UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





FOR
      ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
      OF


THE
      SECURITIES EXCHANGE ACT OF 1934





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




For the fiscal year ended August 2, 2008


OR


o      TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the transition period from ________________ to ________________




Commission
file number 0-3319






DEL
GLOBAL TECHNOLOGIES CORP.


(Exact
Name of Registrant as Specified in Its Charter)





New
      York
            
            13-1784308(State
      or Other Jurisdiction of
            
            (I.R.S.
      Employer Identification No.)Incorporation
      or Organization)





11550
      WEST KING STREET, FRANKLIN PARK, IL
            
            60131(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code (847) 288-7000





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, $0.10 Par
Value (“Common Stock”)


Rights to
Purchase Common Stock, par value $0.10 per share, distributed pursuant to Rights
Agreement dated January 22, 2007 (Common Stock Purchase Rights)


(Title
of Class)


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes £  NoT


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   Yes £ No T





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 T No £





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check one).




Large accelerated
      filer £
            Accelerated filer
      £Non-accelerated
      filer £  (Do
      not check if a smaller reporting company)
            Smaller reporting
      company x





Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes £ NoT




The
aggregate market value of the registrant’s Common Stock held by non-affiliates
of the Registrant as of January 26, 2008 was $59,075,308.  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





As of
October 1, 2008, there were 24,246,165 shares of the registrant’s common stock
outstanding.







Table Of Contents







PART IITEM 1
              BUSINESS
              1ITEM 1A
              RISK FACTORS
              10ITEM 1B
              UNRESOLVED STAFF COMMENTS
              16ITEM 2
              PROPERTIES
              16ITEM 3
              LEGAL PROCEEDINGS
              16ITEM 4
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
              19PART II
              
              19ITEM 5
              MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
              19ITEM 6
              SELECTED FINANCIAL DATA
              21ITEM 7
              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
              22ITEM 7A
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              33ITEM 8
              FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA
              33ITEM 9
              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
              33ITEM 9A(T)
              CONTROLS AND PROCEDURES
              33ITEM 9B
              OTHER INFORMATION
              34PART III
              
              34ITEM 10
              DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
              34ITEM 11
              EXECUTIVE COMPENSATION
              36ITEM 12
              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
              46                       ITEM 13
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,  AND
      DIRECTOR INDEPENDENCE
                49ITEM 14
                PRINCIPAL ACCOUNTANT FEES AND SERVICES
                50PART IV
                
                51ITEM 15
                EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES
                51SIGNATURES
                
                59





i
 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 and dental imaging systems
and power conversion subsystems and components worldwide. Our products include
stationary and portable medical and dental diagnostic imaging systems and
electronic systems and components such as electronic filters, transformers and
capacitors.





The Company is headquartered in
Franklin Park, IL. The mailing address of our headquarters is 11550 West King
Street, Franklin Park, IL. 60131 and our telephone number is 847-288-7000. Our
Website is www.delglobal.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 Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.





The sale of Del High Voltage Division
(“DHV”), which was part of our Power Conversion Group, was consummated on
October 1, 2004, as described in Note 1 of the Notes to Consolidated Financial
Statements in Part II, Item 8 of this Annual Report. Accordingly, this business
is presented as a discontinued operation in all fiscal years presented and
throughout this Form 10-K.








EMPLOYEES





As of August 2, 2008, we had 310
employees. We believe that our employee relations are good. None of our
approximately 180 U.S. based employees are represented by a labor union.
Employment by functional area as of August 2, 2008 is as follows:





Executive
              2Administration
      and
      finance
              29Manufacturing
              218Engineering
              34Sales
      and
      Marketing
              27Total
              310





OPERATING
SEGMENTS





The operating businesses that we
report as segments consist of the Medical Systems Group and the Power Conversion
Group. For fiscal 2008, the Medical Systems Group segment accounted for
approximately 88% of our revenues and the Power Conversion Group segment
accounted for approximately 12% of our revenues. Our consolidated financial
statements include a non-operating segment which covers unallocated corporate
costs.  For the fiscal year ended August 2, 2008, one of our Medical
Systems Group customers accounted for approximately 13% of consolidated revenues
and 1% of gross accounts receivable at August 2, 2008.  For the fiscal
year ended July 28, 2007, one of our Medical Systems Group customers accounted
for approximately 12% of consolidated revenues and 11% of gross accounts
receivable at July 28, 2007.  For the fiscal year ended July 29, 2006,
no individual customer accounted for greater than 10% of total revenue or
accounts receivable,  nor was either segment dependent upon a single
customer or a few customers, the loss of any one or more of which would have a
material adverse effect on such segment. For further information concerning our
operating segments, see Note 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 Corp
            Franklin
      Park, ILUNIVERSAL,
      DynaRad
            (“Del
      Medical”)ApolloStrata-2000
            Villa
      Sistemi Medicali
            Milan,
      ItalyS.p.A.
      (“Villa”)POWER
      CONVERSION GROUP:Electronic
      Systems & Components
            RFI,
      Filtron, Sprague,Stanley
            RFI
      Corporation (“RFI”)
            Bay
      Shore, NY




1
 Table Of Contents




MEDICAL
SYSTEMS GROUP





Our Medical Systems Group designs,
manufactures, markets and sells medical and dental diagnostic imaging systems
consisting of stationary and portable imaging systems, radiographic/fluoroscopic
systems, dental imaging systems and digital radiography systems. Approximately
71% of this segment’s revenues were attributed to Villa in fiscal
2008.





Prior to December 23, 2005, the
Company owned 80% of the Villa subsidiary.   On December 23,
2005, the Company acquired the remaining 20% of Villa for $2.6 million plus
904,762 restricted shares of Company common stock which were valued at $2.9
million.  For further information concerning this acquisition, see
Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8 of
this Annual Report.





Medical imaging systems of the types
we manufacture use x-ray technology to produce diagnostic 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 passing through a filament, or cathode in
an x-ray tube.  The cathode emits energized electrons which collide
with a positively charged tungsten anode within the tube.  The
collision of these energized electrons with the anode emits the x-ray photons or
x-rays.  The x-ray tube is surrounded by a lead shield which contains
an opening and various filters to direct the x-rays towards the
patient.





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 application, image capture technology, 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 and dental diagnostic imaging systems worldwide in the
following markets:





MEDICAL
SYSTEMS GROUP MARKETS SERVED





Hospitals
              Veterinary
      ClinicsTeaching
      Institutions
              Chiropractic
      ClinicsMedical
      Clinics
              Dental
      OfficesPrivate
      Practitioners
              Military/GovernmentOrthopedic
      Facilities
              Home
      Health Care ProvidersImaging
      Centers


Our medical imaging systems are sold under the Del Medical, Villa, UNIVERSAL,
and DynaRad brand names. The prices of our medical imaging systems range from
approximately $9,000 to $300,000 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 SYSTEMS - For
more than 100 years, conventional projection radiography has used film to create
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 60%-70% 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 Advanced Radiography System (ARSII),U-ARC
DRT Digital Radiographic Systems and TITAN Lines are 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 medium sized hospitals, outpatient clinics and private
practitioners.




2
 Table Of Contents





The Moviplan product line
manufactured under the Villa brand includes a variety of configurations that fit
a wide range of markets, spanning from small private practices to hospitals,
with a specific accent on emerging countries. A leading model is the tomographic
version, which allows users to take images of multiple sections of the
body.  This type of system is manufactured by relatively few companies
worldwide.





We also have a broad range of
products serving medical practitioners, veterinarians and chiropractors through
our UNIVERSAL and VetVision DRds brand product lines. 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 AVchoice and DVChoice veterinary line of products is designed with
many of the same attributes as the medical line. Our UNIVERSAL chiropractic
line, consisting of our DCchoice, Raymaster and PreciseView product, combine
precision alignment and positioning with a versatile Chiropractic imaging
systems for both analog and digital applications. Our VetVision DRds is a
digital high-resolution x-ray unit designed to give veterinarians greater
flexibility as it produces high-resolution digital images and takes up less
space than other comparable products.





During fiscal 2006 and 2008, we
expanded our product portfolio with the introduction of the Del Medical U-ARC
DRT Digital Radiographic System and TITAN product lines,
respectively.  These system enables radiologists to obtain better
patient images within a fraction of the time and with lower overall costs than
traditional film-based systems.





We also produce a full product line
of high frequency medical x-ray generators which economically provide superior
quality x-ray generation, resulting in lower patient dosage, extended tube life
and less blurring due to patient motion when compared to single phase
generators. We continue to investigate arrangements with generator suppliers on
a global basis to further upgrade our medical x-ray generator
offerings.





RADIOGRAPHIC/FLUOROSCOPIC SYSTEMS -
We produce a wide range of radiographic/fluoroscopic, or R/F, systems that are
able to perform complex x-ray examinations with contrast liquids for sequential
and real time images. The Vision and Viromatic systems are based on the
“classical approach” and require the operator to stay in close contact to the
equipment and the patient. These 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. The Apollo Remote
R/F system and Mercury systems are based on the more modern “Remote control”
technology and allow the technologist and radiologist to operate the system and
perform the entire examination from a separate room, being totally shielded from
the x-ray source. The remote controlled system is also the most flexible x-ray
imaging unit as it allows skeletal, gastro-intestinal, vascular, urological and
gynaecological studies in the same room. Remote controlled systems (Apollo
Remote R/F system and Mercury) are also widely used in connection with our
digital acquisition system, DIVA, to perform digital image acquisition and real
time angiographic examinations with a vast choice of image acquisition and
post-processing tools. The DIVA system can also be equipped with DICOM
functionalities that enable images to be sent to centralized archival units,
image reviewing workstations, laser imagers, and in general allow the system to
be fully integrated into PACS (Picture Archival and Communication Systems)
networks within a hospital. As of today, the Apollo Remote R/F system table,
with a DIVA-D digital acquisition system represents a sophisticated system and
technology produced by the Medical Systems Group.   Recently
dynamic flat panels have become an available alternative to carry on fluoroscopy
at 43 x 43 cm detector size. Villa already has released the Apollo version
implementing this new technology. This product represents the most advanced and
sophisticated system produced by the Medical Systems Group.





PORTABLE AND MOBILE MEDICAL X-RAY
SYSTEMS - We sell portable x-ray equipment under our DynaRad brand including the
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.





Larger and more powerful mobile units
are also manufactured and distributed under the Villa brand and include the
“Visitor” product line with high frequency generators up to 30 kilowatts that
are typically used in hospitals to take radiographic images directly at the
patient’s bed.





DENTAL SYSTEMS - We produce a broad
range of DC and AC powered intra-oral (commonly known as bite wing) x-ray
systems at our Villa facility.  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 are Direct
Digital versions of Strato 2000 and Rotograph, which capture panoramic images
directly in digital format and can be connected to a PC for image reviewing and
post-examination processing. The relatively small price differential between
digital and analog panoramic units has triggered a very quick shift to digital
technology in the marketplace which accounts for approximately 12% of the volume
of new units sold over the past two years. The
dental products are sold both with our own brand (Villa), as well as private
labelled units to selected OEM customers.




3
 Table Of Contents





MAMMOGRAPHY SYSTEMS - We currently
resell the Melody system outside of the U.S..  The Melody unit is
manufactured by a European-based manufacturer and sold under the Villa
brand.  Although we have exclusive use of the “Melody” name, our
supplier markets a similar product in several competing markets.





SURGICAL C-ARMS – We sell a mobile
C-arm unit called “Arcovis 2000” under the Villa brand.  The product
is manufactured by a European company that also sells similar products to other
customers.





MARKETING
AND DISTRIBUTION




Our medical imaging systems are sold
in the U.S. and internationally, principally by a network of over 300
distributors worldwide. This network has expanded during fiscal year 2008 as we
have partnered with one of the largest dealer buying groups to distribute our
digital and general radiographic imaging equipment for the medical, chiropractic
and veterinary markets. Medical imaging system distributors are supported by our
regional managers, area managers, marketing managers and technical support
groups, who train distributor sales and service personnel and participate in
customer calls.  Due to the different markets and end use customers
for dental as compared to medical imaging systems, dental products are
distributed by a separate network of dental dealers who target the dental
practitioners market.  In addition, we do some private label
manufacturing of dental product for certain OEM customers.





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 during regular business
hours. Additional product and distributor support is provided through
participation in medical equipment exhibitions and trade specific
advertising.





We typically exhibit our products at
annual conferences, including the RSNA Conference in Chicago, the MEDICA Medical
Conference in Dusseldorf, Germany, the European College of Radiology (ERC)
Conference in Vienna, Austria, and the International Dental Show (IDS) in
Cologne, Germany and other venues worldwide.  Sales of the Company’s
products in North America are typically on open account with 30 day
terms.  Our products sold outside of North America are usually secured
by a letter of credit to mitigate any potential credit risk, with longer terms
being given to non-U.S. customers as is customary in international
business.  Our Company also has the capacity to participate in and win
large international tenders, which require careful assessment of the commercial
aspects, regulatory requirements, production planning and financial exposure.
Multi-million dollar tenders have been awarded to our Villa operation in the
last two fiscal years in countries, including Mexico, Lithuania, Romania, Russia
and Vietnam.





RAW
MATERIALS AND PRINCIPAL SUPPLIERS




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




4
 Table Of Contents





COMPETITION




Based on industry data, we believe
our Medical Systems Group is either the number one or number two 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 national, regional and independent
distributors.  In 2006, the Medical Systems Group extended its access
to the U.S. market by entering into relationships with a national Group
Purchasing Organization and several smaller multi-hospital
networks.  The three major competitors in this market segment are GE
Healthcare Systems, a division of General Electric Company, Siemens Medical
Solutions, a division of Siemens AG and Philips Medical Systems, a division of
Philips Electronics N.V. 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. In
Europe, Africa, the Middle East and the Far East, competition is also
represented by other mid-tier European companies, as well as local manufacturers
who mainly address the middle and low market tier.





Our lower-tier conventional
radiographic products principally compete with several small companies based
primarily in the U.S. and Europe. In some price-driven markets, we also find
competition from Korean and Chinese products.  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
growth of our product portfolio.





The markets for our products are
highly competitive and subject to technological change and evolving industry
requirements and standards. Cost containment and pricing is also a critical
driving factor, given the threat that is being posed by the aggressive policies
of Korean and Chinese manufacturers attempting to capture market shares out of
their boundaries.  Price erosion is not only a factor in the low-end
tier, but also at top level, where all companies, including the large
multinationals such as GE, Philips and Siemens are driving down their prices.We
believe that these trends will continue into the foreseeable future. Some of our
current and potential competitors have substantially greater financial,
marketing and other resources than we do. As a result, they may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than we can. Competition could increase if new companies enter the
market or if existing competitors expand their product lines or intensify
efforts within existing product lines. Although we believe that our products are
more cost-effective than those of our primary competitors, certain competing
products may have other advantages which may limit our market. There can be no
assurance that continuing improvements in current or new competing products will
not make them technically equivalent or superior to our products in addition to
providing cost or other advantages. There can be no assurance that our current
products, products under development or ability to introduce new products will
enable us to compete effectively.





PRODUCT
DEVELOPMENT




It is generally accepted that digital
radiography will continue to 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 will be
accepted as the industry-standard for image capture, and communication and
storage of digital image information.





For the medical imaging market, 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.





Consequently, our current research
and development spending is focused on both enhancing our existing conventional
radiographic products and continuing to enhance our digital radiographic
solutions and explore partnerships with strategic vendors in the digital
marketplace.   The introduction of digital imaging is growing
much faster in dental application where the cost difference between traditional
and digital does not represent a significant barrier.  In order to
more fully participate in the digital dental market, Villa has initiated a
strategic partnership with a French company, Owandy S.A.S., that provides the
digital solutions for dental panoramic units and Villa is offering a full line
of digital panoramic units.




5
 Table Of Contents




Spending for research and development
for our Medical Systems Group was approximately $2.5 million for fiscal year
2008, $2.0 million for fiscal year 2007 and $1.6 million for fiscal year
2006.





TRADEMARKS
AND PATENTS




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





GOVERNMENT
REGULATION




Our medical imaging systems are
medical devices and, therefore, are subject to regulation by the U.S. Food and
Drug Administration (the “FDA”) and to regulation by foreign governmental
authorities. We also are subject to various state and local regulations.
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
PREMARKET CLEARANCE AND APPROVAL REQUIREMENTS





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





A Section 510(k) premarket
notification must contain information supporting the claim of substantial
equivalence, which may include laboratory results and product comparisons to
existing devices.  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 510(k)
clearance generally takes 90 days and may take longer if FDA requests additional
information. 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 have cleared new 510(k)
submissions for these modifications.





All of our products marketed in the
U.S. 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.





6
 Table Of Contents





PERVASIVE
AND CONTINUING FDA REGULATION





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





-
            The
      FDA’s quality system regulation which requires manufacturers to create,
      implement and follow numerous design, testing, control, documentation and
      other quality procedures; and


-
            Medical
      device reporting regulations, which require that manufacturers report to
      the FDA certain types of adverse and other events involving their
      products.





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




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




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





OTHER
FEDERAL AND STATE REGULATIONS




As a participant in the health care industry, we are subject to extensive and
frequently changing regulation under many other laws administered by
governmental entities at the federal, state and local levels, some of which are,
and others of which may be, applicable to our business. For example, our 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 U.S. as medical devices by foreign
governmental agencies, similar to the FDA, and are subject to regulatory
requirements, similar to the FDA’s, in the countries in which we plan to sell
our products. We work with our foreign distributors to obtain the foreign
regulatory approvals necessary to market our products outside of the U.S. In
certain foreign markets, it is necessary to obtain ISO 9001 certification, which
is analogous to compliance with the FDA’s Good Manufacturing Practices
requirements. It is also necessary to obtain ISO 13485 certification, which
specifies requirements for a quality system to be used for design and
development, production, installation and servicing of medical devices. We have
obtained ISO 9001 certification and ISO 13485 certification, for both of our
medical systems manufacturing facilities.  In many European Community
and other international locations it is necessary or desirable to have a “CE”
(Communities of Europe) mark on our products. This involves substantial testing
by a third party such as Underwriters Laboratories or Electronics Testing
Laboratories and for some devices, a certificate from a notified body declaring
conformance to applicable directives and regulations. We have completed the
necessary third party testing at both manufacturing locations, maintain the
necessary certifications and are qualified to place the CE mark on all products
intended for sale in such countries. The time and cost required obtaining 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.




7
 Table Of Contents





POWER
CONVERSION GROUP




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, magnetics, 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 medical electronics, military and industrial applications as
follows:





POWER
CONVERSION GROUP MARKETS SERVED




AEROSPACE,
      DEFENSE & HOMELAND SECURITY
                  INDUSTRIAL/COMMERCIALGuidance
      & Weapons Systems
                  
                  Induction
      HeatingCommunications
                  
                  MeteorologicalRadar
      Systems
                    Military
      Shelters
                    Power
      Systems
                    Aerospace
      Electronics
                    Aircraft
      Lighting systems
                    Telecommunication
      Electronics
                  
                  Power
      Systems
                    Satellite
                    Shielded
      Rooms/Enclosures
                    Power
      Systems
  TELECOMMUNICATIONS
                          MEDICALTelecom
      Equipment for Voice & Data Transmission
                          
                          Radiation
      OncologyTelephone
      Switching Systems
                          
                          Magnetic
      Resonance Imaging (“MRI”)CT
      Imaging
                            X-Ray





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.  On May 24, 2007, the Company's RFI subsidiary was served
with a subpoena to testify before a grand jury of the United States District
Court, Eastern District of New York to provide items and records from its Bay
Shore, NY offices in connection with U.S. Department of Defense (“DOD”)
contracts.  A search warrant from the United States District Court,
Eastern District of New York was issued and executed with respect to such
offices. The Company believes that it is in full compliance with the quality
standards that its customers require and is fully cooperating with investigators
to assist them with their review. The Company's RFI subsidiary is continuing to
ship products to the U.S. Government as well as to its commercial
customers.




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.




8
 Table Of Contents





MARKETING,
SALES AND DISTRIBUTION




We market our Power Conversion Group products through in-house sales personnel,
independent sales representatives in the U.S., and international agents in
Europe, Asia, the Middle East, Canada 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 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.




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 2008, 2007 or 2006. For 2009, an
R&D budget has been established for growth in magnetics and material
research to optimize the efficiency and performance of our
products.




9
 Table Of Contents





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





DISCONTINUED
OPERATION




As of
July 31, 2004, the DHV division was classified as a discontinued operation. This
division manufactured and sold 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
operation.





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 Bay Shore, 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 at August 2, 2008 was $22.7 million versus backlog at July 28, 2007 of
approximately $28.4 million. The backlog in the Power Conversion Group of $5.4
million decreased $1.2 million from levels at the beginning of the fiscal year
while there was a $4.5 million decrease in the fiscal year end backlog of our
Medical Systems Segment from July 28, 2007 reflecting weaker booking during the
twelve month period in international markets. Substantially all of the backlog
should result in shipments within the next 12 to 15 months.





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.








ITEM 1A
            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 of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934 (the “Exchange
Act”) and that actual results could differ materially from those contemplated by
such statements. The factors listed below represent certain important factors
which we believe could cause such results to differ. These factors are not
intended to represent a complete list of the general or specific risks that may
affect us. It should be recognized that other risks may be significant,
presently or in the future, and the risks set forth below may affect us to a
greater extent than indicated.




10
 Table Of Contents





WE DO NOT
INTEND TO PAY DIVIDENDS ON SHARES OF OUR COMMON STOCK IN THE


FORESEEABLE
FUTURE.





We
currently expect to retain our future earnings, if any, for use in the operation
and expansion of our business. We do not anticipate paying any cash dividends on
shares of our common stock in the foreseeable future. Our credit facility with
our U.S. lender restricts our ability to pay dividends.





COMPLIANCE
WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC


DISCLOSURE
MAY RESULT IN ADDITIONAL EXPENSES.





Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, are creating uncertainty
for companies such as ours. We are committed to maintaining high standards of
corporate governance and public disclosure. As a result, we intend to invest
reasonably necessary resources to comply with evolving standards, and this
investment may result in increased general and administrative expenses and a
diversion of management time and attention from revenue-generating activities to
compliance activities, which could harm our business prospects.








OUR
COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ NATIONAL MARKET AND WE CANNOT
PREDICT WHEN OR IF IT EVER 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 on the over
the counter bulletin board (the “OTC”) published by National Quotation Bureau,
LLC. The OTC 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 OTC are not listed in the
financial sections of newspapers. Therefore, prices for securities traded solely
in the OTC 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.





FAILURE
BY US TO ADHERE TO OUR ADMINISTRATIVE AGREEMENT WITH THE DEFENSE LOGISTICS
AGENCY COULD RESULT IN OUR DEBARMENT FROM DOING BUSINESS WITH THE U.S.
GOVERNMENT.





On April
5, 2005, the Company announced that it had reached an administrative agreement
with the U.S. Defense Logistics Agency (the “DLA”), a component of the U.S.
Department of Defense (the “DOD”), which provides that RFI will not be debarred
from doing business with the U.S. Government entities as long as RFI maintains
its compliance program and adheres to the terms of the administrative agreement.
If RFI fails to maintain its compliance program or RFI or the Company fails to
adhere to the terms of the administrative agreement, the DLA could debar the
Company from doing business with U.S. Government entities.





On May
24, 2007, the Company's RFI subsidiary was served with a subpoena to testify
before a grand jury of the United States District Court, Eastern District of New
York and to provide items and records from its Bay Shore, NY offices in
connection with U.S. Department of Defense contracts.  A search
warrant from the United States District Court, Eastern District of New York was
issued and executed with respect to such offices. The Company believes that it
is in full compliance with the quality standards that its customers require and
is fully cooperating with investigators to assist them with their review. The
Company's RFI subsidiary is continuing to ship products to the U.S. Government
as well as to its commercial customers.





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 foreign and domestic 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.




11
 Table Of Contents





OUR DELAY
OR INABILITY TO OBTAIN ANY NECESSARY U.S. OR FOREIGN REGULATORY CLEARANCES OR
APPROVALS FOR OUR PRODUCTS COULD HARM OUR BUSINESS AND PROSPECTS.





Our
medical imaging products, with the exception of certain veterinary lines, are
the subject of a high level of regulatory oversight. Any delay in our obtaining
or our inability to obtain any necessary U.S. or foreign regulatory approvals
for new products could harm our business and prospects. There is a limited risk
that any approvals or clearances, once obtained, may be withdrawn or modified
which could create delays in shipping our product, pending re-approval. Medical
devices cannot be marketed in the U.S. without clearance or approval by the FDA.
Our Medical Systems Group businesses must be operated in compliance with FDA
Good Manufacturing Practices, which regulate the design, manufacture, packing,
storage and installation of medical devices. Our manufacturing facilities and
business practices are subject to periodic regulatory audits and quality
certifications and we do self audits to monitor our compliance. In general,
corrective actions required as a result of these audits do 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 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 U.S. 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.





A
SHORTAGE OF AN ADEQUATE SUPPLY OF RAW MATERIALS COULD INCREASE OUR COSTS AND
CAUSE A DELAY IN OUR ABILITY TO SHIP PRODUCT AND FULFILL ORDERS.  A
LARGE PORTION OF OUR MANUFACTURING COSTS CONSIST OF THE COST OF MATERIALS AND AN
INCREASE IN THESE COSTS COULD ADVERSELY IMPACT OUR GROSS MARGINS.





We rely on external sources to supply
raw materials, which consist primarily of mechanical subassemblies, electronic
components, x-ray tubes and x-ray generators in the Medical Systems Group and
electronic components and subassemblies and, metal enclosures for its products
in the Power Conversion Group.  Our ability to meet future demand and
manufacture our product is dependent on these sources of supply.  If
disruptions in these sources of supply cause shortages of raw materials, our
ability to ship products to customers will be impacted.  In addition,
due to the high material cost component of our manufactured goods, our gross
margins would be adversely impacted by increases in raw material costs we may be
unable to pass along to our customers due to market conditions.





DUE TO
THE SIGNIFICANCE OF OUR INTERNATIONAL OPERATIONS, POLITICAL OR ECONOMIC CHANGES
IN THE VARIOUS COUNTRIES OR REGIONS WE MANUFACTURE IN OR SELL OUR PRODUCTS TO
COULD IMPACT OUR FINANCIAL CONDITION.




12
 Table Of Contents





International sales, including
product manufactured at our facility in Milan, Italy, as well as product
manufactured in the US, comprised 64% and 66% of consolidated revenues for
fiscal years 2008 and 2007, respectively.  Our future results could be
adversely affected by a variety of international risks, including unfavorable
foreign currency exchange rates; difficulties in managing and staffing
international operations, political or social unrest; economic instability or
natural disasters; environmental or trade protection measures; changes in
governmental or other entities buying patterns and tender order procedures;
changes in other regulatory or certification requirements.  In
addition any changes in Italian tax laws including changes in withholding on
dividends from our Italian subsidiary or other restrictions on transfers of
funds to the U.S. could impact our financial condition.





THE
COMPANY'S WORKING CAPITAL NEEDS ARE FINANCED IN PART BY CREDIT FACILITIES WITH
U.S. AND ITALIAN BANKS.  THE COMPANY HAS NEEDED TO OBTAIN WAIVERS FROM
ITS U.S. LENDERS FOR COVENANT VIOLATIONS DUE TO LESS THAN ANTICIPATED OPERATING
RESULTS.





On December 6, 2006, the Company and its U.S. lender signed an amendment to its
U.S. revolving credit and term loan credit facility which waived covenant
violations existing as of October 28, 2006 and adjusted the financial covenants
for future periods based on a business plan the Company provided to its lender.
Although the Company was in compliance with all covenants of its revolving
credit and term loan facility as of August 2, 2008 and the Company had no
outstanding borrowings under these agreements, should the Company’s results be
less that anticipated in the business plan, the Company could have future
covenant violations. If the Company and its lender were unable to cure the
violations by signing a waiver agreement, or through other means, the Company
could be in default under its foreign and domestic credit agreements and the
banks would have the ability to stop revolving credit borrowings under the
facility or accelerate the maturity of any outstanding balances. If additional
sources of debt or equity capital were not available at that point, such
acceleration could have a material adverse impact on the Company’s financial
position.





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.





POTENTIAL
SETTLEMENTS REQUIRED UNDER LEGAL PROCEEDINGS WITH FORMER EMPLOYEES OF THE
COMPANY COULD UNDULY BURDEN OUR COMPANY.





The
Company had an employment agreement with Samuel Park, a previous Chief Executive
Officer (“CEO”), for the period May 1, 2001 to April 30, 2004.  The
employment agreement provided for certain payments in the event of a change in
the control of the Company.  On October 10, 2003, the Company
announced the appointment of Walter F. Schneider as President and CEO to replace
Mr. Park, effective as of such date.  As a result, the Company
recorded a charge of $.2 million during the first quarter of fiscal 2004 to
accrue the balance remaining under Mr. Park’s employment agreement.




The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes of control.  The Company’s Board of Directors elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1.8 million under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On November 17, 2003, the Company filed a complaint in the
United States District Court, Southern District of New York, against Mr. Park
seeking a declaratory judgment that no change in control payment was or is due
to Mr. Park, and that an amendment to the employment contract with Mr. Park
regarding advancement and reimbursement of legal fees is invalid and
unenforceable.  Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
“change in control” occurred in June 2003.  Mr. Park is also seeking
other consideration he believes he is owed under his employment
agreement.  The Company filed a reply to Mr. Park’s counterclaims
denying that he is entitled to any of these payments.  Discovery in
this matter was conducted and completed.  Following discovery, the
Company and Mr. Park filed motions for summary judgment on the issues related to
the change in control and the amendment to the employment agreement, which
motions have been fully submitted to the court for consideration.  To
date, no decision has been issued by the court on these motions.  If
Mr. Park prevails on his claims and the payments he seeks are required to be
paid in a lump sum, these payments may have a material adverse effect on the
Company’s liquidity.  It is not possible to predict the outcome of
these claims.  However, the Company’s Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company’s liquidity in the foreseeable future.  The Company has
not recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.




13
 Table Of Contents





On
June 28, 2002, Jeffrey N. Moeller, the former Director of Quality Assurance and
Regulatory Affairs of Del Medical, commenced an action in the Circuit Court of
Cook County, Illinois, against the Company, Del Medical and Walter Schneider,
the former President of Del Medical.  In the most current iteration of
his complaint, the third amended complaint, Mr. Moeller alleged four claims
against the defendants in the action: for (1) retaliatory discharge from
employment with Del Medical, allegedly in response to Mr. Moeller’s complaints
to officers of Del Medical about purported prebilling and his stopping shipment
of a product that allegedly did not meet regulatory standards, (2) defamation,
(3) intentional interference with his employment relationship with Del Medical
and prospective employers, and (4) to hold the Company liable for any misconduct
of Del Medical under a theory of piercing the corporate veil.  In
their answer to the third amended complaint, the defendants denied the
substantive allegations of each of these claims and denied that they have any
liability to Mr. Moeller.  By order dated September 15, 2006, the
Court denied in part and granted in part defendants’ motion requesting summary
judgment dismissing the third amended complaint.  The court granted
the motion only to the extent of dismissing that part of Mr. Moeller’s claim of
interference with his employment relationship with Del Medical and his
relationship with prospective employers.




In
fiscal 2007, the Company recorded an accrual of $0.1 million relating to
potential liability in the settlement of these claims.  The parties
appeared for mediation in January 2007 but the mediation did not result in a
disposition of the action. A trial was held in April 2008 and on April 17, 2008,
the jury returned a verdict in favor of Mr. Moeller for $1.8 million for lost
earnings, back pay, front pay and benefits on the retaliatory discharge claim,
and $0.2 million for emotional distress/reputation damages and $0.2 million in
punitive damages on the defamation claim.  On May 19, 2008, counsel
for the defendants filed their motion for judgment in their favor
notwithstanding the jury verdict, or, alternatively, for a new trial, on those
claims on which the jury found the respective defendants liable.  By
order dated August 15, 2008, the Court denied that motion.




