
    
    $
    738Distribution Network
    
    
    653
    
    
    
    550
    
    
    
    653
    
    
    
    484Total
    
    $
    653
    
    
    $
    550
    
    
    $
    1,555
    
    
    $
    1,222
 Amortization expense for intangible assets during fiscal 2004, 2003 and 2002
was $66, $144, and $188 respectively. Amortization expense of $40 was included
in discontinued operations. Estimated amortization expense for fiscal 2005 and
the five succeeding fiscal years is as follows: 2005
    
    $
    662006
    
    
    372007-2009
    
    None
 There are no components of intangible assets that have an indefinite life. F-15




---



##### Table of Contents



6. PRODUCT WARRANTIES The Companys products are covered primarily by one-year warranty plans and in
some cases optional extended contracts may be offered covering products for
periods up to five years, depending upon the product and contractual terms of
sale. The Company establishes allowances for warranties on an aggregate basis
for specifically identified, as well as anticipated, warranty claims based on
contractual terms, product conditions and actual warranty experience by product
line. The activity in warranty accounts is as follows: July 31, 2004
    
    August 2, 2003Balance at beginning of period
    
    $
    670
    
    
    $
    626Accruals of warranty claims
    
    
    1,114
    
    
    
    925Costs incurred related to warranty claims
    
    
    (754
    )
    
    
    (881
    )Balance at end of period
    
    $
    1,030
    
    
    $
    670
 7. SHORT-TERM CREDIT FACILITIES AND LONG-TERM DEBT Short-term credit facilities are summarized as follows: July 31, 2004
    
    August 2, 2003Revolving lines of credit:Domestic
    
    $
    2,699
    
    
    $
    6,246Foreign
    
    
    
    
    
    
    200$
    2,699
    
    
    $
    6,446
 At July 31, 2004 the US credit facility is for $10 million, and for a term, as
amended extends through December 31, 2004. 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, as amended, is at the 30 day commercial paper rate plus
3.5% which was 4.5% at July 31, 2004. In fiscal 2003 interest was at prime
plus 0.75%, which was 4.75% at August 2, 2003. The credit facility is subject
to commitment fees of 3/8% on the daily-unused portion of the facility, payable
monthly. The Company granted a security interest to the lender on its US
credit facility in substantially all of its accounts receivable, inventory,
fixed assets, and intellectual property in the US. 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. 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. On October 25, 2004, the Company
signed a Sixth Amendment to the GLCC Facility. This Sixth Amendment; (i) extends
the maturity of the credit facility to the credit of (a) August 2, 2005 or (b)
the sale of substantially all of the assets or stock of RFI or the
Medical Systems Group
segment, (ii) reduces
the maximum formula based borrowing cup from $10 million to $5 million (iii) accelerates the
payment of the $500 performance Fee immediately upon signing as a charge against the credit
facility, (iv) provides for a $50 extension fee payable immediately as a change against the
facility and (v) provides for as additional fee of $10 per month for each month the credit
facility
remains outstanding subsequent to December 2004. During Fiscal 2004, the Company had breached various financial covenants
contained in its US credit facility and obtained waivers in each instance. 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 5.0% to 12.0%. The total F-16




---



##### Table of Contents



amount outstanding on the Villa short-term credit facilities at July 31, 2004
and August 2, 2003 was $0 and $200, respectively. Long-Term Debt- Long-term debt was comprised of the following: July 31, 2004
    
    August 3, 2002
    
    Interest RateItalian subsidiarys total long-term debt:Capital lease obligation
    
    $
    3,073
    
    
    $
    3,072
    
    
    
    5.0
    %Medium-term credit facilities with
commercial institutions
    
    
    936
    
    
    
    1,188
    
    
    Euribor + 1.0
    %Italian Government long-term loans
    
    
    1,797
    
    
    
    1,707
    
    
    
    3.4
    %5,806
    
    
    
    5,967Less: current portion
    
    
    (730
    )
    
    
    (655
    )Long-term debt
    
    $
    5,076
    
    
    $
    5,312
 The variable interest rate at July 31, 2004 and August 2, 2003 on the
medium-term credit facility, based on the formula Euribor + 1%, was 3.1% and
3.7%, 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 through March 2007.
Payments relating to the two Italian Government long-term loans are due
annually through February 2010, and 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 July 31, 2004 was $
1,962. The Company is obligated to make principal payments under its long-term debt,
subordinated note (Debt) and capital lease as follows: CapitalFiscal Years Ending
    
