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


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





For the fiscal year ended July 31, 2010.





OR


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





For the transition period from ________________ to ________________




Commission file number 0-03319








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)





100 PINE AIRE DRIVE, BAY SHORE, NY
11706(Address of Principal Executive Offices)
(Zip Code)





Registrant’s telephone number, including area code (631) 231-6400





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 £  No T




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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes £ 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. £





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 o
Accelerated filer oNon-accelerated filer o (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 £ No T





The aggregate market value of the registrant’s Common Stock held by non-affiliates of the Registrant as of January 30, 2010 was $9,844,191.  Solely for the purposes of this calculation, shares held by directors and executive officers and by each person known by the Registrant to beneficially own 10% or more of the common stock 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 September 27, 2010 there were 22,718,306 shares of the registrant’s common stock outstanding.











PART IITEM 1
BUSINESS
2ITEM 1A
RISK FACTORS
12ITEM 1B
UNRESOLVED STAFF COMMENTS
17ITEM 2
PROPERTIES
17ITEM 3
LEGAL PROCEEDINGS
18ITEM 4
[Removed and Reserved]
18PART IIITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
19ITEM 6
SELECTED FINANCIAL DATA
20ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS
21ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
28ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
29ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE
29ITEM 9A
CONTROLS AND PROCEDURES
29ITEM 9B
OTHER INFORMATION
30PART IIIITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
31ITEM 11
EXECUTIVE COMPENSATION
34ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS
43ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE
45ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
46PART IV
F-iITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
F-iSIGNATURES
F-xi


PART I




ITEM 1BUSINESS




Del Global Technologies Corp., a New York corporation, was incorporated in 1954.  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 Bay Shore, New York.  The mailing address of our headquarters is 100 Pine Aire Drive, Bay Shore, New York 11706 and our telephone number is 631-231-6400.  Our website is www.delglobal.com.  Through the Investor Relations section of our website, we make our filings with the 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.  To reach the SEC filings, follow the link to Investor Relations, and then Financial Reports.




On November 24, 2009, we sold our Del Medical U.S. business unit.  This business was part of the Company’s Medical Systems Group, however, this decision does not include or impact the operations of our Villa subsidiary which will make up the whole of the Medical Systems Group going forward.  The sale of Del High Voltage Division (“DHV”), which was part of our Power Conversion Group, was consummated on October 1, 2004.  Accordingly, these businesses are presented as discontinued operation in all fiscal years presented and throughout this Annual Report on Form 10-K.




EMPLOYEES




As of July 31, 2010, we had 217 employees.  We believe that our employee relations are good.  None of our approximately 97 U.S. based employees are represented by a labor union.  Employment by functional area as of July 31, 2010, is as follows:




Executive
1Administration and Finance
16Manufacturing
145Engineering
33Sales and Marketing
22Total
217





OPERATING SEGMENTS




The operating businesses that we report as segments consist of the Medical Systems Group and the Power Conversion Group.  For fiscal 2010, the Medical Systems Group segment accounted for approximately 78% of our revenues and the Power Conversion Group segment accounted for approximately 22% of our revenues.  Our consolidated financial statements include a non-operating segment which covers unallocated corporate costs.  For the fiscal year ended July 31, 2010, one of our customers accounted for 10% or more of consolidated revenues.  None of our business segments are dependent upon a single customer or a few customers.  For further information concerning our operating segments, see Note 9 of the Notes to Consolidated Financial Statements included elsewhere in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.  Our operating segments and businesses are summarized in the following table:




DIVISION

BRANDS

SUBSIDIARIES

FACILITIESMEDICAL SYSTEMS GROUP:

Villa

Villa Sistemi Medicali S.p.A. (“Villa”)

Milan, ItalyPOWER CONVERSION GROUP:

Electronic Systems & Components

RFI, Filtron,

Sprague, Stanley

RFI Corporation (“RFI”)

Bay Shore, NY






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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.  All of this segment’s revenues are  attributed to Villa in all years presented.




On November 12, 2009, we sold our DynaRad product line and on November 24, 2009 we sold the remainder of our Del Medical U.S. business unit including our Del Medical and UNIVERSAL product lines. These dispositions have been accounted for as discontinued operations.




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 SERVEDHospitals
Dental OfficesTeaching Institutions
GovernmentMedical Clinics
Orthopedic FacilitiesPrivate Practitioners
Imaging Centers





Our medical imaging systems are sold under the Villa brand name.  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.




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.




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 Apollo product line is designed to meet the broad requirements of a hospital or teaching university’s radiographic room, while our mid-range systems are suited more to the needs of medium sized hospitals, outpatient clinics and private practitioners.






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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.




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 is based on the more modern “remote control” technology and allows 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 our most flexible x-ray imaging unit as it allows skeletal, gastrointestinal, vascular, urological and gynaecological studies in the same room.




Remote controlled systems like the Apollo R/F system 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.




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 has already released the Apollo DRF version.  Implementing this new technology will help improve the productivity of the radiographic room by providing a fully digital environment for both radiographic and fluoroscopic applications.  This product represents the most advanced and sophisticated system produced by the Medical Systems Group.




PORTABLE AND MOBILE MEDICAL X-RAY SYSTEMS –Mobile units are  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 using both analog and digital image capture technology.  The most recent addition to the dental product line is the new Rotograph Evo panoramic, which inherits the “Rotograph” name that has been a landmark in the panoramic imaging for decades and brings important advances such as the possibility to use one mobile detector to perform both panoramic and cephalometric studies, with a substantial saving in the investment for the user.




The digital versions of the panoramic units can easily be connected to a personal computer for immediate image reviewing, post-examination processing and cost effective printing and archival.  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 three years.  The dental products are sold both with our own brand (Villa), as well as private labeled units to selected OEM customers.




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




SURGICAL C-ARMS – We sell a mobile C-arm unit called “Arcovis 3000” under the Villa brand.  The product is manufactured by a European company that also sells similar products to other customers.






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MARKETING AND DISTRIBUTION




Our medical imaging systems are sold in the U.S. and internationally, principally by a network of worldwide distributors.  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 manufacturer  medical and dental products for certain OEM customers under their name.




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.  We have recently established the position of “Application Specialists” to maximize customer satisfaction and provide value-added services to our customers buying digital radiographic and fluoroscopic systems.  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 Congress of Radiology (ECR) Conference in Vienna, Austria, and the International Dental Show (IDS) in Cologne, Germany and other venues worldwide.  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 few 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.




COMPETITION




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.  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.






5





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 share.  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.




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 applications 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 companythat provides  digital solutions for dental panoramic units. Villa is offering a full line of digital panoramic units.




Spending for research and development for our Medical Systems Group was approximately $2.0 million for fiscal year 2010, $2.0 million for fiscal year 2009 and $2.5 million for fiscal year 2008.






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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 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.






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PERVASIVE AND CONTINUING FDA REGULATION




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




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




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




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




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




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




OTHER FEDERAL AND STATE REGULATIONS




As a participant in the health care industry, we are subject to extensive and frequently changing regulation under many other laws administered by governmental entities.




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 our medical systems manufacturing facility.  In many European Communities 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 ourmanufacturing location, 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 in 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.






8




DISCONTINUED OPERATIONS




On November 24, 2009, the Company sold the Del Medical Imaging U.S. business.  It is reflected as a discontinued operation in the financial statements of the Company and prior periods have been restated.  See Notes to Consolidated Financial Statements included elsewhere in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.




The results of this business disposition are reported as a loss from discontinued operations in our financial statements in accordance with Accounting Standards Codification (“ASC”) 360 “Property, Plant and Equipment”.




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.






9




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 SERVEDAEROSPACE, DEFENSE & HOMELAND SECURITY
INDUSTRIAL/COMMERCIALGuidance & Weapons Systems
Induction HeatingCommunications
MeteorologicalRadar Systems
Power SystemsMilitary Shelters
SatellitePower Systems
Shielded Rooms/EnclosuresAerospace Electronics
Power SystemsAircraft Lighting SystemsTelecommunication ElectronicsTELECOMMUNICATIONS
MEDICALTelecom Equipment for Voice & Data Transmission
Radiation OncologyTelephone Switching Systems
Magnetic Resonance Imaging (“MRI”)CT ImagingX-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.




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




MARKETING, SALES AND DISTRIBUTION




We market our Power Conversion Group products through in-house sales personnel, independent sales representatives in the 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.






10





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.




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.






11




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, New York 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.




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 July 31, 2010 was $11.9 million versus backlog at August 1, 2009 of approximately $10.6 million.  The backlog in the Power Conversion Group of $4.2 million decreased $0.3 million from levels at the beginning of the fiscal year while there was a $1.6 million increase in the fiscal year end backlog of our Medical Systems segment from August 1, 2009 reflecting higher bookings 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, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.




Item 1A                   RISK FACTORS




Prospective investors should carefully consider the following risk factors, together with the other information contained in this Annual Report on Form 10-K, in evaluating the Company and its business before purchasing our securities.  In particular, prospective investors should note that this Annual Report on Form 10-K 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.




Recent and future economic conditions, including turmoil in the financial and credit markets, may adversely affect our business.




Recent economic conditions may adversely affect our business, including as a result of the potential impact on the medical imaging and power conversion system industries, our customers, our financing and other contractual arrangements. In addition, conditions may remain depressed in the future or may be subject to further deterioration.  Recent or future developments in the U.S. and global economies may lead to a reduction in spending on the products we provide, which could have an adverse impact on sales of our products.






12




Although on September 1, 2010, we completed a mortgage financing on our property in Bay Shore, New York and received approximately $2.5 million at 4.9% payable over 10 years, the tightening of the credit markets and recent or future turmoil in the financial markets could also make it more difficult for us to refinance our existing Italian credit facility, to enter into agreements for indebtedness or to obtain funding through the issuance of the Company’s securities.  Specifically, the tightening of the credit markets and turmoil in the financial markets could make it more difficult or impossible for us to obtain financing.




Worsening economic conditions could also result in difficulties for financial institutions (including bank failures) and other parties that we may do business with, which could potentially, impair our ability to access financing under our Italian credit facility or to otherwise recover amounts as they become due under our other contractual arrangements.




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.




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 because we had not filed an Annual Report for the year ended July 29, 2000 within the SEC’s prescribed time period.  Current pricing information on our common stock has been available on the Over the Counter Bulletin Board (the “OTCBB”).  The OTCBB is an over-the-counter market which generally provides significantly less liquidity than established stock exchanges and quotes for stocks included in the OTCBB are not listed in the financial sections of newspapers.  Therefore, prices for securities traded solely in the OTCBB 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.






13




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, New York 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.




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.




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 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 business 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 operation; however there is a limited risk that delays caused by a potential response to extensive corrective actions could impact our operations.  Virtually all of our products manufactured or sold overseas are also subject to approval and regulation by foreign regulatory and safety agencies.  If we do not obtain these approvals, we could be precluded from selling our products or required to make modifications to our products which could delay bringing our products to market.




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.






14




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.




International sales, including products manufactured at our facility in Milan, Italy, comprised 78% and 73% of consolidated revenues for fiscal years 2010 and 2009, 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.




We may not be able to obtain additional financing.




The Company does not currently have a U.S. credit facility to finance working capital needs.  Management believes that if financing is needed, they would be able to obtain new asset based financing on the Company’s U.S. subsidiary. In addition, the Company may be able to dividend necessary funds from its foreign subsidiary, although this is not planned.Although on September 1, 2010 the Company completed a mortgage financing on our property in Bay Shore, New York, and received approximately $2.5 million payable over 10 years at an annual rate of interest of 4.9%, the Company can make no assurances that it will be able to obtain additional financing in the future on terms favorable to the Company or at all.




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.




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 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.






15




We face risks associated with handling hazardous materials and products.




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




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




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




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




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




Our revenue is typically lower during the first quarter of each fiscal year due to the shut-down of operations in our Milan, Italy and 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 July 31, 2010, an aggregate of 22,718,306 shares of our common stock were outstanding.  In addition, as of July 31, 2010 there were outstanding options to purchase 2,563,190 shares of our common stock, 2,124,561 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 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:






16




●
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.