On
August 25, 2008, the Company and the other defendants filed their notice of
appeal by which they appeal to the Appellate Court of Illinois, First District,
among other things, the judgment entered against the Company and the other
defendants on the jury verdict. On September 12, 2008 the Company and the other
defendants filed an amended notice of appeal. The Company intends to pursue the
appeal vigorously, seeking thereby reversal of the judgment and to have a
judgment entered in favor of the Company and the other defendants or to have a
new trial.  In lieu of a bond, the Company filed an irrevocable
standby letter of credit in the amount of $2.6 million by which Mr. Moeller can
collect the amount of the judgment entered by the trial court in the event the
appellate court affirms that judgment.




On April
28, 2008, George Apergis (“Apergis”), the former General Manager of RFI, filed a
charge with the Equal Employment Opportunity Commission (“EEOC”) alleging that
RFI discriminated against him by terminating his employment with RFI on December
18, 2007.  Apergis alleged three claims against RFI: (1) violation of
Title VII of the Civil Rights Act; (2) violation of the Age Discrimination in
Employment Act and (3) retaliation.  RFI responded to the EEOC charge
with a position statement filed with the EEOC on June 26, 2008 denying each
allegation of the charge.  As of September 16, 2008, RFI is waiting to
hear for a response to their position statement from the EEOC.  RFI
intends to defend vigorously against Apergis.




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.




14
 Table Of Contents





Our
research and development activity involves the controlled use of hazardous
materials, such as toxic and carcinogenic chemicals. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by federal, state and local regulations, we cannot
completely eliminate the risk of accidental contamination or injury from these
materials. In the event of an accident, we could be held liable for any
resulting damages, and such liability could be extensive.





We are also subject to substantial
regulation relating to occupational health and safety, environmental protection,
hazardous substance control, and waste management and disposal. The failure to
comply with such regulations could subject us to, among other things, fines and
criminal liability.





OUR
BUSINESS COULD BE HARMED IF OUR PRODUCTS CONTAIN UNDETECTED ERRORS OR DEFECTS OR
DO NOT MEET CUSTOMER SPECIFICATIONS.





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





THE
SEASONALITY OF OUR REVENUE MAY ADVERSELY IMPACT THE MARKET PRICES FOR OUR
SHARES.





Our
revenue is typically lower during the first quarter of each fiscal year due to
the shut-down of operations in our Milan, Italy and Bay Shore, 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 1, 2008, an aggregate of 24,246,165 shares of our common stock were
outstanding. In addition, as of October 1, 2008, there were outstanding warrants
to purchase 500,321 shares of our common stock and options to purchase 2,094,815
shares of our common stock, 1,595,438 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 Over-the-Counter
“OTC” Market. 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.




15
 Table Of Contents





THE
COMPANY MAY SUBMIT, FROM TIME TO TIME, PROPOSALS TO SHAREHOLDERS TO AMEND THE
COMPANY’S CERTIFICATE OF INCORPORATION OR TO INCREASE THE NUMBER OF COMMON
SHARES AUTHORIZED.





At a
special meeting of shareholders of the Company held on November 17, 2006, the
Company’s shareholders approved an Amendment of the Certificate of Incorporation
of the Company to increase the number of authorized shares of the Company’s
common stock, par value $0.10 per share, from twenty million (20,000,000) shares
to fifty million (50,000,000) shares in order to have
a  sufficient  number of shares
of  Common  Stock to  provide a
reserve  of shares  available for issuance to
meet  business  needs as they may arise in the future. Such
business needs may include, without limitation, rights offerings, financings,
acquisitions, establishing strategic relationships with corporate partners,
providing equity incentives to employees, officers or directors, stock splits or
similar transactions.   Issuances of any additional shares for
these or other reasons could prove dilutive to current shareholders or deter
changes in control of the Company, including transactions where the shareholders
could otherwise receive a premium for there shares over then current market
prices.





ITEM 1B
            UNRESOLVED
      STAFF COMMENTS




Not
applicable





ITEM 2
            PROPERTIES




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





SEGMENT
            LOCATION
            APPROX.
              FLOOR
              AREA
      IN
              SQ. FT.
            PRINCIPAL USES
            OWNED/LEASED
              (EXPIRATION
              DATE IF LEASED)MEDICAL
      SYSTEMS GROUP:Del
      Medical Imaging
      Corp
            Franklin
      Park, IL
            68,000
            Corporate      headquarters,
      Design andmanufacturing
            Leased
      (2009)Villa
            Milan,
      Italy
            67,000
            Design
      andmanufacturing
            Leased
      (2011)(1)POWER
      CONVERSION GROUP:RFI
            Bay
      Shore, NY
            55,000
            Design
      andmanufacturing
            Owned





(1)
            Villa
      has the option to purchase this property at the conclusion of this
      lease.





We
believe that our current facilities are sufficient for our present and
anticipated future requirements.  The Company’s manufacturing
operations run on one shift and we have the ability to add a second shift, if
needed.  The Company’s domestic credit facilities are 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. The DOD had investigated certain past practices at RFI which dated
back to before 1996 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 cooperated fully with this
investigation, including voluntarily providing employees to be interviewed by
the Defense Criminal Investigative Services division of the DOD.





In June 2003, the Company was advised
that the U.S. Government 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 U.S. 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.




16
 Table Of Contents





Following negotiations, the Company
reached a global settlement in February 2004 with the U.S. Government that
resolved 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 U.S. 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, the Company 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 up to $5.0 million in
fines and restitution, plus estimated legal and professional fees related to
this settlement.





On September 30, 2004, pursuant to
the terms of the settlement, the Company fulfilled its obligation under this
agreement by paying to the U.S. Government the sum of $5.0 million representing
fines and restitution. On October 7, 2004, RFI entered a guilty plea to a single
count conspiracy charge pursuant to the settlement and a criminal plea
agreement. Sentencing occurred on March 15, 2005. At sentencing, the Court
imposed an additional fine of $0.3 million to be paid within 30 days. The
Company paid this additional fine on April 8, 2005.





The Company worked with the U.S.
Defense Logistics Agency ("DLA"), a component of the DOD, to avoid any future
limitations on the ability of the Company to do business with U.S. Government
entities. Such limitations could have included the U.S. Government seeking a
"debarment" or exclusion of the Company from doing business with U.S. Government
entities for a period of time.  On April 5, 2005, the Company
announced that it had reached an administrative agreement with the DLA which
provides that RFI will not be debarred from doing business with U.S. Government
entities so long as RFI maintains its compliance program and adheres to the
terms of the administrative agreement. This agreement with the DLA is the final
component of the Company's previously announced settlement of an investigation
by the DOD into practices at RFI.





On May 24, 2007, the Company's RFI
subsidiary was served with a subpoena to testify before a grand jury of the
United States District Court, Eastern District of New York and to provide items
and records from its Bay Shore, NY offices in connection with U.S. DOD
contracts.  A search warrant from the United States District Court,
Eastern District of New York was issued and executed with respect to such
offices. The Company believes that it is in full compliance with the quality
standards that its customers require and is fully cooperating with investigators
to assist them with their review. The Company's RFI subsidiary is continuing to
ship products to the U.S. Government as well as to its commercial
customers.





EMPLOYMENT
MATTERS




PARK- The
Company had an employment agreement with Samuel Park, a previous CEO, for the
period May 1, 2001 to April 30, 2004.  The employment agreement
provided for certain payments in the event of a change in the control of the
Company.  On October 10, 2003, the Company announced the appointment
of Walter F. Schneider as President and CEO to replace Mr. Park, effective as of
such date.  As a result, the Company recorded a charge of $0.2 million
during the first quarter of fiscal 2004 to accrue the balance remaining under
Mr. Park’s employment agreement.




The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes in control.  The Company’s Board of Directors elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1.8 million under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On November 17, 2003, the Company filed a complaint in the
United States District Court, Southern District of New York, against Mr. Park
seeking a declaratory judgment that no change in control payment was or is due
to Mr. Park, and that an amendment to the employment contract with Mr. Park
regarding advancement and reimbursement of legal fees is invalid and
unenforceable.  Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
“change in control” occurred in June 2003.  Mr. Park is also seeking
other consideration he believes he is owed under his employment
agreement.  The Company filed a reply to Mr. Park’s counterclaims
denying that he is entitled to any of these payments.  Discovery in
this matter was conducted and completed.  Following discovery, the
Company and Mr. Park filed motions for summary judgment on the issues related to
the change in control and the amendment to the employment agreement, which
motions have been fully submitted to the court for consideration.  To
date, no decision has been issued by the court on these motions.  If
Mr. Park prevails on his claims and the payments he seeks are required to be
paid in a lump sum, these payments may have a material adverse effect on the
Company’s liquidity.  It is not possible to predict the outcome of
these claims.  However, the Company’s Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company’s liquidity in the foreseeable future.  The Company has
not recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.





MOELLER- On June 28, 2002,
Jeffrey N. Moeller, the former Director of Quality Assurance and Regulatory
Affairs of Del Medical, commenced an action in the Circuit Court of Cook County,
Illinois, against the Company, Del Medical and Walter Schneider, the former
President of Del Medical.  In the most current iteration of his
complaint, the third amended complaint, Mr. Moeller alleged four claims against
the defendants in the action: for (1) retaliatory discharge from employment with
Del Medical, allegedly in response to Mr. Moeller’s complaints to officers of
Del Medical about purported prebilling and his stopping shipment of a product
that allegedly did not meet regulatory standards, (2) defamation, (3)
intentional interference with his employment relationship with Del Medical and
prospective employers, and (4) to hold the Company liable for any misconduct of
Del Medical under a theory of piercing the corporate veil.  In their
answer to the third amended complaint, the defendants denied the substantive
allegations of each of these claims and denied that they have any liability to
Mr. Moeller.  By order dated September 15, 2006, the Court denied in
part and granted in part defendants’ motion requesting summary judgment
dismissing the third amended complaint.  The court granted the motion
only to the extent of dismissing that part of Mr. Moeller’s claim of
interference with his employment relationship with Del Medical and his
relationship with prospective employers.




In
fiscal 2007, the Company recorded an accrual of $0.1 million relating to
potential liability in the settlement of these claims.  The parties
appeared for mediation in January 2007 but the mediation did not result in a
disposition of the action. A trial was held in April 2008 and on April 17, 2008,
the jury returned a verdict in favor of Mr. Moeller for $1.8 million for lost
earnings, back pay, front pay and benefits on the retaliatory discharge claim,
and $0.2 million for emotional distress/reputation damages and $0.2 million in
punitive damages on the defamation claim.  On May 19, 2008, counsel
for the defendants filed their motion for judgment in their favor
notwithstanding the jury verdict, or, alternatively, for a new trial, on those
claims on which the jury found the respective defendants liable.  By
order dated August 15, 2008, the Court denied that motion.




On
August 25, 2008, the Company and the other defendants filed their notice of
appeal by which they appeal to the Appellate Court of Illinois, First District,
among other things, the judgment entered against the Company and the other
defendants on the jury verdict. On September 12, 2008 the Company and the other
defendants filed an amended notice of appeal. The Company intends to pursue the
appeal vigorously, seeking thereby reversal of the judgment and to have a
judgment entered in favor of the Company and the other defendants or to have a
new trial.  In lieu of a bond, the Company filed an irrevocable
standby letter of credit in the amount of $2.6 million by which Mr. Moeller can
collect the amount of the judgment entered by the trial court in the event the
appellate court affirms that judgment.




APERGIS- On April 28, 2008,
Apergis, the former General Manager of RFI, filed a charge with the EEOC
alleging that RFI discriminated against him by terminating his employment with
RFI on December 18, 2007.  Apergis alleged three claims against RFI:
(1) violation of Title VII of the Civil Rights Act; (2) violation of the Age
Discrimination in Employment Act and (3) retaliation.  RFI responded
to the EEOC charge with a position statement filed with the EEOC on June 26,
2008 denying each allegation of the charge.  As of September 16, 2008,
RFI is waiting to hear for a response to their position statement from the
EEOC.  RFI intends to defend vigorously against Apergis.




DIAMOND- Diamond v.
Allied Diagnostic Imaging Resources, Inc., et al. (Superior Court, County of Los
Angeles; Case No. BC362544). This action is brought against numerous
defendants, including the Company. While the action commenced in late 2006,
plaintiff first served the summons and complaint on the Company in December
2007. The plaintiff alleges that she is the wife of a chiropractor who died in
June 2005. Plaintiff alleges that her husband was exposed to chemical products
in developing x-ray films and cleaning film processing machines and worked with
the x-ray film processing machines and x-ray machines, and that the defendants
manufactured, supplied or serviced the chemical products and
machines.  The complaint further alleges that the decedent was exposed
to toxic chemicals and radiation from the chemical products used on or in the
machines, which caused “serious injuries to his internal organs, including acute
myelogenous leukemia”, resulting in his death.




The complaint alleges the following six claims against the defendants: (1)
negligence in manufacturing. and distributing the chemical products and
machines, and servicing the machines, and failing adequately to warn decedent of
the hazards of the chemical products and machines, (2) violation of a California
statute and regulation by failing to determine whether the chemical products
caused health hazards and failing to label or identify in material safety data
sheets a health hazard relating to acute myelogenous leukemia, (3) strict
products liability for failing to warn adequately of the chemical products’ and
machines’ health hazards, (4) strict products liability for defects in the
design of the chemical products and machines, (5) fraudulent concealment of the
toxic and carcinogenic nature of the chemical products and the machines, and (6)
breach of implied warranties as to the fitness of the chemical products and
machines for intended uses, merchantability, and lack of defects.




17
 Table Of Contents




While the
complaint does not allege a total amount of damages sought, plaintiff alleges
that she has suffered damages consisting of medical, funeral, and burial
expenses, the decedent’s lost earnings prior to and lost wages after his death,
lost benefits after his death, the value of his services in managing his
family’s home, and loss of companionship and similar losses. The plaintiff also
requests punitive damages.  The Company has not recorded an accrual
for any potential settlement of this claim as it has no basis upon which to
estimate either the outcome or amount of loss, if any.  In its answer
to the complaint, the Company denied the substantive allegations of the
complaint and denied that it has any liability to plaintiff.  The
Company intends to defend vigorously against plaintiff’s claims.






OTHER LEGAL MATTERS - The Company is
a defendant in several other legal actions in various U.S. and foreign
jurisdictions arising from the normal course of business. Management believes
the Company has meritorious defenses to such actions and that the outcomes will
not be material to the Company’s consolidated financial statements.




ITEM 4
              SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS


None





PART II




ITEM 5
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




Effective
May 11, 2007, our common stock commenced trading on the Over the Counter “OTC”
Bulletin Board under the symbol “DGTC.OB” and our warrants are traded under the
symbol “DGTCW.OB.”  Prior to that, they had been traded on the “pink
sheets,”, under the symbol “DGTC.PK” and “DGTCW.PK”, respectively. The OTC 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 OTC are not listed in the financial sections of newspapers as
are those for established stock exchanges and the NASDAQ National
Market.  Our securities had been 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.





At a
special meeting of shareholders of the Company held on November 17, 2006, the
Company’s shareholders approved an Amendment of the Certificate of Incorporation
of the Company to increase the number of authorized shares of the Company’s
common stock, par value $0.10 per share, from twenty million (20,000,000) shares
to fifty million (50,000,000) shares in order to have
a  sufficient  number of shares
of  common  stock to  provide a
reserve  of shares  available for issuance to
meet  business  needs as they may arise in the future. Such
business needs may include, without limitation, rights offerings, financings,
acquisitions, establishing strategic relationships with corporate partners,
providing equity incentives to employees, officers or directors, stock splits or
similar transactions.   Issuances of any additional shares for
these or other reasons could prove dilutive to current shareholders or deter
changes in control of the Company, including transactions where the shareholders
could otherwise receive a premium for there shares over then current market
prices.





On December 12, 2006, the Company
filed a registration statement for a subscription rights offering with the SEC
that became effective January 30, 2007. Under terms of this rights offering, the
Company distributed to shareholders of record as of February 5, 2007,
non-transferable subscription rights to purchase one share of the Company's
common stock for each share owned at that date at a subscription price of $1.05
per share. On March 12, 2007, the Company completed the rights offering, selling
12,027,378 shares of its common stock at $1.05 per share. Total proceeds to the
Company, net of $275,000 of expenses related to the rights offering, were
$12,354,000.




18
 Table Of Contents





The purpose of this rights offering
was to raise equity capital in a cost-effective manner.  Approximately
$7,564,000 of the proceeds were used for debt repayment and the remainder
invested in short-term money market securities for anticipated working capital
needs and general corporate purposes. A portion of the net proceeds may also
ultimately be used to acquire or invest in businesses, products and technologies
that our management believes are complementary to the Company's
business.  Remaining unused proceeds are currently invested in
short-term money market securities.





In addition, on January 22, 2007, the
Company entered into a stockholders rights plan (the "Rights Plan"). The Rights
Plan provides for a dividend distribution of one common stock purchase right for
each outstanding share of the Company's common stock. The Company's Board of
Directors adopted the Rights Plan to protect stockholder value by protecting the
Company's ability to realize the benefits of its net operating losses ("NOLs")
and capital loss carryforwards. The Company has experienced substantial
operating and capital losses in previous years. Under the Internal Revenue Code
and rules promulgated by the Internal Revenue Service, the Company may "carry
forward" these losses in certain circumstances to offset current and future
earnings and thus reduce its federal income tax liability, subject to certain
requirements and restrictions. Assuming that the Company has future earnings,
the Company may be able to realize the benefits of NOLs and capital loss
carryforwards. These NOLs and capital loss carryforwards constitute a
substantial asset to the Company. If the Company experiences an "Ownership
Change," as defined in Section 382 of the Internal Revenue Code, its ability to
use the NOLs and capital loss carryforwards could be substantially limited or
lost altogether. The Rights Plan imposes a significant penalty upon any person
or group that acquires more than a certain percentage of the Company's common
stock by allowing other shareholders to acquire equity securities at half their
fair values.





As of
October 1, 2008, there were approximately 773 holders of record of our
common stock. The following table shows the high and low sales 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
      2008First
      Quarter
                
                $
                3.40
                
                
                $
                2.25Second
      Quarter
                
                
                3.25
                
                
                
                2.30Third
      Quarter
                
                
                2.65
                
                
                
                1.99Fourth
      Quarter
                
                
                2.45
                
                
                
                1.15FISCAL
      2007First
      Quarter
                
                $
                2.05
                
                
                $
                0.60Second
      Quarter
                
                
                2.30
                
                
                
                1.55Third
      Quarter
                
                
                2.40
                
                
                
                1.20Fourth
      Quarter
                
                
                2.90
                
                
                
                1.35





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
our U.S. credit facility. 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 Year 2008





Equity
Compensation Plan Information





PLAN CATEGORY
              
              NUMBER
      OF
                SECURITIES
      TO BE
                ISSUED
      UPON
                EXERCISE
      OF
                OUTSTANDING
                OPTIONS,
      WARRANTS
                AND RIGHTS
              
              
              WEIGHTED-AVERAGE
                EXERCISE
      PRICE OF
                OUTSTANDING
                OPTIONS,
      WARRANTS
                AND RIGHTS
              
              
              NUMBER OF
                SECURITIES
                REMAINING
      AVAILABLE
                FOR
      FUTURE ISSUANCE
                UNDER EQUITY
                COMPENSATION
                PLANS(1)Equity
      compensation plans approved by security holders:Stock
      Option Plans
              
              
              2,094,815
              
              
              $
              3.45
              
              
              
              604,500Equity
      compensation plans not approved by security holders:Warrants
      issued in settlement of class action lawsuit(2)
              
              
              512,500
              
              
              $
              1.50
              
              
              Not
      applicable





(1)
Excludes securities to be issued upon exercise of outstanding options, warrants
and rights.





(2)
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.




19
 Table Of Contents





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.





PERFORMANCE
GRAPH





The  following  graph  compares  the  yearly   percentage  change  in  the
cumulative  shareholder  return on the Common Stock with The
Nasdaq Market Index and the peer group index for the
Standard  Industrial  Classification Code ("SIC Code") 3844
for the period  commencing  August 2, 2003 and ending August
2, 2008. The peer  group for SIC Code
3844  (X-Ray  Apparatus  and
Tubes)  consists  of 3 companies and
includes:  American
Science  Engineering  Inc.,  Hologic Inc., and
Sirona Dental Systems, Inc. The graph assumes that $100 was invested on August
2, 2003 in the Common  Stock and in each of the
other  indices and assumes  monthly reinvestment of all
dividends.








This stock price
performance  graph shall not be deemed to be "soliciting material" or
"filed" or incorporated by reference in future filings with the Commission, or
subject to the liabilities of Section 18 of the Exchange Act, except to the
extent that the Company specifically incorporates it by reference into a
document filed under the Securities Act or the Exchange Act.





ITEM 6
            SELECTED
      FINANCIAL DATA




The
selected income statement data presented for the fiscal years ended August 2,
2008, July 28, 2007 and July 29, 2006 and the balance sheet data as of August 2,
2008 and July 28, 2007 have been derived from our audited consolidated financial
statements included elsewhere in this Annual Report. The income statement data
for the years ended July 30, 2005 and July 31, 2004 and the balance sheet data
as of July 29, 2006, July 30, 2005 and July 31, 2004 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 Form
10-K.




20
 Table Of Contents




FISCAL YEARS ENDED(IN THOUSANDS, EXCEPT SHARE
      AMOUNTS)
                    
                    AUGUST2,
                      2008
                    
                    
                    JULY28,
                      2007
                    
                    
                    JULY29,
                      2006
                    
                    
                    JULY30,
                      2005
                    
                    
                    JULY31,
                      2004(1)INCOME
      STATEMENT DATA:Net
      sales
                    
                    $
                    108,306
                    
                    
                    $
                    104,167
                    
                    
                    $
                    83,014
                    
                    
                    $
                    84,872
                    
                    
                    $
                    83,827Gross
      margin
                    
                    
                    26,787
                    
                    
                    
                    25,017
                    
                    
                    
                    19,358
                    
                    
                    
                    22,281
                    
                    
                    
                    21,315Selling,
      general and administrative
                    
                    
                    15,586
                    
                    
                    
                    14,590
                    
                    
                    
                    13,619
                    
                    
                    
                    16,452
                    
                    
                    
                    15,907Research
      and development
                    
                    
                    2,488
                    
                    
                    
                    2,013
                    
                    
                    
                    1,562
                    
                    
                    
                    1,636
                    
                    
                    
                    1,562Goodwill
      impairment
                    
                    
                    1,911
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Litigation
      settlement costs
                    
                    
                    450
                    
                    
                    
                    -
                    
                    
                    
                    697
                    
                    
                    
                    300
                    
                    
                    
                    3,652Operating
      income
                    
                    
                    6,352
                    
                    
                    
                    8,414
                    
                    
                    
                    3,480
                    
                    
                    
                    3,893
                    
                    
                    
                    194Minority
      interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    108
                    
                    
                    
                    393
                    
                    
                    
                    559Provision
      for income taxes
                    
                    
                    3,247
                    
                    
                    
                    3,553
                    
                    
                    
                    1,758
                    
                    
                    
                    2,054
                    
                    
                    
                    8,691Income
      (loss) from continuing operation
                    
                    
                    2,977
                    
                    
                    
                    3,816
                    
                    
                    
                    269
                    
                    
                    
                    193
                    
                    
                    
                    (10,729
                    )Discontinued
      operation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (175
                    )
                    
                    
                    199
                    
                    
                    
                    (5,095
                    )Net
      income (loss)
                    
                    
                    2,977
                    
                    
                    
                    3,816
                    
                    
                    
                    94
                    
                    
                    
                    392
                    
                    
                    
                    (15,824
                    )Net
      income (loss) per share – BasicContinuing
      operations
                    
                    $
                    0.12
                    
                    
                    $
                    0.24
                    
                    
                    $
                    0.02
                    
                    
                    $
                    0.02
                    
                    
                    $
                    (1.04
                    )Discontinued
      operation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (0.01
                    )
                    
                    
                    0.02
                    
                    
                    
                    (0.49
                    )Net
      income (loss) per basic share
                    
                    $
                    0.12
                    
                    
                    $
                    0.24
                    
                    
                    $
                    0.01
                    
                    
                    $
                    0.04
                    
                    
                    $
                    (1.53
                    )
 Net
      income (loss) per share – DilutedContinuing
      operations
                        
                        $
                        0.12
                        
                        
                        $
                        0.23
                        
                        
                        $
                        0.02
                        
                        
                        $
                        0.01
                        
                        
                        $
                        (1.04
                        )Discontinued
      operation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (0.01
                        )
                        
                        
                        0.02
                        
                        
                        
                        (0.49
                        )Net
      income (loss) per diluted share
                        
                        $
                        0.12
                        
                        
                        $
                        0.23
                        
                        
                        $
                        0.01
                        
                        
                        $
                        0.03
                        
                        
                        $
                        (1.53
                        )Weighted
      average shares outstanding – Basic
                        
                        
                        24,196
                        
                        
                        
                        16,155
                        
                        
                        
                        11,244
                        
                        
                        
                        10,490
                        
                        
                        
                        10,334Weighted
      average shares outstanding – Diluted
                        
                        
                        24,646
                        
                        
                        
                        16,455
                        
                        
                        
                        12,076
                        
                        
                        
                        11,465
                        
                        
                        
                        10,334
 AS OFAUGUST
      2,
                    2008
                  
                  
                  JULY
      28,
                    2007
                  
                  
                  JULY
      29,
                    2006
                  
                  
                  JULY
      30,
                    2005
                  
                  
                  JULY
      31,
                    2004(1)BALANCE
      SHEET DATA:Working
      capital
                  
                  $
                  31,204
                  
                  
                  $
                  24,978
                  
                  
                  $
                  6,935
                  
                  
                  $
                  10,122
                  
                  
                  $
                  7,764Total
      assets
                  
                  
                  66,353
                  
                  
                  
                  66,339
                  
                  
                  
                  49,153
                  
                  
                  
                  40,776
                  
                  
                  
                  49,261Long-term
      debt and subordinated note
                  
                  
                  4,504
                  
                  
                  
                  5,393
                  
                  
                  
                  5,133
                  
                  
                  
                  6,454
                  
                  
                  
                  7,038Shareholders’
      equity
                  
                  
                  36,163
                  
                  
                  
                  30,196
                  
                  
                  
                  12,814
                  
                  
                  
                  9,228
                  
                  
                  
                  7,775


(1) Net
loss for the year ended July 31, 2004 includes a $9,794 income tax provision
related to the establishment of a deferred tax valuation allowance. In addition,
the 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.







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




FORWARD
LOOKING STATEMENTS





In addition to other information in
this Annual Report, this  Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on current expectations and the current economic
environment. We caution that these statements are not guarantees of future
performance. They involve a number of risks and uncertainties that are difficult
to predict including, but not limited to, our ability to implement our business
plan, retention of management, changing industry and competitive conditions,
obtaining anticipated operating efficiencies, securing necessary capital
facilities and favorable determinations in various legal and regulatory matters.
Actual results could differ materially from those expressed or implied in the
forward-looking statements. Important assumptions and other important factors
that could cause actual results to differ materially from those in the
forward-looking statements are specified in the Company's filings with the SEC
including the Company’s Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K.




21
 Table Of Contents





OVERVIEW





The
Company is primarily engaged in the design, manufacture and marketing of
cost-effective medical and dental diagnostic imaging systems consisting of
stationary and portable imaging systems, radiographic/ fluoroscopic systems,
dental imaging systems and digital radiography systems.  The Company
also manufactures electronic filters, high voltage capacitors, pulse modulators,
transformers and reactors, and a variety of other products designed for
industrial, medical, military and other commercial applications.  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.





On
October 1, 2004, we sold the Del High Voltage division, which manufactured
proprietary high voltage power conversion subsystems, 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.





At a
special meeting of shareholders of the Company held on November 17, 2006, the
Company’s shareholders approved an Amendment of the Certificate of Incorporation
of the Company to increase the number of authorized shares of the Company’s
common stock, par value $0.10 per share, from twenty million (20,000,000) shares
to fifty million (50,000,000) shares in order to have
a  sufficient  number of shares
of  common  stock to  provide a
reserve  of shares  available for issuance to
meet  business  needs as they may arise in the future. Such
business needs may include, without limitation, rights offerings, financings,
acquisitions, establishing strategic relationships with corporate partners,
providing equity incentives to employees, officers or directors, stock splits or
similar transactions.   Issuances of any additional shares for
these or other reasons could prove dilutive to current shareholders or deter
changes in control of the Company, including transactions where the shareholders
could otherwise receive a premium for there shares over then current market
prices.








CRITICAL
ACCOUNTING POLICIES





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





REVENUE
RECOGNITION





The
Company recognizes revenue upon shipment, provided there is persuasive evidence
of an arrangement, there are no uncertainties concerning acceptance, the 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.





DEFERRED
INCOME TAXES





The
Company accounts for deferred income taxes in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income
Taxes”  whereby we recognize deferred income tax assets and
liabilities for temporary differences between financial reporting basis and
income tax reporting basis and for tax credit carry forwards.




22
 Table Of Contents





The
Company periodically assesses the realization of our net deferred income tax
assets.  This evaluation is primarily based upon current operating
results and expectations of future operating results.  A valuation
allowance is recorded if the Company believes its net deferred income tax assets
will not be realized.  Our determination is based on what we believe
will be the more likely than not result.





During
fiscal years 2008, 2007 and 2006, the Company reported operating income on a
consolidated basis.  The Company’s foreign tax reporting entity was
profitable and its U.S. tax reporting entities incurred a taxable loss in each
fiscal year.  Based primarily on these results, the Company concluded
that it should maintain a 100% valuation allowance on its net U.S. deferred tax
assets.  As of August 2, 2008, the Company continues to carry a 100%
valuation allowance on its net U.S. deferred income tax assets.





The
Company recorded a tax expense with respect to its foreign subsidiary’s income
in all periods presented and based on a more likely than not standard, believes
that the foreign subsidiary’s net deferred income tax asset of $0.8 million at
August 2, 2008 will be realized.





The
Company’s foreign subsidiary operates in Italy.  Italy recently
enacted legislation that reduces tax rates effective for the Company’s fiscal
year 2009.  Fiscal 2008 income tax expense includes a charge that
reduces the carrying value of the foreign subsidiary’s net deferred income tax
asset resulting from the income tax rate reduction.





Additionally,
the Company’s deferred income tax liabilities as of July 28, 2007 included the
estimated tax obligation that would have been incurred upon a distribution of
the foreign subsidiary’s earnings to its U.S. parent.  This tax
liability was recorded as the foreign subsidiary had routinely distributed
monies to its U.S. parent.  Based on current operating results,
expectations of future results and available cash and credit in the U.S. the
Company had determined it no longer intends to repatriate monies in the
foreseeable future and has reversed this tax obligation, much of which was
offset by having a lower valuation allowance.  This reversal resulted
in an adjustment to available net operating loss carryforwards and the related
valuation allowance and in a reduction in tax expense for fiscal
2008.





The
Company recorded a $0.1 million tax benefit resulting from the effect of the
Italian tax rate change on deferred tax assets and the reversal of estimated tax
obligation upon repatriation of non-U.S. earnings.





OBSOLETE
AND EXCESS INVENTORY





We
re-evaluate our allowance for obsolete inventory once a quarter, and this
allowance comprises the most significant portion of our inventory reserves. The
re-evaluation of reserves is based on a written policy, which requires at a
minimum that reserves be established based on our analysis of historical actual
usage on a part-by-part basis. In addition, if management learns of specific
obsolescence in addition to this minimum formula, these additional reserves will
be recognized as well. Specific obsolescence might arise due to a technological
or market change, or based on cancellation of an order. As we typically do not
purchase inventory substantially in advance of production requirements, we do
not expect cancellation of an order to be a material risk. However, market or
technology changes can occur.