    Debt
    
    Lease
    
    Total2005
    
    $
    564
    
    
    $
    3682006
    
    
    573
    
    
    
    4002007
    
    
    2,544
    
    
    
    4972008
    
    
    279
    
    
    
    4972009
    
    
    289
    
    
    
    4972010 and beyond
    
    
    446
    
    
    
    870Purchase option
    
    
    
    
    
    
    936Total payments
    
    
    4,695
    
    
    
    4,065Less: amount representing interest
    
    
    
    
    
    
    (992
    )Total
    
    $
    4,695
    
    
    $
    3,073
    
    
    $
    7,768
 F-17




---



##### Table of Contents



8. 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 2004, 2003 or 2002. 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 $136 and $126 for fiscal 2004 and 2003,
respectively. The Company also has a defined benefit Plan, which was frozen effective
February 1, 1986. As of July 31, 2004, 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. In September 2004, the Company began the process
of terminating this plan which is expected to be completed by the third quarter
of fiscal 2005, 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 $100. 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
included in other long-term liabilities on the accompanying Consolidated
Balance Sheets and was $2,362 and $2,207 at July 31, 2004 and August 2, 2003,
respectively. Provisions for employee termination indemnities were $388, $364
and $256 for Fiscal years 2004, 2003 and 2002, respectively. 9. 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. F-18




---



##### Table of Contents



The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Balance Sheet information
presented below and Income Statement related disclosure below for all periods
presented exclude the results of the DHV division due to this divisions
classification as a discontinued operation at July 31, 2004. Selected financial data of these segments are as follows: Medical
    
    PowerFiscal Year Ended
    
    Systems
    
    ConversionJuly 31, 2004
    
    Group
    
    Group
    
    Other
    
    TotalNet sales to external customers
    
    $
    70,752
    
    
    $
    13,075
    
    
    $
    
    
    
    $
    83,827Cost of sales
    
    
    53,392
    
    
    
    9,120
    
    
    
    
    
    
    
    62,512Gross margin
    
    
    17,360
    
    
    
    3,955
    
    
    
    
    
    
    
    21,315Selling, general and administrative
    
    
    10,388
    
    
    
    2,310
    
    
    
    3,209
    
    
    
    15,907Research and development
    
    
    1,562
    
    
    
    
    
    
    
    
    
    
    
    1,562Litigation settlement costs
    
    
    
    
    
    
    3,199
    
    
    
    453
    
    
    
    3,652Total operating expenses
    
    
    11,950
    
    
    
    5,509
    
    
    
    3,662
    
    
    
    21,121Operating income (loss)
    
    $
    5,410
    
    
    $
    (1,554
    )
    
    $
    (3,662
    )
    
    
    194Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,796
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123Loss from continuing operations,
before income taxes and
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,479
    )Depreciation
    
    $
    879
    
    
    $
    311
    
    
    $
    169
    
    
    $
    1,359Amortization
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Segment assets
    
    
    37,308
    
    
    
    6,161
    
    
    
    5,792
    
    
    
    49,261Expenditures for segment assets
    
    
    440
    
    
    
    75
    
    
    
    2
    
    
    
    517
 Segment assets for the other segment include $4,369 of assets attributable to
discontinued operations at net realizable value. Inter-segment sales were $28 for fiscal year ended July 31, 2004.
Approximately $29,375 of Medical Systems Group assets are located in Italy. Medical
    
    PowerFiscal Year Ended
    
    Systems
    
    ConversionAugust 2, 2003
    
    Group
    
    Group
    
    Other
    
    TotalNet sales to external customers
    
    $
    56,100
    
    
    $
    12,112
    
    
    $
    
    
    
    $
    68,212Cost of sales
    
    
    43,929
    
    
    
    8,613
    
    
    
    
    
    
    
    52,542Gross margin
    
    
    12,171
    
    
    
    3,499
    
    
    
    
    
    
    
    15,670Selling, general and administrative
    
    
    9,609
    
    
    
    2,432
    
    
    
    5,863
    
    
    
    17,904Research and development
    
    
    1,583
    
    
    
    10
    
    
    
    
    
    
    
    1,593Litigation settlement costs
    
    
    
    
    
    
    2,347
    
    
    
    (221
    )
    
    
    2,126Facilities reorganization costs
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    128Total operating expenses
    
    
    11,192
    
    
    
    4,789
    
    
    
    5,770
    
    
    
    21,751Operating income (loss)
    
    $
    979
    
    
    $
    (1,290
    )
    
    $
    (5,770
    )
    