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 to 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 and the Board of Directors have also recommended to shareholders for approval at aspecial meeting of shareholders to be held on October 13, 2010, a proposal to increase the aggregate number of shares of common stock authorized to be issued by the Company from 50,000,000 to 100,000,000 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 (including a currently contemplated rights offering following the proposed increase in authorized shares up to 100,000,000 shares, which the Company proposes to offer up to 24,999,224 shares of common stock), financings, acquisitions, establishing strategic relationships with corporate partners, providing equity incentives to employees, officers or directors, stock splits or similar transactions.  Recently, our Board of Directors recommended to shareholders a proposed reverse stock split and forward stock split.  If the shareholders approve the reverse stock split and forward stock split and the Board of Directors decides to implement them, the number of authorized shares of our common stock will not change by virtue of the reverse stock split and forward stock split and the Company will have additional shares of common stock which may be issued.  Issuances of any additional shares for these or other reasons could prove dilutive to current shareholders or deter changes in control of the Company, including transactions where the shareholders could otherwise receive a premium for their shares over then current market prices.




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:Villa Sistemi Medicali

Milan, Italy

67,000

Design and manufacturing

Leased (2011)(1)POWER CONVERSION

GROUP: RFI

Bay Shore, NY

55,000

Corporate Headquarters,

Design and manufacturing

Owned(2)





(1)
Villa has the option to purchase this property at the conclusion of this lease.  The Company intends to exercise this option in March 2011.




(2)
On September 1, 2010, RFI entered into a mortgage on this property in favor of People’s Bank in the amount of $2.5 million payable over 10 years at an annual rate of interest of 4.9%.






17





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.




ITEM 3                  LEGAL PROCEEDINGS




RFI -- On May 24, 2007, the Company’s Power Conversion subsidiary, RFI Corporation (“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.




OTHER -- From time to time, the Company may be a defendant in legal actions in various U.S. and foreign jurisdictions arising from the normal course of business.




ITEM 4                  [Removed and Reserved]






18




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”.  Prior to that, they had been traded on the “pink sheets,” under the symbol “DGTC.PK”.  The OTC is an over-the-counter market which provides significantly less liquidity than established stock exchanges, and quotes for stocks included in the OTC are not listed in the financial sections of newspapers as are those for established stock exchanges.  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.




As of September 27, 2010, there were approximately 729 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 2010First Quarter

$
0.70


$
0.35Second Quarter


0.75



0.37Third Quarter


1.20



0.55Fourth Quarter


1.19



0.72FISCAL 2009First Quarter

$
1.55


$
0.80Second Quarter


1.04



0.45Third Quarter


0.85



0.28Fourth Quarter


0.80



0.20





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




Information concerning securities authorized for issuance under our equity compensation plans appears in Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters under the caption “Equity Compensation Plan Information,” which is incorporated herein by reference.






19




ITEM 6                  SELECTED FINANCIAL DATA




The selected income statement data presented for the fiscal years ended July 31, 2010, August 1, 2009 and August 2, 2008 and the balance sheet data as of July 31, 2010 and August 1, 2009 have been derived from our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K.  The income statement data for the years ended July 28, 2007 and July 29, 2006, and the balance sheet data as of August 2, 2008, July 28, 2007 and July 29, 2006 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.




FISCAL YEARS ENDED(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

JULY 31, 2010

AUGUST 1, 2009

AUGUST 2, 2008

JULY 28, 2007

JULY 29, 2006INCOME STATEMENT DATA:Net sales

$
56,168


$
52,885


$
80,719


$
76,834


$
60,410Gross margin


14,050



13,646



22,428



20,906



15,707Selling, general and administrative


8,577



8,078



10,248



9,527



9,467Research and development


2,054



1,992



2,488



2,013



1,562Litigation settlement costs


-



2,536



60



-



697Operating income


3,419



1,040



9,632



9,366



3,981Non-controlling interest


-



-



-



-



108Provision for income taxes


1,100



995



3,177



3,400



1,743Income from continuing operation


2,345



16



6,327



4,923



790Discontinued operation, net of taxes


(3,157
)


(4,144
)


(3,350
)


(1,107
)


(696
)Net income (loss)


(812
)


(4,128
)


2,977



3,816



94Net income (loss) per share – BasicContinuing operations

$
0.10


$
(0.00
)

$
0.26


$
0.31


$
0.07Discontinued operation


(0.14
)


(0.18
)


(0.14
)


(0.07
)


(0.06
)Net income (loss) per basic share

$
(0.04
)

$
(0.18
)

$
0.12


$
0.24


$
0.01Net income (loss) per share – DilutedContinuing operations

$
0.10


$
(0.00
)

$
0.26


$
0.30


$
0.07Discontinued operation


(0.14
)


(0.18
)


(0.14
)


(0.07
)


(0.06
)Net income (loss) per diluted share

$
(0.04
)

$
(0.18
)

$
0.12


$
0.23


$
0.01Weighted average shares outstanding – Basic


22,718



23,286



24,196



16,155



11,244Weighted average shares outstanding – Diluted


22,718



23,286



24,646



16,455



12,076BALANCE SHEET DATA:Working capital

$
17,411


$
22,061


$
31,204


$
24,978


$
6,935Total assets


39,029



55,262



66,353



66,339



49,153Long-term debt and subordinated note


95



2,385



4,504



5,393



5,133Shareholders’ equity


25,777



28,628



36,163



30,196



12,814







20




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




FORWARD LOOKING STATEMENTS




In addition to other information in this Registration Statement, 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.




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 on Form 10-K for discussions of the Company’s segments.




On November 24, 2009, we sold  Del Medical Imaging, a U.S. based business.  It is reflected as a discontinued operation in the financial statements of the Company and prior periods have been restated.  See Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.




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 on Form 10-K.  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’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.  These repairs are billed to the customers at market rates.The Company periodically evaluates the collectibility of their accounts receivable and provides an allowance for doubtful accounts when collection is not certain.







21




DEFERRED INCOME TAXES




The Company accounts for deferred income taxes in accordance with ASC 740 “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.




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 2010, 2009 and 2008, the Company’s foreign tax reporting entity was profitable and its U.S. tax reporting entities incurred a taxable loss.  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 July 31, 2010, 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 $0.4 million at July 31, 2010 will be realized.




The Company’s foreign subsidiary operates in Italy.  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 an income tax rate reduction in Italy.




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 operating results, expectations of future results and available cash and credit in the U.S., the Company determined it no longer intends to repatriate monies and reversed this tax obligation during fiscal 2008.  This reversal resulted in an adjustment to available net operating loss carryforwards and the related valuation allowance.  In addition, there was a reduction in tax expense for fiscal 2008 resulting from the reversal of accrued Italian withholding taxes on undistributed earnings.




EXCESS AND OBSOLETE 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 July 31, 2010, finished goods represented 22.8% of the gross carrying value of our total gross inventory.  We believe the estimation methodologies used are appropriate and are consistently applied.






22




GOODWILL




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




Due primarily to continued operating results below planned levels and management’s resulting revaluation of its strategic plan for the Company’s domestic Medical Systems Group’s reporting unit, the Company completed a special assessment of 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 ASC 350, ”Intangibles – Goodwill and Others,” 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.  The Medical Systems Group’s domestic reporting unit was disposed of during fiscal 2010, therefore this write down is reflected in discontinued operations.




The Company’s fiscal 2010 impairment assessment on its international Medical Systems Group reporting unit did not suggest impairment.  However, future operating results and earnings could fluctuate, requiring the Company to reevaluate the carrying value of its goodwill.




At July 31, 2010, the Company’s market capitalization was below tangible book value.  While the market capitalization decline was considered in the Company’s evaluation of fair value, the market metric is only one indicator of fair value.  In the Company’s opinion, the market capitalization approach, by itself, is not a reliable indicator of the value for the Company because of limited trading volume and market volatility due to general economic factors. The Company’s goodwill relates solely to its international Medical Systems Group reporting unit. The fair value of the Company as determined by its market cap does not impact the fair value of the international Medical Systems Group reporting unit, which was above its net book value as of June 30, 2010.




The Company will continue to monitor market conditions and determine if any additional interim review of goodwill is warranted.  Further deterioration in the market or actual results as compared with our projections may ultimately result in future impairment.  In the event that the Company determines goodwill is impaired in the future, it would need to recognize a non-cash impairment charge, which could have a material adverse effect on its consolidated balance sheet and results of operations.






23




CONSOLIDATED RESULTS OF OPERATIONS




FISCAL 2010 COMPARED TO FISCAL 2009




The following table summarizes key indicators of consolidated results of operations:




Year Ended(Dollars in thousands, except per share data)

July 31, 2010

August 1, 2009Sales:Medical Systems Group

$
43,695


$
40,933Power Conversion Group


12,473



11,952Sales

$
56,168


$
52,885Gross margin as a percentage of sales


25.0
%


25.8
%Total operating expenses

$
10,631


$
12,606Income from continuing operations

$
2,345


$
16Diluted income per share from continuing operations

$
0.10


$
0.00





Consolidated net sales of $56.2 million for fiscal 2010 reflect a 6% increase from fiscal 2009 net sales of $52.9 million.  Sales at the Medical Systems Group for fiscal 2010 of $43.7 million reflect an increase of $2.8 million or 6.8 % from the prior year, due to a modest increase in demand.  The Power Conversion Group’s sales for fiscal 2010 of $12.5 million were approximately $0.5 million higher than prior year’s sales.




Backlog of $7.7 million at the Medical Systems Group was $1.6 million higher than it was at August 1, 2009, while backlog at the Power Conversion Group decreased $0.3 million to $4.2 million from levels at the beginning of the fiscal year.  Substantially all of the backlog should result in shipments within the next 12 to 15 months.




Consolidated gross margin decreased to 25.0% of sales for fiscal 2010 from 25.8% of sales in fiscal 2009.  Gross margin at the Medical Systems Group during fiscal 2010 increased to 22.2% from 22.0% in the prior year and the gross margin at the Power Conversion Group decreased to 35.0% from 39.0% in fiscal 2009 reflecting changes in the product mix for the period.




Total operating expenses decreased $2.0 million to $10.6 million in fiscal 2010 from $12.6 million for the prior year as a result of the $2.5 million litigation settlement expense recorded in fiscal 2009 partially offset by increased operating expenses.




The following table summarizes the key changes in operating expenses for fiscal 2010 from the prior year:




Year EndedJuly 31, 2010(in thousands)Research and development

$
62Selling, general and administrative


499Litigation settlement costs


(2,536
)Change in total operating expenses

$
(1,975
)




Operating income for fiscal year 2010 was $3.4 million compared to $1.0 million in the comparable prior year period.  Operating income at the Medical Systems Group was $2.6 million compared to operating income of $2.1 million in fiscal 2009.  The Power Conversion Group generated operating income of $1.8 million, compared to operating income of $2.2 million in the prior year.  Both businesses experienced weakness in the first quarter shipments.  Unallocated corporate expenses for fiscal 2010 totaled $1.0 million as compared to $3.2 million in the prior year.  The prior year unallocated corporate expenses included $2.5 million of litigation settlement costs.






24




On a consolidated basis in fiscal 2010, the Company recorded an income tax provision of $1.1 million compared to $1.0 million in fiscal 2009.  The tax provision is 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 fiscal 2010 or 2009 due to uncertainty regarding the realizability of its U.S. net operating loss carry forwards, as explained in Critical Accounting Policies above.




The discontinued operations loss of $3.2 million in fiscal 2010 reflects a $1.6 million loss from operations on sales of $5.4 million, $0.7 million from the write-down of assets to net realizable value and $0.9 million for severance and related expenses.  The discontinued operations in fiscal 2009 had a net loss of $4.1 million on sales of $27.5 million.  The prior year loss includes $1.2 million for litigation settlement.




The Company recorded a net loss of $0.8 million or $0.04 per basic share in fiscal 2010, compared to net loss of $4.1 million or $0.18 per basic share in the prior fiscal year.