VALUATION
OF FINISHED GOODS INVENTORIES





In
addition, we use certain estimates in determining interim operating results. The
most significant estimates in interim reporting relate to the valuation of
finished goods inventories. For certain subsidiaries, for interim periods, we
estimate the amount of labor and overhead costs related to finished goods
inventories. These estimates are revised based on actual results at year
end.  As of August 2, 2008, finished goods represented approximately
28.0% of the gross carrying value of our total gross inventory. We believe the
estimation methodologies used are appropriate and are consistently
applied.





GOODWILL




The
Company’s goodwill is subject to, at a minimum, an annual fourth fiscal quarter
impairment assessment of its carrying value. Goodwill impairment is deemed to
exist if the net book value of a reporting unit exceeds its estimated fair
value. Estimated fair values of the reporting units are estimated using an
earnings model and a discounted cash flow valuation model. The discounted cash
flow model incorporates the Company’s estimates of future cash flows, future
growth rates and management’s judgment regarding the applicable discount rates
used to discount those estimated cash flows.




23
 Table Of Contents




Due primarily to continued operating results below planned levels and
management’s resulting revaluation of its strategic plan for the Company’s
domestic Medical Systems Group’s reporting unit, the Company completed a special
assessment of that reporting unit’s goodwill realization in the third quarter of
fiscal 2008.  As part of its assessment, the Company estimated the
fair value of the domestic reporting unit based on internal cash flows expected
to be earned by the business and an appropriate risk-adjusted discount
rate.  While such estimates are subject to significant uncertainties
and actual results could be materially different, the analysis resulted,
pursuant to the implementation guidance of FASB No. 142, Accounting for Goodwill
and Intangible Assets, in a complete impairment of the unit’s goodwill
balance.  Accordingly, the Company recorded a $1.9 million impairment
charge during the third quarter of fiscal 2008.




CONSOLIDATED
RESULTS OF OPERATIONS


FISCAL
2008 COMPARED TO FISCAL 2007




Consolidated net sales of $108.3 million for fiscal year 2008 increased by $4.1
million, or 4.0%, from fiscal 2007 net sales of $104.2 million, due primarily to
increased sales in our Medical Systems Group.  The Medical Systems
Group’s sales for fiscal 2008 of $95.1 million increased $4.1 million, or 4.5 %,
from the prior fiscal year. Net sales increases were primarily driven by
increased international sales volume of several medical system product lines,
particularly the Apollo line, offset by reduced sales of the domestic digital
product line.  The Power Conversion Group’s sales for fiscal 2008 of
$13.3 million were consistent with sales in the prior fiscal year.




Consolidated backlog at August 2, 2008 was $22.7 million versus backlog at July
28, 2007 of approximately $28.4 million. The backlog in the Power Conversion
Group of $5.4 million decreased $1.2 million from levels at the beginning of the
fiscal year while there was a $4.5 million decrease in the fiscal year end
backlog of our Medical Systems Segment from July 28, 2007 reflecting weaker
booking during the twelve month period in international markets. Substantially
all of the backlog should result in shipments within the next 12 to 15
months.





Gross margins as a percent of sales were 24.7% in fiscal 2008, compared to 24.0%
in fiscal 2007.  The Power Conversion Group margins were 37.9 % in
fiscal 2008 as compared to 37.3% in fiscal 2007 reflecting increased margins in
product mix and decreased production cost.  For the Medical Systems
Group, fiscal 2008 gross margins of 22.9% were higher than gross margins of
22.1% in the prior year due primarily to increased sales in the Del Medical
legacy product lines which have lower selling prices but greater gross
margins.





Research and Development expenses for fiscal 2008 were $2.5 million (2.3% of
sales) compared to $2.0 million (1.9% of sales) in fiscal 2007 due primarily to
higher international product development efforts in fiscal 2008.





Selling, General and Administrative expenses (“SG&A”) for fiscal 2008 were
$15.6 million (14.4% of sales) compared to $14.6 million (14.0% of sales) in
fiscal 2007.  The increase is primarily due to higher stock based
compensation expenses related to increased volume of stock options vesting
during fiscal 2008, legal expenses related to the Moeller case discussed
elsewhere in this document and increased expenses related to investigating
potential business acquisitions.




As discussed above, during the third quarter of fiscal 2008, the Company
recognized a goodwill impairment loss of $1.9 million on the carrying value of
the goodwill of the Medical Systems Group’s U.S. medical business.  No
impairment was recorded in fiscal 2007.




As a result of the above, we recognized fiscal 2008 operating income of $6.4
million compared to operating income of $8.4 million in fiscal
2007.  The Medical Systems Group had an operating profit of $5.0
million in fiscal 2008 and the Power Conversion Group achieved an operating
profit of $2.5 million, offset by unallocated corporate costs of $1.1
million.  The Medical Systems Group had an operating profit of $7.5
million in fiscal 2007 and the Power Conversion Group achieved an operating
profit of $2.4 million, offset by unallocated corporate costs of $1.5
million.




Interest expense, net of $0.3 million for fiscal 2008, was $0.7 million lower
than the prior year due to a reduction in borrowings resulting from the paydown
of U.S. based debt with the proceeds of our March 2007 Right Offering, partially
offset by additional borrowings in Italy to support it’s day to day
operations.




On a consolidated basis, the Company recorded fiscal 2008, pretax income of $6.2
million, comprised of foreign pretax income of $8.3 million offset by a U.S.
pretax loss of $2.1 million.  During fiscal 2007, the Company recorded
pretax income of $7.4 million which included foreign pretax income of $8.2
million, offset by a U.S. pretax loss of $0.8 million.  The related
fiscal 2008 and 2007 income tax expense of $3.2 million and $3.6 million,
respectively, was primarily due to foreign taxes on the profits of
Villa.  The Company has not provided for any income tax benefits
related to the U.S. pretax losses in either fiscal 2008 or fiscal 2007 due to
uncertainty regarding the realizability of its U.S. net operating loss carry
forwards as explained in Critical Accounting Policies above.




24
 Table Of Contents





Reflecting
the above, we recorded net income of $3.0 million, or $0.12 per basic share and
diluted share, in fiscal 2008, as compared to a net income of $3.8 million, or
$0.24 per basic share and $0.23 per diluted share, in fiscal 2007.





FISCAL
2007 COMPARED TO FISCAL 2006





Consolidated
net sales of $104.2 million for fiscal year 2007 increased by $21.2 million, or
25.5%, from fiscal 2006 net sales of $83.0 million, with increases at both the
Power Conversion Group and Medical Systems Group.  The Medical Systems
Group’s sales for fiscal 2007 of $91.0 million increased $20.7 million, or 29.5
%, from the prior fiscal year, with increases primarily due to increased
international sales as well as stronger than expected dental sales and increased
sales of higher priced digital products.  The Power Conversion Group’s
sales for fiscal 2007 of $13.2 million increased by $.5 million, or 3.6%, from
the prior year’s levels, reflecting increased sales in the transformer
business.





Consolidated
backlog at July 28, 2007 was $28.4 million versus backlog at July 29, 2006 of
approximately $22.4 million. The backlog in the Power Conversion Group of $16.6
million increased $0.3 million from levels at the beginning of the fiscal year
while there was a $5.7 million increase in the fiscal year end backlog of our
Medical Systems Segment from July 29, 2006 reflecting strong booking during the
twelve month period in international markets. Substantially all of the backlog
should result in shipments within the next 12 to 15 months.





Gross
margins as a percent of sales were 24.0% in fiscal 2007, compared to 23.3% in
fiscal 2006.  The Power Conversion Group margins were 37.3 % in fiscal
2007 as compared to 35.5% in fiscal 2006 reflecting increased margins in product
mix and decreased production cost.  For the Medical Systems Group,
fiscal 2007 gross margins of 22.1% were higher than gross margins of 21.1% in
the prior year due primarily to the reversal of warranty reserves as the
warranty period on several specific items expired.  This impact was
partially offset by lower margins associated with increased sales of digital
products. Generally digital product have a higher selling price, as well as a
higher cost than the non- digital product offerings, resulting in lower gross
margin percentage





Research
and Development expenses for fiscal 2007 were $2.0 million (1.9% of sales)
compared to $1.6 million (1.9% of sales) in fiscal 2006 due primarily to higher
international product development efforts in fiscal 2007.





Selling,
General and Administrative expenses (“SG&A”) for fiscal 2007 were $14.6
million (14.0% of sales) compared to $13.6 million (16.4% of sales) in fiscal
2006.  The increase is primarily due to increased corporate legal and
bad debt expense offset by reduced selling cost in the Power Conversion
Group.





Litigation
settlement costs of $0.7 million recorded in fiscal 2006 include the accrual of
$0.6 million based on a November 2005 settlement of litigation filed during
fiscal 2005 by the potential buyers of the Company’s Medical Systems
Group.   The Company previously disclosed this litigation but had
not recorded any affiliated expense during fiscal 2005, as it had no basis at
that time upon which to estimate either the outcome or amount of
loss.  The fiscal 2006 cost also includes the settlement of two
employment actions at our foreign subsidiary totaling $0.2 million net of the
reversal of a $0.1 million accrual related to a previously settled litigation.
No additional litigation settlement costs were incurred during
2007.





As a
result of the above, we recognized fiscal 2007 operating income of $8.4 million
compared to operating income of $3.5 million in fiscal 2006.  The
Medical Systems Group had an operating profit of $7.5 million in fiscal 2007 and
the Power Conversion Group achieved an operating profit of $2.4 million, offset
by unallocated corporate costs of $1.5 million.  We recognized fiscal
2006 operating income of $3.5 million.  The Medical Systems Group had
an operating profit of $3.6 million in fiscal 2006 and the Power Conversion
Group achieved an operating profit of $2.4 million, offset by unallocated
corporate costs of $2.5 million.





Interest
expense of $1.0 million for fiscal 2007 was $0.3 million lower than the prior
year due to a reduction in borrowings resulting from the paydown of U.S. based
debt with the proceeds of our March 2007 Right Offering partially offset by
additional borrowings in Italy to support it’s day to day
operations.





On a
consolidated basis, the Company recorded fiscal 2007 pretax income of $7.4
million, comprised of foreign pretax income of $8.2 million offset by a U.S.
pre-tax loss of $0.8 million.  The related fiscal 2007 income tax
expense of $3.6 million was due to foreign taxes on the profits of
Villa.  During fiscal 2006, the Company recorded pretax income of $2.1
million which included foreign pretax income of $3.7 million, offset by a U.S.
pretax loss of $1.6 million.  The Company has not provided for any
income tax benefits related to the U.S. pretax losses in either fiscal 2007 or
fiscal 2006 due to uncertainty regarding the realizability of its U.S. net
operating loss carry forwards as explained in Critical Accounting Policies
above.




25
 Table Of Contents




Fiscal 2006 Discontinued Operations reflects the accrual of an estimated
liability of $0.2 million related to a New York State Sales tax audit of the
Company’s prior DHV business sold in October 2004.




Reflecting the above, we recorded net income of $3.8 million, or $0.24 per basic
share and $0.23 per diluted share, in fiscal 2007, as compared to a net income
of $0.1 million, or $0.01 per basic and diluted share, in fiscal
2006.





LIQUIDITY
AND CAPITAL RESOURCES




We fund our investing and working capital needs through a combination of cash
flow from operations and short-term credit facilities and the proceeds from our
Right Offering discussed below.





Working
Capital -- At August 2, 2008 and July 28, 2007, our working capital was
approximately $31.2 million and $25.0 million, respectively. The increase in
ending working capital for fiscal 2008 as compared to fiscal 2007 related
primarily to increases in accounts receivable (due to higher sales) and
decreases in trade payables offset partially by a decrease in ending
inventories.




At August 2, 2008 and July 28, 2007, we had approximately $7.9 million in cash
and cash equivalents.  As of August 2, 2008, we had approximately $9.0
million of excess borrowing availability under our domestic revolving credit
facility prior to consideration of $2.6 million of letters of credit issued
thereunder.




In addition, as of August 2, 2008 and July 28, 2007, our Villa subsidiary had an
aggregate of approximately $13.5 million and $11.0 million, respectively, of
excess borrowing availability under its various short-term credit facilities.
Terms of the Italian credit facilities do not permit the use of borrowing
availability to directly finance operating activities at our U.S.
subsidiaries.





FISCAL
2008 COMPARED TO FISCAL 2007





Cash Flows from Operating Activities -- For the year ended August 2,
2008, the Company generated approximately $1.7 million of cash for continuing
operations, compared to $4.0 million in the prior fiscal year. The decrease is
largely due to payment of accounts payable and income taxes payable in the 2008
period offset by the effect of reduced inventory levels.




Cash Flows from Investing Activities -- We made approximately $1.2 million in
facility improvements and capital equipment expenditures for the fiscal year
ended August 2, 2008.   We made approximately $0.8 million in
facility improvements and capital equipment expenditures for the comparable
prior fiscal year period.





Cash Flows from Financing Activities
– During the year ended August 2, 2008, we used $1.0 million in net cash from
financing activities versus generating $4.2 million for the fiscal year ended
July 28, 2007.  This decrease is due to the impact of the net proceeds
of our Rights Offering completed in March of 2007 in the prior fiscal
year.  The Rights Offering, discussed below, generated total proceeds
to the Company, net of related expenses of $12.4
million.  Approximately $7.6 million of the proceeds were used for
debt repayment and the remainder invested in short-term money market
securities.  The Company also received $0.1 million in payment of the
exercise price of stock options and warrants in the fiscal year ended August 2,
2008, $0.6 million less than the prior fiscal year. The
Company made a total of $1.2 million in payments of long term debt during fiscal
2008 compared to payments of $5.9 million in the previous fiscal
year.





FISCAL
2007 COMPARED TO FISCAL 2006




Cash Flows from Operating Activities -- For the year ended July 28, 2007, the
Company generated approximately $4.0 million of cash for continuing operations,
compared to $0.3 million in the prior fiscal year due primarily to an increase
in net income and a larger increase in accounts and income taxes payable
partially offset by a larger increase in inventories.




Cash Flows from Investing Activities -- We made approximately $0.8 million in
facility improvements and capital equipment expenditures for the fiscal year
ended July 28, 2007 and for the comparable prior fiscal year
period.  We also used approximately $2.6 million to fund the cash
portion of the purchase of the minority interest in our Italian subsidiary in
fiscal 2006.




26
 Table Of Contents





Cash Flows from Financing Activities –
During the year ended July 28, 2007, we generated $4.2 million in net cash from
financing activities versus $2.1 million for the fiscal year ended July 29, 2006
due primarily to the net proceeds of our Rights Offering completed in March of
2007.  The Rights Offering, discussed below, generated total proceeds
to the Company, net of related expenses of $12.4
million.  Approximately $7.6 million of the proceeds were used for
debt repayment and the remainder invested in short-term money market
securities.  In addition, the Company received $0.7 million in payment
of the exercise price of stock options and warrants.  During the year
ended July 29, 2006, the Company refinanced its domestic credit agreement and
borrowed $2.0 million under a term loan.  In addition, the Company
borrowed a net $0.8 million under revolving credit facilities and received $0.2
million in payment of the exercise price of stock options.  The
Company made a total of $1.0 million in payments of long term debt during fiscal
2006.





The
following table summarizes our contractual obligations, including debt and
operating leases at August 2, 2008 (in thousands):





OBLIGATIONS
              
              TOTAL
      (1)
              
              
              WITHIN
                1 YEAR
              
              
              2-3
                YEARS
              
              
              4-5
                YEARS
              
              
              AFTER
      5
                YEARSLong-term
      debt obligations
      (1)
              
              $
              3,662
              
              
              $
              1,312
              
              
              $
              2,229
              
              
              $
              121
              
              
              $
              -Capital
      lease obligations
              
              
              2,639
              
              
              
              648
              
              
              
              1,991
              
              
              
              -
              
              
              
              -Interest
              
              
              779
              
              
              
              292
              
              
              
              415
              
              
              
              72
              
              
              
              -Operating
      lease obligations
              
              
              1,062
              
              
              
              605
              
              
              
              457
              
              
              
              -
              
              
              
              -Total
      contractual cash obligations
              
              $
              8,142
              
              
              $
              2,857
              
              
              $
              5,092
              
              
              $
              193
              
              
              $
              -





(1)
            As
      of August 2, 2008, we did not have any outstanding borrowings under our
      revolving credit facilities in the U.S. or in
  Italy.








CREDIT
FACILITY AND BORROWING–





On
August 1, 2005, the Company entered into a three-year revolving credit and term
loan facility with North Fork Business Capital (the "North Fork Facility") and
repaid the prior facility. On June 1, 2007, the North Fork Facility was amended
and restated, effective as of May 25, 2007.  As restated, the North
Fork Facility provides for a $7.5 million formula based revolving credit
facility based on the Company’s eligible accounts receivable and inventory as
defined in the credit agreement and a capital expenditure loan facility of up to
$1.5 million, resulting in a total credit facility of $9.0 million.





Loans
under the three-year North Fork Facility bear interest based on either LIBOR or
the "base rate" which is defined as the higher of (i) the highest prime, base or
equivalent rate of interest publicly announced from time to time by North Fork
Bank, Citibank, N.A. or Bank of America or any successor to either of the
foregoing banks (which may not be the lowest rate of interest charged by such
bank) and (ii) the published annualized rate for ninety-day dealer commercial
paper that appears in the "Money Rates" section of THE WALL STREET JOURNAL.
Loans bear interest at the rate of either 0.50% plus the base rate or LIBOR plus
2.5%. The LIBOR rate option can cover up to 80% of the outstanding loans.
Interest is payable monthly in arrears on the first business day of each
month.





Other
changes to the terms and conditions of the original loan agreement include the
modification of covenants, removal of the Villa stock as loan collateral and the
removal of daily collateral reporting which was part of the previous asset-based
facility requirements.  As of August 2, 2008 and July 28, 2007, no
amounts were outstanding and the Company had approximately $6.4 million of
availability under the North Fork Facility, as North Fork has reserved $2.6
million against possible litigation settlements in the form of letters of
credit.




The
North Fork Facility is subject to commitment fees of 0.5% per annum on the
daily-unused portion of the facility, payable monthly.  The Company
granted a security interest to the lender on its U.S. credit facility in
substantially all of its accounts receivable, inventory, property, plant and
equipment, other assets and intellectual property in the U.S..




As  of  the  end  of  the  fourth  quarter  of  fiscal  2006,  the  Company  was
non-compliant with the following covenants:  the Adjusted U.S.
Earnings,  Adjusted Earnings,  Senior U.S. Debt Ratio and
Fixed Charge  Coverage Ratio covenants under the North Fork
Facility,  due to the lower than
anticipated  performance  during fiscal 2006. On October 25,
2006, the Company and North Fork signed an amendment to the
facility  that waived the  non-compliance  with
these  covenants  for the fourth  quarter of
fiscal 2006 and adjusted the  covenant  levels
going  forward through the maturity of the credit facility. In
addition, the amendment reversed $0.3 million of a sinking fund reserved for the
March 2007 maturity of the  subordinated shareholder  notes
and eliminated  additional  sinking fund
reserves  provisions related to the subordinated notes.




27
 Table Of Contents





As
of the end of the first quarter of fiscal 2007, the Company was non-compliant
with the tangible net worth covenant under the North Fork
Facility.  On December 6, 2006, North Fork waived the non-compliance
with this covenant for the first quarter of fiscal 2007 and adjusted the
covenant levels going forward through the maturity of the credit
facility.  As of August 2, 2008 and July 28, 2007, the Company was in
compliance with all covenants under the North Fork Facility.




The
Company received a dividend from its Villa subsidiary in October 2006 of
approximately $1.6 million which was used to pay down amounts outstanding under
the North Fork Facility, in accordance with provisions of the
facility.




Our
Villa subsidiary maintains short term credit facilities which are renewed
annually with Italian banks.  Currently, these facilities are not
being utilized and the balance due at August 2, 2008 is $0.  Interest
rates on these facilities are variable and currently range from 3.7% –
13.75%.




In
October 2006, Villa entered into a 1.0 million Euro loan for financing of
R&D projects, with an option for an additional 1 million Euro upon
completion of 50% of the projects.  In April, 2008, the Company
declined the option for additional financing and demonstrated successful
completion of the project triggering a more favorable interest
rate.  Interest, previously payable at Euribor 3 months plus 1.3
points, was reduced in the fourth fiscal quarter of 2008 to Euribor plus 1.04
points, currently at 5.998%.  The note is repayable over a 7 year
term, with reimbursement starting in September 2008.  The note
contains a financial covenant which provides that the net equity of Villa cannot
fall below 5.0 million Euros.  This covenant could limit Villa’s
ability to pay dividends to the U.S. parent company in the event future losses,
future dividends or other events should cause Villa’s equity to fall below the
defined level.




In
December 2006, Villa entered into a 1.0 million Euro loan with interest payable
at Euribor 3 months plus 0.95 points, currently 5.897%.  The loan is
repayable in 4 years.




Villa
was party to a 1.6 million Euro loan which was extinguished in March
2007.  Two final installments for a total of 0.3 million Euro were
repaid in fiscal year 2007.





Villa
is also party to two Italian government long-term loans with a fixed interest
rate of 3.425% with principal payable annually through maturity in February and
September 2010. At the end of fiscal year 2008, total principal due is 0.6
million Euro.  Villa 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.





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
the $2 million of subordinated notes that were issued in April 2002 and matured
in March 2007. The subordinated notes did not pay interest currently, but
accrued interest at 6% per annum, and were recorded at issuance at a discounted
present value of $1.5 million. The balance was paid on March 29, 2007 with a
portion of the proceeds from a Rights Offering described below.





EQUITY
MATTERS




On
December 12, 2006, the Company filed a registration statement for a subscription
Rights Offering with the SEC that became effective January 30, 2007. Under the
terms of this Rights Offering, the Company distributed to shareholders of record
as of February 5, 2007, non-transferable subscription rights to purchase one
share of the Company's common stock for each share owned at that date at a
subscription price of $1.05 per share. On March 12, 2007, the Company completed
the Rights Offering, selling 12,027,378 shares of its common stock at $1.05 per
share. Total proceeds to the Company, net of expenses related to the Rights
Offering, were $12.4 million.





The purpose of this Rights Offering
was to raise equity capital in a cost-effective manner.  Approximately
$7.6 million of the proceeds were used for debt repayment and the remainder
invested in short-term money market securities for anticipated working capital
needs and general corporate purposes.  A portion of the net proceeds
may also ultimately be used to acquire or invest in businesses, products and
technologies that Company management believes are complementary to the Company's
business.




28
 Table Of Contents





In
addition, on January 22, 2007, the Company entered into a stockholders rights
plan (the "Rights Plan"). The Rights Plan provides for a dividend distribution
of one Common Stock purchase right for each outstanding share of the Company's
Common Stock. The Company's Board of Directors adopted the Rights Plan to
protect stockholder value by protecting the Company's ability to realize the
benefits of its net operating losses ("NOLs") and capital loss carryforwards.
The Company has experienced substantial operating and capital losses in previous
years. Under the Internal Revenue Code and rules promulgated by the IRS, the
Company may "carry forward" these losses in certain circumstances to offset
current and future earnings and thus reduce its federal income tax liability,
subject to certain requirements and restrictions. Assuming that the Company has
future earnings, the Company may be able to realize the benefits of NOLs and
capital loss carryforwards. These NOLs and capital loss carryforwards constitute
a substantial asset to the Company. If the Company experiences an "Ownership
Change," as defined in Section 382 of the Internal Revenue Code, its ability to
use the NOLs and capital loss carryforwards could be substantially limited or
lost altogether. In general terms, the Rights Plan imposes a significant penalty
upon any person or group that acquires certain percentages of the Company's
common stock by allowing other shareholders to acquire equity securities at half
their fair values.





LITIGATION
MATTERS





The
Company had an employment agreement with Samuel Park, a previous CEO, for the
period May 1, 2001 to April 30, 2004.  The employment agreement
provided for certain payments in the event of a change in the control of the
Company.  On October 10, 2003, the Company announced the appointment
of Walter F. Schneider as President and CEO to replace Mr. Park, effective as of
such date.  As a result, the Company recorded a charge of $0.2 million
during the first quarter of fiscal 2004 to accrue the balance remaining under
Mr. Park’s employment agreement.




The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes in control.  The Company’s Board of Directors, elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1.8 million under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On November 17, 2003, the Company filed a complaint in the
United States District Court, Southern District of New York, against Mr. Park
seeking a declaratory judgment that no change in control payment was or is due
to Mr. Park, and that an amendment to the employment contract with Mr. Park
regarding advancement and reimbursement of legal fees is invalid and
unenforceable.  Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
“change in control” occurred in June 2003.  Mr. Park is also seeking
other consideration he believes he is owed under his employment
agreement.  The Company filed a reply to Mr. Park’s counterclaims
denying that he is entitled to any of these payments.  Discovery in
this matter was conducted and completed.  Following discovery, the
Company and Mr. Park filed motions for summary judgment on the issues related to
the change in control and the amendment to the employment agreement, which
motions have been fully submitted to the court for consideration.  To
date, no decision has been issued by the court on these motions.  If
Mr. Park prevails on his claims and the payments he seeks are required to be
paid in a lump sum, these payments may have a material adverse effect on the
Company’s liquidity.  It is not possible to predict the outcome of
these claims.  However, the Company’s Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company’s liquidity in the foreseeable future.  The Company has
not recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.




On
June 28, 2002, Jeffrey N. Moeller, the former Director of Quality Assurance and
Regulatory Affairs of Del Medical, commenced an action in the Circuit Court of
Cook County, Illinois, against the Company, Del Medical and Walter Schneider,
the former President of Del Medical.  In the most current iteration of
his complaint, the third amended complaint, Mr. Moeller alleged four claims
against the defendants in the action: for (1) retaliatory discharge from
employment with Del Medical, allegedly in response to Mr. Moeller’s complaints
to officers of Del Medical about purported prebilling and his stopping shipment
of a product that allegedly did not meet regulatory standards, (2) defamation,
(3) intentional interference with his employment relationship with Del Medical
and prospective employers, and (4) to hold the Company liable for any misconduct
of Del Medical under a theory of piercing the corporate veil.  In
their answer to the third amended complaint, the defendants denied the
substantive allegations of each of these claims and denied that they have any
liability to Mr. Moeller.  By order dated September 15, 2006, the
Court denied in part and granted in part defendants’ motion requesting summary
judgment dismissing the third amended complaint.  The court granted
the motion only to the extent of dismissing that part of Mr. Moeller’s claim of
interference with his employment relationship with Del Medical and his
relationship with prospective employers.




29
 Table Of Contents




In
fiscal 2007, the Company recorded an accrual of $0.1 million relating to
potential liability in the settlement of these claims.  The parties
appeared for mediation in January 2007 but the mediation did not result in a
disposition of the action. A trial was held in April 2008 and on April 17, 2008,
the jury returned a verdict in favor of Mr. Moeller for $1.8 million for lost
earnings, back pay, front pay and benefits on the retaliatory discharge claim,
and $0.2 million for emotional distress/reputation damages and $0.2 million in
punitive damages on the defamation claim.  On May 19, 2008, counsel
for the defendants filed their motion for judgment in their favor
notwithstanding the jury verdict, or, alternatively, for a new trial, on those
claims on which the jury found the respective defendants liable.  By
order dated August 15, 2008, the Court denied that motion.




On
August 25, 2008, the Company and the other defendants filed their notice of
appeal by which they appeal to the Appellate Court of Illinois, First District,
among other things, the judgment entered against the Company and the other
defendants on the jury verdict. On September 12, 2008, the Company and the other
defendants filed an amended notice of appeal. The Company intends to pursue the
appeal vigorously, seeking thereby reversal of the judgment and to have a
judgment entered in favor of the Company and the other defendants or to have a
new trial.  In lieu of a bond, the Company filed an irrevocable
standby letter of credit in the amount of $2.6 million by which Mr. Moeller can
collect the amount of the judgment entered by the trial court in the event the
appellate court affirms that judgment.




On
April 28, 2008, Apergis, the former General Manager of RFI, filed a charge with
the EEOC alleging that RFI discriminated against him by terminating his
employment with RFI on December 18, 2007.  Apergis alleged three
claims against RFI: (1) violation of Title VII of the Civil Rights Act; (2)
violation of the Age Discrimination in Employment Act and (3)
retaliation.  RFI responded to the EEOC charge with a position
statement filed with the EEOC on June 26, 2008 denying each allegation of the
charge.  As of September 16, 2008, RFI is waiting to hear for a
response to their position statement from the EEOC.  RFI intends to
defend vigorously against Apergis.




Diamond
v. Allied Diagnostic Imaging Resources, Inc., et al. (Superior Court, County of
Los Angeles; Case No. BC362544). This action is brought against numerous
defendants, including the Company. While the action commenced in late 2006,
plaintiff first served the summons and complaint on the Company in December
2007. The plaintiff alleges that she is the wife of a chiropractor who died in
June 2005. Plaintiff alleges that her husband was exposed to chemical products
in developing x-ray films and cleaning film processing machines and worked with
the x-ray film processing machines and x-ray machines, and that the defendants
manufactured, supplied or serviced the chemical products and
machines.  The complaint further alleges that the decedent was exposed
to toxic chemicals and radiation from the chemical products used on or in the
machines, which caused “serious injuries to his internal organs, including acute
myelogenous leukemia”, resulting in his death.




The
complaint alleges the following six claims against the defendants: (1)
negligence in manufacturing. and distributing the chemical products and
machines, and servicing the machines, and failing adequately to warn decedent of
the hazards of the chemical products and machines, (2) violation of a California
statute and regulation by failing to determine whether the chemical products
caused health hazards and failing to label or identify in material safety data
sheets a health hazard relating to acute myelogenous leukemia, (3) strict
products liability for failing to warn adequately of the chemical products’ and
machines’ health hazards, (4) strict products liability for defects in the
design of the chemical products and machines, (5) fraudulent concealment of the
toxic and carcinogenic nature of the chemical products and the machines, and (6)
breach of implied warranties as to the fitness of the chemical products and
machines for intended uses, merchantability, and lack of defects.




While
the complaint does not allege a total amount of damages sought, plaintiff
alleges that she has suffered damages consisting of medical, funeral, and burial
expenses, the decedent’s lost earnings prior to and lost wages after his death,
lost benefits after his death, the value of his services in managing his
family’s home, and loss of companionship and similar losses. The plaintiff also
requests punitive damages.  The Company has not recorded an accrual
for any potential settlement of this claim as it has no basis upon which to
estimate either the outcome or amount of loss, if any.  In its answer
to the complaint, the Company denied the substantive allegations of the
complaint and denied that it has any liability to plaintiff.  The
Company intends to defend vigorously against plaintiff’s claims.




On
May 24, 2007, RFI was served with a subpoena to testify before a grand jury of
the United States District Court, Eastern District New York and to provide items
and records from its Bay Shore NY offices in connection with U.S. Department of
Defense contracts.  A search warrant from the United States District
Court, Eastern District of New York was issued and executed with respect to such
offices.  The Company believes that it is in full compliance with the
quality standards that its customers require and is fully cooperating with
investigators to assist them with their review.  RFI continues to ship
products to the U.S. Government as well as to its commercial
customers.




30
 Table Of Contents





The
Company is a defendant in several other legal actions in various U.S. and
foreign jurisdictions arising from the normal course of
business.  Management believes the Company has meritorious defenses to
such actions and that the outcome will not be material to the Company’s
consolidated financial statements.





The
Company did not have any investments in unconsolidated variable interest
entities or other off balance sheet arrangements during any of the periods
presented in this Annual Report on Form 10K.





The
Company anticipates that cash generated from the Rights Offering noted above,
operations and amounts available from credit facilities will be sufficient to
satisfy currently projected operating cash needs for at least the next twelve
months.