    
    (6,081
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596Loss before income taxes and
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,825
    )Depreciation
    
    $
    897
    
    
    $
    362
    
    
    $
    32
    
    
    $
    1,291Amortization
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    65Segment assets
    
    
    31,440
    
    
    
    20,259
    
    
    
    8,793
    
    
    
    60,492Expenditures for segment assets
    
    
    740
    
    
    
    148
    
    
    
    
    
    
    
    888
 F-19




---



##### Table of Contents



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
    
    
    $
    13,274
    
    
    $
    
    
    
    $
    68,288Cost of sales
    
    
    42,707
    
    
    
    10,866
    
    
    
    
    
    
    
    53,573Gross margin
    
    
    12,307
    
    
    
    2,408
    
    
    
    
    
    
    
    14,715Selling, general and administrative
    
    
    8,305
    
    
    
    3,342
    
    
    
    4,394
    
    
    
    16,041Research and development
    
    
    1,407
    
    
    
    95
    
    
    
    
    
    
    
    1,502Litigation settlement costs
    
    
    
    
    
    
    50
    
    
    
    7,663
    
    
    
    7,713Total operating expenses
    
    
    9,712
    
    
    
    3,487
    
    
    
    12,057
    
    
    
    25,256Operating income (loss)
    
    $
    2,595
    
    
    $
    (1,079
    )
    
    $
    (12,057
    )
    
    $
    (10,541
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,198
    )Other income Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Loss before income tax benefit
and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (11,704
    )Depreciation
    
    $
    657
    
    
    $
    381
    
    
    $
    
    
    
    $
    1,038Amortization
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    276Segment assets
    
    
    32,038
    
    
    
    24,946
    
    
    
    20,713
    
    
    
    77,697Expenditures for segment assets
    
    
    574
    
    
    
    26
    
    
    
    
    
    
    
    600
 Inter-segment sales were $359 for fiscal year ended August 3, 2002.
Approximately $21,565 of Medical Systems Group assets are located in Italy. Major Customers and Export Sales- During fiscal years ended 2004, 2003 and
2002, no one customer accounted for more than 10% of the Companys consolidated
net sales. Export sales were 29%, 30% and 34% of the Companys consolidated net sales in
fiscal years ended July 31, 2004, August 2, 2003, and August 3, 2002,
respectively. Net sales by geographic areas were: July 31, 2004
    
    August 2, 2003
    
    August 3, 2002United States / Canada
    
    $
    38,186
    
    
    
    46
    %
    
    $
    39,772
    
    
    
    58
    %
    
    $
    36,252
    
    
    
    53
    %Europe
    
    
    24,192
    
    
    
    29
    %
    
    
    20,717
    
    
    
    30
    %
    
    
    19,034
    
    
    
    28
    %Far East
    
    
    7,941
    
    
    
    9
    %
    
    
    4,686
    
    
    
    7
    %
    
    
    5,560
    
    
    
    8
    %Mexico, Central and South America
    
    
    10,705
    
    
    
    13
    %
    
    
    1,318
    
    
    
    2
    %
    
    
    3,387
    
    
    
    5
    %Africa, Middle East and Australia
    
    
    2,803
    
    
    
    3
    %
    
    
    1,719
    
    
    
    3
    %
    
    
    4,055
    
    
    
    6
    %$
    83,827
    
    
    
    100
    %
    
    $
    68,212
    
    
    
    100
    %
    
    $
    68,288
    
    
    
    100
    %
 Revenues are attributable to geographic areas based on the location of the
customers. F-20




---



##### Table of Contents



10. SHAREHOLDERS EQUITY Comprehensive Income (Loss)The components of comprehensive income (loss) are
as follows: Foreign currency
    
    Accumulatedtranslation
    
    unfunded obligationgains/(losses)
    
    for pension trust
    
    TotalBalance as of July 29, 2001
    
    $
    (390
    )
    
    $
    (1
    )
    
    $
    (391
    )Net change
    
    
    585
    
    
    
    (423
    )
    
    
    162Balance as of August 3, 2002
    
    
    195
    
    
    
    (424
    )
    
    
    (229
    )Net change
    
    
    776
    
    
    
    16
    
    
    
    792Balance as of August 2, 2003
    
    
    971
    
    
    
    (408
    )
    
    
    563Net change
    
    
    238
    
    
    
    (9
    )
    
    
    229Balance as of July 31, 2004
    
    $
    1,209
    
    
    $
    (417
    )
    
    $
    792
 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 July 31, 2004, 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 with 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 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. Option Activity The following stock option information is as of: July 31, 2004
    