FISCAL 2009 COMPARED TO FISCAL 2008




The following table summarizes key indicators of consolidated results of operations:




Year Ended(Dollars in thousands, except per share data)

August 1, 2009

August 2, 2008Sales:Medical System Group

$
40,933


$
67,465Power Conversion Group


11,952



13,254Total

$
52,885


$
80,719Gross margin as a percentage of sales


25.8
%


27.8
%Total operating expenses

$
12,606


$
12,796Income (loss) from continuing operations

$
16


$
6,327Diluted income (loss) per share from continuing operations

$
0.00


$
0.26





Consolidated net sales of $52.9 million for fiscal year 2009 reflect a decrease of $27.8 million, or 34.5%, from fiscal 2008 net sales of $80.7 million, primarily due to decreased sales in our Medical Systems Group.  Sales at the Medical Systems Group for fiscal 2009 of $40.9 million reflect a decrease of $26.5 million, or 39.3 %, from the prior fiscal year, primarily due to decreased international sales volume attributable to the global economic slowdown and reduction in capital expenditures and credit availability for customers and a favorable prior year shipment level on an expired international contract.  The Power Conversion Group’s sales for fiscal 2009 of $12.0 million were approximately $1.3 million less than prior year’s sales, a decrease of 9.8%, due to weaker sales bookings in fiscal year 2009.




Consolidated gross margins as a percent of sales were 25.8% in fiscal 2009, compared to 27.8% in fiscal 2008.  The Medical Systems Group fiscal year 2009 gross margin percentage of 22.0% was lower than the gross margin of 25.8% in fiscal 2008 due primarily to lower sales volumes and plants operating with excess capacity.  The Power Conversion Group’s gross margin for fiscal 2009 was 39.0% versus 38.1% in the prior year attributable to a shift in product mix and decreased overhead expenses.




Operating Expenses:




Operating expenses for fiscal year 2009 increased to 23.8% of net sales from 15.9% in the prior fiscal year.  This increase is primarily due to litigation settlement costs as discussed elsewhere in this document and the effect of decreased sales volume discussed above.  In addition, research and development expenses in fiscal 2009 of $2.0 million were $0.5 million lower than fiscal 2008.






25




The following table summarizes the key increase/(decrease) in operating expenses for fiscal year 2009 from the prior year:




(Dollars in thousands)

August 1, 2009Research and Development

$
(495
)Selling, General and Administrative


(2,171
)Litigation Settlement Cost


2,476Change in total operating expense

$
(190
)





The operating income for fiscal year 2009 was $1.0 million versus operating income of $9.6 million in fiscal 2008.  In fiscal year 2009, the Medical Systems Group had operating income of $2.1 million and the Power Conversion Group achieved an operating profit of $2.2 million.  There were also unallocated corporate costs of $3.2 million, primarily consisting of litigation settlement related charges.




Research and Development expenses for fiscal 2009 were $2.0 million or 3.8% of sales compared to $2.5 million or 3.1% of sales in fiscal 2008 due primarily to reduced international product development efforts in fiscal 2009.




Selling, General and Administrative expenses (“SG&A”) for fiscal 2009 were $8.1 million or 15.3% of sales compared to $10.2 million or 12.7% of sales in fiscal 2008.  This decrease reflects the Company’s continued focus on cost reductions in both its foreign and domestic operations.  The increase in the litigation settlement cost of $2.5 million for fiscal 2009 was due to the Company’s settlement of its Park litigation.  The settlement of the Moeller litigation is reported as part of the discontinued operations results.




Interest expense, net, of $0.3 million for fiscal 2009, was unchanged from the previous fiscal year.




On a consolidated basis, the Company recorded a fiscal 2009 pretax income from continuing operations of $1.0 million, comprised of foreign pretax income of $2.1 million offset by a U.S. pretax loss of ($1.1) million.  During fiscal 2008, the Company recorded pretax income from continuing operations of $9.5 million which included foreign pretax income of $8.1 million and a U.S. pretax income of $1.3 million.  The related fiscal 2009 and 2008 income tax expense of $1.0 million and $3.2 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 2009 or fiscal 2008 due to uncertainty regarding the realizability of its U.S. net operating loss carry forwards as explained in Critical Accounting Policies above.




The loss from discontinued operations was $4.2 million in fiscal 2009 as compared to a loss of $3.4 million during fiscal 2008.  Fiscal year 2009 discontinued operations includes a litigation settlement of $1.2 million and fiscal 2008 discontinued operations includes an impairment loss of $1.9 million.




The Company recorded a net loss of ($4.1) million, or ($0.18) per basic share and diluted share, in fiscal 2009, as compared to a net income of $3.0 million, or $0.12 per basic share and diluted share, in fiscal 2008.




Consolidated backlog at August 1, 2009 was $10.6 million versus backlog at August 2, 2008 of approximately $17.7 million.  The backlog in the Power Conversion Group of $4.5 million decreased $0.9 million from levels at the beginning of the fiscal year while there was an $6.2 million decrease in the fiscal year end backlog of our Medical Systems Segment from August 2, 2008 reflecting weaker booking during the twelve month period in international markets due to the global economic slowdown and reduction in capital expenditures and credit availability for customers discussed above.  Substantially all of the backlog should result in shipments within the next 12 to 15 months.




LIQUIDITY AND CAPITAL RESOURCES




The Company’s sources of capital include, but are not limited to, cash flow from operations and short-term credit facilities.  Recently, the capital and credit markets have become increasingly volatile as a result of adverse conditions that have caused the failure and near failure of a number of large financial services companies.  If the capital and credit markets continue to experience volatility and the availability of funds remains limited, it is possible that the Company’s ability to access the capital and credit markets may be limited by these or other factors at a time when the Company would like, or need to do so, which could have an impact on our ability to react to changing economic and business conditions.  Notwithstanding the foregoing, at this time, we believe that available short-term and long-term capital resources are sufficient to fund our working capital requirements, scheduled debt payments, interest payments, capital expenditures and income tax obligations for the next 12 months.  In addition, we may be able to dividend necessary funds from the foreign subsidiary, although this is not currently planned.






26




FISCAL 2010 COMPARED TO FISCAL 2009




Working Capital — At July 31, 2010 and August 1, 2009, our working capital was approximately $17.4 million and $22.1 million, respectively.  The decrease in working capital for fiscal 2010 as compared to fiscal 2009 related primarily to receivable and inventory reductions.  At July 31, 2010 and August 1, 2009, we had approximately $4.0 million and $8.0 million in cash and cash equivalents, respectively.  This decrease is primarily due to repayment of the revolving loan balance in connection with our decision to terminate the Capital One Credit Facility on January 12, 2010.  The Company had approximately $1.6 million of excess borrowing availability under our domestic revolving credit facility at August 1, 2009.  Subsequent to the fiscal year end, on September 1, 2010, the Companycompleted  a mortgage financing on our property in Bay Shore, NY and received approximately $2.5 million at 4.9% payable over ten years.




The Company is proposing to hold a special meeting of shareholders on October 13, 2010, to have shareholders, in part, authorize an increase in the number of shares authorized for issuance by the Company from 50,000,000 shares to 100,000,000.  If shareholders approve this increase, the Company intends to commence a rights offering to raise up to approximately $15.0 million.




In addition, as of July 31, 2010 and August 1, 2009, our Villa subsidiary had an aggregate of approximately $9.1 million and $11.5 million, respectively, of excess borrowing availability under its various short-term credit facilities, respectively.  Terms of the Italian credit facilities do not permit the use of borrowing availability to directly finance operating activities at our U.S. subsidiaries.




The following is a summary of the Company’s cash flows:




Year Ended(Dollars in thousands, except per share data)

July 31, 2010

August 1, 2009Net cash provided by (used in) operating activities

$
6,205


$
(2,867
)Net cash used in investing activities


(848
)


(611
)Net cash (used in) provided by financing activities


(8,966
)


4,370Effect of exchange rate changes on cash


(387
)


(737
)Net (decrease) increase in cash and cash equivalents


(3,996
)


155Cash and cash equivalents at beginning of year


7,983



7,828Cash and cash equivalents at end of period

$
3,987


$
7,983





Cash Flows from Operating Activities — For the year ended July 31, 2010, the Company provided approximately $6.2 million of cash for operations, compared to cash used in operations of $2.9 million in the prior fiscal year.  The increase is largely due to the collection of receivables and sale of inventory from the discontinued operations, as well as a reduction in inventories in the Medical Systems Group.




Cash Flows from Investing Activities – The Company made approximately $0.8 million in facility improvements and capital equipment expenditures for the fiscal year ended July 31, 2010, which was approximately the same as for the comparable prior fiscal year period.




Cash Flows from Financing Activities – During the year ended July 31, 2010, the Company repaid $7.4 million of indebtedness on its revolving loan agreement and $1.6 million of long term debt at its Italian subsidiary, offset by approximately $0.1 million in borrowings from its Italian credit facilities.  In the prior year, the Company borrowed $7.5 million for business purposes and repaid a total of $1.6 million of indebtedness on our Italian borrowings.  In addition, the Company repurchased approximately $1.6 million of its common stock outstanding in the second quarter of fiscal 2009.






27




The following table summarizes our contractual obligations, including debt and operating leases at July 31, 2010 (in thousands):




OBLIGATIONS

TOTAL

WITHIN 1

YEAR

2-3 YEARS

4-5 YEARS

AFTER 5

YEARSLong-term debt obligations

$
796


$
701


$
95


$
-


$
-Capital lease obligations


1,329



1,329



-



-



-Interest


8



8



-



-



-Operating lease obligations


585



272



294



19



-Total contractual cash obligations

$
2,718


$
2,310


$
389


$
19


$
-




In addition, the Company is contingently liable for the operating lease for the facility related to the discontinued operation.  The payments are $11 thousand per month through May 31, 2013.




FISCAL 2009 COMPARED TO FISCAL 2008




Cash Flows From Operating Activities – For the year ended August 1, 2009, the Company used $2.9 million of cash for continuing operations, compared to generating $1.7 million in the prior fiscal year.  The decrease is largely due to the operating loss and a reduction in payables due to aggressive payables management in fiscal year 2009, offset by a decrease in trade receivables due to lower sales, as trade receivables produced positive cash flow in 2009 compared to 2008.




Cash Flows from Investing Activities – The Company made approximately $0.6 million in facility improvements and capital equipment expenditures for the fiscal year ended August 1, 2009, which was $0.6 million less than the facility improvements and capital equipment expenditures for the comparable prior fiscal year period.




Cash Flows from Financing Activities – During the year ended August 1, 2009, the Company borrowed $7.4 million for use in the business.  The Company repaid a total of $1.6 million of indebtedness on our Italian borrowings, as compared to $1.2 million in the comparable prior fiscal year period.  In addition, the Company repurchased approximately $1.6 million of its common stock outstanding in the second quarter of fiscal 2009.




OFF BALANCE SHEET COMMITMENTS AND ARRANGEMENTS




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




EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS




Accounting standards that have been issued by the FASB or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements.




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, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.  Based on the balances as of July 31, 2010, an increase of 1/2 of 1% in interest rates would increase interest expense by approximately $5,000.  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.






28




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 78% to 84% 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 2010, for example, would have reduced sales by approximately $2.2 million, and would have decreased our consolidated income from continuing operations by approximately $0.1 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               CONTROLS AND PROCEDURES




(a)           EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES




The Company, under the supervision and with the participation of the Company’s management, including John J. Quicke, 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 July 31, 2010, 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.




(b)           REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  Internal control over financial reporting includes policies and procedures for maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for the preparation of our financial statements; providing reasonable assurance that receipts and expenditures of the Company are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.  Because of inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.






29




Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of July 31, 2010.




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 independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.




(c)           CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING




There were no changes in our internal control over financial reporting during the fiscal year ended July 31, 2010 that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.




ITEM 9B               OTHER INFORMATION




None.






30




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 SinceT. Scott Avila

50

Director

2009James R. Henderson

52

Chairman of the Board and Director

2003General Merrill A. McPeak

74

Director

2005James A. Risher

67

Director, Former President and Chief Executive Officer

2005Officer SinceJohn J. Quicke

61

President and Chief Executive Officer, Director

2009 (Director since 2009)Mark A. Zorko

58

Chief Financial Officer and Secretary

2006





The Company believes that the collective skills, experiences and qualifications of its directors provide the Board of Directors with the expertise and experience necessary to advance the interests of the itsshareholders.  While the Governance and Nominating Committee has not established any specific, minimum standards that must be met by each director, it uses a variety of criteria to evaluate directors’ qualifications.  In addition to the individual attributes of each director described below, the Company believes directors must exhibit the highest standards of professional and personal ethics and values. Directors should also possess a broad experience at the policy-making level in business, exhibit commitment to enhancing shareholder value, have no current or potential conflict of interest, devote sufficient time to carry out their duties and have the ability to provide insight and practical wisdom based on past experience.