EFFECTS
OF NEW ACCOUNTING PRONOUNCEMENTS





In March
2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133.  The
Statement requires enhanced disclosures about an entity’s derivative and hedging
activities.  The Statement is effective for fiscal years and interim
periods beginning after November 15, 2008.  The Company is currently
evaluating the requirements of SFAS 161, but does not expect it to have a
material impact.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51 (“SFAS 160”). SFAS
160 requires identification and presentation of ownership interests in
subsidiaries held by parties other than the Company in the consolidated
financial statements within the equity section but separate from the equity
owned by Del Global.  SFAS 160 also requires that (1) the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of operations, (2) changes in ownership interest be accounted for
similarly, as equity transactions and (3) when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary and the
gain or loss on the deconsolidation of the subsidiary be measured at fair value.
This statement is effective for the Company on August 2, 2009. The Company is
currently evaluating the requirements of SFAS 160 but does not expect it to have
a material impact.




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS
141R”).  SFAS 141R states that acquisition-related costs are to be
recognized separately from the acquisition and expensed as incurred with
restructuring costs being expensed in periods after the acquisition date. SFAS
141R also states that business combinations will result in all assets and
liabilities of the acquired business being recorded at their fair values. The
Company is required to adopt SFAS No. 141R effective August 2, 2009. The impact
of the adoption of SFAS No. 141R will depend on the nature and extent of
business combinations occurring on or after the effective date.





In
September 2006, the FASB issued SFAS No 157, “Fair Value Measurements,” (“SFAS
157”) which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information.  Portions of this statement are effective for the Company
for fiscal years beginning after November 15, 2007, while others have been
deferred until fiscal 2009.  The Company has not evaluated the impact
that the adoption of SFAS No. 157 will have on its financial statements at this
time but does not expect it to have a material impact.





In
February 2007, the FASB released SFAS No. 159, “Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value.  This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years.  The Company has not evaluated the
impact that the adoption of SFAS No. 159 will have on its financial statements
at this time but does not expect it to have a material impact.




In June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”— an interpretation of SFAS No. 109.  FIN
48 requires that the Company recognize the financial statement effects of a tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination.  As used in this
Interpretation, the term “more likely than not” means a likelihood of more than
50 percent.  The terms “examined” and “upon examination” also include
resolution of the related appeals or litigation processes, if
any.  The determination of whether or not a tax position has met the
more-likely-than-not recognition threshold is to be determined based on the
facts, circumstances, and information available at the reporting
date.  FIN 48 was adopted by the Company beginning July 29,
2007.  The adoption of FIN 48 did not have any impact on the Company’s
statement of financial position or on its results of operations.




31
 Table Of Contents





ITEM 7A
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




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





INTEREST
RATE RISK





Our U.S.
revolving credit and Italian subsidiary’s long-term debt incur interest charges
that fluctuate with changes in market interest rates. See Note 7 of Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report. Based on the balances as of August 2, 2008, an increase of 1/2 of 1% in
interest rates would increase interest expense by approximately $32,000
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 57% to 62%
of our total revenues, based in part on the rate at which Villa’s Euro
denominated financial statements have been or will be converted into U.S.
dollars. In addition, over the last three years, Villa has contributed positive
operating income, as compared to U.S. consolidated operating losses. Having a
portion of our future income denominated in Euros exposes us to market risk with
respect to fluctuations in the U.S. dollar value of future Euro earnings. A 5%
decline in the value of the Euro in fiscal 2008, for example, would have reduced
sales by approximately $3.4 million, and would have decreased our consolidated
income from continuing operations by approximately $0.4 million (due to the
reduction in the U.S. dollar value of Villa’s operating income.)





ITEM 8
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




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





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




NONE





ITEM 9A(T)
            CONTROLS
      AND PROCEDURES




EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES





The Company, under the supervision
and with the participation of the Company's management, including James A.
Risher, Chief Executive Officer, and Mark A. Zorko, Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Company's
"disclosure controls and procedures", as such term is defined in Rules 13a-15e
and 15d-15e promulgated under the Exchange Act, as of the end of the period
covered by this Annual Report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures were effective as of the end of the period covered by
this Annual Report to provide reasonable assurance that information required to
be disclosed by the Company in reports that it files or submits under the
Exchange Act, is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms.





A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute assurance that
the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.




32
 Table Of Contents





REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Management
of the Company is responsible for establishing and maintaining adequate
“internal control over financial  reporting”, as such term is defined
in Rule 13a-15(f) of the Exchange Act.  Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. The Company’s system of internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the
financial statements.




Management
performed an assessment of the effectiveness of the Company’s internal control
over financial reporting as of August 2, 2008 based upon criteria in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on our assessment, management
determined that the Company’s internal control over financial reporting was
effective as of August 2, 2008 based on the criteria in Internal Control—Integrated
Framework issued by the COSO.





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 quarter ended August 2, 2008, that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.





This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this Annual Report.








ITEM 9B
            OTHER
      INFORMATION




Not
applicable.





PART III




ITEM 10
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




The names
and ages of each director and executive officers of the Company, each of their
principal occupations at present and for the past five (5) years and certain
other information about each, are set forth below:




Name
            Age
            All
      Offices with the Company
            Director
      SinceGerald
      M.  Czarnecki
            68
            Director
            2003James
      R.  Henderson
            50
            Chairman
      of the Board and Director
            2003General
      Merrill A.  McPeak
            72
            Director
            2005James
      A.  Risher
            66
            Director,
      President and Chief Executive Officer
            2005Officer SinceMark
      A. Zorko
            56
            Chief
      Financial Officer
            2006




Gerald
M.  Czarnecki has been a member of the Company’s Board of
Directors since June 3, 2003.  He has served as the Chairman of The
Deltennium Corporation, a privately held holding company (“Deltennium”), since
November 1995.  Mr. Czarnecki is also currently serving as President
& CEO of Junior Achievement Worldwide, Inc. and is Managing Director of
O2Media Inc. Mr. Czarnecki had a broad career as a corporate executive including
serving as Chairman & CEO of Honfed Bank, a multi-billion dollar bank;
President of UNC Inc., a manufacturing and services company in the aviation
industry; and Senior Vice President of Human Resources and Administration of
IBM, the world’s largest computer company.  Mr. Czarnecki is a
frequent speaker and seminar leader on a broad range of corporate governance
issues and serves on a number of corporate boards.  He has served as a
member of the Board of Directors and Chairman of the Audit Committee of State
Farm Insurance Companies since 1998; He is Chairman of the Board of Directors of
the National Association of Corporate Directors, Florida Chapter and is Chairman
of The National Leadership Institute, a non-profit organization committed to
improving non-profit Leadership and Corporate Governance.  Mr.
Czarnecki has a B.S. in Economics from Temple University and an M.A. in
Economics from Michigan State University and is a CPA.
  33
 Table Of Contents
  James R.  Henderson
has been a member of the Company’s Board of Directors since November 20, 2003.
Mr. Henderson is a Managing Director and operating partner of SteelPartners LLC(“Partners LLC”), a global investment management firm, which is the
Investment Manager to Steel PartnersII, L.P.
(“Steel Partners”).  He has been associated with Partners LLC
and its affiliates since August 1999.  Mr. Henderson has been the
Executive Vice President of SP Acquisition Holdings, Inc., a company formed for
the purpose of acquiring one or more businesses or assets, since February
2007.  He has been a director of Point
Blank Solutions, Inc., a designer and manufacturer of protective body armor,
since August 2008.Mr.
Henderson has been a director of GenCorp Inc., a major technology-based
manufacturing company in the fields of aerospace and defense, since March 2008
and Chairman of the Board since May 2008.  He has been a director of
BNS Holding, Inc., a holding company that owns the majority of Collins
Industries, Inc., a manufacturer of school buses, ambulances and terminal
trucks, since June 2004.  Mr. Henderson has been a director of SL
Industries, Inc., a designer and manufacturer of power electronics, power motion
equipment, power protection equipment, and teleprotection and specialized
communication equipment, since January 2002.  He was a director and
Chief Executive Officer of WebFinancial Corporation, which through its operating
subsidiaries, operates niche banking markets, from June 2005 to April 2008,
President and Chief Operating Officer of WebFinancial from November 2003 to
April 2008, and was the Vice President of Operations from September 2000 through
December 2003.  He was also the Chief Executive Officer of WebBank, a
wholly-owned subsidiary of WebFinancial, from November 2004 to May
2005.  He was a director of ECCInternational  Corp.
(“ECC”),  a  manufacturer  and marketer of
computer  controlled  simulators  for  training  personnel  to
perform  maintenance and operation  procedures on
military  weapons, from December 1999 to September 2003 and was
acting Chief Executive Officer from July 2002 to March 2003.  Mr.
Henderson has been the President of Gateway Industries, Inc., a provider of
database development and web site design and development services, since
December 2001.  From January 2001 to August 2001, he was President of
MDM Technologies, Inc., a direct mail and marketing company.
 
 General Merrill A. McPeak has
been a member of the Company’s Board of Directors since April 27,
2005.  General McPeak is the President of McPeak and Associates, a
management-consulting firm he founded in 1995. General McPeak was Chief of
Staff of the Air Force from November 1990 to October 1994, when he retired from
active military service. General McPeak was for several years Chairman of
ECC.  He has served as a director of several other public companies,
including Tektronix, Inc. and TWA.
Currently, General McPeak is Chairman of the Board of Ethicspoint, Inc., a
company providing confidential corporate governance compliance and whistleblower
reporting services. He is a director of Sensis Corp., a privately held
manufacturer of military radars and civilian air traffic control systems. He is
an investor in and director of several public and private companies in the early
development stage, including: GigaBeam
Corporation, a supplier of high performance, high availability
fiber-speed wireless communications; MathStar,
Inc., a designer and marketer of specialized semiconductor integrated
circuits; and Quintessence Photonics, a subsidiary
of QPC Lasers, Inc., a designer and manufacturer of high performance
semiconductor laser diodes.   General McPeak received a Bachelor of
Arts degree in economics from San Diego State College and a Master of Science
degree in international relations from George Washington University. He is a
member of the Council on Foreign Relations, New York City.
  James A.  Risher
has been a member of the Company’s Board of Directors since April 27,
2005.  On July 22, 2006, Mr. Risher became the Interim President and
CEO of Del Global.  On August 31, 2006 Mr. Risher became the President
and CEO of the Company.  Mr. Risher has been the Managing Partner of
Lumina Group, LLC, a private company engaged in the business of consulting and
investing in small and mid-size companies, since 1998.  From February
2001 to May 2002, Mr. Risher served as Chairman and Chief Executive Officer of
BlueStar Battery Systems International, Inc., a Canadian public company that is
an e-commerce distributor of electrical and electronic products to selected
automotive aftermarket segments and targeted industrial markets.  From
1986 to 1998, Mr. Risher served as a director, Chief Executive Officer and
President of Exide Electronics Group, Inc. (“Exide”), a global leader in the
uninterruptible power supply industry.  He also served as Chairman of
Exide from December 1997 to July 1998.  Mr. Risher has also been a
director of SL Industries, Inc. since May 2003 and a director of New Century
Equity Holdings Corp., a holding company seeking to acquire a new business,
since October 2004.
  34
 Table Of Contents


ADDITIONAL
EXECUTIVE OFFICER OF THE COMPANY WHO IS NOT A DIRECTOR.




Mark A. Zorko, 56, has served
as our Chief Financial Officer from August 30, 2006.  He continues as
a CFO Partner at Tatum, LLC, a professional services firm where he has held
financial leadership positions with public and private client
companies.  From 1996 to 1999, Mr. Zorko was Chief Financial Officer
and Chief Information Officer for Network Services Co., a privately held
distribution company.  His prior experience includes Vice President,
Chief Financial Officer and Secretary of Comptronix Corporation, a publicly held
electronic system manufacturing company, corporate controller for Zenith Data
Systems Corporation, a computer manufacturing and retail electronics company,
and finance manager positions with Honeywell, Inc.  Mr. Zorko was a
senior staff consultant with Arthur Andersen & Co.  Mr. Zorko
served in the Marine Corps. from 1970 to 1973.  He has served as a
director of Guardian Technologies International, Inc.  Mr. Zorko is on
the audit committee for Opportunity Int’l, a microenterprise development
organization, and on the Board of Directors for St. Alexius Medical
Center.  Mr. Zorko earned a BS degree in Accounting from The Ohio
State University, an MBA from the University of Minnesota, and completed the
FEI's Chief Financial Officer program at Harvard University.  He is a
certified public accountant and a member of the National Association of
Corporate Directors.




AUDIT
COMMITTEE OF THE BOARD OF DIRECTORS; IDENTIFICATION OF AUDIT COMMITTEE FINANCIAL
EXPERT.




The Board of Directors has a standing
Audit Committee, the members of which are Gerald M.  Czarnecki
(chairman) and General Merrill McPeak.  The Board of Directors has
determined that Mr. Czarnecki is an "audit committee financial expert" as
defined in Item 401(h) of Regulation S-K.  Although the Company is
currently not listed on any exchange, both Mr. Czarnecki and Gen. McPeak are
considered to be an "independent director" as defined in Rule 4200 of the
Marketplace Rules of the National Association of Securities Dealers,
Inc.




CODE OF
BUSINESS CONDUCT AND ETHICS.




The Company has adopted a Code of
Business Conduct and Ethics that applies to the Company’s Chief Executive
Officer and Principal Accounting Officer.  The Company’s Code of
Business Conduct and Ethics is posted on the Company’s website, http://www.delglobal.com.




SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.




Section 16(a) of the Exchange Act
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with
the Securities and Exchange Commission (the “Commission”).  Such
officers, directors and 10% stockholders are also required by Commission rules
to furnish the Company with copies of all Section 16(a) forms they
file.  Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting persons, the Company
believes that during the fiscal year ended August 2, 2008 there was compliance
with all Section 16(a) filing requirements applicable to its officers, directors
and 10% stockholders.  The Company knows of no failures to file a
required Section 16(a) form during the fiscal year ended August 2,
2008.




ITEM 11
            EXECUTIVE
      COMPENSATION




COMPENSATION
DISCUSSION AND ANALYSIS




This
compensation discussion and analysis describes the elements of compensation paid
to each of the named executive officers who served in the fiscal year ended
August 2, 2008. The discussion focuses primarily on the information contained in
the following tables and related footnotes but may also describe compensation
actions taken before or after the last completed fiscal year to the extent that
such discussion enhances understanding of our compensation philosophy or
policies. The Compensation Committee of the Board, which we refer to in this
discussion as the “Committee”, oversees the design and administration of our
executive compensation program.




35
 Table Of Contents





THE ROLE
OF THE COMPENSATION COMMITTEE




The
Committee is responsible for ensuring that the Company’s executive compensation
policies and programs are competitive within the markets in which the Company
competes for talent and reflect the long-term investment interests of our
shareholders. The Committee reviews and approves the executive compensation and
benefits programs for all the Company’s executive officers annually, usually in
first quarter of each fiscal year.  Any options that are granted as a
result of the Committee’s executive compensation review and approval process are
only granted upon full Board approval of the option grant.  The strike
price of such options is set at the closing price of the Company’s stock on the
day the options were granted.





With
respect to the CEO, the Committee reviews and approves corporate goals and
objectives, evaluates the CEO’s performance against these objectives, and makes
recommendations to the Board regarding the CEO’s compensation level based on
that evaluation.





The
      CEO participates, together with the Committee, in the executive
      compensation process by:


·
            approving
      perquisites valued at less than $10,000per year (all
      perquisites valued at greater than this amount are still approved by the
      Compensation Committee);


·
            participating
      in informal discussions with the Compensation Committee regarding
      satisfaction of performance criteria by executive officers, other than the
      CEO;


·
            providing
      the Board with recommendations as to who should participate in the Del
      Global Incentive Stock Plan and the size of  option grants to
      such participants; and


·
            assigning
      annual budget goals and other objectives that determine bonus awards for
      the CFO.





COMPENSATION
PHILOSOPHY AND OBJECTIVES




The
Committee is responsible for ensuring that the Company’s executive compensation
policies and programs are competitive within the markets in which the Company
competes for talent and reflect the long-term investment interests of our
shareholders. The goal of the executive compensation program is to (a) attract,
retain and reward executive officers who contribute to the Company’s success and
(b) align executive compensation with the achievement of the Company’s business
objectives and the creation of longer-term value for shareholders. The Committee
also strives to balance short and long-term incentive objectives by establishing
goals, performance criteria, evaluating performance and determining actual
incentive awards that are both effective and efficient. While the Committee
believes that stock ownership by executive officers is an effective way of
aligning the common interests of management and shareholders to enhance
shareholder value, the Company has not established equity ownership guidelines
for its executive officers.




RELATIONSHIP
OF COMPANY PERFORMANCE TO EXECUTIVE COMPENSATION




When
determining executive compensation, the Committee also takes into account the
executives’ performance in special projects undertaken during the past fiscal
year, contribution to improvements in our financial situation, development of
new products, marketing strategies, manufacturing efficiencies and other
factors. During the 2008 fiscal year, the Committee focused particularly on
progress with respect to improvement in the Company's revenue growth, operating
earnings and the development of a long-term strategic plan for the Company that
provides a platform for growth and a return to shareholders.




Satisfaction
of certain performance criteria (including initiative, contribution to overall
corporate performance and managerial ability) is evaluated after informal
discussions with other members of the Board and, for all of the executives other
than the CEO, after discussions with the CEO. No specific weight or relative
importance was assigned to the various qualitative factors and compensation
information considered by the Committee. Accordingly, the Company's compensation
policies and practices may be deemed subjective, within an overall published
framework based on both the financial and non-financial factors.




ELEMENTS
OF COMPENSATION




The
Company’s compensation program is comprised primarily of four elements: base
salary, annual cash bonuses, long-term equity incentives and perquisites.
Together, these four elements are structured by the Committee to provide our
named executive officers with cumulative total compensation consistent with our
executive compensation philosophy described above. Each of these elements plays
an important role in balancing executive rewards over short- and long-term
periods, based on our program objectives.




36
 Table Of Contents




1.  BASE
SALARY




Our base
salary levels reflect a combination of factors, including competitive pay levels
relative to our peers, the executive’s experience and tenure, our overall annual
budget for merit increases and pre-tax profit, the executive’s individual
performance, and changes in responsibility.  Base salaries are
reviewed annually by the Committee at the beginning of the year, but are not
automatically increase annually. We do not target base salary at any particular
percent of total compensation. The base salary for our CEO and CFO is set forth
in their employment agreements, which are described in more detail
below.




2.  ANNUAL
CASH BONUSES




The
purpose of the annual cash bonus is to provide a competitive annual cash
incentive opportunity that rewards both the Company’s performance toward
corporate goals and objectives and also individual achievements.  The
annual bonus is a short-term annual incentive paid in cash pursuant to
arrangements that cover all executive officers, including the CEO, and provide
that a bonus will be paid upon achieving the Company’s annual budget
goals.  For fiscal year 2008, the Committee determined that bonuses
would be paid out upon the achievement of improvement of revenue and operating
income as compared to fiscal year 2008 business plan with targets set for the
CEO and CFO of 70% and 45% of their annual base salary
respectively.  Incentive targets for fiscal year 2008 were not
achieved and as a result, the CEO and CFO did not receive an annual
bonus.




3.  LONG
TERM EQUITY INCENTIVES




A.  DEL
GLOBAL STOCK OPTION PLAN




The
purpose of the Del Global Amended and Restated Stock Option Plan (the “DGTC
Plan”), is to provide for the granting of incentive stock options and
non-qualified stock options to the Company’s executive officers, directors,
employees and consultants.  The Committee administers the DGTC
Plan.  Among other things, the Committee: (i) determines participants
to whom options may be granted and the number of shares to be granted pursuant
to each option, based upon the recommendation of our chief executive
officer;  (ii) determines the terms and conditions of any option under
the DGTC Plan, including whether options will be incentive stock options, within
the meaning of Section 422 of the Internal  Revenue Code of 1986, as
amended (the “Code”), or non-qualified stock options; (iii) may vary the vesting
schedule of options; and (iv) may suspend, terminate or modify the DGTC
Plan.  Any Committee recommendations of awards, options or
compensation levels for senior executive officers are approved by the entire
Board, excluding any management directors.





Under the
DGTC Plan, incentive stock options have an exercise price equal to the fair
market value of the underlying stock as of the grant date and, unless earlier
terminated, are exercisable for a period of ten (10) years from the grant
date.  Non-qualified stock options may have an exercise price that is
less than, equal to or more than the fair market value on the grant date and,
unless earlier terminated, are exercisable for a period of up to ten (10) years
from their grant date.





For the
fiscal year ended August 2, 2008, no options to purchase the Company’s common
stock were granted under the terms of the DGTC Plan.





B.  2007
INCENTIVE STOCK PLAN




The 2007
Incentive Stock Plan (the “2007 Plan”) is designed to provide an incentive to,
and to retain in the employ of the Company and any Subsidiary of the Company,
within the meaning of Section 424(f) of the United States Internal Revenue Code
of 1986, as amended, directors, officers, consultants, advisors and employees
with valuable training, experience and ability; to attract to the Company new
directors, officers, consultants, advisors and employees whose services are
considered valuable and to encourage the sense of proprietorship and to
stimulate the active interest of such persons in the development and financial
success of the Company and its Subsidiaries.





The 2007
Plan is administered by theCommittee,which has full power and
authority to designate recipients of options (as defined in the 2007 Plan) and
restricted stock under the 2007 Plan and to determine the terms and conditions
of the respective option and restricted stock agreements and to interpret the
provisions and supervise the administration of the 2007 Plan.
The  Committee also has the authority to designate which options
granted under the 2007 Plan will be incentive options and which shall be
nonqualified options.




37
 Table Of Contents





For the
fiscal year ended August 2, 2008, under the terms of the 2007 Plan, the Company
granted (a) James A. Risher an option to purchase 50,000 shares of the Company’s
common stock and (b) Mark A. Zorko an option to purchase 20,000 shares of the
Company’s common stock.





4.  PERQUISITES




The
Company’s compensation program also includes other benefits and perquisites.
These benefits include annual matching contributions to certain executive
officers’ 401(k) plan accounts, car allowances, living allowances and tax
gross-ups to cover taxes on certain benefits.  We are selective in our
use of perquisites, attempting to utilize perquisites that are within range of
modest to competitive within our industry. The Committee has delegated authority
to the CEO to approve such perquisites for other executive officers, but the
Committee must separately approve any perquisites that exceed $10,000 per
year.





IMPACT OF
TAX AND ACCOUNTING




As a
general matter, the Committee always considers the various tax and accounting
implications of compensation elements employed by the Company and attempts to
structure such compensation in a tax efficient manner. When determining amounts
of long-term incentive grants to executives and employees, the Committee
examines the accounting cost associated with the grants.





Current
compensation levels for our named executive officers are significantly lower
than $1 million at which tax deductions are limited under Internal Revenue Code
Section 162(m).  In the event that future annual total compensation
for any named executive officer exceeds the $1 million threshold, the Committee
intends to balance tax deductibility of executive compensation with its
responsibility to retain and motivate executives with competitive compensation
programs. As a result, the Committee may take such actions as it deems in the
best interests of shareholders, including: (i) provide non-deductible
compensation above the $1 million threshold; (ii) require deferral of a portion
of the bonus or other compensation to a time when payment may be deductible by
the Company; and/or (iii) modify existing programs to qualify bonuses and other
performance-based compensation to be exempt from the deduction
limit.




FISCAL
YEAR 2008 COMPENSATION DESICION




For fiscal year 2008, the Committee
conducted an evaluation of the performance of the CEO and the CFO against
per-established goals.  Based upon these evaluations, decisions were
made regarding salary increases and annual bonuses.  The CEO received
a salary increase of $20,000 for fiscal year 2008.  Incentive targets
for fiscal year 2008 were not achieved and as a result, the CEO and CFO did not
receive an annual bonus.





In keeping with our philosophy of
aligning management and the stockholder interests and consideration of the
future contributions expected of the executive officers, the Committee granted
long-term equity incentives to the CEO and CFO.  See the “Grants
of  Plan-Based Awards Table” for equity granted to the Named Executive
Officers in fiscal year 2008.




SUMMARY
COMPENSATION TABLE





The
following table sets forth all compensation awarded to, paid to or earned by the
following type of executive officers for the fiscal years ended August 2, 2008
and July 28, 2007: (i) individuals who served as, or acted in the capacity of,
the Company's principal executive officer for the fiscal years ended August 2,
2008 and July 28, 2007; (ii) individuals who served as, or acted in the capacity
of, the Company's principal financial officer for the fiscal years ended August
2, 2008 and July 28, 2007; (iii) the Company's most highly compensated executive
officers, other than the chief executive and chief financial officer, who were
serving as executive officers at the end of the fiscal years ended August 2,
2008 and July 28, 2007 (of which there were none) and (iv) up to two additional
individuals for whom disclosure would have been provided but for the fact that
the individual was not serving as an executive officer of the Company at the end
of the fiscal years ended August 2, 2008 and July 28, 2007 (of which there was
one). We refer to these individuals collectively as our “named executive
officers.”




38
 Table Of Contents




SUMMARY
COMPENSATION TABLE




Annual
      CompensationName
      and Principal Position
                  Year
                  
                  Salary
      ($)(1)
                  
                  
                  Bonus
      ($)(1)
                  
                  
                  Stock
      Awards
                  
                  
                  Option
      Awards(5)
                  
                  
                  All
      Other
                      Compensation(2)
                  
                  TotalJames
      A. Risher, Chief Executive Officer
                  2008
                  
                  $
                  319,743
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  75,092
                  
                  
                  $
                  125,944
                  
                  
                  $
                  520,7792007
                  
                  $
                  274,615
                  
                  
                  $
                  224,324
                  
                  
                  $
                  -
                  
                  
                  $
                  51,171
                  
                  
                  $
                  167,686
                  
                  
                  $
                  717,796Mark
      A. Zorko, Chief Financial Officer
                  2008
                  
                  $
                  246,571
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  37,356
                  
                  
                  $
                  8,575
                  
                  
                  $
                  292,5022007
                  
                  $
                  214,300
                  
                  
                  $
                  131,291
                  
                  
                  $
                  -
                  
                  
                  $
                  23,526
                  
                  
                  $
                  6,844
                  
                  
                  $
                  375,961Mark
      A. Koch(3)
                    Treasurer
      and Principal Accounting Officer
                  2007
                  
                  $
                  52,990
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  120,577
                  (4)
                  
                  $
                  173,567





(1)
              The
      figures reported in the salary and bonus columns represent amounts earned
      and accrued for each year.(2)
              The
      amounts in this column include the following executive perquisites and
      other compensation for fiscal years 2008 and
  2007:




Name
                          Benefit
                          
                          2008
                          
                          
                          2007James
      A. Risher
                          Living
      allowance
                          
                          $
                          72,720
                          
                          
                          $
                          67,357Tax
      Gross-Ups
                          
                          
                          53,224
                          
                          
                          
                          41,162Other
                          
                          
                          -
                          
                          
                          
                          59,167
                          (2)(e))$
                          125,944
                          
                          
                          $
                          167,686Mark
      A. Zorko
                          Car
      Allowance
                          
                          $
                          6,900
                          
                          
                          $
                          5,750401
      (k) Match
                          
                          
                          1,675
                          (2)(c))
                          
                          
                          1,094
                          (2)(c))$
                          8,575
                          
                          
                          $
                          6,844Mark
      A. Koch
                          Other
                          
                          $
                          -
                          
                          
                          $
                          120,577
                          (4)





Notes:




2(c)
            Company-matching
      contribution of 50% of the first 4% of salary.  Accelerated
      vesting schedule (100% vested in Company contributions after three (3)
      years of employment).




2(e)
            During
      fiscal year 2007, but prior to Mr. Risher’s appointment as CEO, Mr. Risher
      received $4,167 as compensation for his service to the Company as a
      Director and $55,000 for his service to the Company as a
      consultant.




(3)
            Mr.
      Koch served as the Company’s Treasurer and Principal Accounting Officer
      until October 30, 2006.




(4)
            Mr.
      Koch received separation payments totaling $120,577 in fiscal year
      2007.




(5)
            Refer
      to Footnote 10 Shareholder Equity in Item 8 “Stock Option Plan And
      Warrants” for details of stock option plan terms, SFAS 123R valuation
      techniques and assumptions and the fair value of stock options
      granted.





39
 Table Of Contents




Grants Of
Plan-Based Awards :




(a)
                                                                                                            
                                                                                                            (b)
                                                                                                            
                                                                                                            (i)
                                                                                                            
                                                                                                            (j)
                                                                                                            
                                                                                                            (k)
                                                                                                            
                                                                                                            (l)Name
                                                                                                            
                                                                                                            GrantDate
                                                                                                            
                                                                                                            All
      OtherStockAwards:
                                                                                                              Numberof Shares
                                                                                                              of
      Stockor
      Units
                                                                                                              (#)
                                                                                                            
                                                                                                            All
      OtherOptionAwards:
                                                                                                              Number
      ofSecurities
                                                                                                              UnderlyingOptions
                                                                                                              (#)
                                                                                                            
                                                                                                            Exerciseor
      BasePrice
                                                                                                              ofOptionAwards
                                                                                                              ($/sh)
                                                                                                            
                                                                                                            Grant DateFair
      Value
                                                                                                              of
      Stockand OptionAwards
                                                                                                              ($)James
      A. Risher, Chief Executive Officer
                                                                                                            
                                                                                                            8/31/2006
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            120,000(1)
                                                                                                            
                                                                                                            1.50
                                                                                                            
                                                                                                            118,8009/17/2007
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            50,000(2)
                                                                                                            
                                                                                                            2.70
                                                                                                            
                                                                                                            95,397Mark
      A. Zorko, Chief Financial Officer
                                                                                                            
                                                                                                            8/31/2006
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            60,000(1)
                                                                                                            
                                                                                                            1.50
                                                                                                            
                                                                                                            59,40011/17/2006
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            20,000(1)
                                                                                                            
                                                                                                            2.00
                                                                                                            
                                                                                                            26,2009/17/2007
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            20,000(2)
                                                                                                            
                                                                                                            2.70
                                                                                                            
                                                                                                            38,159







(1)
              Granted
      pursuant to the Company's DGTC Plan.These
      stock options vest and become exercisable as to one-half of such shares on
      the first anniversary of the date of the grant and as to an additional 25%
      of such shares on the second and third anniversaries of the date of the
      grant, respectively.(2)
              Granted
      pursuant to the Company's 2007 Plan.These
      stock options vest and become exercisable as to 25% of such shares on the
      date of the option grant and 25% on each of the first, second and third
      anniversaries of the date of the
grant.




EMPLOYMENT
AGREEMENTS





A.       James
A. Risher Employment Agreements





The
Company and Mr. Risher entered into a Letter Agreement, dated August 31, 2006
(the “Risher Employment Agreement”), providing for Mr. Risher’s employment with
the Company as its CEO and President. Pursuant to the Risher Employment
Agreement, Mr. Risher was entitled to an annual salary of $300,000 and received
an option grant to purchase 120,000 shares of the Company's common stock
pursuant to and in accordance with the Company's DGTC Plan. Such stock options
vest and become exercisable as to one-half of such shares on the first
anniversary of the date of the grant and as to an additional 25% of such shares
on the second and third anniversaries of the date of the grant,
respectively.  Under the terms of the Risher Employment Agreement, Mr.
Risher also received a living allowance of $6,200 per month.   In
addition, Mr. Risher was eligible to receive an annual bonus with a target of
60% of his annual base salary based upon achieving the Company's annual budget
and attaining specific objectives assigned by the Board.  As a result
of achieving these specific objectives in fiscal year 2007, Mr. Risher received
a bonus of $224,324.