    August 2, 2003
    
    August 3, 2002Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageShares
    
    Exercise
    
    Shares
    
    Exercise
    
    Shares
    
    ExerciseOutstanding
    
    Price
    
    Outstanding
    
    Price
    
    Outstanding
    
    PriceGranted and outstanding,
beginning
of year
    
    
    2,116,815
    
    
    $
    3.12
    
    
    
    1,990,055
    
    
    $
    3.45
    
    
    
    1,825,055
    
    
    $
    3.62Granted
    
    
    110,000
    
    
    
    2.10
    
    
    
    275,000
    
    
    
    2.81
    
    
    
    165,000
    
    
    
    1.65Exercised
    
    
    (2,500
    )
    
    
    1.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled and forfeited
    
    
    (90,900
    )
    
    
    2.65
    
    
    
    (148,240
    )
    
    
    5.86
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    2,133,415
    
    
    
    3.15
    
    
    
    2,116,815
    
    
    
    3.12
    
    
    
    1,990,055
    
    
    
    3.45Exercisable at end of year
    
    
    1,913,415
    
    
    
    3.21
    
    
    
    1,661,289
    
    
    
    3.43
    
    
    
    1,471,779
    
    
    
    3.81
 F-21




---



##### Table of Contents



Pct of
    
    
    
    
    
    Pct of
    
    
    
    
    
    Pct ofShares
    
    
    
    
    
    Shares
    
    
    
    
    
    SharesShares
    
    Granted
    
    Shares
    
    Granted
    
    Shares
    
    GrantedGranted to officers
    
    
    50,000
    
    
    
    45
    %
    
    
    125,000
    
    
    
    45
    %
    
    
    155,000
    
    
    
    94
    %
 As of July 31, 2004 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
    
    
    1,442,706
    
    
    $
    1.49
    
    
    
    6.2
    
    
    
    1,252,706
    
    
    $
    1.36$4.00$6.60
    
    
    313,256
    
    
    
    4.85
    
    
    
    3.4
    
    
    
    285,756
    
    
    
    4.93$7.00$7.94
    
    
    218,275
    
    
    
    7.51
    
    
    
    9.6
    
    
    
    218,275
    
    
    
    7.51$8.00$10.00
    
    
    159,178
    
    
    
    8.92
    
    
    
    8.6
    
    
    
    156,678
    
    
    
    8.932,133,415
    
    
    $
    3.15
    
    
    
    6.3
    
    
    
    1,913,415
    
    
    $
    3.21
 At July 31, 2004 and August 2, 2003 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. On February 6, 2004, a motion was filed for summary judgment to enforce a
January 2002 class action settlement agreement entered into by the Company.
The motion sought damages in the amount of $1,250 together with interest, costs
and disbursements, and a declaration that $2,000 in promissory notes issued as
part of the class action settlement are immediately due and payable, as the
value of damages due to the Companys failure to timely complete a registration
statement related to the common shares underlying certain warrants granted in
the class action settlement. The Company filed opposition to this matter on
March 5, 2004. Plaintiffs filed reply papers on March 19, 2004. In addition,
the Company filed a registration statement related to the warrant shares on
March 23, 2004, and it was declared effective by the SEC on May 7, 2004. In
July 2004, in settlement of this matter, Del Global has modified the exercise,
or strike, price of the 1,000,000 warrants issued in 2002 from $2.00 to $1.50
per share, and extended the expiration date of such warrants by one year to
March 28, 2009. During the fourth quarter of fiscal 2004, the
company recorded a charge
of approximately $0.5 million to litigation settlement costs in
recognition of the modification to the warrants and the related legal and
professional fees incurred. As of July 31, 2004 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$1.50
    
    
    1,000,000
    
    
    March 20091,065,000
 An expense has been recognized for the fair value of options and warrants
granted to such non-employees in the amounts of $38, $135 and $150 for fiscal
years ended 2004, 2003, and 2002, F-22




---



##### Table of Contents



respectively. An expense of $1,050 has been recognized during the fiscal year
ended 2002 as litigation settlement cost for the fair value of warrants granted
to the Companys shareholders as part of the litigation settlement. 11. LOSS PER SHARE For fiscal years endedJuly 31, 2004
    
    August 2, 2003
    
    August 3, 2002Numerator:Net loss
    
    $
    (15,824
    )
    
    $
    (15,045
    )
    
    $
    (12,012
    )Denominator:Denominator for basic loss per share:Weighted average shares
outstanding
    
    
    10,333,668
    
    
    