T. Scott Avila has been a member of the Company’s Board of Directors since March 31, 2009.  He has served as Managing Partner of CRG Partners, Group, a privately held professional services company since July 2007.  Mr. Avila was also the Managing Partner of CRP Partners, Group, a privately held professional services company from July 2003 through July 2007.With more than 20 years of management and consulting experience, Mr. Avila brings to the Board of Directors considerable knowledge of financial and operational matters.




James R. Henderson is the Chairman of the Company’s Board of Directors where he has been a director since November 20, 2003.  Mr. Henderson is a Managing Director and operating partner of Steel Partners LLC, a global management firm, which is the manager ofSteel Partners Holdings, L.P., a global diversified holding company that engages or has interests in a variety of operating businesses through its subsidiary companies.  He has been associated with Steel Partners LLC and its affiliates since August 1999.  He has been the Chairman of the Board of Point Blank Solutions, Inc., a designer and manufacturer of protective body armor, since August 2008, CEO since September 2009 and was Acting CEO from April 2009 to August 2009.  He was an Executive Vice President of SP Acquisition Holdings, Inc., a company formed for the purpose of acquiring one or more businesses or assets (“SP Acquisition”), from February 2007 until October 2009.  Mr. Henderson has been a director (and currently Chairman of the Board) of GenCorp Inc., a manufacturer of aerospace and defense systems, with a real estate segment that includes activities to the entitlement, sale and leasing of its excess real estate assets, since March 2008.  He served as a director of BNS Holding, Inc., a holding company that owned a majority of Collins Industries, Inc., a manufacturer of school buses, ambulances and terminal trucks, between June 2004 and May 2010.  Mr. Henderson also served as a director of SL Industries, Inc., a designer, manufacturer and marketer of power electronics, motion control, power protection and specialized communication equipment (“SL Industries”), from January 2002 to March 2010.  He was a director of Angelica Corporation, a provider of healthcare linen management services, from August 2006 to August 2008.  Mr. Henderson was a director and CEO of the predecessor entity of Steel Partners Holdings L.P. from June 2005 to April 2008, President and COO from November 2003 to April 2008, and was the Vice President of Operations from September 2000 to December 2003.  He was also the CEO of WebBank, a wholly-owned subsidiary of SPH, from November 2004 to May 2005.  He was a director of ECC International Corp., 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 CEO 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.  Mr. Henderson’s extensive experience advising and managing public companies provides the Board of Directors with well-developed leadership skills and ability to promote the best interests of shareholders.






31




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 been a director of Point Blank Solutions since August 2008 and 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 Miller Petroleum, Inc., a public company engaged in oil and gas exploration, production and related property management.  He is also 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.  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.General McPeak brings to the Board of Directors extensive experience in management consulting and a successful military career, including his position as Chief of Staff of the U.S. Air Force and a member of the Joint Chiefs of Staff, during which time he was the senior officer responsible for organization, training and equipage of a combined active duty, National Guard, Reserve and civilian work force of over 850,000 people serving at 1,300 locations in the United States and abroad and advised the Secretary of Defense, the National Security Council and the President of the United States.  In addition, General McPeak currently serves or has served in the past on the Board of Directors of a number of publicly traded companies.




James A. Risher has been a member of the Company’s Board of Directors since April 27, 2005.  On August 31, 2006 Mr. Risher became the President and CEO of the Company.  On August 28, 2009, Mr. Risher resigned from his position as President and Chief Executive Officer of the Company effective August 31, 2009.  Mr. Risher continues to serve as a director 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 2003and was a director of New Century Equity Holdings Corp., a holding company seeking to acquire a new business, from October 2004 to January 2010.As a former President and CEO of the Company and with previous experience in the management of several companies, Mr. Risher provides the Board of Directors with intimate knowledge of the Company and the industries in which it operates.




John J. Quicke was appointed as the Company’s President and Chief Executive Officer on September 1, 2009 and a member of the Company’s Board of Directors on September 17, 2009.  Mr. Quicke has served as a director of WHX Corporation since July 2005 and as a Vice President of WHX Corporation since October 2005.  Mr. Quicke served as the President and Chief Executive Officer of Bairnco Corporation, a subsidiary of WHX Corporation, from April 2007 to December 2008.  He is a Managing Director and operating partner of Steel Partners LLC, A Delaware limited liability company (“Steel Partners”).  Mr. Quicke has been associated with Steel Partners and its affiliates since September 2005.  He has served as a director of Rowan Companies, Inc., a contract drilling company, since January 2009.  He has served as a director of ADPT Corporation since December 2007 and as the Interim President and Chief Executive Officer since January 2010.  He served as a director of Angelica Corporation, a provider of health care linen management services, from August 2006 to July 2008.  Mr. Quicke served as Chairman of the Board of NOVT Corporation from April 2006 to January 2008, and served as President and Chief Executive Officer of NOVT Corporation from April 2006 to November 2006.  Mr. Quicke also served as a director of Layne Christensen Company, a provider of products and services for the water, mineral, construction and energy markets, from October 2006 to June 2007.  He served as a director, President and Chief Operating Officer of Sequa Corporation, a diversified industrial company, from 1993 to March 2004, and as Vice Chairman and Executive Officer of Sequa Corporation from March 2004 to March 2005.  As Vice Chairman and Executive Officer of Sequa Corporation, Mr. Quicke was responsible for the Automotive, Metal Coating, Specialty Chemicals, Industrial Machinery and Other Product operating segments of the company.  From March 2005 to August 2005, Mr. Quicke occasionally served as a consultant to Steel Partners II, L.P. and explored other business opportunities.  Mr. Quicke is a Certified Public Accountant and a member of the AICPA.Mr. Quicke brings to the Board of Directors significant managerial experience and technical expertise, having served in senior management positions and as a director of several public companies, in addition to being a Certified Public Accountant and member of the AICPA.







32




Mark A. Zorko has served as our Chief Financial Officer from August 30, 2006.  From 2000 to 2010, he was 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 is on the Board of Directors of MFRI, Inc, and chairs the audit committee.  Mr. Zorko is on the audit committee for Opportunity Int’l, a microfinance bank, and on the Finance Committee for the Alexian Brothers Health System.  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 T. Scott Avila (chairman) and General Merrill McPeak.  The Board of Directors has determined that Mr. Avila is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.  Although the Company is currently not listed on any exchange,Mr. Avila and Gen. McPeak are considered to be “independent directors” as defined in Rule 5605 of the Marketplace Rules of the NASDAQ Stock Market.




CODE OF BUSINESS CONDUCT AND ETHICS




The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s Principal Executive Officer and Principal Financial and Accounting Officer.  The Company’s Code of Business Conduct and Ethics is posted on the Company’s website, www.delglobal.com.  Any person may obtain a copy of the Code of Business Conduct and Ethics, without charge, by writing to Del Global Technologies Corp., 100 Pine Aire Drive, Bay Shore, NY 11706, Attn: Secretary.




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% shareholders 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 July 31, 2010, there was compliance with all Section 16(a) filing requirements applicable to its officers, directors and 10% shareholders, except as set forth below:






33




Mr. Risher filed a Statement of Changes in Beneficial Ownership of Securities covering one transaction that occurred on January 8, 2010 on January 20, 2010.




Steel Partners Holdings L.P., Steel Partners II, L.P., Steel Partners LLC and Warren G. Lichtenstein jointly filed an amended Statement of Changes in Beneficial Ownership of Securities to include a transaction that occurred on January 5, 2010 on February 25, 2010.




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 July 31, 2010.  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.




THE ROLE OF THE 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 the 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 based on that evaluation makes recommendations to the Board regarding the CEO’s compensation level, or in the case of our current CEO, the terms of the management services agreement with SP Corporate Services, LLC (“SP Corporate Services”), effective as of September 1, 2009 (the “Services Agreement”), pursuant to which SP Corporate Services provides the non-exclusive services of John J. Quicke to serve as the Company’s CEO and President.




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




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




●
participating in informal discussions with the 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.






34




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 2010 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.




1.  MANAGEMENT SERVICES AGREEMENT AND BASE SALARY




Pursuant to the Management Services Agreement, we pay SP Corporate Services $30,000 per month (the “CEO Fee”) for the services of John J. Quicke, our President and CEO.  The CEO Fee may be adjustable annually upon mutual agreement by us and SP Corporate Services or at other times upon the amendment of the services to be provided by John J. Quicke.  Our base salary levels and the CEO Fee 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 and the CEO Fee are reviewed annually by the Committee at the beginning of the year, but are not automatically increased annually.  We do not target base salary or the CEO Fee at any particular percent of total compensation.  The base salary for our CFO and former CEO are 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 2010, the Committee determined that bonuses would be paid out upon the achievement of improvement of revenue and operating income as compared to fiscal year 2010 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 2010 were not achieved and as a result, the CEO and CFO did not receive an annual bonus.






35




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 CEO;  (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 July 31, 2010, 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 the Committee, 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.




For the fiscal year ended July 31, 2010, under the terms of the 2007 Plan, the Company granted (a) John J. Quicke options to purchase 200,000 shares of the Company’s common stock and (b) Mark A. Zorko an option to purchase 30,000 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.






36




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 2010 COMPENSATION DECISION




For fiscal year 2010, the Committee conducted an evaluation of the performance of the CEO and the CFO against pre-established goals.  Based upon these evaluations, decisions were made regarding salary increases and annual bonuses.  As a result, no salary increases were granted for fiscal year 2010.  Incentive targets for fiscal year 2010 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 shareholder 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 2010.




SUMMARY COMPENSATION TABLE




The following table sets forth all compensation awarded to, paid or earned by the following type of executive officers for each of the Company’s last three completed fiscal years: (i) individuals who served as, or acted in the capacity of, the Company’s principal executive officer for the fiscal year ended July 31, 2010; (ii) individuals who served as, or acted in the capacity of, the Company’s principal financial officer for the fiscal year ended July 31, 2010; (iii) the Company’s three most highly compensated executive officers, other than the principal executive officer and principal financial officer, who were serving as executive officers at the end of the fiscal year ended July 31, 2010; 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 year ended July 31, 2010 (of which there were none).  We refer to these individuals collectively as our named executive officers.




SUMMARY COMPENSATION TABLE




Annual CompensationName and Principal Position
Year

Salary

($)(1)

Bonus

($)(1)

Stock

Awards

Option

Awards(3)

All Other
Compensation(2)

TotalJohn J. Quicke, Chief Executive Officer (5)
2010

$
345,000


$
-


$
-


$
77,394


$
-


$
422,394James A. Risher, Chief Executive Officer (4)
2010

$
38,975


$
-


$
-


$
8,583


$
145,418


$
192,9762009

$
318,722


$
-


$
-


$
33,500


$
116,256


$
468,4782008

$
319,743


$
-


$
-


$
95,697


$
125,944


$
541,384Mark A. Zorko, Chief Financial Officer
2010

$
245,000


$



$
-


$
12,875


$
37,513


$
295,3882009

$
250,864


$
-


$
-


$
13,400


$
7,717


$
271,9812008

$
246,571


$
-


$
-


$
38,159


$
8,575


$
293,305





(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 2010, 2009 and 2008:






37




Name

Benefit

2010


2009


2008John J. Quicke (5)James A. Risher (4)

Severance

$
106,666



$
-



$
-Living allowance


24,240




71,165




72,720Tax Gross-Ups


14,512




45,091




53,224$
145,418



$
116,256



$
125,944Mark A. Zorko

Bonus for discontinued operations

$
30,000



$
-



$
-Car Allowance


6,900




6,900




6,900401 (k) Match


613

(2)(c)


817

(2)(c)


1,675

(2)(c)$
37,513



$
7,717



$
8,575





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).




(3)
Reflects the aggregate grant date fair value of option awards granted during a calendar year calculated in accordance with ASC 718. Refer to Note 10 Shareholders' Equity in Item 8 "Stock Option Plan and Warrants" for details in stock option terms, ASC 718 valuation techniques and assumptions and the fair value of stock options granted.