The
Risher Employment Agreement was superseded by Letter Agreement between the
Company and Mr. Risher, dated September 19, 2007 (the “2007 Risher Agreement”),
setting forth the terms of Mr. Risher’s employment by the Company as its CEO and
President.  For fiscal year 2008, Mr. Risher received an annual base
salary of $320,000 as well as a living allowance of $6,200 per month, which
amount shall be “grossed up” for tax purposes.  In addition, Mr.
Risher was eligible to receive an annual bonus with a target of 70% of his
annual base salary, based on achieving the Company’s annual budget and attaining
specific objectives assigned by the Board.  The annual bonus could
have been anywhere from 0% to 150% of the target.   As a result
of the Company not achieving these specific objectives in fiscal year 2008, Mr.
Risher did not receive a bonus for the 2008 fiscal year.




40
 Table Of Contents





The 2007
Risher Agreement has been superseded by Letter Agreement between the
Company and Mr. Risher, dated September 16, 2008 (the “2008 Risher Agreement”)
setting forth the terms of Mr. Risher’s continued employment by the Company as
its CEO and President, effective as of September 1, 2008.  The 2008
Risher Agreement will terminate on August 31, 2009.  The 2008
Risher Agreement provides for the same compensation as the 2007 Risher
Agreement, including an annual base salary of $320,000 as well as a living
allowance of $6,200 per month, which amount will be “grossed up” for tax
purposes.  In addition, Mr. Risher will be eligible to receive an
annual bonus with a target of 70% of his annual base salary, based on achieving
the Company’s annual budget and attaining specific objectives assigned by the
Board.  The annual bonus can be anywhere from 0% to 150% of the
target.  In addition to these terms, the 2008 Risher Agreement
provides that in the event Mr. Risher terminates his employment with the Company
for “Good Reason” or if the Company terminates his employment without
“Cause” (and not, in each case, by reason of Mr. Risher’s death or
disability), Mr. Risher will be entitled to certain payments and benefits more
fully described below in the section  entitled “Potential Payments
Upon Termination Or A Change In Control.”





B.       Mark
A. Zorko Employment Agreement





The
Company and Mr. Zorko entered into a Letter Agreement, dated August 30, 2006
(the “Zorko Employment Agreement), which remains in effect as of the date
hereof, and provides for Mr. Zorko’s employment with the Company as its Chief
Financial Officer.  Pursuant to the Zorko Employment Agreement, Mr.
Zorko is entitled to an annual salary of $245,000 and received an option grant
to purchase 60,000 shares of the Company's common stock pursuant to and in
accordance with the Company's DGTC Plan.  Mr. Zorko is also entitled
to receive an automobile allowance of $575 per month.  In addition,
Mr. Zorko was eligible to receive an annual bonus with a target of 45% of his
annual base salary based upon achieving the Company's annual budget and
attaining specific objectives assigned by the CEO of the Company.  As
a result of the Company not achieving these specific objectives in fiscal year
2008, Mr. Zorko did not receive a bonus for the fiscal year.





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END:






Option
      Awards
                
                Stock
      Awards(a)
                
                (b)
                
                (c)
                
                (d)
                
                (e)
                
                (f)
                
                (g)
                
                (h)
                
                (i)
                
                (j)Name
                
                Number
      of
                    Securities
      Underlying Unexercised
                    Options
      (#)
                    Exercisable
                
                Number
      of
                    Securities
      Underlying Unexercised
                    Options(#)
                    Unexercisable
                
                Equity
      Incentive
                  Plan
      Awards: Number
                  of
      Securities UnderlyingUnexercisedUnearnedOptions
                  (#)
                
                Option
                  Exercise
      Price
                  ($)(1)
                
                Option
                    Expiration
                    Date
                
                Number
      of
                  Shares
      or
                  Units
      of Stock
                  That
      Have
                  Not
      Vested
                  (#)
                
                Market
      Value of Shares or Units of Stock That Have Not Vested
                  ($)
                
                Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not Vested
                  (#)
                
                Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested ($)James
      A. Risher,
                  Chief
      Executive
                  Officer
                
                12,500
      (3)
                  25,000
      (2)
                
                37,500
      (3)
                  -
      (2)
                
                -
                
                2.70
                  2.70
                
                9/17/17
                  4/26/157,500
      (2)
                
                2,500
      (2)
                
                -
                
                2.26
                
                6/16/16
                
                -
                
                -
                
                -
                
                -60,000
      (2)
                
                60,000
      (2)
                
                -
                
                1.50
                
                8/31/16Mark
      A. Zorko,
                  Chief
      Financial
                  Officer
                
                5,000
      (3)
                
                15,000
      (3)
                
                
                
                2.70
                
                9/17/1730,000
      (2)
                
                30,000
      (2)
                
                -
                
                1.50
                
                8/31/16
                
                -
                
                -
                
                -
                
                -10,000
      (2)
                
                10,000
      (2)
                
                -
                
                2.00
                
                11/17/16Mark
      A Koch,
                  former
      Treasurer
                  and
      Principal Accounting Officer
                
                10,000
      (2)
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -








41
 Table Of Contents




(1)
            The
      exercise price per share of each option was equal to the closing price of
      the shares of Common Stock on the date of
grant.




(2)
            Granted
      pursuant to the Company's DGTC
Plan.




(3)
            Granted
      pursuant to the Company's 2007
Plan.




POTENTIAL
PAYMENTS UPON TERMINATION OR A CHANGE IN CONTROL




Separation
Agreements with Current and Certain Former Named Executive
Officers.




James
A. Risher




Pursuant
to the 2008 Risher Agreement, in the event Mr. Risher terminates his employment
with the Company for “Good Reason” or if the Company terminates his
employment without “Cause” (and not, in each case, by reason of Mr.
Risher’s death or disability), Mr. Risher will be entitled to continue
receiving his full salary, including the living allowance, subject to
applicable withholding tax requirements, until August 31, 2009.  The
full value of these payments for the term of the 2008 Risher Agreement is
$394,400.  Pursuant to the Employment Agreement, Mr. Risher is not
entitled to receive any other severance or compensation from the Company in
the event his employment with the Company is
terminated.




For the
purposes of the 2008 Risher Agreement:




“Good
Reason” means: (a) a material diminution in Mr. Risher’s duties as customarily
performed by Mr. Risher for the Company, including but not limited to the
assignment to Mr. Risher of duties inconsistent with the CEO position, duties or
responsibilities as in effect after the date of execution of this Agreement and
(b) the Company requires Mr. Risher to relocate 50 miles or more from his
present place of work, provided, in each case, that Mr. Risher has given prompt
notice to the Company of the existence of the condition (but in no event later
than 90 days after its initial existence) and Mr. Risher has provided the
Company with a minimum of 30 days following such notice to remedy such
condition.





“Cause”
means: (i) a material breach, by Mr. Risher, of any written agreement with
the Company or its affiliates (after notice and, if capable of being cured,
reasonable opportunity of not less than thirty (30) days to cure), (ii) a breach
of Mr. Risher’s fiduciary duty to the Company (after notice and, if capable of
being cured, reasonable opportunity of not less than thirty (30) days to cure)
or any misappropriation, embezzlement or fraud with respect to the Company of
affiliate of the Company, or any of their security holders, customers or
suppliers, (iii) the commission by Mr. Risher of a felony, a crime involving
dishonesty or moral turpitude or other engaging in material misconduct that has
caused or is reasonably expected to cause injury to a the Company or an
affiliate thereof, or their interests including, but not limited to, harm to the
standing and reputation of, or which otherwise brings public disgrace or
disrepute to the Company or any of its affiliates, (iv) Mr. Risher’s
continued failure or refusal to perform any material duty to the Company or any
of its affiliates, which is normally attached to his position (after notice and
reasonable opportunity of not less than thirty (30) days to cure), (v) Mr.
Risher’s gross negligence or willful misconduct in performing those duties which
are normally attached to his position (after notice and reasonable opportunity
of not less than thirty (30) to cure if capable of being cured), (vi) any
breach of this Agreement, or (vii) a material breach by Mr. Risher of any
written code of conduct or other material written policy of the Company or any
of its affiliates.




Mark
A. Zorko




Pursuant
to the Zorko Employment Agreement, Mr. Zorko is entitled to a severance payment
in the event his employment is terminated by the Company without
cause.  The severance payment is equal to one-year base salary
(currently $245,000).  The Company will make no such payment if
employment is terminated for cause.






42
 Table Of Contents




Mark A. Koch




Mr.
Koch served as the Company’s Treasurer and Principal Accounting Officer until
October 30, 2006.




The Company entered into a Separation
Agreement and General Release dated as of September 7, 2006, (the "Koch
Separation Agreement") with Mark A. Koch, the Company’s former Principal
Accounting Officer.  The Koch Separation Agreement was filed as
Exhibit 99.01 to the Company’s Current Report on Form 8-K filed on September 7,
2006.  The Koch Separation Agreement provided that Mr. Koch's last day
of employment with the Company will be the first business day following the
filing by the Company with the SEC of its Annual Report on Form 10-K for the
fiscal year ending July 29, 2006, but in no event later than November 30, 2006,
unless mutually agreed in writing by the parties (the "Termination
Date").  The Separation Agreement also provided for a payment of one
(1) year's base salary payable pro-rata over 12 months by the Company to Mr.
Koch commencing with the first pay-day following the Termination Date; provided,
however, that in the event the Company sells any of its assets or the assets of
any of its U.S.  Subsidiaries for cash and such sale results in net
cash proceeds to the Company of at least $5.0 million, then the Company shall
pay to Mr. Koch any balance outstanding of the severance payment within ten (10)
days after receipt by the Company of such net cash proceeds from such asset
sale.  Mr. Koch agreed to release and discharges the Company, as more
fully described in the Koch Separation Agreement.  Pursuant to the
Koch Separation Agreement, Mr. Koch’s last day of employment with the Company
was October 30, 2006. The total amount to be paid to Mr. Koch in connection with
the termination of his employment is $165,000, $120,577 of which was paid in
fiscal 2007 and the remainder was paid in the first quarter of fiscal
2008.




The Koch Separation Agreement
supersedes a certain former Severance Benefits Agreement, dated May 23, 2005,
between the Company and Mr. Koch, except that the terms and conditions of
Article IV of the former Severance Benefits Agreement which concern obligations
with respect to Company confidential information and trade secrets, survive and
remain in full force and effect.




DIRECTOR
COMPENSATION




The
Company seeks highly qualified individuals to serve as outside directors and
compensates them with a combination of cash fees and stock option
grants.  The Company also reimburses Directors for, or pays, travel
costs associated with meeting attendance. There is no retirement plan for
outside directors, and no program of perquisites. The Committee periodically
assesses whether its compensation structure is competitive in terms of
attracting and retaining the type and quality of outside directors
needed.




COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION




The
Committee consists of Merrill A. McPeak as Chairman, Gerald M. Czarnecki and
James R. Henderson. None of these individuals were at any time during the fiscal
year ended August 2, 2008 or at any other time one of our officers or
employees.   Other than Mr. Risher, the Company’s CEO, none of
our executive officers serve as a member of the Board or the Committee of any
other entity which has one or more executive officers serving as a member of our
Board or Committee.





DIRECTOR
COMPENSATION:





(a)
                                                                                                                              
                                                                                                                              (b)
                                                                                                                              
                                                                                                                              (d)
                                                                                                                              
                                                                                                                              (g)
                                                                                                                              
                                                                                                                              (h)Name
                                                                                                                              
                                                                                                                              Fees
      Earned or Paid in Cash(1)
                                                                                                                                ($)
                                                                                                                              
                                                                                                                              Option
      Awards(2)
                                                                                                                                ($)
                                                                                                                              
                                                                                                                              All
      Other Compensation
                                                                                                                                ($)
                                                                                                                              
                                                                                                                              Total
                                                                                                                                ($)Gerald
      M.  Czarnecki (4)
                                                                                                                              
                                                                                                                              28,500
                                                                                                                              
                                                                                                                              
                                                                                                                              15,949
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              53,875James
      R.  Henderson
                                                                                                                                (Chairman)
      (4)
                                                                                                                              
                                                                                                                              33,000
                                                                                                                              (3)
                                                                                                                              
                                                                                                                              37,476
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              63,450General
      Merrill A.  McPeak (4)
                                                                                                                              
                                                                                                                              28,000
                                                                                                                              
                                                                                                                              
                                                                                                                              22,731
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              51,345James
      A. Risher(5)
                                                                                                                              
                                                                                                                              -
                                                                                                                              (5)
                                                                                                                              
                                                                                                                              -
      (5)
                                                                                                                              
                                                                                                                              
                                                                                                                              -
      (5)
                                                                                                                              
                                                                                                                              
                                                                                                                              -
      (5)





(1)           Fees
consist of:





·
            Each
      non-employee director receives an annual retainer of
    $20,000;


·
            Each
      non-employee director receives an additional fee of $1,000 per each full
      length Board meeting attended (with lesser compensation for telephonic
      meetings, at the discretion of the chair of the Board or committee, as
      applicable);


·
            Each
      non-employee member of each standing committee receives a fee of $500 per
      each full-length committee meeting attended; and $250 for shorter duration
      committee meetings attended; and


·
            Chairs
      of the Board and the various standing committees, excepting the Audit
      Committee, receives double meeting fees.  In lieu of the
      foregoing, the Chair of the Audit Committee receives an additional $1,000
      per Audit Committee meeting.




43
 Table Of Contents


(2)           During
fiscal 2008, Mr. Czarnecki received a grant to purchase 12,500 shares of the
Company’s common stock at an exercise price of $2.60 per share and an aggregate
fair value of $21,861; Mr. Henderson received grants to purchase 15,000 shares
of the Company’s common stock at an exercise price of $2.60 per share and
aggregate fair values of $26,233 and General McPeak received a grant to purchase
11,500 shares of the Company’s common stock at an exercise price of $2.60 per
share and an aggregate fair value of $20,112.  Upon election to the
Board, each non-employee member of the Board receives a one-time grant of 25,000
options to purchase the Company’s Common Stock, with an exercise price equal to
the fair market value on the date of grant. Effective as of June 13,
2006,  Directors also received annual grants of 10,000 options
commencing  after  their  first  year of
service as a director.  The Chairman of the Audit Committee receives
an additional annual grant of 2,500 options.  The Chairman of the
Committee receives an additional annual grant of 1,500 options.  The
Chairman of the Governance and Nominating Committee receives an additional
annual grant of 1,000 options (as long as such person is not the Chair of any
other committee of the Board). The Chairman of the Board receives an additional
annual grant of 5,000 options.  The annual grants of stock options to
directors in fiscal year 2008 were made pursuant to the Company’s 2007
Plan.  Directors are also eligible to receive restricted stock awards
under the terms of the Company’s 2007 Plan.  The dollar amounts in this column reflect the dollar
amounts recognized for financial statement reporting purposes with respect to
the fiscal year in accordance with FAS 123R.Refer to Footnote
10 Shareholder Equity in Item 8 “Stock Option Plan And Warrants” for details of
stock option plan vesting  terms, SFAS 123R valuation techniques and
assumptions and the fair value of stock options granted.





(3)           In
addition to the above meeting fees, the Chairman of the Board receives $750 per
each day other than Board meeting days where he or she spends more than half of
such day working at the Company facilities.  This amount is included
in the amount reflected in Column (b).





(4)           At
August 2, 2008, Mr. Czarnecki held an aggregate of 62,500 options to purchase
the Company’s Common Stock, of which 43,750 were exercisable; Mr. Henderson held
an aggregate of 121,000 options to purchase the Company’s Common Stock, of which
73,250 exercisable; Mr. McPeak held an aggregate of 59,500 options to purchase
the Company’s Common Stock, of which 42,250 were exercisable.





(5)           As
Mr. Risher is the Company's  CEO, he is no longer  eligible
to receive
any  compensation  for  his  service  as
a  Director.





Restricted
Stock and Option Awards




Upon
election to the Board, each non-employee member of the Board receives a one-time
grant of 25,000 options to purchase the Company’s Common Stock.  The
exercise price for such options is equal to the fair market price per share on
the date of the grant, which is approved by the Committee.  These
options vest and become exercisable as to 25% of such shares on the date of the
option grant, 25% on the first anniversary of the date of the grant and as to an
additional 25% of such shares on the second and third anniversaries of the date
of the grant, respectively, based on continued service through the applicable
vesting date.   Effective as of June 13, 2006, Directors also
received annual grants of 10,000 options commencing after their first year of
service as a director.  The Chairman of the Audit Committee receives
an additional annual grant of 2,500 options.  The Chairman of the
Stock Option and Compensation Committee receives an additional annual grant of
1,500 options.  The Chairman of the Governance and Nominating
Committee receives an additional annual grant of 1,000 options (as long as such
person is not the Chair of any other committee of the Board). The Chairman of
the Board receives an additional annual grant of 5,000
options.  Directors are also eligible to receive restricted stock and
option awards under the terms of the Company’s 2007 Plan.  The annual
grants of stock options to directors in fiscal year 2007 were made pursuant to
the DGTC Plan and the annual grants of stock options to directors in fiscal year
2008 were made pursuant to the 2007 Plan.





COMPENSATION
COMMITTEE REPORT




We have
reviewed and discussed with management certain Executive Compensation and
Compensation Discussion and Analysis provisions to be included in this Annual
Report filed on Form 10K, filed pursuant the Exchange Act.  Based on
the reviews and discussions referred to above, we recommend to the Board of
Directors that the Executive Compensation and Compensation Discussion and
Analysis provisions referred to above be included in this Annual
Report.




44
 Table Of Contents




Submitted
by the Committee of the Board of Directors




General
Merrill A. McPeak, Chairman


Gerald M.
Czarnecki


James R.
Henderson




This
Compensation Committee Report is not deemed incorporated by reference by any
general statement incorporating by reference this Annual Report into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under either such Acts.





ITEM 12
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




EQUITY
COMPENSATION PLAN INFORMATION




The
following table summarizes the securities authorized for issuance under equity
compensation plans as of the end of Fiscal 2008:




Plan
      Category
              
              Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
      and Rights
              
              
              Weighted-Average
      Exercise Price of Outstanding Options, Warrants and
      Rights
              
              
              Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans(1)Equity
      compensation plans approved by security holders:Stock
      Option
      Plan
              
              
              2,094,815
              
              
              $
              3.45
              
              
              
              604,500Equity
      compensation plans not approved by security holders:Warrants
      issued in settlement of class action lawsuit(2)512,500
              
              
              $
              1.50
              
              
              
              Not
      applicable







(1)
            Excludes
      securities to be issued upon exercise of outstanding options, warrants and
      rights.




(2)
            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.







45
 Table Of Contents





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS




The
following table sets forth information concerning beneficial ownership of common
stock of the Company outstanding at October 1, 2008 by each person or entity
(including any "Group" as such term is used in Section 13(d) (3) of the Exchange
Act, known by the Company to be the beneficial owner of more than five percent
of its outstanding common stock.  The percentage ownership of each
beneficial owner is based upon 24,246,165 shares of common stock issued and
outstanding as of October 1, 2008 plus shares issuable upon exercise of options,
warrants or convertible securities (exercisable within 60 days after said date)
that are held by such person or entity, but not those held by any other person
or entity.  The information presented in this table is based upon the
most recent filings with the Commission by such persons or upon information
otherwise provided by such persons to the Company.




46
 Table Of Contents




Name
      and address
                  of
      beneficial owner
              
              Amount
      and nature of
                  beneficial
      ownership(1)
              
              Percent
      of ClassWarren
      G.  Lichtenstein
                c/o
      Steel Partners II, L.P.
                590
      Madison Avenue
                32nd
      Floor
                New
      York, NY 10022
              
              5,037,943(2)
              
              
              20.78%Wellington
      Management Co. LLP
                75
      State Street
                Boston,
      MA 02109
              
              3,191,147(3)
              
              
              13.16%Wellington
      Trust Company NA
                c/o
      Wellington Management Co. LLP
                75
      State Street
                Boston,
      MA 02109
              
              1,761,241(4)
              
              
              7.26%Royce
      & Associates, LLC
                1414
      Avenue of the Americas
                New
      York, NY 10019
              
              1,521,085(5)
              
              
              6.27%






(1)
            
            Unless
      otherwise noted, each beneficial owner has sole voting and investment
      power with respect to the shares shown as beneficially owned by him or
      it.(2)
            
            According
      to information contained in Amendment No. 12  to Schedule 13D/A,
      dated December 28, 2007, and filed jointly on December 31, 2007 with the
      SEC by Mr. Lichtenstein, Steel Partners II, L.P., a Delaware limited
      partnership ("Steel Partners II"), Steel Partners II GP LLC, a Delaware
      limited liability company ("Steel GP LLC"), Steel Partners II Master Fund
      L.P., a Cayman Islands exempted limited partnership ("Steel Master") and
      Steel Partners LLC, a Delaware limited liability company ("Partners
      LLC").  Steel Partners II owns 5,037,943 shares of the Common
      Stock and Steel GP LLC, Steel Master, Partners LLC and Mr. Lichtenstein
      may be deemed to beneficially own such shares. Steel Master is the sole
      limited partner of Steel Partners II. Steel GP LLC is the general partner
      of Steel Partners II and Steel Master. Partners LLC is the investment
      manager of Steel Partners II and Steel Master. Mr. Lichtenstein is the
      manager of Partners LLC and the managing member of Steel GP LLC.
        By virtue of his positions with Steel GP LLC and Partners LLC,
      Mr. Lichtenstein may be deemed to have the sole power to vote and dispose
      of the 5,037,943 shares of our Common Stock owned by Steel Partners
      II.(3)
            
            According
      to information contained in Amendment No. 8 to a Schedule 13G
      dated February 14, 2008, Wellington Management Company, LLP
      (“Wellington”), an investment advisor registered under the Investment Act,
      may be deemed the beneficial owner of 3,191,147 shares of Common Stock of
      the Company. Clients of Wellington are the owners of record of the shares
      held by Wellington. Accordingly, in its role as investment advisor,
      Wellington has shared power to vote as to 2,120,991 of our Common Stock
      and shared power to dispose of all 3,191,147 shares of our Common Stock
      beneficially owned by Wellington.(4)
            
            According
      to information contained in a Schedule 13G dated February 14, 2008,
      Wellington Trust Company NA, a bank as defined by the Investment Act, may
      be deemed the beneficial owner of 1,761,241 shares of Common Stock of the
      Company.  Clients of Wellington Trust are the owners of record
      of the shares held by Wellington Trust. Accordingly, in its role as
      investment advisor, Wellington Trust has shared power to vote and dispose
      1,761,241 of our Common Stock beneficially owned by Wellington
      Trust.(5)
            
            According
      to information contained in Amendment No. 5 to a Schedule 13G dated
      January 28, 2008, Royce & Associates, LLC, ,an
      investment advisor registered under the Investment Act, may be deemed the
      beneficial owner of 1,521,085 shares of Common Stock of the
      Company.





SECURITY
OWNERSHIP OF DIRECTORS AND MANAGEMENT




The
following table sets forth information concerning beneficial ownership of Common
Stock of the Company outstanding at October 1, 2008 by (i) each director; (ii)
each executive officer of the Company and (iii) by all directors and executive
officers of the Company as a group.  The percentage ownership of each
beneficial owner is based upon 24,246,165 shares of Common Stock issued and
outstanding as of October 1, 2008, plus shares issuable upon exercise of
options, warrants or convertible securities (exercisable within 60 days after
said date) that are held by such person or entity, but not those held by any
other person or entity.  The information presented in this table is
based upon the most recent filings with the Commission by such persons or upon
information otherwise provided by such persons to the Company




47
 Table Of Contents




Name
      and address of beneficial owner
                
                Amount
      and nature of beneficial ownership(1)
                
                
                Percent
      of ClassMark
      A Koch(4)
                
                
                10,000
                (2)
                
                
                *Mark
      A. Zorko
                
                
                90,000
                (2)
                
                
                *Gerald
      M.  Czarnecki
                
                
                75,543
                (2)
                
                
                *James
      A.  Risher
                
                
                147,500
                (2)
                
                
                *James
      R.  Henderson(3)
                
                
                85,750
                (2)
                
                
                *Merrill
      A. McPeak
                
                
                83,366
                (2)
                
                
                *All
      Directors and Named Executive Officers as a group (6
    persons)
                
                
                492,159
                (2)
                
                
                2.00
                %


*
                      Represents
      less than 1% of the outstanding shares of our Common
  Stock(1)
                      Unless
      otherwise noted, each director and executive officer has sole voting and
      investment power with respect to the shares shown as beneficially owned by
      him.(2)
                      Includes
      shares of our common stock which may be acquired upon the exercise of
      stock options which are presently exercisable or will become exercisable
      within 60 days of October 1, 2008, in the following amounts: Mark A.
      Koch — 10,000, Mark A. Zorko — 70,000, Gerald M. Czarnecki — 43,750, James A. Risher — 147,500, James R.
      Henderson — 85,750 and Merrill A.
      McPeak 42,250.(3)
                      Mr. Henderson
      is a Vice President of Steel Partners, Ltd., an entity of which Warren G.
      Lichtenstein is an affiliate by virtue of his ownership of Steel Partners,
      Ltd. directly and through Steel Partners II, L.P. (collectively, the
      “Group”). Mr. Henderson disclaims beneficial ownership of the
      5,037,943 shares of our common stock collectively owned by the
      Group.(4)
                      Mr. Koch
      resigned as Treasurer and Principal Accounting Officer, effective
      October 30,
2006.







ITEM 13
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS,  AND DIRECTOR
      INDEPENDENCE




REVIEW,
APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS




During
fiscal 2008, the Company had a policy for the review of transactions in
which the Company was a participant, the amount involved exceeded the lesser of
$120,000 or one percent of the average of the Company's total assets at year end
for the last two completed fiscal years and in which any of the Company’s
directors or executive officers, or their immediate family members, had a direct
or indirect material interest.  Any such related person transaction was to
be for the benefit of the Company and upon terms no less favorable to the
Company than if the related person transaction was with an unrelated party.
While this policy was not in writing during fiscal 2008, the Company's Board of
Directors was responsible for approving any such transactions and the CEO
was responsible for maintaining a list of all existing related person
transactions.  The Company had no transactions, nor are there any currently
proposed transactions, in which the Company was or is to be a participant, where
the amount involved exceeded the lesser of $120,000 or one percent of the
average of the Company's total assets at year end for the last two completed
fiscal years, and any director, executive officer or any of their immediate
family members had a material direct or indirect interest reportable under
applicable SEC rules or that required approval of the Board of Directors under
the Company’s Related Person Transaction Policy.





DIRECTOR
INDEPENDENCE




Although
the Company is currently not listed on any exchange, the Board of Directors has
determined that  three of the members of the Board of Directors,
Mr. Czarnecki , Mr. Henderson  and Gen. McPeak, are "independent"
as defined in Rule 4200 of the Marketplace Rules of the National Association of
Securities Dealers, Inc.  Committee membership of the Company’s
directors is as follows:






Director
              Audit
      Committee
              Compensation  Committee
              Nominating
      and Governance CommitteeGerald
      M. Czarnecki*
              Chair
              X
              XJames
      R. Henderson *
              
              X
              ChairGeneral
      Merrill A. McPeak*
              X
              Chair
              X




*Independent





48
 Table Of Contents




ITEM 14
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




Audit Fees-The aggregate
fees billed by BDO Seidman, LLP for professional services rendered for the audit
of our annual financial statements set forth in our Annual Report on Form 10-K
for the fiscal years ended August 2, 2008 and July 28, 2007, for the reviews of
the interim financial statements included in our Quarterly Reports on Form 10-Q
for those fiscal years and for assistance with other registration statement
filings made by the Company during those fiscal years were $323,755, and
$290,650, respectively.




Audit-Related Fees- There
were no fees billed by BDO Seidman, LLP for Audit-Related services for the
fiscal year ended July 28, 2007.




Tax Fees -The aggregate fees
billed by BDO Seidman, LLP for tax services for the fiscal years ended August 2,
2008 and July 28, 2007 were $0 and $71,665, respectively.  These fees
related to tax planning and consulting work.




All Other
Fees - For the fiscal year ended August 2, 2008, fees billed by BDO Seidman, LLP
for due diligence related services related to a potential business acquisition
was approximately $99,600.  There were no fees for other professional
services rendered during the fiscal years ended August 2, 2008 and July 28,
2007.




The Audit
Committee’s policy is to pre-approve services to be performed by the Company’s
independent public accountants in the categories of audit services,
audit-related services, tax services and other
services.  Additionally, the Audit Committee will consider on a
case-by-case basis and, if appropriate, approve specific engagements that are
not otherwise pre-approved.  The Audit Committee has approved all fees
and advised us that it has determined that the non-audit services rendered by
BDO Seidman, LLP during our most recent fiscal year are compatible with
maintaining the independence of such auditors.