    10,341,430
    
    
    
    8,680,848Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted loss per share
    
    
    10,333,668
    
    
    
    10,341,430
    
    
    
    8,680,848Loss per basic and diluted common share
    
    $
    (1.53
    )
    
    $
    (1.45
    )
    
    $
    (1.38
    )
 Common shares outstanding for the years ended July 31, 2004, August 2, 2003 and
August 3, 2002, were reduced by 643,533, 643,533 and 628,566 shares of treasury
stock, respectively. The computation of diluted shares outstanding does not include the effect of
the assumed conversion of 2,133,415, 2,116,815 and 1,990,055 for employee stock
options outstanding as of July 31, 2004, August 2, 2003 and August 3, 2002,
respectively, and 1,065,000 warrants to purchase company common stock for those
years because the effect of their assumed conversion would be anti-dilutive. 12. INCOME TAXES The Companys consolidated loss from continuing operations before income tax benefit and minority
interest for fiscal years 2004, 2003 and 2002 of $1,479, $6,825 and $11,704
reflecting a U.S. pre-tax loss of $5,126, $7,626 and $14,292, respectively,
offset by foreign pre-tax net income of $3,647, $801, and $2,588 for fiscal
years 2004, 2003, and 2002, respectively. Provision (Benefit) for income taxes consists of the following: For fiscal years endedJuly 31, 2004
    
    August 2, 2003
    
    August 3, 2002Current Tax Expense:Foreign
    
    $
    1,250
    
    
    $
    304
    
    
    $
    550State and local
    
    
    11Deferred (Benefit):Federal
    
    
    6,552
    
    
    
    6,938
    
    
    
    (3,230
    )State and local
    
    
    1,144
    
    
    
    1,045
    
    
    
    (72
    )Foreign
    
    
    (266
    )
    
    
    (54
    )
    
    
    770Net Provision (Benefit)
    
    $
    8,691
    
    
    $
    8,233
    
    
    $
    (1,982
    )
 F-23




---



##### Table of Contents



The following is a reconciliation of the statutory Federal and effective income
tax rates: For fiscal years endedJuly 31, 2004
    
    August 2, 2003
    
    August 3, 2002Statutory Federal Income Tax Rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%State Tax (Benefit), less Federal tax effect
    
    
    64.3
    %
    
    
    10.1
    %
    
    
    (0.4
    )%Foreign
    
    
    27.1
    %
    
    
    .3
    %
    
    
    3.7
    %Valuation Allowance
    
    
    432.4
    %
    
    
    133.7
    %
    
    
    IRS Audit Adjustments
    
    
    
    
    
    
    
    
    
    
    11.7
    %Fines & Penalties
    
    
    73.8
    %
    
    
    8.9
    %
    
    
    Other
    
    
    23.9
    %
    
    
    1.7
    %
    
    
    2.0
    %Effective tax rate
    
    
    587.6
    %
    
    
    120.7
    %
    
    
    (17.0
    )%
 Deferred income tax assets (liabilities) are comprised of the following: July 31, 2004
    
    August 2, 2003Deferred income tax assets:Federal net operating loss carryforward
    
    $
    14,364
    
    
    $
    13,163Foreign deferred tax assets
    
    
    1,102
    
    
    
    836State tax credits and operating loss carryforward
    
    
    2,980
    
    
    
    2,216Reserve for inventory obsolescence
    
    
    821
    
    
    
    1,164Allowances and reserves not currently deductible
    
    
    1,600
    
    
    
    1,381Amortization
    
    
    207
    
    
    
    153Defined benefit pension
    
    
    52
    
    
    
    60Gross deferred income tax assets
    
    
    21,126
    
    
    
    18,973Deferred income tax liabilities:Other
    
    
    (164
    )
    
    
    (168
    )Gross deferred income tax liabilities
    
    
    (164
    )
    
    
    (168
    )Less: valuation allowance
    
    
    (19,860
    )
    
    
    (10,066
    )Net deferred income tax assets
    
    $
    1,102
    
    
    $
    8,739
 Deferred income tax assets are recorded in the consolidated balance sheets as
follows: July 31, 2004
    
    August 2, 2003Deferred tax assets  current
    
    $
    
    
    
    $
    2,591Deferred tax assets  non-current
    
    
    1,102
    
    
    
    6,148$
    1,102
    
    
    $
    8,739
 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 February and again in August
2004, management concluded that it was prudent to establish an additional valuation allowance of
$7,903 against current and long-term deferred assets. Due to current results
being lower than originally anticipated, and uncertainty about F-24