(4)
On August 28, 2009, James A Risher resigned his position as President and Chief Executive Officer of the Company effective August 31, 2009.  Mr. Risher will continue to serve as a director of the Company.  Mr. Risher continued to receive as severance his base salary and living allowance through December 31, 2009, and the Company continued to pay for Mr. Risher’s medical plan through December 31, 2009.




(5)
On August 28, 2009, John J. Quicke was appointed to serve as President and Chief Executive Officer of the Company, effective September 1, 2009.  As discussed above, we pay SP Corporate Services for the services of Mr. Quicke.






38




Fiscal Year Ended July 31, 2010 Grants of Plan-Based Awards:




(a)

(b)

(i)

(j)

(k)

(l)All Other

Stock

Awards:

All Other

Option

Awards:Name

Grant

Date

Number

of Shares

of Stock

or Units

(#)

Number of

Securities

Underlying

Options

(#)

Exercise

or Base

Price of

Option

Awards

($/sh)

Grant Date

Fair Value

of Stock

and Option

Awards

($)John J. Quicke, Chief Executive Officer

08/28/2009

-

100,000(2)

$0.51

$34,47801/08/2010

-

100,000(2)

$0.65

42,916James A. Risher, Former Chief Executive Officer(1)

1/08/2010

-

20,000(2)

0.65

8,583Mark A. Zorko, Chief Financial Officer

1/08/2010

-

30,000(2)

0.65

12,875





(1)
On August 28, 2009, James A. Risher resigned from his position as President and Chief Executive Officer of the Company effective August 31, 2009.




(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




Mr. Risher had an employment agreement, which expired on August 31, 2009.  On August 28, 2009, James A. Risher resigned from his position as President and Chief Executive Officer of the Company effective August 31, 2009.  Mr. Risher will continue to serve as a director of the Company.  In connection with the termination of his employment, Mr. Risher received as severance his base salary and living allowance through December 31, 2009, and the Company paid for Mr. Risher’s medical plan through December 31, 2009.




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 incentive 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 2010, 2009 or 2008, Mr. Zorko did not receive an incentive bonus for either fiscal year.







39




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

Underlying Unexercised

Unearned

Options(#)

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

($)John J. Quicke,

Chief Executive Officer


25,000
(3)


75,000
(3)

-

$
0.51

08/28/1925,000
(3)


75,000
(3)

-

$
0.65

01/08/20James A. Risher,

Chief Executive Officer


25,000
(2)


-
(2)

-


2.70

4/26/1510,000
(2)


-
(2)

-


2.26

6/13/16120,000
(2)


-


-


1.50

8/31/1637,500
(3)


12,500
(3)





2.70

9/17/1725,000
(3)


25,000
(3)





1.00

12/16/185000
(3)


15,000
(3)

-


0.65

1/08/20Mark A. Zorko,

Chief Financial Officer


60,000
(2)


-


-


1.50

8/31/1620,000
(2)


-


-


2.00

11/17/16

-

-

-

-15,000
(3)


5,000
(3)





2.70

9/17/1710,000
(3)


10,000
(3)

-


1.00

12/16/187,500
(3)


22,500
(3)

-


0.65

1/08/20





(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.






40




James A. Risher




Mr. Risher’s employment agreement terminated on August 31, 2009.  On August 28, 2009, James A. Risher resigned from his position as President and Chief Executive Officer of the Company effective August 31, 2009.




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.




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 Compensation 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 Compensation Committee consists of Merrill A. McPeak as Chairman ,and T. Scott Avila.  During the fiscal year ended July 31, 2010, the Compensation Committee consisted of Merrill A. McPeak as Chairman, and T. Scott Avila.  Gerald M. Czarnecki also served as a member of the Compensation Committee until his resignation, effective April 1, 2010..  None of these individuals were at any time during the fiscal year ended July 31, 2010 or at any other time one of our officers or employees.  Other than Mr. Quicke, the Company’s CEO, none of our executive officers serve as a member of the Board or the Compensation Committee of any other entity which has one or more executive officers serving as a member of our Board or Compensation Committee




FISCAL YEAR ENDED JULY 31, 2010 DIRECTOR COMPENSATION:




(a)

(b)

(d)

(g)

(h)Name

Fees Earned or

Paid in Cash(1)

($)

Option

Awards(2)

($)

All Other

Compensation

($)

Total

($)T. Scott Avila(4)


36,500



6,302






42,802Gerald M. Czarnecki*(4)


15,500



28,063
(5)


-



43,563James R.  Henderson (Chairman) (4)


31,000
(3)


17,833



-



48,833General Merrill A. McPeak (4)


38,000



14,005



-



52,005James A. Risher


26,500



32,277



-



58,777





*
Mr. Czarnecki resigned from the Board of Directors, effective April 1, 2010.


(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






41






●
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.




(2)
During fiscal 2010, Mr. Avila received a grant to purchase 25,000 shares of the Company’s common stock at a weighted average exercise price of $0.70 per share and an aggregate fair value of $11,483; Mr. Czarnecki received a grant to purchase 25,000 shares of the Company’s common stock at an exercise price of $0.65 per share and an aggregate fair value of $10,729; Mr. Henderson received grants to purchase 30,000 shares of the Company’s common stock at an exercise price of $0.65 per share and aggregate fair values of $12,875; General McPeak received a grant to purchase 25,000 shares of the Company’s common stock at an exercise price of $0.65 per share and an aggregate fair value of $10,729 and Mr. Risher received a grant to purchase 20,000 shares of the Company’s common stock at an exercise price of $0.65 per share and an aggregate fair value of $8,583.  The dollar amounts in this column reflect the dollar amounts recognized for all options for financial statement reporting purposes with respect to the fiscal year in accordance with ASC 718.  Refer to Footnote 10 Shareholders’ Equity in “Stock Option Plan and Warrants” in the Notes to the Consolidated Financial Statements (audited), included elsewhere in this Annual Report on Form 10-K, for details of stock option plan vesting terms, ASC 718 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 July 31, 2010, Mr. Avila held an aggregate of 50,000 options to purchase the Company’s Common Stock, of which 18,750 were exercisable; Mr. Czarnecki held an aggregate of 100,000 options to purchase the Company’s Common Stock, all of which were exercisable; Mr. Henderson held an aggregate of 166,000 options to purchase the Company’s Common Stock, of which 132,250 were exercisable; Mr. McPeak held an aggregate of 96,000 options to purchase the Company’s Common Stock, of which 68,625 were exercisable; and Mr. Risher held an aggregate of 275,000 options to purchase the Company’s Common Stock, of which 222,500 were exercisable.




(5)
On February 5, 2010, Gerald M. Czarnecki resigned as Director, effective April 1, 2010.  The Board approved the accelerated vesting of his stock options, resulting in recognition of the remaining unrecognized stock option compensation expense.




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 and 2009 were made pursuant to the 2007 Plan.






42




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 10-K, filed pursuant to 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.




Submitted by the Compensation Committee of the Board of Directors




General Merrill A. McPeak, Chairman


T. Scott Avila





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 2010:




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
2,563,190
$2.88
54,875Equity compensation plans

not approved by security

holders


None







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




SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS




The following table sets forth information concerning beneficial ownership of Common Stock of the Company outstanding at September 27, 2010 by each person or entity (including any “Group” as such term is used in Section 13(d) (3) of the Securities Exchange Act of 1934, as amended (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 22,718,306 shares of Common Stock issued and outstanding as of September 27, 2010 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 SEC by such persons or upon information otherwise provided by such persons to the Company.






43




Name and address

of beneficial owner

Amount and nature of

beneficial ownership(1)

Percent of ClassSteel Partners Holdings, L.P.

Warren G.  Lichtenstein

c/o Steel Partners II, L.P.

590 Madison Avenue

32nd Floor

New York, NY 10022

6,812,234 (2)

30.0%





(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. 24 to Schedule 13D filed jointly on June 21, 2010, with the SEC by Mr. Lichtenstein, Steel Partners II, L.P., a Delaware limited partnership (“SP II”), Steel Partners Holdings L.P., a Delaware limited partnership (“SPH”), Steel Partners LLC, a Delaware limited liability company (“Steel Partners”), James R. Henderson and John J. Quicke: (i) as of the close of business on June 18, 2010, SP II owned directly 6,754,942 shares of Common Stock.  By virtue of their relationships with SP II, as described below, each of SPH, Steel Partners and Warren G. Lichtenstein may be deemed to beneficially own the shares owned directly by SP II; and (ii) as of the close of business on June 18, 2010, SPH owned directly 57,292 shares of Common Stock.  By virtue of their relationships with SPH, as described below, each of Steel Partners and Warren G. Lichtenstein may be deemed to beneficially own the shares owned directly by SPH.  SPH is the sole limited partner of SP II.  Steel Partners is the manager of SPII and SPH.  Warren G. Lichtenstein is the manager of Steel Partners.  James R. Henderson is a Managing Director and operating partner of Steel Partners.  Mr. Henderson is also a director of the Company.  John J. Quicke is a Managing Director and operating partner of Steel Partners.  Mr. Quicke is also President and Chief Executive Officer and a director 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 September 27, 2010 by (i) each director; (ii) each Named 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 22,718,306 shares of Common Stock issued and outstanding as of September 27, 2010, 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.




Name and address of beneficial owner

Amount and nature

of beneficial

ownership(1)

Percent of ClassMark A. Zorko


177,500
(2)


*T. Scott Avila


18,750
(2)


*James A. Risher


254,000
(2)


1.11James R. Henderson(3)


132,250
(2)


*Merrill A. McPeak


109,741
(2)


*John J. Quicke(4)


75,000
(2)


*All Directors and Executive Officers as a group (6 persons)


767,241
(2)


3.28
%





* 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, 2010, in the following amounts: Mark A. Zorko — 117,500, T. Scott Avila — 18,750, James A. Risher — 235,000, James R. Henderson — 132,250, Merrill A. McPeak -- 68,625 and John J. Quicke — 75,000.




(3)
Mr. Henderson is a Managing Director and operating partner of Steel Partners and disclaims beneficial ownership of the (i) 6,754,942 shares of Common Stock owned directly by SP II and (ii) 57,292 shares of Common Stock owned directly by SPH.




(4)
Mr. Quicke is a Managing Director and operating partner of Steel Partners and disclaims beneficial ownership of the (i) 6,754,942 shares of Common Stock owned directly by SP II and (ii) 57,292 shares of Common Stock owned directly by SPH.






44





ITEM 13                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE




TRANSACTIONS WITH RELATED PERSONS




On October 15, 2009, the Company entered into the Services Agreement.  Pursuant to the Services Agreement, SP Corporate Services provides the Company with the services of John J. Quicke as the Company’s Chief Executive Officer.  Mr. Quicke had been serving as the Company’s President and Chief Executive Officer since his appointment to such position on August 28, 2009, and is a member of the Company’s Board of Directors.




Pursuant to the Services Agreement, the Company pays SP Corporate Services $30,000 per month as consideration for Mr. Quicke’s services.  Additionally, the Company agreed to reimburse SP Corporate Services and Mr. Quicke for certain expenses, including but not limited to reasonable and necessary business expenses incurred on behalf of the Company.  The Services Agreement will terminate immediately upon the earlier of (i) appropriate written notice given by either party, or (ii) the death of Mr. Quicke.




SP Corporate Services is an affiliate of Steel Partners.  Mr. Quicke is a Managing Director and operating partner of Steel Partners.  James Henderson, Chairman of the Company’s Board of Directors, is a Managing Director and operating partner of Steel Partners.  Steel Partners is the manager of SP II, which reported in a Schedule 13D with respect to its investment in the Company, originally filed with the SEC on September 26, 2002 and subsequently amended, most recently on June 21, 2010, that it owns approximately 30.0% of the Company’s outstanding common stock.




The Services Agreement was unanimously approved by the Company’s disinterested directors and the Audit Committee of the Board of Directors, and SP Corporate Services will be subject to the supervision and control of the Company’s disinterested directors while performing its obligations under the Services Agreement.




REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS




During fiscal 2010, 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 2010, 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.  Other than the transaction described above, 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.