49
 Table Of Contents





PART IV




ITEM 15
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




PAGE
      NUMBER(a)
      1. FINANCIAL STATEMENTSCONSOLIDATED
      FINANCIAL STATEMENTS OF DEL GLOBAL TECHNOLOGIES CORP. AND
      SUBSIDIARIES:Report
      of Independent Registered Public Accounting Firm
            F-1Consolidated
      Balance Sheets as of August 2, 2008 and July 28, 2007
            F-2Consolidated
      Statements of Operations for the Fiscal Years Ended August 2, 2008, July
      28, 2007 and July 29, 2006
            F-3Consolidated
      Statements of Cash Flows for the Fiscal Years Ended August 2, 2008, July
      28, 2007 and July 29, 2006
            F-4Consolidated
      Statements of Shareholders’ Equity for the Fiscal Years Ended August 2,
      2008, July 28, 2007 and July 29, 2006
            F-5Notes
      to Consolidated Financial Statements for the Fiscal Years Ended August 2,
      2008, July 28, 2007 and July 29, 2006
            F-6
      – F-22




3.           EXHIBITS





EXHIBIT
                        NUMBER
                      
                      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.3.2
                      
                      Certificate
      of Amendment of Certificate of Incorporation dated January 26, 1957. Filed
      as Exhibit to Del Electronics Corp. Registration Statement on Form S-1
      (No. 2-16839) and incorporated herein by reference.3.3
                      
                      Certificate
      of Amendment of Certificate of Incorporation dated July 12, 1960. Filed as
      Exhibit to Del Electronics Corp. Registration Statement on Form S-1 (No.
      2-16839) and incorporated herein by reference.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.                                50
 Table Of Contents
   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.3.11
                        
                        Certificate
      of Amendment at the Certificate of Incorporation of Del Global
      Technologies Corp. dated November 17, 2006.  Filed as Exhibit
      3.01 to Current Report on Form 8-K filed November 22, 2006 and
      incorporated herein by reference.3.12
                        
                        Amendment
      No. 2 to the Amended and Restated By-Laws of Del Global Technologies Corp.
      dated December 5, 2007. Filed as Exhibit 3.1 to Current Report on Form 8-K
      dated December 6, 2007 and incorporated herein by
    reference.4.1
                        
                        INTENTIONALLY
      OMITTED.4.2
                        
                        INTENTIONALLY
      OMITTED.4.8
                        
                        Warrant
      Certificate of Laurence Hirschhorn. Filed as Exhibit 4.1 to Del Global
      Technologies Corp. Quarterly Report on Form 10-Q for the quarter ended
      January 29, 2000 and incorporated herein by reference.4.9
                        
                        Warrant
      Certificate of Steven Anreder. Filed as Exhibit 4.2 to Del Global
      Technologies Corp. Quarterly Report on Form 10-Q for the quarter ended
      January 29, 2000 and incorporated herein by reference.4.10
                        
                        Warrant
      Certificate of UBS Capital S.p.A. dated as of December 28, 1999. Filed as
      Exhibit 4 to Del Global Technologies Corp. Quarterly Report on Form 10-Q
      for the quarter ended January 29, 2000 and incorporated herein by
      reference.4.11*
                        
                        Del
      Global Technologies Corp. Amended and Restated Stock Option Plan (as
      adopted effective as of January 1, 1994 and as amended December 14, 2000).
      Filed as Exhibit 4.11 to Del Global Technologies Corp. Annual Report on
      Form 10-K for the year ended August 3, 2002 and 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.4.17*
                        
                        Amendment
      No. 2 dated July 7, 2005 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 and July 17, 2003). Filed as Exhibit 99.01 to
      Del Global Technologies Corp. Current Report on Form 8-K dated July 7,
      2005 and incorporated herein by reference.4.18
                        
                        Stock
      Purchase Agreement dated as of December 22, 2005 by and among Del Global
      Technologies Corp. and Mr. Giuseppe Carmelo Ammendola, Mr. Emilio Bruschi,
      Mr. Roberto Daglio and Mr. Luigi Emmanuele Filed as Exhibit 10.1 to Del
      Global Technologies Corp. Current Report on Form 8-K filed December 28,
      2005 and incorporated herein by
reference.                                            51
 Table Of Contents
   4.19
                          
                          Rights
      Agreement, dated as of January 22, 2007, and between Del Global
      Technologies Corp. and Mellon investor Services LLC, as rights agent
      (including as Exhibit A the Form of Right Certificate and as Exhibit B the
      Summary of Rights to Purchase Common Stock). Filed as Exhibit 4.1 to Del
      Global Technologies Corp. Current Report on Form 8-K filed January 23,
      2007 and incorporated herein by reference.4.20
                          
                          Joinder
      Agreement, dated June 27, 2007, between Del Global Technologies Corp. and
      Continental Stock Transfer & Trust Company.  Filed as
      Exhibit 4.1 to Del Global Technologies Corp. Current Report on Form 8-K
      filed June 27, 2007 and incorporated herein by
  reference.4.21*
                          
                          2007
      Incentive Stock Plan, dated February 22, 2007.   Filed as
      Exhibit 4.21 to Del Global Technologies Corp. Annual Report on Form 10-K
      for the year ended July 28, 2007 and incorporated herein by
      reference.10.2
                          
                          INTENTIONALLY
      OMITTED.10.3
                          
                          INTENTIONALLY
      OMITTED.10.4
                          
                          INTENTIONALLY
      OMITTED.10.5
                          
                          INTENTIONALLY
      OMITTED.10.6
                          
                          INTENTIONALLY
      OMITTED.10.7
                          
                          Lease
      Agreement dated April 7, 1992 between Messenger Realty 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.                                                52
 Table Of Contents
  10.16
                          
                          Grant
      Decree No. 0213 between the Ministry of Industry, Trade and Handicrafts
      and Villa Sistemi Medicali S.p.A. dated September 6, 1995. Filed as
      Exhibit 10.16 to Del Global Technologies Corp. Annual Report on Form 10-K
      for the year ended August 3, 2002 and incorporated herein by
      reference.10.17
                          
                          Financial
      Property Lease Contract no. 21136 dated March 30, 2000 between ING Lease
      (Italia) S.p.A. and Villa Sistemi Medicali S.p.A. Filed as Exhibit 10.17
      to Del Global Technologies Corp. Annual Report on Form 10-K for the year
      ended August 3, 2002 and incorporated herein by
  reference.10.18
                          
                          Declaration
      of Final Obligation between the Ministry of Productive Industry and Villa
      Sistemi Medicali S.p.A. dated May 6, 2002. Filed as Exhibit 10.18 to Del
      Global Technologies Corp. Annual Report on Form 10-K for the year ended
      August 3, 2002 and incorporated herein by reference.10.19
                          
                          Private
      Contract between Banca Mediocredito S.p.A and Villa Sistemi Medicali
      S.p.A. dated November 4, 1998 in the principal amount of 3 billion Lire.
      Filed as Exhibit 10.19 to Del Global Technologies Corp. Annual Report on
      Form 10-K for the year ended August 3, 2002 and incorporated herein by
      reference.10.20*
                          
                          Change
      of Control Agreement as approved by the Board of Directors on October 24,
      2002, substantially in the form used by its current executive officers (in
      the case of Walter F. Schneider, as amended pursuant to Exhibit 10.22
      hereof). Filed as Exhibit 10.20 to Del Global Technologies Corp. Annual
      Report on Form 10-K for the year ended August 3, 2002 and incorporated
      herein by reference.10.21
                          
                          Waiver
      and First Amendment to Loan and Security Agreement dated as of November 1,
      2002 among Del Global Technologies Corp., Bertan High Voltage Corp., RFI
      Corporation and Del Medical Imaging Corp. (Borrowers) and Transamerica
      Business Capital Corporation. Filed as Exhibit 99.02 to Del Global
      Technologies Corp. Current Report on Form 8-K filed on November 4, 2002
      and incorporated herein by reference.10.22
                          
                          Second
      Amendment to the Loan and Security Agreement dated December 17, 2002 among
      Del Global Technologies Corp., Bertan High Voltage Corp., RFI Corporation
      and Del Medical Imaging Corp. (Borrowers) and Transamerica Business
      Capital Corporation. Filed as Exhibit 10.1 to Del Global Technologies
      Corp. Quarterly Report on Form 10-Q for the quarter ended November 2, 2002
      and incorporated herein by reference.10.23
                          
                          Settlement
      Agreement and Release dated March 10, 2003 by and between Del Global
      Technologies Corp. and its affiliates, subsidiaries, present and former
      directors, officers, agents, accountants, attorneys, stockholders,
      predecessors and the agents and attorneys of its present and former
      directors, and Leonard A. Trugman and each of his heirs, administrators,
      liquidators, executors, successors, and assigns. Filed as Exhibit 10.22 to
      Del Global Technologies Corp. Quarterly Report on Form 10-Q for the
      quarter ended February 1, 2003 and incorporated herein by
      reference.10.24
                          
                          Separation
      Agreement and General Release of Claims dated April 9, 2003, by and
      between James M. Tiernan and Del Global Technologies Corp. Filed as
      Exhibit 99.01 to Del Global Technologies Corp. Amendment to Current Report
      on Form 8-K/A filed on April 23, 2003 and incorporated herein by
      reference.10.25
                          
                          Separation
      Agreement and General Release of Claims dated April 9, 2003, by and
      between David Michael, David Michael & Co., P.C. and Del Global
      Technologies Corp. Filed as Exhibit 99.02 to Del Global Technologies Corp.
      Amendment to Current Report on Form 8-K/A filed on April 23, 2003 and
      incorporated herein by reference.10.26
                          
                          Form
      of Indemnification Agreement. Filed as Exhibit 10.22 to Del Global
      Technologies Corp. Amendment #1 to Registration Statement on Form S-1/A,
      filed on May 1, 2003 and incorporated herein by
  reference.10.27
                          
                          Amendment
      to Executive Employment Agreement dated May 28, 2003 by and between Del
      Global Technologies Corp. and Samuel E. Park. Filed as Exhibit 10.23 to
      Del Global Technologies Corp. Quarterly Report on Form 10-Q for the
      quarterly period ended May 3, 2003 and incorporated herein by
      reference.10.28
                          
                          Amendment
      dated October 10, 2003 to Change of Control Agreement for Walter F.
      Schneider 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.                                                 53
 Table Of Contents
   10.30
                          
                          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.10.37
                          
                          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.10.41
                          
                          Consent
      and Seventh Amendment to the Loan and Security Agreement dated as of
      February 2, 2005, among Del Global Technologies Corp., Bertan High Voltage
      Corp., RFI Corporation and Del Medical Imaging Corp. (Borrowers) and GE
      Business Capital Corporation F/K/A Transamerica Business Capital
      Corporation filed as Exhibit 99.1 to Del Global Technologies Corp. Current
      Report on Form 8-K filed February 7, 2005 and incorporated herein by
      reference.10.42
                          
                          Administrative
      Agreement dated as of April 1, 2005 between Del Global Technologies Corp.,
      RFI Corporation and the Defense Logistics Agency. Filed as Exhibit 99.01
      to Del Global Technologies Corp. Current Report on Form 8-K filed April 5,
      2005 and incorporated herein by
reference.                                               54
 Table Of Contents
   10.43
                          
                          Consent
      and Eighth Amendment to the Loan and Security Agreement dated as of April
      5, 2005, among Del Global Technologies Corp., Bertan High Voltage Corp.,
      RFI Corporation and Del Medical Imaging Corp. (Borrowers) and GE Business
      Capital Corporation F/K/A Transamerica Business Capital Corporation filed
      as Exhibit 99.02 to Del Global Technologies Corp. Current Report on Form
      8-K filed April 5, 2005 and incorporated herein by
    reference.10.44*
                          
                          Senior
      Management Incentive Plan filed as Exhibit 99.01 to Del Global
      Technologies Corp. Current Report on Form 8-K filed May 3, 2005 and
      incorporated herein by reference.10.45*
                          
                          Severance
      Benefits Letter Agreement dated as of May 23, 2005 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 May 25, 2005
      and incorporated herein by reference.10.46*
                          
                          Severance
      Benefits Letter Agreement dated as of May 23, 2005 between Del Global
      Technologies Corp. and Mark A. Koch. Filed as Exhibit 99.02 to Del Global
      Technologies Corp. Current Report on Form 8-K filed May 25, 2005 and
      incorporated herein by reference.10.47
                          
                          Separation
      Agreement and Release dated as of April 1, 2005 between Del Global
      Technologies Corp. and Edward Ferris filed as Exhibit 99.01 to Del Global
      Technologies Corp. Current Report on Form 8-K filed June 6, 2005 and
      incorporated herein by reference.10.48
                          
                          Waiver
      and Ninth Amendment to the Loan and Security Agreement dated as of June 9,
      2005, among Del Global Technologies Corp., Bertan High Voltage Corp., RFI
      Corporation and Del Medical Imaging Corp. (Borrowers) and GE Business
      Capital Corporation F/K/A Transamerica Business Capital Corporation filed
      as Exhibit 99.01 to Del Global Technologies Corp. Current Report on Form
      8-K filed June 9, 2005 and incorporated herein by
    reference.10.49
                          
                          Loan
      and Security Agreement dated as of August 1, 2005 among Del Global
      Technologies Corp., RFI Corporation, Del Medical Imaging Corp. and North
      Fork Business Capital Corporation. Filed as Exhibit 10.01 to Del Global
      Technologies Corp. Current Report on Form 8-K filed August 3, 2005 and
      incorporated herein by reference.10.50
                          
                          Second
      Amendment to Villa Loan Agreement dated August 1, 2005 between Del Global
      Technologies Corp and Villa Sistemi Medicali, S.p.A filed as Exhibit 10.02
      to Del Global Technologies Corp. Current Report on Form 8-K filed August
      3, 2005 and incorporated herein by reference.10.51
                          
                          Waiver
      and First Amendment to the Loan and Security Agreement dated as of
      December 12, 2005 among Del Global Technologies Corp., RFI Corporation and
      Del Medical Imaging Corp. (Borrowers) and North Fork Business Capital
      Corporation. Filed as Exhibit 10.51 to Del Global Technologies Corp.
      Quarterly Report on Form 10-Q for the quarterly period ended October 29,
      2005 and incorporated herein by reference.10.52
                          
                          Waiver
      to the Loan and Security Agreement dated as of March 14, 2006 among Del
      Global Technologies Corp., RFI Corporation and Del Medical Imaging Corp.
      (Borrowers) and North Fork Business Capital Corporation. Filed as Exhibit
      10.52 to Del Global Technologies Corp. Quarterly Report on Form 10-Q for
      the quarterly period ended January 28, 2006 and incorporated herein by
      reference.10.53*
                          
                          Separation
      Agreement and Release dated as of March 21, 2006 by and between Del Global
      Technologies Corp. and Christopher N. Japp. Filed as Exhibit 99.1 to Del
      Global Technologies Corp. Current Report on Form 8-K filed March 24, 2006
      and incorporated herein by reference.10.54
                          
                          Waiver
      to the Loan and Security Agreement dated as of June 13, 2006 by and among
      Del Global Technologies Corp., Del Medical Imaging Corp., RFI Corporation
      (Borrowers) and North Fork Business Capital Corporation. Filed as Exhibit
      10.53 to Del Global Technologies Corp. Quarterly Report on Form 10-Q for
      the quarterly period ended April 29, 2006 and incorporated herein by
      reference.10.55
                          
                          Consulting
      Agreement dated as of June 14, 2006 by and between Del Global Technologies
      Corp. and Lumina Group LLC. Filed as Exhibit 99.1 to Del Global
      Technologies Corp. Current Report on Form 8-K filed June 30, 2006 and
      incorporated herein by reference.10.56
                          
                          Second
      Amendment to the Loan and Security Agreement dated as of June 30, 2006
      among Del Global Technologies Corp., RFI Corporation and Del Medical
      Imaging Corp. (Borrowers) and North Fork Business Capital Corporation.
      Filed as Exhibit 99.01 to Del Global Technologies Corp. Current Report on
      Form 8-K filed July 7, 2006 and incorporated herein by
      reference.                                               55
 Table Of Contents
   10.57*
                          
                          Separation
      Agreement and Release dated as of July 24, 2006 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 July 24, 2006
      and incorporated herein by reference.10.58*
                          
                          Letter
      Agreement dated as of August 31, 2006 between Del Global Technologies
      Corp. and James A. Risher. Filed as Exhibit 99.01 to Del Global
      Technologies Corp. Current Report on Form 8-K filed August 31, 2006 and
      incorporated herein by reference.10.59*
                          
                          Letter
      Agreement dated as of August 30, 2006 between Del Global Technologies
      Corp. and Mark Zorko. Filed as Exhibit 99.02 to Del Global Technologies
      Corp. Current Report on Form 8-K filed August 31, 2006 and incorporated
      herein by reference.10.60
                          
                          Full-Time
      Permanent Engagement Resources Agreement dated as of August 21, 2006
      between Del Global Technologies Corp. and Tatum, LLC. Filed as Exhibit
      99.01 to Del Global Technologies Corp. Current Report on Form 8-K filed
      August 31, 2006 and incorporated herein by reference.10.61*
                          
                          Separation
      Agreement and Release dated as of September 7, 2006 by and between Del
      Global Technologies Corp. and Mark A. Koch. Filed as Exhibit 99.01 to Del
      Global Technologies Corp. Current Report on Form 8-K filed September 7,
      2006 and incorporated herein by reference.10.62
                          
                          Waiver
      and Third Amendment to the Loan and Security Agreement dated as
      of  October 25, 2006 by and among Del Global Technologies Corp.,
      Del Medical
      Imaging Corp., RFI Corporation (Borrowers) and North Fork Business Capital
      Corporation.  Filed as Exhibit 10.62 to Del Global
      Technologies Corp. Annual Report on Form 10-K filed October 27, 2006 and
      incorporated herein by reference.10.63
                          
                          Waiver
      and Fourth Amendment to the Loan and Security Agreement dated as of
      December 6, 2006 by and among Del Global Technologies Corp., Del Medical
      Imaging Corp., RFI Corporation (Borrowers) and North Fork Business Capital
      Corporation. Filed as Exhibit 10.63 to Del Global Technologies Corp.
      Quarterly Report on Form 10-Q for the quarterly period ended October 28,
      2006 and incorporated herein by reference.10.64
                          
                          Amendment
      No. 5 dated as of January 18, 2007 to the Loan and Security Agreement by
      and among the registrant, RFI Corporation, Del Medical Imaging Corp. and
      North Fork Business Capital Corporation, dated as of August 1,
      2005.  Filed as Exhibit 99.02 to Del Global Technologies Corp.
      Current Report on Form 8-K filed January 23, 2007 and incorporated herein
      by reference.10.65
                          
                          Amended
      and Restated Loan Agreement, dated as of May 25, 2007, among Del Global
      Technologies Corp., RFI Corporations, Del Medical Imaging Corp. and North
      Fork Business Capital Corporation. Filed as Exhibit 10.1 to Del Global
      Technologies Corp. Current Report on Form 8-K filed June 4, 2007 and
      incorporated herein by reference.10.66*
                          
                          Letter
      Agreement dated as of September 19, 2007 between Del Global Technologies
      Corp. and James A. Risher.  Filed as Exhibit 10.1 to Del Global
      Technologies Corp. Current Report on Form 8-K filed September 20, 2007 and
      incorporated herein by reference.10.67
                          
                          First
      Amendment dated September 3, 2008,  to the Amended and Restated
      Loan and Security Agreement by and among the Del Global Technologies
      Corp., Del Medical Imaging Corp., RFI Corporation and North Fork Business
      Capital Corporation, now known as  Capital One Leveraged Finance
      Corp., dated as of May 25, 2007.
                            Filed
      as Exhibit 10.1 to Del Global Technologies Corp. Current Report on Form
      8-K filed September 5, 2008 and incorporated herein by
      reference.10.68*
                          
                          Letter
      Agreement dated as of September 16, 2008 between Del Global Technologies
      Corp. and James A. Risher.  Filed as Exhibit 10.1 to Del Global
      Technologies Corp. Current Report on Form 8-K filed September 17, 2008 and
      incorporated herein by reference.   56
 Table Of Contents
  21.1**
                                      
                                      List
      of Subsidiaries23.1**
                                      
                                      Consent
      of BDO Seidman, LLP.31.1**
                                      
                                      Certification
      of Chief Executive Officer, James Risher, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2**
                                      
                                      Certification
      of Principal Financial Officer, Mark Zorko, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1**
                                      
                                      Certification
      of the Chief Executive Officer, James Risher, pursuant to 18 USC. Section
      1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2**
                                      
                                      Certification
      of the Principal Financial Officer, Mark Zorko, pursuant to 18 U.S.C.
      Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


____________


*      Represents
a management contract or compensatory plan or arrangement.





**   Filed
herewith





57
 Table Of Contents





SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.








DEL
      GLOBAL TECHNOLOGIES CORP.October
      6, 2008
                          By:
                          /s/ James A. RisherJames
      A. RisherPresident
      and Chief Executive OfficerOctober
      6, 2008
                          By:
                          /s/ Mark A. ZorkoMark
      A. ZorkoChief
      Financial
Officer

















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





/s/
      James R. Henderson
            Director
      – Chairman
            October
      6, 2008James
      Henderson/s/
      Merrill A. McPeak
            Director
            October
      6, 2008Merrill
      McPeak/s/
      Gerald M. Czarnecki
            Director
            October
      6, 2008Gerald
      M. Czarnecki/s/
      James A. Risher
            Director
            October
      6, 2008James
      A. Risher
            Chief
      Executive Officer








58
 Table Of Contents





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders of


Del
Global Technologies Corp.


Franklin
Park, Illinois





We have
audited the accompanying consolidated balance sheets of Del Global Technologies
Corp. and subsidiaries as of August 2, 2008 and July 28, 2007, and the related
consolidated statements of operations, shareholders’ equity and cash flows for
each of the three years in the period ended August 2, 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the financial statements 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Del Global Technologies
Corp. and subsidiaries as of August 2, 2008 and July 28, 2007, and the results
of their operations and their cash flows for each of the three years in the
period ended August 2, 2008, in conformity with accounting principles generally
accepted in the United States of America.





/s/ BDO
SEIDMAN, LLP





Chicago,
Illinois


September
29, 2008











F-1
 Table Of Contents





DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS


(DOLLARS
IN THOUSANDS EXCEPT PAR VALUE)





AUGUST
      2,
                      2008
                    
                    
                    JULY
      28,
                      2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                    
                    $
                    7,828
                    
                    
                    $
                    7,860Trade
      receivables (net of allowance for doubtful accounts of $1,400 and $1,569
      for 2008 and 2007, respectively)
                    
                    
                    25,218
                    
                    
                    
                    21,221Inventories
      (net of allowance for excess and obsolete of $4,435 and $3,869 for 2008
      and 2007, respectively)
                    
                    
                    18,439
                    
                    
                    
                    21,930Prepaid
      expenses and other current assets
                    
                    
                    2,085
                    
                    
                    
                    1,180Total
      current assets
                    
                    
                    53,570
                    
                    
                    
                    52,191NON-CURRENT
      ASSETS:Property
      plant and equipment, net
                    
                    
                    7,377
                    
                    
                    
                    6,511Deferred
      income taxes
                    
                    
                    770
                    
                    
                    
                    1,011Goodwill
                    
                    
                    4,526
                    
                    
                    
                    6,437Other
      assets
                    
                    
                    110
                    
                    
                    
                    189Total
      non-current assets
                    
                    
                    12,783
                    
                    
                    
                    14,148TOTAL
      ASSETS
                    
                    $
                    66,353
                    
                    
                    $
                    66,339








LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
                
                $
                1,797
                
                
                $
                1,086Accounts
      payable – trade
                
                
                12,191
                
                
                
                17,125Accrued
      expenses
                
                
                8,378
                
                
                
                7,432Income
      taxes payable
                
                
                -
                
                
                
                1,570Total
      current liabilities
                
                
                22,366
                
                
                
                27,213NON-CURRENT
      LIABILITIES:Long-term
      debt, less current portion
                
                
                4,504
                
                
                
                5,398Deferred
      income taxes......................................................................................................
                
                
                -
                
                
                
                292Other
      long-term liabilities
                
                
                3,320
                
                
                
                3,240Total
      non-current liabilities
                
                
                7,824
                
                
                
                8,930Total
      liabilities
                
                
                30,190
                
                
                
                36,143COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITY:Common
      stock -- $.10 par value; authorized – 50,000,000 shares; issued –
      24,897,723 and 24,753,526 shares at August 2, 2008 and  July 28,
      2007, respectively
                
                
                2,490
                
                
                
                2,475Additional
      paid-in capital
                
                
                80,398
                
                
                
                79,726Treasury
      shares – 654,464 and 622,770 shares at August 2, 2008 and July 28, 2007,
      respectively, at cost
                
                
                (5,615
                )
                
                
                (5,546
                )Accumulated
      other comprehensive income
                
                
                4,252
                
                
                
                1,880Accumulated
      deficit
                
                
                (45,362
                )
                
                
                (48,339
                )Total
      shareholders’ equity
                
                
                36,163
                
                
                
                30,196TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                
                $
                66,353
                
                
                $
                66,339





See notes
to consolidated financial statements.








F-2
 Table Of Contents





DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF OPERATIONS


(IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)





FISCAL
      YEARS ENDEDAUGUST
      2,
                          2008
                        
                        
                        JULY
      28,
                          2007
                        
                        
                        JULY
      29,
                          2006NET
      SALES
                        
                        $
                        108,306
                        
                        
                        $
                        104,167
                        
                        
                        $
                        83,014COST
      OF SALES
                        
                        
                        81,519
                        
                        
                        
                        79,150
                        
                        
                        
                        63,656GROSS
      MARGIN
                        
                        
                        26,787
                        
                        
                        
                        25,017
                        
                        
                        
                        19,358Selling,
      general and administrative
                        
                        
                        15,586
                        
                        
                        
                        14,590
                        
                        
                        
                        13,619Research
      and development
                        
                        
                        2,488
                        
                        
                        
                        2,013
                        
                        
                        
                        1,562Goodwill
      impairment
                        
                        
                        1,911
                        
                        
                        
                        -
                        
                        
                        
                        -Litigation
      settlement costs
                        
                        
                        450
                        
                        
                        
                        -
                        
                        
                        
                        697Total
      operating expenses
                        
                        
                        20,435
                        
                        
                        
                        16,603
                        
                        
                        
                        15,878OPERATING
      INCOME
                        
                        
                        6,352
                        
                        
                        
                        8,414
                        
                        
                        
                        3,480Interest
      expense (net of interest income of $141, $91 and $0 in 2008, 2007 and
      2006, respectively)
                        
                        
                        (313
                        )
                        
                        
                        (991
                        )
                        
                        
                        (1,311
                        )Other
      income (loss)
                        
                        
                        185
                        
                        
                        
                        (54
                        )
                        
                        
                        (34
                        )INCOME
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXESAND
      MINORITY INTEREST
                        
                        
                        6,224
                        
                        
                        
                        7,369
                        
                        
                        
                        2,135INCOME
      TAX PROVISION
                        
                        
                        3,247
                        
                        
                        
                        3,553
                        
                        
                        
                        1,758INCOME
      FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
                        
                        
                        2,977
                        
                        
                        
                        3,816
                        
                        
                        
                        377MINORITY
      INTEREST
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        108INCOME
      FROM CONTINUING OPERATIONS
                        
                        
                        2,977
                        
                        
                        
                        3,816
                        
                        
                        
                        269DISCONTINUED
      OPERATION
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (175
                        )NET
      INCOME
                        
                        $
                        2,977
                        
                        
                        $
                        3,816
                        
                        
                        $
                        94NET
      INCOME PER BASIC SHAREContinuing
      operations
                        
                        $
                        0.12
                        
                        
                        $
                        0.24
                        
                        
                        $
                        0.02Discontinued
      operation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (0.01
                        )Net
      income per basic share
                        
                        $
                        0.12
                        
                        
                        $
                        0.24
                        
                        
                        $
                        0.01Weighted
      average shares outstanding
                        
                        
                        24,196
                        
                        
                        
                        16,155
                        
                        
                        
                        11,244NET
      INCOME PER DILUTED SHAREContinuing
      operations
                        
                        $
                        0.12
                        
                        
                        $
                        0.23
                        
                        
                        $
                        0.02Discontinued
      operation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (0.01
                        )Net
      income per diluted share
                        
                        $
                        0.12
                        
                        
                        $
                        0.23
                        
                        
                        $
                        0.01Weighted
      average shares outstanding
                        
                        
                        24,646
                        
                        
                        
                        16,455
                        
                        
                        
                        12,076





See notes
to consolidated financial statements.








F-3
 Table Of Contents





DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS


(DOLLARS
IN THOUSANDS)


FISCAL YEARS ENDEDAUGUST
      2,
                            2008
                          
                          
                          JULY
      28,
                            2007
                          
                          
                          JULY
      29,
                            2006CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                          
                          $
                          2,977
                          
                          
                          $
                          3,816
                          
                          
                          $
                          94Loss
      on discontinued operation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          175Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          1,076
                          
                          
                          
                          899
                          
                          
                          
                          1,026Deferred
      income tax provision (benefit)
                          
                          
                          384
                          
                          
                          
                          229
                          
                          
                          
                          (277
                          )Loss
      on sale of property plant and equipment
                          
                          
                          3
                          
                          
                          
                          65
                          
                          
                          
                          161Non
      cash litigation settlement costs
                          
                          
                          450
                          
                          
                          
                          -
                          
                          
                          
                          455Imputed
      interest - subordinated note
                          
                          
                          -
                          
                          
                          
                          185
                          
                          
                          
                          257Minority
      interest
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          108Stock
      based compensation expense
                          
                          
                          481
                          
                          
                          
                          220
                          
                          
                          
                          142Goodwill
      impairment
                          
                          
                          1,911
                          
                          
                          
                          -
                          
                          
                          
                          -Changes
      in operating assets and liabilities:Trade
      receivables
                          
                          
                          (1,832
                          )
                          
                          
                          (2,814
                          )
                          
                          
                          (2,707
                          )Inventories
                          
                          
                          5,667
                          
                          
                          
                          (4,519
                          )
                          
                          
                          (1,180
                          )Prepaid
      expenses and other current assets
                          
                          
                          (333
                          )
                          
                          
                          (328
                          )
                          
                          
                          (68
                          )Other
      assets
                          
                          
                          85
                          
                          
                          
                          50
                          
                          
                          
                          11Accounts
      payable – trade
                          
                          
                          (6,563
                          )
                          
                          
                          5,331
                          
                          
                          
                          1,486Accrued
      expenses
                          
                          
                          241
                          
                          
                          
                          (654
                          )
                          
                          
                          1,038Payment
      of accrued litigation settlement costs
                          
                          
                          (390
                          )
                          
                          
                          (200
                          )
                          
                          
                          (311
                          )Income
      taxes payable
                          
                          
                          (2,003
                          )
                          
                          
                          1,573
                          
                          
                          
                          (177
                          )Other
      long-term liabilities
                          
                          
                          (428
                          )
                          
                          
                          142
                          
                          
                          
                          96Net
      cash provided by operating activitiesof
      continuing operations
                          
                          
                          1,726
                          
                          
                          
                          3,995
                          
                          
                          
                          329Net
      cash used in operating activities of discontinued
operation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (175
                          )Net
      cash provided by all operating activities
                          
                          
                          1,726
                          
                          
                          
                          3,995
                          
                          
                          
                          154CASH
      FLOWS FROM INVESTING ACTIVITIESProperty
      plant and equipment purchases
                          
                          
                          (1,208
                          )
                          
                          
                          (779
                          )
                          
                          
                          (765
                          )Acquisition
      of minority interest
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,612
                          )Net
      cash used in investing activities
                          
                          
                          (1,208
                          )
                          
                          
                          (779
                          )
                          
                          
                          (3,377
                          )CASH
      FLOWS FROM FINANCING ACTIVITIESBorrowing
      under short-term credit facilities
                          
                          
                          -
                          
                          
                          
                          37,193
                          
                          
                          
                          39,112Repayment
      under short-term credit facilities
                          
                          
                          -
                          
                          
                          
                          (43,247
                          )
                          
                          
                          (38,303
                          )Borrowings
      of long-term debt
                          
                          
                          -
                          
                          
                          
                          3,113
                          
                          
                          
                          2,000Repayment
      of long-term debt
                          
                          
                          (1,184
                          )
                          
                          
                          (5,900
                          )
                          
                          
                          (972
                          )Proceeds
      from rights offering, net of related costs
                          
                          
                          -
                          
                          
                          
                          12,354
                          
                          
                          
                          -Proceeds
      from warrant exercises
                          
                          
                          91
                          
                          
                          
                          551
                          
                          
                          
                          2Proceeds
      of stock option exercises
                          
                          
                          46
                          
                          
                          
                          170
                          
                          
                          
                          238Dividend
      paid to minority shareholders
                          
                          
                          -
                          
                          
                          
                          (16
                          )
                          
                          
                          -Net
      cash (used in) provided by financing activities of continuing
      operations
                          
                          
                          (1,047
                          )
                          
                          
                          4,218
                          
                          
                          
                          2,077EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                          
                          
                          497
                          
                          
                          
                          93
                          
                          
                          
                          13CASH
      AND CASH EQUIVALENTS (DECREASE) INCREASE FOR THE YEAR
                          
                          
                          (32
                          )
                          
                          
                          7,527
                          
                          
                          
                          (1,133
                          )CASH
      AND CASH EQUIVALENTS, BEGINNING OF THE YEAR
                          
                          
                          7,860
                          
                          
                          
                          333
                          
                          
                          
                          1,466CASH
      AND CASH EQUIVALENTS, END OF THE YEAR
                          
                          $
                          7,828
                          
                          
                          $
                          7,860
                          
                          
                          $
                          333SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for interest
                          
                          $
                          454
                          
                          
                          $
                          744
                          
                          
                          $
                          1,054Cash
      paid during the period for income taxes
                          
                          
                          4,817
                          
                          
                          
                          837
                          
                          
                          
                          1,443NON-CASH
      TRANSACTIONSFinancing
      ActivitiesAcquisition of minority
      interest
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (2,950
                          )Investing
      ActivitiesStock
      issued for purchase of minority interest
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,950


See notes
to consolidated financial statements.