---



##### Table of Contents



near term economic conditions, management concluded it was not prudent to place
reliability on the forecast component of the analyses as it had in the past. 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. The accumulated valuation allowance now covers all US domestic
current and long-term deferred assets. Likewise, a valuation allowance of $1,891 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 2004, the net deferred
income tax asset was reduced from $8,739 at August 2, 2003 to $1,102 at July
31, 2004, with $1,102 classified as a long-term asset. No assurances can be
given that the Companys results of operations will generate profits in the
future. During fiscal 2003, the Company had also reevaluated its deferred tax assets.
Due to fiscal 2003 results being lower than originally anticipated, and
uncertainty about near term economic conditions, management concluded it was
not prudent to place reliability on the 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 At July 31, 2004, for income tax purposes, the Company had Federal net
operating loss carryforwards of approximately $43,588,state net operating loss
carryforwards of $38,898 which will expire in 2020 through 2024. For foreign tax purposes, the Companys Italian subsidiary has utilized all its
available net operating loss carryforwards. 13. 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. In conjunction with this investigation, the Company
provided numerous documents and cooperated fully with the SEC staff.In May 2004, the SECs Commissioners approved a consent agreement the
Company signed with the Staff of the SEC in December 2003 for a
settlement of the SECs claims against the Company that included a
previously announced penalty of $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.
During the fourth quarter of fiscal 2004, the Company received final
court approval of this settlement and paid the related penalty of $400.Previously, the Company had reached an agreement in principle with the
SEC on these settlement terms, which management believed provided a
reasonable basis for estimating the financial impact of this SEC
investigation. As a result, the Company recorded a charge of $685 in
the fourth quarter of fiscal year 2002 related to the agreement in
principle with the SEC staff, which included associated legal costs. F-25




---



##### Table of Contents



b.
    
    USDepartment of Defense (DOD) InvestigationOn March 8, 2002,
RFI, a subsidiary of the Company and the remaining part of the Power
Conversion Group segment, was served with a subpoena by the US Attorney
for the Eastern District of New York in connection with an
investigation by the DOD. RFI supplies electro magnetic interference
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 was willing
to enter into negotiations regarding a comprehensive settlement of this
investigation. 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
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 represented its estimate of the low end of a range of potential
fines and legal and professional fees.Following negotiations, Del Global reached a global settlement in
February 2004 with the US Government that resolves the civil and
criminal matters relating to the DODs investigation. The settlement
included the Company pleading guilty to one criminal count and agreeing
to pay fines and restitution to the US Government of $4,600 if paid by
June 30, 2004 and $5,000 if paid by September 30, 2004.In connection with this settlement, Del Global recognized an additional
charge of approximately $3,199 in the second quarter of fiscal 2004.
This charge represents the difference between the $2,347 charge taken
during the third quarter of fiscal 2003, and the up to $5,000 in fines
and restitution, plus estimated legal and professional fees related to
this settlement. The liability associated with these charges is
included in Litigation settlement reserves on the accompanying balance
sheet.On September 30, 2004, pursuant to the terms of the settlement, Del Global fulfilled its
 obligation under this agreement by paying to the US Government the sum of $5 million
representing fines and restitution. On October 7, 2004, RFI entered a criminal
guilty plea to a single count conspiracy charge pursuant to the
settlement and a criminal plea agreement. Sentencing will occur at a later
date to be determined. There can be no assurance that the court will not impose
additional fines or restitution, or that the combined civil and criminal restitution
imposed by the court will not vary significantly from the amount of fines and
restitution the Company has paid to date.Del Global has been working with the Defense Logistics Agency,
a component of the DOD, to avoid any future limitations on the
ability of the Company to do business with US Government entities. Such
limitations could include the US Government seeking a debarment
or exclusion of the Company from doing business with US Government entities for a period
of time. The Company has made a written and oral submission to that agency detailing
the remedial measures that the Company has taken to help ensure future compliance. If
the US Government decides not to debar RFI, Del Global, RFI
and the US Government will need to execute a written compliance agreement.
No assurance can be given that the Company, RFI and the US Government will enter into
any such agreement or that debarment will be avoided. F-26




---



##### Table of Contents



c.
    