45




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. Henderson, Gen. McPeak and Mr. Avila, and former member of the Board of Directors, Mr. Czarnecki, are “independent” as defined in Rule 5605 of the Listing Rules of the NASDAQ.  Committee membership of the Company’s directors is as follows:




Director

Audit

Committee

Compensation

Committee

Nominating and

Governance

CommitteeJames R. Henderson*

-

-

ChairGeneral Merrill A. McPeak*

X

Chair

XT. Scott Avila*

Chair

X

XJohn J. Quicke

-

-

-James A. Risher

-

-

-Gerald M. Czarnecki*/**

Former Chair**

Former Member**

Former Member**





*
Independent


**
Mr. Czarnecki resigned from the Board of Directors, effective April 1, 2010.







ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES




Audit Fees – The aggregate fees billed by BDO USA, 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 July 31, 2010, and August 1, 2009, 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 $341,366 and $296,753, respectively.




Audit-Related FeesFor the fiscal year ended August 2, 2008, fees billed by BDO USA, 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 1, 2009.




Tax Fees – There were no fees billed by BDO USA, LLP for tax services for the fiscal years ended July 31, 2010 and August 1, 2009.




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 USA, LLP during our most recent fiscal year are compatible with maintaining the independence of such auditors.






46




PART IV




ITEM 15                EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




(a)1.           FINANCIAL STATEMENTS




CONSOLIDATED FINANCIAL STATEMENTS OF DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES




Report of Independent Registered Public Accounting Firm
F-1Consolidated Balance Sheets as of July 31, 2010 and August 1, 2009
F-2Consolidated Statements of Operations for the Fiscal Years Ended July 31, 2010, August 1, 2009 and August 2, 2008
F-3Consolidated Statements of Cash Flows for the Fiscal Years Ended July 31, 2010, August 1, 2009 and August 2, 2008
F-4Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended July 31, 2010, August 1, 2009 and August 2, 2008
F-5Notes to Consolidated Financial Statements for the Fiscal Years Ended July 31, 2010, August 1, 2009 and August 2, 2008
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.
   F-i
  3.7
Certificate of Amendment of the Certificate of Incorporation of Del Electronics Corp. dated February 14, 1996.  Filed as Exhibit 3.6 to Del Global Technologies Corp. Annual Report on Form 10-K for the year ended August 1, 1998 and incorporated herein by reference.3.8
Certificate of Amendment of Certificate of Incorporation of Del Global Technologies Corp. dated February 13, 1997.  Filed as Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended February 1, 1997 and incorporated herein by reference.3.9
Amended and Restated By-Laws of Del Global Technologies Corp. Filed as Exhibit 3.1 to Current Report on Form 8-K dated September 5, 2001 and incorporated herein by reference.3.10
Amendment No. 1 to the Amended and Restated By-Laws of Del Global Technologies Corp. dated July 17, 2003.  Filed as Exhibit 3.01 to Current Report on Form 8-K dated July 30, 2003 and incorporated herein by reference.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.
   ii
  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.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
First Amendment to Rights Agreement dated as of November 26, 2008 by and between Del Global Technologies Corp. and Continental Stock Transfer & Trust Company, as rights agent. Filed as Exhibit 4.1 to Del Global Technologies Corp. Current Report on Form 8-K filed November 26, 2008 and incorporated herein by reference.4.22*
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 BertanHigh 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.
   iii
  10.9
Lease dated January 4, 1993 between Curto Reynolds Oelerich Inc. and Del Medical Imaging Corp. (formerly known 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.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 BancaMediocredito 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.
   iv
  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.
   v
  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.
   vi
  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.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.
   vii
  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.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.
   viii
  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.10.69*
Management Services Agreement, dated as of September 1, 2009, by and between Del Global Technologies Corp. and SP Corporate Services, LLC.  Filed as Exhibit 10.1 to Del Global Technologies Corp. Current Report on Form 8-K filed October 15, 2009 and incorporated herein by reference.10.70
Waiver, Consent and Second Amendment dated as of November 3, 2009, to the Amended and Restated Loan and Security Agreement, dated as of May 25, 2007, among the Del Global Technologies Corp., RFI Corporation, Del Medical Imaging Corp. and Capital One Leveraged Finance Corp. formerly known as North Fork Business Capital Corporation.  Filed as Exhibit 10.1 to Del Global Technologies Corp. Current Report on Form 8-K filed November 6, 2009 and incorporated herein by reference.
   ix
  10.71
Asset Acquisition Agreement dated as of November 24, 2009 by and among Del Global Technologies Corp., Del Medical Imaging Corp., Del Medical, Inc. and U.M.G. Inc.  Filed as Exhibit 10.1 to Del Global Technologies Corp. Current Report on Form 8-K filed December 1, 2009 and incorporated herein by reference.21.1**
List of Subsidiaries23.1**
Consent of BDO USA, LLP.31.1**
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2**
Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1**
Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2**
Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.







__________




*
Represents a management contract or compensatory plan or arrangement.




**
Filed herewith







x




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 4, 2010
By:
/s/ John J. QuickeName:
John J. QuickeTitle:
President and Chief Executive Officer(Principal Executive Officer)October 4, 2010
By:
/s/ Mark A. ZorkoName:
Mark A. ZorkoTitle:
Chief Financial Officer(Principal Financial and Accounting Officer)






/s/ James R. Henderson

Director-Chairman
October 4, 2010James R. Henderson/s/ Merrill A. McPeak

Director
October 4, 2010Merrill A. McPeak/s/ James A. Risher

Director
October 4, 2010James A. Risher/s/ T. Scott Avila

Director
October 4, 2010T. Scott Avila







xi




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of Directors and Stockholders of
 Del Global Technologies Corp.
 Bay Shore, New York
  We have audited the accompanying consolidated balance sheets of Del Global Technologies Corp. and subsidiaries as of July 31, 2010 and August 1, 2009, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended July 31, 2010. 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 July 31, 2010 and August 1, 2009, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
  /s/ BDO USA, LLP
  Chicago, Illinois
 October 4, 2010
  F-1
  DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
 (DOLLARS IN THOUSANDS EXCEPT PAR VALUE)
  JULY 31,

2010

AUGUST 1,

2009ASSETSCURRENT ASSETS:Cash and cash equivalents

$
3,987


$
7,983Trade receivables (net of allowance for doubtful accounts of $1,214 and 1,648 for 2010 and 2009, respectively)


12,925



18,043Inventories (net of allowance for excess and obsolete of $2,536 and $4,496 for 2010 and 2009, respectively)


9,123



16,004Prepaid expenses and other current assets


2,770



1,719Total current assets


28,805



43,749NON-CURRENT ASSETS:Property plant and equipment, net


5,254



6,305Deferred income taxes


415



611Goodwill


4,526



4,526Other assets


29



71Total non-current assets


10,224



11,513TOTAL ASSETS

$
39,029


$
55,262LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:Revolving loan

$
135


$
7,492Current portion of long-term debt


1,973



1,653Accounts payable – trade


5,643



7,304Accrued expenses


3,643



5,239Total current liabilities


11,394



21,688NON-CURRENT LIABILITIES:Long-term debt, less current portion


95



2,385Other long-term liabilities


1,763



2,561Total non-current liabilities


1,858



4,946Total liabilities


13,252



26,634COMMITMENTS AND CONTINGENCIESSHAREHOLDERS’ EQUITY:Common stock -- $.10 par value; authorized – 50,000,000 shares; issued – 24,897,723 shares at July 31, 2010 and  August 1, 2009


2,490



2,490Additional paid-in capital


80,979



80,739Treasury shares – 2,182,323 shares at July 31, 2010 and  August 1, 2009, at cost


(7,176
)


(7,176
)Accumulated other comprehensive income


(214
)


2,065Accumulated deficit


(50,302
)


(49,490
)Total shareholders’ equity


25,777



28,628TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$
39,029


$
55,262
 
 See notes to consolidated financial statements.
  F-2
 DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
  FISCAL YEARS ENDEDJULY 31,

2010

AUGUST 1,

2009

AUGUST 2,

2008NET SALES

$
56,168


$
52,885


$
80,719COST OF SALES


42,118



39,239



58,291GROSS MARGIN


14,050



13,646



22,428Selling, general and administrative


8,577



8,078



10,248Research and development


2,054



1,992



2,488Litigation settlement costs


-



2,536



60Total operating expenses


10,631



12,606



12,796OPERATING INCOME


3,419



1,040



9,632Interest expense (net of interest income of $64, $58 and $141 in 2010, 2009 and 2008, respectively)


(418
)


(294
)


(313
)Other income (expense)


444



265



185INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES


3,445



1,011



9,504Income tax provision


1,100



995



3,177INCOME FROM CONTINUING OPERATIONS


2,345



16



6,327Discontinued operations, net of taxes


(3,157
)


(4,144
)


(3,350
)NET INCOME (LOSS)

$
(812
)

$
(4,128
)

$
2,977NET INCOME (LOSS) PER BASIC SHAREContinuing operations

$
0.10


$
-


$
0.26Discontinued operations


(0.14
)


(0.18
)


(0.14
)Net income (loss)

$
(0.04
)

$
(0.18
)

$
0.12Weighted average shares outstanding


22,718



23,286



24,196NET INCOME (LOSS) PER DILUTED SHAREContinuing operations

$
0.10


$
-


$
0.26Discontinued operations


(0.14
)


(0.18
)


(0.14
)Net income (loss)

$
(0.04
)

$
(0.18
)

$
0.12Weighted average shares outstanding


22,718



23,286



24,646
 
 See notes to consolidated financial statements.
  F-3
 DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (DOLLARS IN THOUSANDS)
  FISCAL YEARS ENDEDJULY 31,

2010

AUGUST 1,

2009

AUGUST 2,

2008CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
(812
)

$
(4,128
)

$
2,977Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


971



1,090



1,076Deferred income tax provision


129



67



384Loss on sale of property plant and equipment


37



26



3Write down of assets of discontinued operations to net realizable value


673Non cash litigation settlement costs


-



-



450Stock based compensation expense


240



341



481Goodwill impairment


-



-



1,911Changes in operating assets and liabilities:Trade receivables


3,582



5,133



(1,832
)Inventories


5,470



1,193



5,667Prepaid expenses and other current assets


(1,372
)


249



(333
)Other assets


38



36



85Accounts payable – trade


(963
)


(4,069
)


(6,563
)Accrued expenses


(1,302
)


(2,329
)


241Payment of accrued litigation settlement costs


-



(60
)


(390
)Income taxes payable


32



-



(2,003
)Other long-term liabilities


(518
)


(416
)


(428
)Net cash provided by (used in) operating activities


6,205



(2,867
)


1,726CASH FLOWS FROM INVESTING ACTIVITIESProperty plant and equipment purchases


(848
)


(611
)


(1,208
)Net cash used in investing activities


(848
)


(611
)


(1,208
)CASH FLOWS FROM FINANCING ACTIVITIESBorrowing under short-term credit facilities


63



7,400



-Repayment under short-term credit facilities


(7,400
)


94



-Repayment of long-term debt


(1,629
)


(1,563
)


(1,184
)Proceeds from warrant exercises


-



-



91Proceeds of stock option exercises


-



-



46Purchase of treasury share


-



(1,561
)


-Net cash provided by (used in) financing activities of continuing operations


(8,966
)


4,370



(1,047
)EFFECT OF EXCHANGE RATE CHANGES ON CASH


(387
)


(737
)


497CASH AND CASH EQUIVALENTS (DECREASE) INCREASE FOR THE YEAR


(3,996
)


155



(32
)CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR


7,983



7,828



7,860CASH AND CASH EQUIVALENTS, END OF THE YEAR

$
3,987


$
7,983


$
7,828SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest

$
482


$
352


$
454Cash paid during the period for income taxes


1,092



1,123



4,817
 
 See notes to consolidated financial statements.
  F-4
 DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 (DOLLARS IN THOUSANDS)
  ACCUMULATEDCOMMON

ADDITIONAL

OTHERSTOCK ISSUED

PAID-IN

COMPREHENSIVE

ACCUMULATED

TREASURY STOCKSHARES

AMOUNT

CAPITAL

INCOME

DEFICIT

SHARES

AMOUNT

TOTALBALANCE, 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
)


36,163Stock compensation


-



-



341



-



-



-



-



341Purchase of treasury shares






















1,527,859



(1,561
)


(1,561
)Comprehensive income:Net loss


-



-



-



-



(4,128
)


-



-



(4,128
)Foreign currency adjustments


-



-



-



(2,187
)