F-4
 Table Of Contents





DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


(DOLLARS
IN THOUSANDS)





ACCUMULATEDOTHERCOMMON
                    
                    
                    ADDITIONAL
                    
                    
                    COMPRE-STOCK ISSUED
                    
                    
                    PAID-IN
                    
                    
                    HENSIVE
                    
                    
                    ACCUMULATED
                    
                    
                    TREASURY STOCKSHARES
                    
                    
                    AMOUNT
                    
                    
                    CAPITAL
                    
                    
                    INCOME
                    
                    
                    DEFICIT
                    
                    
                    SHARES
                    
                    
                    AMOUNT
                    
                    
                    TOTALBALANCE,
      JULY 30, 2005
                    
                    
                    11,252,958
                    
                    
                    $
                    1,125
                    
                    
                    $
                    64,448
                    
                    
                    $
                    1,450
                    
                    
                    $
                    (52,249
                    )
                    
                    
                    622,770
                    
                    
                    $
                    (5,546
                    )
                    
                    $
                    9,228Stock
      option exercises
                    
                    
                    99,000
                    
                    
                    
                    10
                    
                    
                    
                    228
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    238Stock
      warrant exercises
                    
                    
                    1,574
                    
                    
                    
                    1
                    
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2Stock
      compensation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    142
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    142Stock
      issued in minority interest acquisition
                    
                    
                    904,762
                    
                    
                    
                    90
                    
                    
                    
                    2,860
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,950Comprehensive
      income:Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    94
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    94Foreign
      currency adjustments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    160
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    160Total
      comprehensive income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    254





BALANCE,
      JULY 29, 2006
                
                
                12,258,294
                
                
                
                1,226
                
                
                
                67,679
                
                
                
                1,610
                
                
                
                (52,155
                )
                
                
                622,770
                
                
                
                (5,546
                )
                
                
                12,814Stock
      option exercises
                
                
                101,000
                
                
                
                10
                
                
                
                161
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                171Stock
      warrant exercises
                
                
                366,854
                
                
                
                37
                
                
                
                514
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                551Stock
      compensation
                
                
                -
                
                
                
                -
                
                
                
                220
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                220Issuance
      of stock for Rights Offering
                
                
                12,027,378
                
                
                
                1,202
                
                
                
                11,152
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                12,354Comprehensive
      income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,816
                
                
                
                -
                
                
                
                -
                
                
                
                3,816Foreign
      currency adjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                270
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                270Total
      comprehensive income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,086





BALANCE,
      JULY 28, 2007
                
                
                24,753,526
                
                
                
                2,475
                
                
                
                79,726
                
                
                
                1,880
                
                
                
                (48,339
                )
                
                
                622,770
                
                
                
                (5,546
                )
                
                
                30,196Stock
      option exercises
                
                
                83,181
                
                
                
                9
                
                
                
                106
                
                
                
                -
                
                
                
                -
                
                
                
                31,694
                
                
                
                (69
                )
                
                
                46Stock
      warrant exercises
                
                
                61,016
                
                
                
                6
                
                
                
                85
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                91Stock
      compensation
                
                
                -
                
                
                
                -
                
                
                
                481
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                481Comprehensive
      income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,977
                
                
                
                -
                
                
                
                -
                
                
                
                2,977Foreign
      currency adjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,372
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,372Total
      comprehensive income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,349BALANCE,
      AUGUST 2, 2008
                
                
                24,897,723
                
                
                $
                2,490
                
                
                $
                80,398
                
                
                $
                4,252
                
                
                $
                (45,362
                )
                
                
                654,464
                
                
                $
                (5,615
                )
                
                $
                36,163





See notes
to consolidated financial statements.

















F-5
 Table Of Contents





DEL
GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLARS
IN THOUSANDS, EXCEPT PER 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.





On
October 1, 2004, the Company completed the sale of its Del High Voltage Division
(“DHV”) for a purchase price of $3,100, plus the assumption of approximately
$800 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 a discontinued operation
in the accompanying financial statements.





Loss from
discontinued operations for fiscal 2006 reflects the accrual of an estimated
liability of $175 related to a New York State Sales tax audit of its Valhalla
location, including the DHV business.





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.





Certain
reclassifications have been made to prior years' amounts to conform to the
current year's presentation.





ACCOUNTING
PERIOD - The Company’s fiscal year-end is based on a 52/53-week cycle ending on
the Saturday nearest to July 31. Results of the Company’s subsidiary, Villa
Sistemi Medicali S.p.A. (“Villa”) are consolidated into Del Global’s
consolidated financial statements based on a fiscal year that ends on June 30
and are reported on a one-month lag.





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.





FOREIGN
CURRENCY TRANSLATION - The financial statements of Villa are recorded in “Euro”
and translated into U.S. dollars.  Villa’s balance sheet accounts are
translated at the current exchange rate and income statement items are
translated at the average exchange rate for the period. Gains and losses
resulting from translation are accumulated in a separate component of
shareholders’ equity.





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 overhead that
has been incurred in getting 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 first in, first out  method. Market value represents the estimated
selling price less all estimated costs to completion and costs to be incurred in
marketing, selling and distribution.








F-6
 Table Of Contents





PROPERTY
PLANT AND EQUIPMENT, NET – Property, plant and equipment, 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





DEFERRED
FINANCING COSTS, NET - Financing costs, including fees, commission and legal
expenses, are capitalized as other non-current assets 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. The Company
evaluates goodwill for impairment on an annual basis by comparing the fair value
to the carrying value for reporting units within the Medical Systems
Group.  Fair value is primarily determined using a discounted cash
flow method.





RECOVERABILITY
OF LONG-LIVED ASSETS - The Company evaluates the carrying amounts of long-lived
assets (including goodwill) whenever events have occurred (and at least annually
for goodwill) which might 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 the event that impairment has occurred, the fair
estimated 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.





REVENUE
RECOGNITION – The Company recognizes revenue upon shipment, provided there is
persuasive evidence of an arrangement, there are no uncertainties concerning
acceptance, the sales price is fixed, collection of the receivable is probable
and only perfunctory obligations related to the arrangement need to be
completed. The Company maintains a sales return allowance, based upon historical
patterns, to cover estimated normal course of business returns, including
defective or out of specification product. The Company’s products are covered
primarily by one year warranty plans and in some cases optional extended
warranties for up to five years are offered. The Company establishes allowances
for warranties on an aggregate basis for specifically identified, as well as
anticipated, warranty claims based on contractual terms, product conditions and
actual warranty experience by product line. The Company recognizes service
revenue when repairs or out of warranty repairs are completed. The Company has a
Food and Drug Administration (“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.





RESEARCH
AND DEVELOPMENT COSTS - Research and development costs are recognized as an
expense in the period in which they are incurred.





INCOME
TAXES - Deferred income tax assets and liabilities represents the effects of the
differences between the income tax basis and financial reporting basis of assets
and liabilities and tax credit carryforwards at the tax rates expected at the
time the deferred income tax liability or asset is expected to be settled or
realized. Management provides valuation allowances on deferred income tax assets
for which realization does not meet a “more likely than not”
standard.





NET
INCOME (LOSS) PER SHARE - Net income (loss) per share is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the year. The effect of the assumed exercise of options and warrants to
purchase common stock are excluded from the calculation of earnings (loss) per
share when 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, trade receivables and lines of credit. With respect to accounts
receivable, the Company limits its credit risk by performing ongoing credit
evaluations and, when necessary, requiring letters of credit, guarantees or
collateral. Management does not believe significant risk exists in connection
with the Company’s concentrations of credit at August 2, 2008.




F-7
 Table Of Contents





The
activity in allowances for doubtful accounts is as follows:


BALANCE
      AT
                      BEGINNING
      OF
                      YEAR
                    
                    
                    CHARGED
      TO
                      COSTS
      AND
                      EXPENSE
                    
                    
                    DEDUCTIONS (1)
                    
                    
                    BALANCE
      AT
                      END OF YEARYEAR
      ENDED AUGUST 2, 2008Allowance
      for doubtful accounts
                    
                    $
                    1,569
                    
                    
                    $
                    250
                    
                    
                    $
                    419
                    
                    
                    $
                    1,400YEAR
      ENDED JULY 28, 2007Allowance
      for doubtful accounts
                    
                    $
                    1,095
                    
                    
                    $
                    646
                    
                    
                    $
                    172
                    
                    
                    $
                    1,569YEAR
      ENDED JULY 29, 2006Allowance
      for doubtful accounts
                    
                    $
                    1,028
                    
                    
                    $
                    338
                    
                    
                    $
                    271
                    
                    
                    $
                    1,095





(1)  Write-off
of accounts receivable previously charged to costs and expenses.








STOCK-BASED
COMPENSATION – In December 2004, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123
(R), “Share-Based Payments,” which established standards for transactions in
which an entity exchanges its equity instruments for goods and
services.  The standard requires a public entity to measure the equity
instruments award based on the grant-date fair value.  This eliminates
the exception to account for such awards using the intrinsic method previously
allowed under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees.” SFAS No. 123 (R) was adopted beginning in fiscal
year 2006.  The adoption did not require restatement of previously
issued statements and is being applied on a prospective basis.  See
Note 11, Shareholders’ Equity.





EFFECTS
OF NEW ACCOUNTING PRONOUNCEMENTS - In March 2008, the Financial Accounting
Standards Board (the “FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133.  The Statement requires
enhanced disclosures about an entity’s derivative and hedging
activities.  The Statement is effective for fiscal years and interim
periods beginning after November 15, 2008.  The Company is currently
evaluating the requirements of SFAS 161, but does not expect it to have a
material impact.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51 (“SFAS 160”). SFAS
160 requires identification and presentation of ownership interests in
subsidiaries held by parties other than the Company in the consolidated
financial statements within the equity section but separate from the equity
owned by Del Global.  SFAS 160 also requires that (1) the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of operations, (2) changes in ownership interest be accounted for
similarly, as equity transactions  and (3) when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the subsidiary be
measured at fair value. This statement is effective for the Company on August 2,
2009. The Company is currently evaluating the requirements of SFAS 160 but does
not expect it to have a material impact.




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS
141R”).  SFAS 141R states that acquisition-related costs are to be
recognized separately from the acquisition and expensed as incurred with
restructuring costs being expensed in periods after the acquisition date. SFAS
141R also states that business combinations will result in all assets and
liabilities of the acquired business being recorded at their fair values. The
Company is required to adopt SFAS No. 141R effective August 2, 2009. The impact
of the adoption of SFAS No. 141R will depend on the nature and extent of
business combinations occurring on or after the effective date.





In
September 2006, the FASB issued SFAS No 157, “Fair Value Measurements,” (“SFAS
157”) which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information.  Portions of this statement are effective for the Company
for fiscal years beginning after November 15, 2007, while others have been
deferred until fiscal 2009.  The Company has not evaluated the impact
that the adoption of SFAS No. 157 will have on its financial statements at this
time.





In
February 2007, the FASB released SFAS No. 159, “Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value.  This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years.  The Company has not evaluated the
impact that the adoption of SFAS No. 159 will have on its financial statements
at this time.




F-8
 Table Of Contents




In June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”— an interpretation of SFAS No. 109.  FIN
48 requires that the Company recognize the financial statement effects of a tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination.  As used in this
Interpretation, the term “more likely than not” means a likelihood of more than
50 percent.  The terms “examined” and “upon examination” also include
resolution of the related appeals or litigation processes, if
any.  The determination of whether or not a tax position has met the
more-likely-than-not recognition threshold is to be determined based on the
facts, circumstances, and information available at the reporting
date.  FIN 48 was adopted by the Company beginning July 29,
2007.  The adoption of FIN 48 did not have any impact on the Company’s
statement of financial position or on its results of operations.




The
Company’s primary income tax jurisdictions are in the United States and
Italy.  The Company is currently not under audit in either
jurisdiction.  Tax years since 2003 are open pursuant to statutes in
Italy and tax years since 2004 are open pursuant to statutes in the Unites
States.





It is the
Company’s practice to recognize interest and/or penalties related to income tax
matters in tax expense.  As of August 2, 2008, there were no material
interest or penalty amounts to accrue.




2.
              ACQUISITION
      OF MINORITY INTEREST IN VILLA
 On
December 23, 2005, the Company acquired the remaining 20% of Villa for $2,612
plus 904,762 restricted shares of Company common stock.  These shares
were valued at $3.26 a share, or $2,950, and were subject to SEC Rule 144
limitations as to holding periods and trading volume
limitations.  Goodwill in the amount of $4,526 was recorded and $934
of minority interest was reversed after recognition of a $388
dividend.  Due to the previous 80% ownership interest existing at the
time of the original acquisition, the assets and liabilities of the Villa
subsidiary were fully consolidated before the transaction and considered to be
at fair market value with no additional adjustments
necessary.








3.
            INVENTORIES




Inventories consists of the
      following:AUGUST 2,
                  2008
                
                
                JULY 28,
                  2007Raw
      materials and purchased parts
                
                $
                13,920
                
                
                $
                15,237Work-in-process
                
                
                2,526
                
                
                
                3,910Finished
      goods
                
                
                6,428
                
                
                
                6,65222,874
                
                
                
                25,799Less:
      allowance for obsolete and excess inventories
                
                
                (4,435
                )
                
                
                (3,869
                )Total
      inventories net
                
                $
                18,439
                
                
                $
                21,930








The
activity in the allowance for obsolete and excess inventories accounts is as
follows:





BALANCE
      AT
                    BEGINNING
      OF
                    YEAR
                  
                  
                  CHARGED
      TO
                    COSTS
      AND
                    EXPENSE
                  
                  
                  DEDUCTIONS
      (1)
                  
                  
                  BALANCE
      AT
                    END OF YEARYEAR
      ENDED AUGUST 2, 2008Allowance
      for obsolete and excess inventories
                  
                  $
                  3,869
                  
                  
                  $
                  1,554
                  
                  
                  $
                  988
                  
                  
                  $
                  4,435YEAR
      ENDED JULY 28, 2007Allowance
      for obsolete and excess inventories
                  
                  
                  3,703
                  
                  
                  
                  651
                  
                  
                  
                  485
                  
                  
                  
                  3,869YEAR
      ENDED JULY 29, 2006Allowance
      for obsolete and excess inventories
                  
                  
                  3,017
                  
                  
                  
                  1,050
                  
                  
                  
                  364
                  
                  
                  
                  3,703





(1)  Write-off
of inventories previously charged to costs and expenses.





The
Company has pledged all of its inventories in the U.S. having a net carrying
amount of approximately $6,154 and $6,608 at August 2, 2008 and July 28, 2007,
respectively, to secure its credit facility with its U.S. lender.




F-9
 Table Of Contents





4.
            PROPERTY
      PLANT AND EQUIPMENT





Property
plant and equipment consist of the following:





AUGUST 2,
                  2008
                
                
                JULY 28,
                  2007Land
                
                $
                694
                
                
                $
                694Buildings
                
                
                7,249
                
                
                
                6,549Machinery
      and equipment
                
                
                7,153
                
                
                
                6,757Furniture
      and fixtures
                
                
                694
                
                
                
                817Leasehold
      improvements
                
                
                1,810
                
                
                
                1,754Transportation
      equipment
                
                
                106
                
                
                
                109Computers
      and other equipment
                
                
                2,870
                
                
                
                2,55220,576
                
                
                
                19,232Less:
      accumulated depreciation and amortization
                
                
                (13,199
                )
                
                
                (12,721
                )Property
      plant and equipment, net
                
                $
                7,377
                
                
                $
                6,511





The
Company has pledged all of its property, plant and equipment in the U.S. having
a net carrying amount of approximately $2,045 and $1,985 at August 2, 2008 and
July 28, 2007, respectively, to secure its credit facility with its U.S. lender.
Included in the table above are assets held under capital leases, including the
Villa building, in the net amount of $2,639 and $3,099 at August 2, 2008 and
July 28, 2007, respectively. Accumulated amortization relating to capital leases
was $983 and $845 at August 2, 2008 and July 28, 2007, respectfully.
Amortization expense relating to capital leases was $125, $116 and $113 for
fiscal 2008, 2007 and 2006, respectively.





Depreciation
expense, including amortization of capital leased assets, for fiscal years 2008,
2007 and 2006 was $1,050, $872 and $998, respectively.





5.
            GOODWILL





Goodwill
consists of the following:





MEDICAL
                SYSTEMSBalance
      at July 29, 2006 and July 28, 2007
            
            $6,437Impairment of
      goodwill
            
            (1,911)Balance
      at August 2, 2008
            
            $4,526




As
described in Note 2, during fiscal year 2006, the Company completed the
acquisition of the remaining 20% minority interest in its Villa subsidiary and
recorded additional goodwill of $4,526.
 
 Due
primarily to continued operating results below planned levels and management’s
resulting revaluation of its strategic plan for the Company’s domestic Medical
Systems Group’s reporting unit, the Company completed a special assessment of
that reporting unit’s goodwill realization during the third quarter of
2008.  The Company’s scheduled assessment of goodwill is during the
fourth quarter of each fiscal year.
  As part
of its assessment, the Company estimated the fair value of the domestic
reporting unit based on internal cash flows expected to be earned by the
business and an appropriate risk-adjusted discount rate.  While such
estimates are subject to significant uncertainties and actual results could be
materially different, the analysis resulted, pursuant to the implementation
guidance of FASB No. 142, Accounting for Goodwill and Intangible Assets, in a
complete impairment of the unit’s goodwill balance.  Accordingly, the
Company recorded a $1,911 impairment charge during the fiscal
2008.  The Company’s annual fourth quarter assessments of Villa’s
goodwill has not indicated any impairment.
  
 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.
  F-10
 Table Of Contents
  The
activity in the warranty reserve accounts is as follows:
 
 AUGUST 2,
                    2008
                  
                  
                  JULY 28,
                    2007Balance
      at beginning of year
                  
                  $
                  1,065
                  
                  
                  $
                  971Provision
      for anticipated warranty claims
                  
                  
                  526
                  
                  
                  
                  879Costs
      incurred related to warranty claims
                  
                  
                  (514
                  )
                  
                  
                  (785
                  )Balance
      at end of year
                  
                  $
                  1,077
                  
                  
                  $
                  1,065
 
 7.
              SHORT-TERM
      CREDIT FACILITIES, LONG-TERM DEBT AND SUBORDINATED
  NOTE
 
 The
Company did not have any outstanding borrowings under its short term credit
facilities at August 2, 2008 or July 28, 2007.
 
 Long-term
debt was comprised of the following:
 AUGUST 2,
                            2008
                          
                          
                          JULY 28,
                            2007
                          
                          
                          INTERESTRATE
                            AT
                            AUGUST
      2,
                            2008Foreign
      capital lease obligation
                          
                          $
                          2,639
                          
                          
                          $
                          2,650
                          
                          
                          
                          5.0
                          %Foreign
      credit facilities
                          
                          
                          2,703
                          
                          
                          
                          2,699
                          
                          
                          Euribor
      + 1.00
                          %Foreign
      Italian Government loans
                          
                          
                          959
                          
                          
                          
                          1,135
                          
                          
                          
                          3.4
                          %Total
      long term debt
                          
                          
                          6,301
                          
                          
                          
                          6,484Less
      current portion of long-term bank debt
                          
                          
                          (1,797
                          )
                          
                          
                          (1,086
                          )Long-term
      debt, less current portion
                          
                          $
                          4,504
                          
                          
                          $
                          5,398
 
 On August
1, 2005, the Company entered into a three-year revolving credit and term loan
facility with North Fork Business Capital (the “North Fork Facility”) and repaid
the prior facility.  During the first nine months of 2007, an average
of $1,400 was outstanding under this facility.  In March 2007, the
Company used a portion of the proceeds from the Rights Offering described below
to pay all outstanding balances under this facility as well as $2,505 of
subordinated notes then outstanding and $146 in related interest.
  On June
1, 2007, the North Fork Facility was amended and restated.  As
restated, the North Fork Facility provides for a $7,500 formula based revolving
credit facility based on the Company’s eligible accounts receivable and
inventory as defined in the credit agreement and a capital expenditure loan
facility up to $1,500.  Interest on the revolving credit and capital
expenditure borrowings is payable at prime plus 0.5% or alternatively at a LIBOR
rate plus 2.5%. Other changes to the terms and conditions of the original loan
agreement include the modification of covenants, removal of the Villa stock as
loan collateral and the removal of daily collateral reporting which was part of
the previous asset-based facility requirements.  As of August 2, 2008
and July 28, 2007, no amounts were outstanding and the Company had approximately
$6,400 of availability under the North Fork Facility, as North Fork has reserved
$2,600 against possible litigation settlements in the form of letters of
credit..
  The North
Fork Facility is subject to commitment fees of 0.5% per annum on the
daily-unused portion of the facility, payable monthly.  The Company
granted a security interest to the lender on its U.S. credit facility in
substantially all of its accounts receivable, inventory, property, plant and
equipment, other assets and intellectual property in the U.S..
  As of the
end of the first quarter of fiscal 2007, the Company was non-compliant with the
tangible net worth covenant under the North Fork Facility.  On
December 6, 2006, North Fork waived the non-compliance with this covenant for
the first quarter of fiscal 2007 and adjusted the covenant levels going forward
through the maturity of the credit facility.  As of August 2, 2008 and
July 28, 2007, the Company was in compliance with all covenants under the North
Fork Facility.
 
 The
Company’s Villa subsidiary maintains short term credit facilities which are
renewed annually with Italian banks.  Currently, these facilities are
not being utilized and the balance due at August 2, 2008 is
$0.  Interest rates on these facilities are variable and currently
range from 3.7% – 13.75%.
  In
October 2006, Villa entered into a 1.0 million Euro loan for financing of
R&D projects, with an option for an additional 1 million Euro upon
completion of 50% of the projects.  In April, 2008, the Company
declined the option for additional financing and demonstrated successful
completion of the project triggering a more favorable interest
rate.  Interest, previously payable at Euribor 3 months plus 1.3
points, was reduced in the fourth fiscal quarter of 2008 to Euribor plus 1.04
points, currently at 5.998%.  The note is repayable over a 7 year
term, with reimbursement starting in September 2008.  The note
contains a financial covenant which provides that the net equity of Villa cannot
fall below 5.0 million Euros.  This covenant could limit Villa’s
ability to pay dividends to the U.S. parent company in the event future losses,
future dividends or other events should cause Villa’s equity to fall below the
defined level.
  F-11
 Table Of Contents
 
 Villa was
party to a 1.6 million Euro loan which was extinguished in March
2007.  Two final installments for a total of 0.3 million Euro were
repaid in fiscal year 2007.
 
 Villa is
also party to two Italian government long-term loans with a fixed interest rate
of 3.425% with principal payable annually through maturity in February and
September 2010. At the end of fiscal year 2008, total principal due is 0.6
million Euro.  Villa 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.
 
 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
the $2,000 of subordinated notes that were issued in April 2002 and matured in
March 2007. The subordinated notes did not pay interest currently, but accrued
interest at 6% per annum, and were recorded at issuance at a discounted present
value of $1,500. The balance was paid on March 29, 2007 with a portion of the
proceeds from a Rights Offering described below.
 
 The
Company is obligated to make principal payments under its long-term debt and
capital lease obligation as follows:
 
 FISCAL YEARS
                
                DEBT
                
                
                CAPITAL
                  LEASE
                
                
                TOTAL2009
                
                $
                1,312
                
                
                $
                648
                
                
                $
                1,9602010
                
                
                1,325
                
                
                
                648
                
                
                
                1,9732011
                
                
                904
                
                
                
                487
                
                
                
                1,3912012
                
                
                121
                
                
                
                -
                
                
                
                121Purchase
      option
                
                
                --
                
                
                
                1,221
                
                
                
                1,221Total
      payments
                
                
                3,662
                
                
                
                3,004
                
                
                
                6,666Less:
      amount representing interest
                
                
                --
                
                
                
                (365
                )
                
                
                (365
                )Total
                
                $
                3,662
                
                
                $
                2,639
                
                
                $
                6,301
 
 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 years 2008, 2007 or 2006.
 
 The
Profit Sharing Plan also incorporates a 401(k) Retirement Plan that is available
to substantially all domestic employees, allowing them to defer a portion of
their salary. The Company matches employee contributions at a 50% rate up to a
maximum of 4% of annual salary, and recorded a related expense of $102, $20 and
$106 for fiscal years 2008, 2007 and 2006, respectively.
 
 The
Company also had a defined benefit plan, which was frozen effective February 1,
1986.  During fiscal 2005, the Company applied to the Pension Benefit
Guaranty Corp and to the IRS for a determination letter and approval to
terminate this plan.  The Company received the IRS determination
letter approving the final settlement during the second quarter of fiscal 2006
and the plan fully paid out all of the plan participants in March
2006.
 
 In
addition, the Company’s Villa subsidiary 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 $3,172, and
$3,127 at August 2, 2008 and July 28, 2007, respectively.  Provisions
for employee termination indemnities were $729, $357 and $401 for fiscal years
2008, 2007 and 2006, respectively.
  9.
                SEGMENT
      REPORTING
 The
Company has three reportable segments; the Medical Systems Group, the Power
Conversion Group and Other. The Other segment includes unallocated corporate
costs. For each fiscal year presented, 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 reporting segment from corporate activities and
shared services.
  F-12
 Table Of Contents
 
 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
reporting segments based on operating income or loss.  The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
 
 Selected
financial data of these segments are as follows:
 FISCAL
      YEAR ENDED
                  AUGUST 2, 2008
                
                MEDICAL
                  SYSTEMS
                  GROUP
                
                
                POWER
                  CONVERSION
                  GROUP
                
                
                OTHER
                
                
                TOTALNet
      sales to external customers
                
                $
                95,052
                
                
                $
                13,254
                
                
                $
                --
                
                
                $
                108,306Cost
      of sales
                
                
                73,317
                
                
                
                8,202
                
                
                
                --
                
                
                
                81,519Gross
      margin
                
                
                21,735
                
                
                
                5,052
                
                
                
                --
                
                
                
                26,787Selling,
      general and administrative
                
                
                11,840
                
                
                
                2,522
                
                
                
                1,224
                
                
                
                15,586Research
      and development
                
                
                2,488
                
                
                
                --
                
                
                
                --
                
                
                
                2,488Goodwill
      impairment
                
                
                1,911
                
                
                
                --
                
                
                
                --
                
                
                
                1,911Litigation
      settlement costs
                
                
                450
                
                
                
                --
                
                
                
                --
                
                
                
                450Total
      operating expenses
                
                
                16,689
                
                
                
                2,522
                
                
                
                1,224
                
                
                
                20,435Operating
      income (loss)
                
                $
                5,046
                
                
                $
                2,530
                
                
                $
                (1,224
                )
                
                
                6,352Interest
      expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (313
                )Other
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                185Income
      from continuing operations, before income taxes and minority
      interest
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                6,224Depreciation
                
                $
                891
                
                
                $
                163
                
                
                $
                --
                
                
                $
                1,054Amortization
                
                
                22
                
                
                
                --
                
                
                
                --
                
                
                
                22Segment
      assets
                
                
                53,133
                
                
                
                4,651
                
                
                
                8,569
                
                
                
                66,353Capital
      expenditures
                
                
                1,140
                
                
                
                68
                
                
                
                --
                
                
                
                1,208
 
 Inter-segment
sales were $83 for the fiscal year ended August 2, 2008. Approximately $50,678
of Medical Systems Group assets are located in Italy, including $10,656 of
long-lived assets.
 
 FISCAL
      YEAR ENDED
                  JULY 28, 2007
                
                MEDICAL
                  SYSTEMS
                  GROUP
                
                
                POWER
                  CONVERSION
                  GROUP
                
                
                OTHER
                
                
                TOTALNet
      sales to external customers
                
                $
                90,979
                
                
                $
                13,188
                
                
                $
                --
                
                
                $
                104,167Cost
      of sales
                
                
                70,879
                
                
                
                8,271
                
                
                
                --
                
                
                
                79,150Gross
      margin
                
                
                20,100
                
                
                
                4,917
                
                
                
                --
                
                
                
                25,017Selling,
      general and administrative
                
                
                10,635
                
                
                
                2,476
                
                
                
                1,479
                
                
                
                14,590Research
      and development
                
                
                2,013
                
                
                
                --
                
                
                
                --
                
                
                
                2,013Litigation
      settlement costs
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Total
      operating expenses
                
                
                12,648
                
                
                
                2,476
                
                
                
                1,479
                
                
                
                16,603Operating
      income (loss)
                
                $
                7,452
                
                
                $
                2,441
                
                
                $
                (1,479
                )
                
                
                8,414Interest
      expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (991
                )Other
      income (expense)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (54
                )Income
      from continuing operations, before income taxes and minority
      interest
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                7,369Depreciation
                
                $
                704
                
                
                $
                165
                
                
                $
                3
                
                
                $
                872Amortization
                
                
                27
                
                
                
                --
                
                
                
                --
                
                
                
                27Segment
      assets
                
                
                60,658
                
                
                
                5,014
                
                
                
                667
                
                
                
                66,339Capital
      expenditures
                
                
                703
                
                
                
                76
                
                
                
                --
                
                
                
                779
 
 Inter-segment
sales were $86 for the fiscal year ended July 28, 2007. Approximately $43,720 of
Medical Systems Group assets are located in Italy, including $10,110 of
long-lived assets.
  F-13
 Table Of Contents
 
 
 
 FISCAL
      YEAR ENDED
                  JULY 29, 2006
                
                MEDICAL
                  SYSTEMS
                  GROUP
                
                
                POWER
                  CONVERSION
                  GROUP
                
                
                OTHER
                
                
                TOTALNet
      sales to external customers
                
                $
                70,287
                
                
                $
                12,727
                
                
                $
                --
                
                
                $
                83,014Cost
      of sales
                
                
                55,453
                
                
                
                8,203
                
                
                
                --
                
                
                
                63,656Gross
      margin
                
                
                14,834
                
                
                
                4,524
                
                
                
                --
                
                
                
                19,358Selling,
      general and administrative
                
                
                9,467
                
                
                
                2,148
                
                
                
                2,004
                
                
                
                13,619Research
      and development
                
                
                1,562
                
                
                
                --
                
                
                
                --
                
                
                
                1,562Litigation
      settlement costs
                
                
                252
                
                
                
                (55
                )
                
                
                500
                
                
                
                697Total
      operating expenses
                
                
                11,281
                
                
                
                2,093
                
                
                
                2,504
                
                
                
                15,878Operating
      income (loss)
                
                $
                3,553
                
                
                $
                2,431
                
                
                $
                (2,504
                )
                
                
                3,480Interest
      expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,311
                )Other
      expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (34
                )Income
      from continuing operations, before income taxes and minority
      interest
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                2,135Depreciation
                
                $
                793
                
                
                $
                193
                
                
                $
                2
                
                
                $
                988Amortization
                
                
                38
                
                
                
                --
                
                
                
                --
                
                
                
                38Segment
      assets
                
                
                43,630
                
                
                
                5,055
                
                
                
                468
                
                
                
                49,153Capital
      expenditures
                
                
                695
                
                
                
                66
                
                
                
                4
                
                
                
                765
 
 Inter-segment
sales were $149 for the fiscal year ended July 29, 2006. Approximately $35,481
of Medical Systems Group assets are located in Italy, including $10,249 of
long-lived assets.
 
 MAJOR
CUSTOMERS AND EXPORT SALES - For the fiscal year ended August 2, 2008 one of our
Medical Systems Group customers accounted for approximately 13% of consolidated
revenues and 1% of gross accounts receivable at August 2, 2008.  For
the fiscal years ended July 28, 2007, one of our Medical Systems Group customers
accounted for approximately 12% of consolidated revenues and 11% of gross
accounts receivable at July 28, 2007.  For fiscal year ended July 29,
2006, no individual customer accounted for greater than 10% of total revenue or
accounts receivable.
 