    Shareholder Suit On February 6, 2004, a motion was filed for
summary judgment to enforce a January 2002 class action settlement
agreement entered into by the Company. The motion sought damages in
the amount of $1,250 together with interest, costs and disbursements,
and a declaration that $2,000 in promissory notes issued as part of the
class action settlement are immediately due and payable, as the value
of damages due to the Companys failure to timely complete a
registration statement related to the common shares underlying certain
warrants granted in the class action settlement. . The Company filed
opposition to this matter on March 5, 2004. Plaintiffs filed reply
papers on March 19, 2004. In addition, the Company filed a
registration statement related to the warrant shares on March 23, 2004,
and it was declared effective by the SEC on May 7, 2004. In July
2004, in settlement of this matter, Del Global has modified the
exercise, or strike, price of the warrants issued in 2002 from $2.00
to $1.50 per share, and extended the expiration date of such warrants
by one year to March 28, 2009. During the fourth quarter of fiscal 2004, the company
recorded a charge of approximately $0.5 million to litigation  settlement costs in
recognition of the modification to the warrants and the related legal
and professional fees incurred.d.
    
    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 May 3, 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. The Company started the process of
terminating this plan in September 2004. At the time of settlement,
which is expected in the third quarter of fiscal 2005, the Company
expects to recognize a related charge of approximately $500, including
a cash disbursement of approximately $100.e.
    
    Employment Matters The Company had an employment agreement with
Samuel Park, the previous Chief Executive Officer (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 recorded a charge of $200 during the
first quarter of fiscal 2004 to accrue the balance remaining under Mr.
Parks employment agreement.In addition, the Companys Board of Directors elected at the Companys
Annual Meeting of Shareholders held on May 29, 2003 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 F-27




---



##### Table of Contents



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. On November 17, 2003, the Company
filed a complaint against Mr. Park seeking a declaratory judgment that
no change in control payment was or is due to Mr. Park, and that an
amendment to the employment contract with Mr. Park regarding advancement
and reimbursement of legal fees is invalid and unenforceable. Mr. Park
answered the complaint and asserted counterclaims seeking payment from
the Company based on his position that a change in control occurred in
June 2003. Mr. Park is also seeking other consideration he believes he
is owed under his employment agreement. The Company filed a reply to
Mr. Parks counterclaims denying that he is entitled to any of these
payments. The suit is now in the discovery phase. The parties are in
the process of exchanging documents, and depositions are to be conducted
in November, 2004. If Mr. Park prevails on his claims and the payments
he seeks are required to be paid in a lump sum, these payments may have
a material adverse effect on the Companys liquidity. It is not
possible to predict the outcome of these claims. However, the Companys
Board of Directors does not believe that such a claim is reasonably
likely to result in a material decrease in the Companys liquidity in
the foreseeable future.During fiscal 2004, the Company began employment termination proceedings
against an executive of the Company. Subsequently, the executive
instituted legal proceedings alleging certain damages based on change in
control provisions of the executives employment contract and various
additional actions or damages. The Company believes the former
executives change in control provision has not been triggered and that
such termination was justified. Thereafter, the court  issued an order
directing a subsidiary of the Company to pay damages. The Company
believes it has meritorious defenses to this matter and has filed an
appeal. However, based on the courts order, the Company has recorded a
charge in Fiscal 2004 of approximately $363 in connection with this
matter included in Litigation Settlement reserves in the accompanying
consolidated financial statements.f.
    
    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 and the
related shareholder litigation and governmental enforcement actions.
During fiscal 2004, the Company did not advance any amounts pursuant to
these agreements and 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.g.
    
    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 F-28




---



##### Table of Contents



operating leases. The future minimum annual lease commitments as of
July 31, 2004 are as follows: Fiscal Years
    
    Amount2005
    
    $
    5142006
    
    
    2912007
    
    
    1302008
    
    
    182009
    
    
    Total
    
    $
    953
  Rent expense for fiscal 2004, 2003, and 2002 was $385, $713 and $995,
respectively.h.
    
    Other Legal Matters 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 14. 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. 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: July 31, 2004
    
    August 2, 2003
    
    August 3, 2002Accrued for future periods:Expected employee termination costs
    
    
    
    
    
    
    
    
    
    $
    446Write-down of fixed assets
    
    
    
    
    
    
    
    
    
    
    Non cancelable lease obligations
    
    
    
    
    
    
    
    
    
    
    769Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    
    
    
    
    
    
    
    
    1,215Current period expenses:Actual employee termination costs
    
    $
    
    
    
    $
    279
    
    
    
    77Write-down of fixed assets
    
    
    
    
    
    
    141
    
    
    
    Construction and related costs
    
    
    
    
    
    
    368
    
    
    
    Total facilities reorganization costs
    
    $
    
    
    