-



-



-



(2,187
)Total comprehensive loss


-



-



-



-



-



-



-



(6,315
)BALANCE, AUGUST 1, 2009


24,897,723



2,490



80,739



2,065



(49,490
)


2,182,323



(7,196
)


28,628Stock compensation


-



-



240



-



-



-



-



240Comprehensive income:Net loss


-



-



-



-



(812
)


-



-



(812
)Foreign currency adjustments


-



-



-



(2,279
)


-



-



-



(2,279
)Total comprehensive loss


-



-



-



-



-



-



-



(3,091
)BALANCE, JULY 31, 2010


24,897,723


$
2,490


$
80,979


$
(214
)

$
(50,302
)


2,182,323


$
(7,176
)

$
25,777
 
 See notes to consolidated financial statements.
  F-5
 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.
  In fiscal year 2010, the Board of the Company decided to exit the Del Medical U.S. business unit.  The business was sold on November 24, 2009.  It is reflected as a discontinued operation in the financial statements of the Company and prior years have been restated (see Note 2).  This business is part of the Company’s Medical Systems Group, however, this decision did not include or impact the operations of our Villa subsidiary which will make up the whole of the Medical Systems Group going forward.
  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.
  We have evaluated subsequent events through the time of filing this Form 10-K with the Securities and Exchange Commission (“SEC”).
  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.
  F-6
 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.
  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.
  At July 31, 2010, the Company’s market capitalization was below tangible book value.  While the market capitalization decline was considered in the Company’s evaluation of fair value, the market metric is only one indicator of fair value.  In the Company’s opinion, the market capitalization approach, by itself, is not a reliable indicator of the value for the Company because of limited trading volume and market volatility due to general economic factors.  The Company’s goodwill relates solely to its international Medical Systems Group reporting unit. The fair value of the Company as determined by its market cap does not impact the fair value of the international Medical Systems Group reporting unit, which was above its net book value as of June 30, 2010.
  The Company will continue to monitor market conditions and determine if any additional interim review of goodwill is warranted.  Further deterioration in the market or actual results as compared with our projections may ultimately result in future impairment.  In the event that the Company determines goodwill is impaired in the future, it would need to recognize a non-cash impairment charge, which could have a material adverse effect on its consolidated balance sheet and results of operations.
  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 estimated fair value of the related asset is determined and the Company records a charge to operations calculated by comparing the asset’s carrying value to the estimated fair value. The Company estimates fair value based on the best information available making whatever estimates, judgments and projections are considered necessary.
  F-7
 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’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.  These repairs are billed to the customers at market rates.  The Company periodically evaluates the collectibility of their accounts receivable and provides an allowance for doubtful accounts when collection is not certain.
  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 July 31, 2010.
  The activity in allowances for doubtful accounts is as follows:
 
 BALANCE

AT

BEGINNING

OF YEAR

CHARGED

TO COSTS

AND

EXPENSE

DEDUCTIONS

(1)

DISCON-

TINUED

OPERATIONS

(2)

BALANCE

AT END OF

YEARYEAR ENDED JULY 31, 2010Allowance for doubtful accounts

$
1,648


$
45


$
130


$
(349
)

$
1,214YEAR ENDED AUGUST 1, 2009Allowance for doubtful accounts

$
1,400


$
147


$
86


$
187


$
1,648YEAR ENDED AUGUST 2, 2008Allowance for doubtful accounts

$
1,569


$
173


$
419


$
77


$
1,400
 
 (1)
Write-off of accounts receivable previously charged to costs and expenses and impact of foreign currency fluctuation.
  (2)
Discontinued operations includes charges to expense of $0, $340 and $77 and write-off of accounts receivable previously charged to costs and expenses of $349, $153 and $0 for fiscal years 2010, 2009 and 2008, respectively.
  STOCK-BASED COMPENSATION – The Company accounts for stock based compensation by applying the provisions of ASC 718 “Compensation – Stock Compensation”.  ASC 718 applies to new awards and to awards that were outstanding as of the beginning of fiscal year 2006.  See Note 10, Shareholders’ Equity.
  F-8
 
 EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
  Accounting standards that have been issued by the Financial Accounting Standards Board or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements.
  2.           DISCONTINUED OPERATIONS
  On November 24, 2009, the Company consummated the sale of certain of the assets and product lines of its Del Medical Imaging Corp. wholly-owned subsidiary (“DMI”), to an affiliate of U.M.G. Inc. (“UMG” or the “Acquirer”).
 
 Pursuant to the agreement, the Acquirer (i) assumed all of the Company’s and DMI’s post-closing obligations in connection with the Company’s lease of its facilities in Roselle, Illinois, (the Company remains secondarily liable on the lease obligations), (ii) accepted all of DMI’s inventory related to the DMI business on a consignment basis, (iii) hired select DMI employees, (iv) indemnified the Company for potential employee severance obligations and (v) assumed certain other liabilities of the business, including outstanding warranty obligations.
 
 The assets and liabilities (excluding intercompany balances) of the discontinued operations that are included in the Company's consolidated assets and liabilities are as follows:
 
 July 31, 2010

August 1, 2009Accounts Receivable

$
188


$
3,027Other Current Assets


-



2,221Total Current Assets


188



5,248Net property, plant and equipment


-



325Other Assets


-



11Total Assets

$
188


$
5,584Accounts Payable

$
-


$
2,050Other current liabilities


63



544Total current liabilities


63



2,594Long term liabilities


-



97Total Liabilities

$
63


$
2,691
 
 The revenue and loss related to discontinued operations was as follows:
 
 Fiscal Years EndedJuly 31, 2010

August 1, 2009

August 2, 2008Revenue

$
5,377


$
27,519


$
27,588Net Loss


(3,157
)


(4,144
)


(3,350
)
  F-9
 
 3.           INVENTORIES
  Inventories consists of the following:
  JULY 31, 2010

AUGUST 1, 2009Raw materials and purchased parts

$
7,952


$
13,294Work-in-process


1,047



1,929Finished goods


2,660



5,27711,659



20,500Less: allowance for excess and obsolete inventories


(2,536
)


(4,496
)Total inventories net

$
9,123


$
16,004
 
 The activity in the allowance for excess and obsolete inventories accounts is as follows:
 
 BALANCE AT BEGINNING

OF YEAR

CHARGED

TO COSTS

AND EXPENSE

DEDUCTIONS

(1)

DISCON-

TINUED

OPERATIONS

(2)

BALANCE

AT END OF

YEARYEAR ENDED JULY 31, 2010Allowance for excess and obsolete inventories

$
4,496


$
469


$
977


$
(1,452
)

$
2,536YEAR ENDED AUGUST 1, 2009Allowance for excess and obsolete inventories

$
4,435


$
741


$
595


$
(85
)

$
4,496YEAR ENDED AUGUST 2, 2008Allowance for excess and obsolete inventories

$
3,869


$
1,077


$
736


$
225


$
4,435
 
 (1)
Write-off of inventories previously charged to costs and expenses and foreign currency fluctuation.
  (2)
Discontinued operations includes charges to expense of $0, $470 and $477 and write-off of inventories previously charged to costs and expenses of $1,452, $555 and $252 for fiscal years 2010, 2009 and 2008, respectively.
  The Company had pledged all of its inventories in the U.S. having a net carrying amount of approximately $4,337 at August 1, 2009, to secure its credit facility with its U.S. lender, Capital One.  Effective January 12, 2010, the Company terminated the Capital One credit facility.
  4.           PROPERTY PLANT AND EQUIPMENT
  Property plant and equipment consist of the following:
  JULY 31, 2010

AUGUST 1, 2009Land

$
694


$
694Buildings


6,195



6,749Machinery and equipment


7,178



7,107Furniture and fixtures


572



652Leasehold improvements


1,585



1,655Transportation equipment


79



92Computers and other equipment


2,100



3,04518,403



19,994Less: accumulated depreciation and amortization


(13,149
)


(13,689
)Property plant and equipment, net

$
5,254


$
6,305
 
 F-10
 The Company terminated its credit facility on January 12, 2010 and has no pledged assets as of July 31, 2010.  Included in the table above are assets held under capital leases, including the Villa building, in the net amount of $2,633 and $1,931 at July 31, 2010 and August 1, 2009, respectively. Accumulated amortization relating to capital leases was $1,169 and $1,076 at July 31, 2010 and August 1, 2009, respectfully. Amortization expense relating to capital leases was $129, $93 and $125 for fiscal 2010, 2009 and 2008, respectively.
  Depreciation expense, including amortization of capital leased assets, for fiscal years 2010, 2009 and 2008 was $902, $828 and $877, respectively.  Depreciation expense for discontinued operations was $68, $262 and $199 for fiscal years 2010, 2009 and 2008, respectively.
  5.            GOODWILL
  Goodwill consists of the following:
  Medical SystemsBalance at July 28, 2007

$
6,437Impairment of goodwill (reported in discontinued operations)


(1,911
)Balance at August 2, 2008, August 1, 2009 and July 31, 2010

$
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 in a complete impairment of the unit’s goodwill balance.  Accordingly, the Company recorded a $1,911 impairment charge during the fiscal 2008.  The Medical Systems Group’s domestic reporting unit was disposed of during fiscal 2010, therefore, this write down is reflected in discontinued operations.  The Company’s annual fourth quarter assessments of Villa’s goodwill in fiscal 2010 and 2009 has not indicated any impairment.  However, due to the nature and inputs to the Company’s fair value calculation of goodwill, declines in future operating results could affect the calculated fair value of Villa’s goodwill and potentially result in 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.
  The activity in the warranty reserve accounts, which is included in accrued expenses, is as follows:
  JULY 31, 2010

AUGUST 1, 2009Balance at beginning of year

$
704


$
1,077Provision for anticipated warranty claims


247



137Costs incurred related to warranty claims


(103
)


(510
)Foreign currency impact


(122
)


-Discontinued operations


(97
)


-Balance at end of year

$
629


$
704
 
 F-11
 
 7.            SHORT-TERM CREDIT FACILITIES, LONG-TERM DEBT AND SUBORDINATED NOTE
  At July 31, 2010, the Company had no borrowings under its domestic short-term credit facilities and  and $0.1 million in borrowings under its foreign short term credit facilities.  Effective January 12, 2010, the Company terminated its domestic short-term credit facility.
  Long-term debt was comprised of the following:
  JULY 31,

2010

AUGUST 1,

2009

INTEREST RATE

AT JULY 31, 2010Foreign capital lease obligation

$
1,273


$
1,931



3.66
%Foreign credit facilities


647



1,585


Euribor + 1.00
%Foreign Italian Government loans


148



522



3.4
%Total long term debt


2,068



4,038Less current portion of long-term bank debt


(1,973
)


(1,653
)Long-term debt, less current portion

$
95


$
2,385
 
 As of January 12, 2010, the Company had repaid the balance due under their domestic short-term credit facility and terminated the agreement.  As of August 1, 2009, the Company had approximately $1.6 million of availability under the prior credit facility.  Borrowing under the domestic short-term credit facility was $7.4 million at August 1, 2009.
  Management believes funds generated from operations, together with current cash and cash equivalents, are adequate to sustain operations, including anticipated capital expenditures.  Additionally, management believes that if additional U.S. financing is needed, the Company will be able to obtain new asset based financing for its U.S. subsidiary.  Subsequent  to the fiscal year end, on September 1, 2010,  the Company completed a mortgage financing on its  property in Bay Shore, NY and received approximately $2.5 million at 4.9% payable over 10 years.   In addition, the Company may be able to dividend necessary funds from its foreign subsidiary, although this is not planned.
  The Company received a dividend from its Villa subsidiary in December 2008 of approximately $1.8 million, which was used to repurchase the Company’s outstanding common stock pursuant to the common stock repurchase program.  On various dates in December 2008, the Company repurchased a total of 1,527,859 common shares then outstanding at a total cost of approximately $1.6 million.  In January 2009, the Company’s Board of Directors suspended the common stock repurchase program.
  The Company’s Villa subsidiary maintains short term credit facilities which are renewed annually with Italian banks.  The current balance due on these credit facilities at July 31, 2010, is $0.1 million.  In addition, Villa has outstanding letters of credit of $1.4 million, which reduce  availability under the short term credit facilities.  Available borrowing under the credit facilities is $9.1 million and variable interest rates currently range from 3.7% - 14.25%.
  In October 2006, Villa entered into a 1.0 million Euro loan for financing of R&D projects, with an option for an additional 1.0 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 first fiscal quarter of 2009 to Euribor plus 1.04 points, currently at 1.760%.  The balance on this loan at July 31, 2010 was $472.  Principal repayment began in September 2008 and will be completed in September 2011.  The note contains a financial covenant which provides that the net equity of Villa cannot fall below 5.0 million Euros.  Villa’s net equity at the end of fiscal 2010 was 12.5 million Euros.
  In December 2006, Villa entered into a 1.0 million Euro loan with interest payable at Euribor 3 months plus 0.95 points, currently 1.71%.  The balance on this loan at July 31, 2010 was $175 with a maturity in December 2010.
  F-12
 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.  One of these loans matured in February 2010.  At the end of fiscal year 2010, total principal due was $148, due in September 2010.  Villa’s manufacturing facility is subject to a capital lease obligation which matures in March 2011 with an option to purchase.  Villa is in compliance with all related financial covenants under these short and long-term financings.
  The Company is obligated to make principal payments under its long-term debt and capital lease obligation as follows:
  FISCAL YEARS