 Foreign
sales were 64%, 66% and 64% of the Company’s consolidated net sales in fiscal
years ended August 2, 2008, July 28, 2007 and July 29, 2006, respectively. Net
sales by geographic areas were:
 
 AUGUST 2, 2008
                    
                    
                    JULY 28, 2007
                    
                    
                    JULY 29 2006United
      States
                    
                    $
                    40,402
                    
                    
                    
                    37
                    %
                    
                    $
                    38,397
                    
                    
                    
                    37
                    %
                    
                    $
                    29,979
                    
                    
                    
                    36
                    %Canada
                    
                    
                    2,045
                    
                    
                    
                    2
                    %
                    
                    
                    869
                    
                    
                    
                    1
                    %
                    
                    
                    158
                    
                    
                    
                    -
                    %Europe
                    
                    
                    55,428
                    
                    
                    
                    51
                    %
                    
                    
                    48,129
                    
                    
                    
                    46
                    %
                    
                    
                    37,078
                    
                    
                    
                    45
                    %Far
      East
                    
                    
                    7,354
                    
                    
                    
                    7
                    %
                    
                    
                    7,603
                    
                    
                    
                    7
                    %
                    
                    
                    6,298
                    
                    
                    
                    8
                    %Mexico,
      Central and South America
                    
                    
                    514
                    
                    
                    
                    1
                    %
                    
                    
                    3,117
                    
                    
                    
                    3
                    %
                    
                    
                    6,750
                    
                    
                    
                    8
                    %Africa,
      Middle East and Australia
                    
                    
                    2,563
                    
                    
                    
                    2
                    %
                    
                    
                    6,052
                    
                    
                    
                    6
                    %
                    
                    
                    2,751
                    
                    
                    
                    3
                    %$
                    108,306
                    
                    
                    
                    100
                    %
                    
                    $
                    104,167
                    
                    
                    
                    100
                    %
                    
                    $
                    83,014
                    
                    
                    
                    100
                    %
 
 Revenues
are attributable to geographic areas based on the location of the
customers.
 
 10.
              SHAREHOLDERS’
      EQUITY
 
 RIGHTS
OFFERING AND STOCKHOLDERS’ RIGHTS PLAN – On December 12, 2006, the Company filed
a registration statement for a subscription rights offering with the SEC that
became effective January 30, 2007.  Under terms of this rights
offering, the Company distributed to shareholders of record as of February 5,
2007, non-transferable subscription rights to purchase one share of the
Company’s common stock for each share owned at that date at a subscription price
of $1.05 per share.  On March 12, 2007, the Company completed the
rights offering, selling 12,027,378 shares of its common stock at $1.05 per
share.  Total proceeds to the Company, net of $275 of expenses related
to the rights offering, were $12,354.
 
 The
purpose of this rights offering was to raise equity capital in a cost-effective
manner.  Approximately $7,564 of the proceeds were used for debt
repayment and the remainder invested in short-term money market securities for
anticipated working capital needs and general corporate purposes.  A
portion of the net proceeds may also ultimately be used to acquire or invest in
businesses, products and technologies that Company management believes are
complementary to the Company's business.
 
 In
addition, on January 22, 2007, the Company entered into a stockholders’ rights
plan (the “Rights Plan”).  The Rights Plan provides for a dividend
distribution of one common stock purchase right for each outstanding share of
the Company’s common stock.  The Company’s Board of Directors adopted
the Rights Plan to protect stockholder value by protecting the Company’s ability
to realize the benefits of its net operating losses (“NOLs”) and capital loss
carryforwards.  The Company has experienced substantial operating and
capital losses in previous years.  Under the Internal Revenue Code and
rules promulgated by the Internal Revenue Service, the Company may “carry
forward” these losses in certain circumstances to offset current and future
earnings and thus reduce its federal income tax liability, subject to certain
requirements and restrictions.  Assuming that the Company has future
earnings, the Company may be able to realize the benefits of NOLs and capital
loss carryforwards.  These NOLs and capital loss carryforwards
constitute a substantial asset to the Company.  If the Company
experiences an “Ownership Change,” as defined in Section 382 of the Internal
Revenue Code, its ability to use the NOLs and capital loss carryforwards could
be substantially limited or lost altogether.  In general terms, the
Rights Plan imposes a significant penalty upon any person or group that acquires
certain percentages of the Company’s common stock by allowing other shareholders
to acquire equity securities at half their fair values.
  F-14
 Table Of Contents
 
 STOCK
BUY-BACK PROGRAM - In September 2000, the Board of Directors approved an
additional repurchase of $3,000 of the Company’s common stock bringing the total
authorized to $7,500. The Company has not purchased any shares under this
program since fiscal 2001, when 11,500 shares were purchased for $108. As of
August 2, 2008, 489,806 shares had been purchased by the Company for $4,502
under this Stock Buy-Back Program.  These shares are included in
Treasury Shares on the accompanying Balance Sheet.
 
 INCREASE
OF AUTHORIZED SHARES - At a special meeting of shareholders of the Company held
on November 17, 2006, the Company’s shareholders approved an Amendment of the
Certificate of Incorporations of the Company to increase the number of
authorized shares of the Company’s common stock, par value $0.10 per share, from
twenty million (20,000,000) shares to fifty million (50,000,000) shares in order
to have a  sufficient  number of shares
of  Common  Stock to  provide a
reserve  of shares  available for issuance to
meet  business  needs as they may arise in the future. Such
business needs may include, without limitation, rights offerings, financings,
acquisitions, establishing strategic relationships with corporate partners,
providing equity incentives to employees, officers or directors, stock splits or
similar transactions.
 
 STOCK
OPTION PLAN AND WARRANTS – Effective July 31, 2005, the Company adopted SFAS No.
123 (R).  This standard requires that the Company measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant date fair value of the award.  That cost will be
recognized over the period in which the employee is required to provide the
services – the requisite service period (usually the vesting period) – in
exchange for the award.  The grant date fair value for options and
similar instruments will be estimated using option pricing
models.  Under SFAS 123 (R), the Company is required to select a
valuation technique or option pricing model that meets the criteria as stated in
the standard, which includes a binomial model and the Black-Scholes
model.  At the present time, the Company is continuing to use the
Black-Scholes model.  The adoption of SFAS 123 (R), applying the
“modified prospective method,” as elected by the Company, requires the Company
to value stock options granted prior to its adoption of SFAS 123 (R) under the
fair value method and expense the related unvested amounts over the remaining
vesting period of the stock options.
 
 Details
regarding the fair value of stock options granted in fiscal 2008, 2007 and 2006
are as follows:
 
 2008
                        
                        2007
                        
                        2006Estimated
      life (in years)
                        7
                        
                        7
                        
                        7Volatility
      rate
                        64%-72%
                        
                        63%-74%
                        
                        62%Risk
      free interest rate
                        3.60%-4.20%
                        
                        4.44%-5.16%
                        
                        4.74%-4.93%Dividend
      rate
                        0%
                        
                        0%
                        
                        0%Forfeiture
      rate
                        2%
                        
                        2%
                        
                        0%Weighted
      average fair value
                        1.82
                        
                        1.16
                        
                        1.58Recorded
      compensation
      expense
                        $  481
                        
                        $   220
                        
                        $  142
 
 The Black
Scholes Option Pricing Model requires the use of various
assumptions.  The key assumptions are summarized as
follows:
 
 Estimated
life:  The Company derives its estimated life based on historical
experience.
 
 Volatility
rate:  The Company estimates the volatility of its common stock at the
date of grant based on historical volatility of its common stock.
 
 Risk free
interest rate: The Company derives its risk-free interest rate on the Barron’s
zero coupon bond rate for a term equivalent to the expected life of the
option.
  Dividend
rate:  The Company estimates the dividend yield assumption based on
the Company’s historical and projected dividend payouts.
 Forfeiture
rate:  The Company estimates the annual forfeiture rate based on
historical experience.
 
 On March
20, 2007, shareholders approved the 2007 Incentive Stock Plan.  A
total of 1,000,000 shares of the Company’s common stock may be granted under the
Plan, of which, 604,500 shares are still available for grant as of August 2,
2008.  No additional options will be granted under the former stock
option plan.  Substantially all of the options granted under this Plan
and the prior 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 approved by the
Board of Directors. 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 February 21, 2017.
  F-15
 Table Of Contents
 
 In
December 2000, the Board of Directors approved an extension of time to exercise
for all stock option holders. The extension covers all options whose term would
have expired during the period from the stock de-listing date (December 19,
2000) up to the date that the shares become re-listed on a national exchange.
This extension grants those stock option holders a period of six months from the
date of re-listing to exercise vested options which may have otherwise expired
without the extension.  Options that otherwise expired due to
termination of employment for cause were not effected by this
extension.  During fiscal 2005, the plan was modified to remove this
extension provision from options granted after January 2005.  The
majority of the Company’s stock options have a 10 year term, however, due to
uncertainty regarding the duration of this extension, the Company cannot
calculate the weighted average remaining contractual term of outstanding or
vested options.  The extension provision does not impact the 2007
Incentive Stock Plan.
 
 OPTION
ACTIVITY
 
 The
following stock option information is as of:
 
 August 2, 2008
                              
                              
                              JULY 28, 2007
                              
                              
                              JULY 29, 2006SHARES
                                OUTSTANDING
                              
                              
                              WEIGHTED
                                AVERAGE
                                EXERCISE
                                PRICE
                              
                              
                              SHARES
                                OUTSTANDING
                              
                              
                              WEIGHTED
                                AVERAGE
                                EXERCISE
                                PRICE
                              
                              
                              SHARES
                                OUTSTANDING
                              
                              
                              WEIGHTED
                                AVERAGE
                                EXERCISE
                                PRICEGranted
      and outstanding, beginning of year
                              
                              
                              1,913,996
                              
                              
                              $
                              3.51
                              
                              
                              
                              1,545,996
                              
                              
                              $
                              3.93
                              
                              
                              
                              1,662,494
                              
                              
                              $
                              3.81Granted
                              
                              
                              336,500
                              
                              
                              
                              2.62
                              
                              
                              
                              469,000
                              
                              
                              
                              1.73
                              
                              
                              
                              100,000
                              
                              
                              
                              2.66Exercised
                              
                              
                              (83,181
                              )
                              
                              
                              1.37
                              
                              
                              
                              (101,000
                              )
                              
                              
                              1.69
                              
                              
                              
                              (99,000
                              )
                              
                              
                              2.09Cancelled
      and forfeited
                              
                              
                              (72,500
                              )
                              
                              
                              3.58
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (117,498
                              )
                              
                              
                              2.56Outstanding
      at end of year
                              
                              
                              2,094,815
                              
                              
                              
                              3.45
                              
                              
                              
                              1,913,996
                              
                              
                              
                              3.51
                              
                              
                              
                              1,545,996
                              
                              
                              
                              3.93Exercisable
      at end of
      year
                              
                              
                              1,595,438
                              
                              
                              
                              3.85
                              
                              
                              
                              1,494,743
                              
                              
                              
                              4.00
                              
                              
                              
                              1,477,243
                              
                              
                              
                              4.00
 
 As
mentioned above, due to an extension of exercise time granted to option holders
that has an uncertain term, the Company is unable to calculate the weighted
average contractual term of the above options.
 
 As of
August 2, 2008 the distribution of stock option exercise prices is as
follows:
   OPTIONS
      OUTSTANDING
                  
                  
                  OPTIONS
      EXERCISABLEEXERCISE
                    PRICE RANGE
                  
                  
                  NUMBER
      OF
                    OPTION SHARES
                  
                  
                  WEIGHTED
                    AVERAGE
                    EXERCISE
                    PRICE
                  
                  
                  SHARES
                    EXERCISABLE
                  
                  
                  WEIGHTED
                    AVERAGE
                    EXERCISE
                    PRICE$
                  1.00
      - $3.34
                  
                  
                  
                  1,414,107
                  
                  
                  $
                  1.94
                  
                  
                  
                  914,729
                  
                  
                  $
                  1.80$
                  4.00
      - $6.60
                  
                  
                  
                  313,256
                  
                  
                  
                  4.85
                  
                  
                  
                  313,258
                  
                  
                  
                  4.85$
                  7.00
      - $7.94
                  
                  
                  
                  220,775
                  
                  
                  
                  7.51
                  
                  
                  
                  220,774
                  
                  
                  
                  7.51$
                  8.00
      - $10.00
                  
                  
                  
                  146,677
                  
                  
                  
                  8.93
                  
                  
                  
                  146,667
                  
                  
                  
                  8.932,094,815
                  
                  
                  $
                  3.45
                  
                  
                  
                  1,595,438
                  
                  
                  $
                  3.85
 At August
2, 2008, the aggregate intrinsic value of options outstanding and options
exercisable was $127 and $127, respectively.  The intrinsic value is
the amount by which the market value of the underlying stock exceeds the
exercise price of the option at the measurement date for all-in-the money
options.
 
 Future
compensation expense related to the vesting of employee options granted by
August 2, 2008 is expected to be $344 in 2009, $186 in 2010 and $45 in
2011.
 
 Cash
proceeds and intrinsic value related to total stock options exercised are
provided in the following table:
 
 YEAR
      ENDED
                
                AUGUST 2, 2008
                
                
                JULY 28, 2007
                
                
                JULY 29, 2006Proceeds
      from stock options exercised
                
                $
                46
                (a)
                
                $
                170
                
                
                $
                238Intrinsic
      Value
                
                
                71
                
                
                
                57
                
                
                
                137
  F-16
 Table Of Contents
  (a)
In addition to these proceeds, the Company accepted 31,694 shares of common
stock held by the option holder and valued at $69 into treasury.
 
 WARRANTS
 
 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 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
fiscal 2008, 2007 and 2006, 61,016, 366,854 and 1,574, respectively, of these
warrants were exercised for cash proceeds to the Company of $91, $551 and $2,
respectively.  As of August 2, 2008, 512,500 of these warrants were
outstanding.
 
 11.
              INCOME
      (LOSS) PER SHARE
 
 FOR FISCAL YEARS ENDEDAUGUST 2, 2008
                  
                  
                  JULY 28, 2007
                  
                  
                  JULY 29, 2006Numerator:Net
      income
                  
                  $
                  2,977
                  
                  
                  $
                  3,816
                  
                  
                  $
                  94Denominator:Weighted
      average shares outstanding for basic income per share
                  
                  
                  24,195,498
                  
                  
                  
                  16,154,552
                  
                  
                  
                  11,244,421Effect
      of dilutive securities
                  
                  
                  450,911
                  
                  
                  
                  300,673
                  
                  
                  
                  832,075Weighted
      average shares outstanding for diluted income per share
                  
                  
                  24,646,409
                  
                  
                  
                  16,455,225
                  
                  
                  
                  12,076,496Income
      per basic common share
                  
                  $
                  0.12
                  
                  
                  $
                  0.24
                  
                  
                  $
                  0.01Income
      per diluted common share
                  
                  $
                  0.12
                  
                  
                  $
                  0.23
                  
                  
                  $
                  0.01
 
 Common
shares outstanding for the fiscal years ended August 2, 2008, July 28, 2007 and
July 29, 2006, were reduced by 654,464, 622,770 and 622,770 shares of treasury
stock, respectively.
 
 The
computation of diluted shares outstanding does not include the effect of the
assumed exercise of 1,295,612, 1,121,684 and 1,180,389 for employee stock
options outstanding as of August 2, 2008, July 28, 2007 and July 29, 2006,
respectively, and 0, 0 and 474,113 warrants to purchase Company common stock for
those years because the effect of their assumed exercise would be
anti-dilutive.
 
 12.
              INCOME
      TAXES
 
 The
Company’s consolidated income from continuing operations before income tax
benefit and minority interest for fiscal years 2008, 2007 and 2006 of $6,224,
$7,369 and $2,135 reflects foreign pre-tax net income of $8,294, $8,180 and
$3,620 for fiscal years 2008, 2007 and 2006, respectively, and a U.S. pre-tax
loss of $2,070, $811 and $1,485, respectively.
 
 Provision
for income taxes consists of the following:
 
 FOR FISCAL YEARS ENDEDAUGUST 2, 2008
                  
                  
                  JULY 28, 2007
                  
                  
                  JULY 29, 2006CURRENT
      TAX EXPENSE:Foreign
                  
                  $
                  3,297
                  
                  
                  $
                  3,410
                  
                  
                  $
                  1,739State
      and local
                  
                  
                  -
                  
                  
                  
                  5
                  
                  
                  
                  35DEFERRED
      PROVISION (BENEFIT):Federal
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -State
      and local
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Foreign
                  
                  
                  (50
                  )
                  
                  
                  138
                  
                  
                  
                  (16
                  )NET
      PROVISION
                  
                  $
                  3,247
                  
                  
                  $
                  3,553
                  
                  
                  $
                  1,758
 
 
 F-17
 Table Of Contents
  The
following is a reconciliation of the statutory Federal and effective income tax
rates:
 
 FOR FISCAL YEARS ENDEDAUGUST 2, 2008
                  
                  
                  JULY 28, 2007
                  
                  
                  JULY 29, 2006Statutory
      Federal income tax rate
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %State
      tax, less Federal tax effect
                  
                  
                  0.0.
                  %
                  
                  
                  0.1.
                  %
                  
                  
                  1.6
                  %Foreign
      taxes
                  
                  
                  12.7
                  %
                  
                  
                  9.2
                  %
                  
                  
                  8.2
                  %Valuation
      allowance adjustment
                  
                  
                  41.9
                  %
                  
                  
                  (1.9
                  )%
                  
                  
                  (98.5
                  )%Provision
      (reversal) for undistributed earnings of foreign subsidiary
                  
                  
                  (36.7
                  )%
                  
                  
                  7.2
                  %
                  
                  
                  138.8
                  %Other
                  
                  
                  0.3
                  %
                  
                  
                  (0.4
                  )%
                  
                  
                  (1.7
                  )%Effective
      tax rate
                  
                  
                  52.2
                  %
                  
                  
                  48.2
                  %
                  
                  
                  82.4
                  %
 
 Deferred
income tax assets (liabilities) are comprised of the following:
 
 AUGUST 2, 2008
                      
                      
                      JULY 28, 2007Deferred
      income tax assets:Federal
      net operating loss carry forward
                      
                      $
                      15,375
                      
                      
                      $
                      15,420State
      tax credits and operating loss carry forwards
                      
                      
                      2,071
                      
                      
                      
                      2,223Reserve
      for inventory obsolescence
                      
                      
                      1,545
                      
                      
                      
                      1,417Allowances
      and reserves not currently deductible
                      
                      
                      1,076
                      
                      
                      
                      933Amortization
                      
                      
                      295
                      
                      
                      
                      197Stock
      based compensation
                      
                      
                      599
                      
                      
                      
                      430Fixed
      assets
                      
                      
                      133
                      
                      
                      
                      -Other
                      
                      
                      -
                      
                      
                      
                      55Gross
      deferred income tax assets
                      
                      
                      21,094
                      
                      
                      
                      20,675Deferred
      income tax liabilities:Undistributed
      earnings of foreign subsidiary
                      
                      
                      -
                      
                      
                      
                      (2,278
                      )Fixed
      assets
                      
                      
                      -
                      
                      
                      
                      (383
                      )Other
                      
                      
                      (15
                      )
                      
                      
                      -Gross
      deferred income tax liabilities
                      
                      
                      (15
                      )
                      
                      
                      (2,661
                      )Less:
      valuation allowance
                      
                      
                      (20,309
                      )
                      
                      
                      (17,295
                      )Net
      deferred income tax assets
                      
                      $
                      770
                      
                      
                      $
                      719
 
 Deferred
income tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
 
 AUGUST 2, 2008
                  
                  
                  JULY 28, 2007Deferred
      income tax assets – non-current
                  
                  $
                  770
                  
                  
                  $
                  1,011Deferred
      income tax liabilities -- non-current
                  
                  
                  --
                  
                  
                  
                  (292
                  )$
                  770
                  
                  
                  $
                  719
 
 The
Company accounts for deferred income taxes in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income
Taxes”  whereby it recognizes deferred tax assets and liabilities for
temporary differences between financial
 reporting
basis and income tax reporting basis and for tax credit carry
forwards.
 
 The
Company periodically assesses the realization of its net deferred income tax
assets.  This evaluation is primarily based upon current operating
results and expectations of future operating results.  A valuation
allowance is recorded if the Company believes its net deferred income tax assets
will not be realized.  Its determination is based on what it believes
will be the more likely than not result.
 
 During
fiscal years 2008, 2007 and 2006, the Company reported operating income on a
consolidated basis.  The Company’s foreign tax reporting entity was
profitable, and its U.S. tax reporting entities incurred a loss in each fiscal
year.  Based primarily on these results, the Company concluded that it
should maintain a 100% valuation allowance on its net U.S. deferred tax assets
as of August 2, 2008.
 
 The
Company recorded a tax expense with respect to its foreign subsidiary’s income
in all periods presented and based on a more likely than not standard, believes
that the foreign subsidiary’s net deferred income tax asset of $770 at August 2,
2008 will be realized.
  F-18
 Table Of Contents
 
 The
Company’s foreign subsidiary operates in Italy.  Italy recently
enacted legislation that reduces tax rates effective for the Company’s fiscal
year 2009.  Fiscal 2008 income tax expense includes a charge that
reduces the carrying value of the foreign subsidiary’s net deferred income tax
asset resulting from the income tax rate reduction.
 
  
  
 At August
2, 2008, the Company has federal net operating loss carry forwards of $15,375
that expire at various times between July, 2020 and July, 2026.
 
 It is the
Company’s practice to recognize interest and/or penalties related to income tax
matters in tax expense.  As of August 2, 2008, there were no material
interest or penalty amounts to accrue.
 
 13.
              COMMITMENTS
      AND CONTINGENCIES
 
 LITIGATION
      MATTERS
 
 a.  The
Company had an employment agreement with Samuel Park, a previous Chief Executive
Officer (“CEO”), for the period May 1, 2001 to April 30, 2004.  The
employment agreement provided for certain payments in the event of a change in
the control of the Company.  On October 10, 2003, the Company
announced the appointment of Walter F. Schneider as President and CEO to replace
Mr. Park, effective as of such date.  As a result, the Company
recorded a charge of approximately $200 during the first quarter of fiscal 2004
to accrue the balance remaining under Mr. Park’s employment
agreement.
  The
Company’s employment agreement with Mr. Park provided for payments upon certain
changes in control.  The Company’s Board of Directors elected at the
Company’s Annual Meeting of Shareholders held on May 29, 2003, had reviewed the
“change of control” provisions regarding payments totaling up to approximately
$1,800 under the employment agreement between the Company and Mr.
Park.  As a result of this review and based upon, among other things,
the advice of special counsel, the Company’s Board of Directors has determined
that no obligation to pay these amounts has been triggered.  Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered.  On October 27,
2003, the Company received a letter from Mr. Park’s counsel demanding payment of
certain sums and other consideration pursuant to the Company’s employment
agreement with Mr. Park, including these change of control
payments.  On November 17, 2003, the Company filed a complaint in the
United States District Court, Southern District of New York, against Mr. Park
seeking a declaratory judgment that no change in control payment was or is due
to Mr. Park, and that an amendment to the employment contract with Mr. Park
regarding advancement and reimbursement of legal fees is invalid and
unenforceable.  Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
“change in control” occurred in June 2003.  Mr. Park is also seeking
other consideration he believes he is owed under his employment
agreement.  The Company filed a reply to Mr. Park’s counterclaims
denying that he is entitled to any of these payments.  Discovery in
this matter was conducted and completed.  Following discovery, the
Company and Mr. Park filed motions for summary judgment on the issues related to
the change in control and the amendment to the employment agreement, which
motions have been fully submitted to the court for consideration.  To
date, no decision has been issued by the court on these motions.  If
Mr. Park prevails on his claims and the payments he seeks are required to be
paid in a lump sum, these payments may have a material adverse effect on the
Company’s liquidity.  It is not possible to predict the outcome of
these claims.  However, the Company’s Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company’s liquidity in the foreseeable future.  The Company has
not recorded an accrual for any potential settlements of this claim as it has no
basis upon which to estimate either the outcome or amount of loss, if
any.
  b. On May
24, 2007, the Company’s Power Conversion subsidiary (“RFI”) was served with a
subpoena to testify before a grand jury of the United States District Court of
New York and to provide items and records from its Bay Shore NY offices in
connection with U.S. Department of Defense contracts.  A search
warrant from the United States District Court, Eastern District of New York was
issued and executed with respect to such offices.  The Company
believes that it is in full compliance with the quality standards that its
customers require and is fully cooperating with investigators to assist them
with their review.  RFI continues to ship products to the U.S.
Government as well as to its commercial customers.
  F-19
 Table Of Contents
 
 c.  On
June 28, 2002, Jeffrey N. Moeller, the former Director of Quality Assurance and
Regulatory Affairs of Del Medical, commenced an action in the Circuit Court of
Cook County, Illinois, against the Company, Del Medical and Walter Schneider,
the former President of Del Medical.  In the most current iteration of
his complaint, the third amended complaint, Mr. Moeller alleged four claims
against the defendants in the action: for (1) retaliatory discharge from
employment with Del Medical, allegedly in response to Mr. Moeller’s complaints
to officers of Del Medical about purported prebilling and his stopping shipment
of a product that allegedly did not meet regulatory standards, (2) defamation,
(3) intentional interference with his employment relationship with Del Medical
and prospective employers, and (4) to hold the Company liable for any misconduct
of Del Medical under a theory of piercing the corporate veil.  In
their answer to the third amended complaint, the defendants denied the
substantive allegations of each of these claims and denied that they have any
liability to Mr. Moeller.  By order dated September 15, 2006, the
Court denied in part and granted in part defendants’ motion requesting summary
judgment dismissing the third amended complaint.  The court granted
the motion only to the extent of dismissing that part of Mr. Moeller’s claim of
interference with his employment relationship with Del Medical and his
relationship with prospective employers.
  In fiscal
2007, the Company recorded an accrual of $100 relating to potential liability in
the settlement of these claims.  The parties appeared for mediation in
January 2007 but the mediation did not result in a disposition of the action. A
trial was held in April 2008 and on April 17, 2008, the jury returned a verdict
in favor of Mr. Moeller for $1,800 million for lost earnings, back pay, front
pay and benefits on the retaliatory discharge claim, and $200 for emotional
distress/reputation damages and $200 in punitive damages on the defamation
claim.  On May 19, 2008, counsel for the defendants filed their motion
for judgment in their favor notwithstanding the jury verdict, or, alternatively,
for a new trial, on those claims on which the jury found the respective
defendants liable.  By order dated August 15, 2008, the Court denied
that motion.
  On August
25, 2008, the Company and the other defendants filed their notice of appeal by
which they appeal to the Appellate Court of Illinois, First District, among
other things, the judgment entered against the Company and the other defendants
on the jury verdict. On September 12, 2008, the Company and the other defendants
filed an amended notice of appeal. The Company intends to pursue the appeal
vigorously, seeking thereby reversal of the judgment and to have a judgment
entered in favor of the Company and the other defendants or to have a new
trial.  In lieu of a bond, the Company filed an irrevocable standby
letter of credit in the amount of $2,600 by which Mr. Moeller can collect the
amount of the judgment entered by the trial court in the event the appellate
court affirms that judgment.
  d.
On April 28, 2008, Apergis, the former General Manager of RFI, filed a charge
with the EEOC alleging that RFI discriminated against him by terminating his
employment with RFI on December 18, 2007.  Apergis alleged three
claims against RFI: (1) violation of Title VII of the Civil Rights Act; (2)
violation of the Age Discrimination in Employment Act and (3)
retaliation.  RFI responded to the EEOC charge with a position
statement filed with the EEOC on June 26, 2008 denying each allegation of the
charge.  As of September 16, 2008, RFI is waiting to hear for a
response to their position statement from the EEOC.  RFI intends to
defend vigorously against Apergis.
  
 e.  In
December 2007, the Company was added to an action brought against several other
defendants in which the plaintiff alleges that she is the wife of a chiropractor
who died in June 2005. Plaintiff alleges that her husband was exposed to
chemical products in developing x-ray films and cleaning film processing
machines and worked with the x-ray film processing machines and x-ray machines,
and that the defendants manufactured, supplied or serviced the chemical products
and machines.  The complaint further alleges that the decedent was
exposed to toxic chemicals and radiation from the chemical products used on or
in the machines, which caused “serious injuries to his internal organs,
including acute myelogenous leukemia”, resulting in his death.
  The
complaint alleges the following six claims against the defendants: (1)
negligence in manufacturing. and distributing the chemical products and
machines, and servicing the machines, and failing adequately to warn decedent of
the hazards of the chemical products and machines, (2) violation of a California
statute and regulation by failing to determine whether the chemical products
caused health hazards and failing to label or identify in material safety data
sheets a health hazard relating to acute myelogenous leukemia, (3) strict
products liability for failing to warn adequately of the chemical products’ and
machines’ health hazards, (4) strict products liability for defects in the
design of the chemical products and machines, (5) fraudulent concealment of the
toxic and carcinogenic nature of the chemical products and the machines, and (6)
breach of implied warranties as to the fitness of the chemical products and
machines for intended uses, merchantability, and lack of defects.
  F-20
 Table Of Contents
  While the
complaint does not allege a total amount of damages sought, plaintiff alleges
that she has suffered damages consisting of medical, funeral, and burial
expenses, the decedent’s lost earnings prior to and lost wages after his death,
lost benefits after his death, the value of his services in managing his
family’s home, and loss of companionship and similar losses. The plaintiff also
requests punitive damages.  The Company has not recorded an accrual
for any potential settlement of this claim as it has no basis upon which to
estimate either the outcome or amount of loss, if any.  In its answer
to the complaint, the Company denied the substantive allegations of the
complaint and denied that it has any liability to plaintiff.  The
Company intends to defend vigorously against plaintiff’s claims.
 
 f.  In
addition, the Company is a defendant in several other legal actions in various
U.S. and foreign jurisdictions arising from 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
 
 
 LEASE
COMMITMENTS - The Company leases facilities for its manufacturing operations
with expiration dates ranging from 2007 through 2012.  In addition,
the Company has various office equipment and auto leases accounted for as
operating leases. The future minimum annual lease commitments as of August 2,
2008 are as follows:
 
 FISCAL YEARS
                          AMOUNT
 2009
                  $6052010
                  2442011
                  1202012-2014
                  93Total
                  $1,062
 
 Rent
expense for fiscal years 2008, 2007 and 2006 was $416, $396 and $300,
respectively.
 
 
 14.
              SUPPLEMENTAL
      QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
 
 YEAR
ENDED AUGUST 2, 2008:
 QUARTERFIRST
                    
                    
                    SECOND
                    
                    
                    THIRD
                    
                    
                    FOURTHNet
      sales
                    
                    $
                    26,716
                    
                    
                    $
                    29,894
                    
                    
                    $
                    24,450
                    
                    
                    $
                    27,246Gross
      margin
                    
                    $
                    6,431
                    
                    
                    $
                    7,490
                    
                    
                    $
                    5,715
                    
                    
                    $
                    7,151Net
      income (loss)
                    
                    $
                    1,107
                    
                    
                    $
                    1,427
                    
                    
                    $
                    (1,638
                    )
                    
                    $
                    2,081Net
      income (loss) per basic share
                    
                    $
                    0.05
                    
                    
                    $
                    0.06
                    
                    
                    $
                    (0.07
                    )
                    
                    $
                    0.08Net
      income (loss) per diluted share
                    
                    $
                    0.04
                    
                    
                    $
                    0.06
                    
                    
                    $
                    (0.07
                    )
                    
                    $
                    0.09
 
 YEAR
ENDED JULY 28, 2007:
 QUARTERFIRST
                    
                    
                    SECOND
                    
                    
                    THIRD
                    
                    
                    FOURTHNet
      sales
                    
                    $
                    19,286
                    
                    
                    $
                    26,771
                    
                    
                    $
                    27,122
                    
                    
                    $
                    30,988Gross
      margin
                    
                    $
                    4,011
                    
                    
                    $
                    6,749
                    
                    
                    $
                    6,025
                    
                    
                    $
                    8,232Income
      (loss) from continuing operations
                    
                    $
                    (487
                    )
                    
                    $
                    1,082
                    
                    
                    $
                    1,056
                    
                    
                    $
                    2,165Net
      income (loss)
                    
                    $
                    (487
                    )
                    
                    $
                    1,082
                    
                    
                    $
                    1,056
                    
                    
                    $
                    2,165Net
      income (loss) per basic share
                    
                    $
                    (0.04
                    )
                    
                    $
                    0.09
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.09Net
      income (loss) per diluted share
                    
                    $
                    (0.04
                    )
                    
                    $
                    0.09
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.09
 
 F-21