    $
    788
    
    
    $
    1,292
 F-29




---



##### Table of Contents



The following table summarizes the related liabilities which are included in
accrued expenses on the accompanying balance sheet: July 31, 2004
    
    August 2, 2003
    
    August 3, 2002Liability at beginning of period
    
    $
    441
    
    
    $
    1,215
    
    
    $
    271Accruals of reorganization costs
    
    
    
    
    
    
    
    
    
    
    1,215Payments of reorganization costs
    
    
    (441
    )
    
    
    (774
    )
    
    
    (271
    )Liability at end of period
    
    $
    
    
    
    $
    441
    
    
    $
    1,215
 15. RELATED PARTIES There were no related party transactions for the fiscal year ended July 31,
2004. 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. 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, $279 and $102 of fees and expenses with Battalia Winston
International, Inc. during fiscal years 2003 and 2002, 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 and $23 of accounting fees with Michael Adest &
Company, PC during fiscal years 2003 and 2002, respectively, for tax compliance
services. David Michael, one of our former directors, had an ownership
interest in this accounting practice. 16. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED) YEAR ENDED July 31, 2004: F-30




---



##### Table of Contents



QUARTERFirst
    
    Second
    
    Third
    
    Fourth (1)Net sales
    
    $
    16,889
    
    
    $
    26,946
    
    
    $
    20,610
    
    
    $
    19,382Gross margin
    
    $
    3,784
    
    
    $
    6,531
    
    
    $
    5,020
    
    
    $
    5,980Income (loss) from continuing operations
    
    $
    (456
    )
    
    $
    (9,889
    )
    
    $
    (719
    )
    
    $
    335Discontinued operations
    
    $
    (153
    )
    
    $
    (2,465
    )
    
    $
    430
    
    
    $
    (2,907
    )Net loss
    
    $
    (609
    )
    
    $
    (12,354
    )
    
    $
    (289
    )
    
    $
    (2,572
    )Basic and diluted loss per share
Income (loss) from continuing operations
    
    $
    (0.05
    )
    
    $
    (0.96
    )
    
    $
    (0.07
    )
    
    $
    0.03Discontinued operations
    
    $
    (0.01
    )
    
    $
    (0.24
    )
    
    $
    0.04
    
    
    $
    (0.28
    )Net loss
    
    $
    (0.06
    )
    
    $
    (1.20
    )
    
    $
    (0.03
    )
    
    $
    (0.25
    )
 YEAR ENDED August 2, 2003: QUARTERFirst
    
    Second
    
    Third
    
    Fourth (2)Net sales
    
    $
    14,218
    
    
    $
    18,648
    
    
    $
    16,577
    
    
    $
    18,769Gross margin
    
    $
    2,491
    
    
    $
    4,963
    
    
    $
    3,863
    
    
    $
    4,353Loss from continuing operations
    
    $
    (2,143
    )
    
    $
    (5,317
    )
    
    $
    (3,693
    )
    
    $
    (4,020
    )Discontinued operations
    
    $
    1,537
    
    
    $
    (938
    )
    
    $
    (233
    )
    
    $
    (238
    )Net loss
    
    $
    (606
    )
    
    $
    (6,255
    )
    
    $
    (3,926
    )
    
    $
    (4,258
    )Basic and diluted loss per share
Loss from continuing operations
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.36
    )
    
    $
    (0.39
    )Discontinued operations
    
    $
    0.15
    
    
    $
    (0.09
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )Net loss
    
    $
    (0.06
    )
    
    $
    (0.60
    )
    
    $
    (0.38
    )
    
    $
    (0.41
    )
  (1)
    
    Discontinued operations for the fourth quarter of fiscal 2004
reflects an impairment loss of $3,481 against the assets of the Del
High Voltage division. In addition, continuing operations reflect a
$454 charge related to a settlement of litigation related to
warrants.(2)
    
    Loss from continuing operations 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 cost of sales. F-31




---



##### Table of Contents



(3)
    
    DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts
(Dollars in Thousands) Balance at
    
    Charged toBeginning of
    
    Costs and
    
    
    
    
    
    Balance atYear
    
    Expense
    
    Deductions
    
    End of YearYear Ended July 31, 2004Allowance for doubtful
accounts
    
    
    1,232
    
    
    
    501
    
    
    
    845
    
    
    
    888Allowance for obsolete
and excess inventory
    
    
    3,847
    
    
    
    539
    
    
    
    1,850
    
    
    
    2,536Year Ended August 2, 2003Allowance 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
    
    
    $
    3,430
 F-32