DEBT

CAPITAL

LEASE

TOTAL2011

$
701


$
379


$
1,0802012


95



-



952013


-



-



-Purchase option in 2011


-



950



950Total payments


796



1,329



2,125Less: amount representing interest


-



(57
)


(57
)Total

$
796


$
1,272


$
2,068
 
 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 2010, 2009 or 2008.
  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 $27, $15 and $45 for fiscal years 2010, 2009 and 2008, respectively.
  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 $1,754 and $2,444 at July 31, 2010 and August 1, 2009, respectively.  Provisions for employee termination indemnities were $476, $477 and $729 for fiscal years 2010, 2009 and 2008, 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.
  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.
  F-13
 
 Selected financial data of these segments are as follows:
  FISCAL YEAR ENDED

JULY 31, 2010

MEDICAL

SYSTEMS

GROUP

POWER

CONVERSION

GROUP

OTHER

TOTALNet sales to external customers

$
43,695


$
12,473


$
--


$
56,168Cost of sales


34,008



8,110



--



42,118Gross margin


9,687



4,363



--



14,050Selling, general and administrative


5,169



2,435



973



8,577Research and development


1,952



102



--



2,054Total operating expenses


7,121



2,537



973



10,631Operating income (loss)

$
2,566


$
1,826


$
(973
)

$
3,419Interest expense














(418
)Other income














444Income from continuing operations before income taxes













$
3,445Depreciation

$
557


$
216


$
69


$
842Amortization


129



--



--



129Segment assets


30,567



6,947



1,515



39,029Capital expenditures


280



568



--



848
 
 Inter-segment sales were $230 for the fiscal year ended July 31, 2010.  The Medical Systems Group assets are located in Italy, including $8,281 of long-lived assets.  Approximately $188 of Other assets is related to the discontinued operations.
  FISCAL YEAR ENDED

AUGUST 1, 2009

MEDICAL

SYSTEMS

GROUP

POWER

CONVERSION

GROUP

OTHER

TOTALNet sales to external customers

$
40,933


$
11,952


$
--


$
52,885Cost of sales


31,948



7,291



--



39,239Gross margin


8,985



4,661



--



13,646Selling, general and administrative


4,952



2,434



692



8,078Research and development


1,935



57



--



1,992Litigation settlement costs


--



--



2,536



2,536Total operating expenses


6,887



2,491



3,228



12,606Operating income (loss)

$
2,098


$
2,170


$
(3,228
)

$
1,040Interest expense














(294
)Other income














265Income from continuing operations, before income taxes













$
1,011Depreciation

$
638


$
170


$
--


$
808Amortization


20



--



--



20Segment assets


41,267



6,725



7,270



55,262Capital expenditures


342



181



--



523
 
 Inter-segment sales were $105 for the fiscal year ended August 1, 2009.  The $41,267 of Medical Systems Group assets are located in Italy, including $9,407 of long-lived assets.  Approximately $3,158 of Other assets is related to the discontinued operations.
  F-14
  FISCAL YEAR ENDED

AUGUST 2, 2008

MEDICAL

SYSTEMS

GROUP

POWER

CONVERSION

GROUP

OTHER

TOTALNet sales to external customers

$
67,465


$
13,254


$
--


$
80,719Cost of sales


50,089



8,202



--



58,291Gross margin


17,376



5,052



--



22,428Selling, general and administrative


6,562



2,522



1,164



10,248Research and development


2,488



--



--



2,488Litigation settlement costs


-0



--



60



60Total operating expenses


9,050



2,522



1,224



12,796Operating income (loss)

$
8,326


$
2,530


$
(1,224
)

$
9,632Interest expense














(313
)Other income














185Income from continuing operations, before income taxes













$
9,504Depreciation

$
692


$
163


$
--


$
855Amortization


22



--



--



22Segment assets


44,231



4,651



17,471



66,353Capital expenditures


791



68



--



859
 
 Inter-segment sales were $83 for the fiscal year ended August 2, 2008. The $44,231 of Medical Systems Group assets are located in Italy, including $10,656 of long-lived assets.  Approximately $8,902 of Other assets is related to the discontinued operations.
  MAJOR CUSTOMERS AND EXPORT SALES – For the fiscal year ended July 31, 2010, one of our customers accounted for 10% or more of our consolidated revenues and one of our Medical Systems Group customers accounted for approximately 22% of consolidated gross accounts receivable at July 31, 2010.  For the fiscal year ended August 1, 2009, none of our customers accounted for 10% or more of consolidated revenues and one of our Medical Systems Group customers accounted for approximately 14% of consolidated gross accounts receivable.  For the fiscal year ended August 2, 2008 one of our Medical Systems Group customers accounted for approximately 18% of consolidated revenues and 1% of gross accounts receivable at August 2, 2008.
  Foreign sales were 75%, 73% and 83% of the Company’s consolidated net sales in fiscal years ended July 31, 2010. August 1, 2009 and August 2, 2008, respectively. Net sales by geographic areas were:
  JULY 31, 2010

AUGUST 1, 2009

AUGUST 2, 2008United States

$
13,910



25
%

$
14,341



27
%

$
13,602



17
%Canada


586



1
%


38



0
%


1,659



2
%Europe


30,317



54
%


29,925



57
%


55,350



69
%Far East


9,080



16
%


6,808



9
%


7,343



9
%Mexico, Central and South America


661



1
%


3,000



0
%


382



0
%Africa, Middle East and Australia


1,614



3
%


1,477



3
%


2,383



3
%$
56,168



100
%

$
52,885



100
%

$
80,719



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.
  F-15
 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.
  The Company is proposing to hold a special meeting of shareholders on October 13, 2010, to have shareholders, in part, authorize an increase in the number of shares authorized for issuance by the Company from 50,000,000 to 100,000,000.  If shareholders approve this increase, the Company is intending to commence a rights offering to raise up to approximately $15.0 million.
  STOCK BUY-BACK PROGRAM - On November 26, 2008, the Company requested and was granted consent by its domestic lender to repurchase up to 2,424,616 shares, or up to $3,000 (approximately 10%) of Del Global’s outstanding shares of common stock, par value $0.10, from its shareholders provided none of the funds used to fund the proposed repurchase are proceeds of loans and that no less than $2.0 million of the funds used to repurchase said shares are from proceeds of cash dividends paid by Villa.  On various dates in December 2008, the Company repurchased 1,527,859 common shares then outstanding at a total cost of approximately $1,600.  In January 2009, the Company’s Board of Directors suspended the common stock repurchase program.
  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 –The Company measures 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.  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.
  F-16
 Details regarding the fair value of stock options granted in fiscal 2010, 2009 and 2008 are as follows:
  2010

2009

2008Estimated life (in years)


7



7



7Volatility rate


65%-69%



66%-70%



64%-72%Risk free interest rate


2.77%-3.49%



2.70%-2.78%



3.60%-4.20%Dividend rate


0%



0%



0%Forfeiture rate


2%



2%



2%Weighted average fair value


0.42



0.64



1.82Recorded compensation expense

$
240


$
341


$
481
 
 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, 54,875 shares are still available for grant as of July 31, 2010.  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.
  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
  JULY 31, 2010

AUGUST 1, 2009

AUGUST 2, 2008SHARES OUTSTANDING

WEIGHTED
AVERAGE

EXERCISE

PRICE

SHARES OUTSTANDING

WEIGHTED
AVERAGE

EXERCISE

PRICE

SHARES OUTSTANDING

WEIGHTED
AVERAGE

EXERCISE

PRICEGranted and outstanding,

beginning of year


2,236,315


$
3.24



2,094,815


$
3.45



1,913,996


$
3.51Granted


415,000



0.62



254,000



0.95



336,500



2.62Exercised


-



-



-



-



(83,181
)


1.37Cancelled and forfeited


(88,125
)


1.38



(112,500
)


1.99



(72,500
)


3.58Outstanding at end of year


2,563,190



2.88



2,236,315



3.24



2,094,815



3.45Exercisable at end of year


2,124,561



3.28



1,792,814



3.62



1,595,438



3.85
  F-17
 
 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 July 31, 2010 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



1,882,482


$
1.54



1,443,853


$
1.71$
4.00 - $6.60



313,256



4.85



313,256



4.85$
7.00 - $7.94



220,775



7.51



220,775



7.51$
8.00 - $10.00



146,677



8.94



146,677



8.942,563,190


$
2.88



2,124,561


$
3.28
 
 At July 31, 2010, the aggregate intrinsic value of options outstanding and options exercisable was $82 and $25, 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 July 31, 2010 is expected to be $96 in 2011 and $51 in 2012 and $14 in 2013.
  Cash proceeds and intrinsic value related to total stock options exercised are provided in the following table:
  YEAR ENDED

JULY 31,

2010

AUGUST 1,

2009

AUGUST 2,

2008Proceeds from stock options exercised

$
-


$
-


$
46
(a)Intrinsic Value


-



-



71
 
 (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 2009 and 2008, 0 and 61,016, respectively, of these warrants were exercised for cash proceeds to the Company of $0 and $91, respectively.  As of March 28, 2009, these warrants expired and no warrants remain outstanding.
  F-18
 11.           INCOME (LOSS) PER SHARE
  FOR FISCAL YEARS ENDEDJULY 31,

2010

AUGUST 1,

2009

AUGUST 2,

2008Numerator:Net income (loss)

$
(812
)

$
(4,128
)

$
2,977Denominator:Weighted average shares outstanding for basic income per share


22,718,306



23,285,694



24,195,498Effect of dilutive securities


-



-



450,911Weighted average shares outstanding for diluted income per share


22,718,306



23,285,694



24,646,409Income (loss) per basic common share

$
(0.04
)

$
(0.18
)

$
0.12Income (loss) per diluted common share

$
(0.04
)

$
(0.18
)

$
0.12
 
 Common shares outstanding for the fiscal years ended July 31, 2010, August 1, 2009 and August 2, 2008, were reduced by 2,182,323, 2,182,323 and 654,464 shares of treasury stock, respectively.
  The computation of diluted shares outstanding does not include the effect of the assumed exercise of 2,563,190, 2,236,315 and 1,295,612 for employee stock options outstanding as of July 31, 2010, August 1, 2009 and August 2, 2008, respectively, and it also does not include 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 (loss) income before income taxes for fiscal years 2010, 2009 and 2008 of $308, $(3,005) and $6,224 reflects foreign pre-tax net income of $2,659, $2,548 and $8,294 for fiscal years 2010, 2009 and 2008, respectively, and a U.S. pre-tax loss of $2,351, $5,553 and $2,070, respectively.
  Provision for income taxes consists of the following:
  FOR FISCAL YEARS ENDEDJULY 31, 2010

AUGUST 1, 2009

AUGUST 2, 2008CURRENT TAX EXPENSE:Foreign

$
904


$
965


$
3,297State and local


-



-



-DEFERRED PROVISION (BENEFIT):Federal


-



-



-State and local


--



--



--Foreign


196



158



(50
)NET PROVISION

$
1,100


$
995


$
3,177Tax expense included in discontinued operations

$
20


$
128


$
70
 
 F-19
 
 The following is a reconciliation of the statutory Federal and effective income tax rates:
  FOR FISCAL YEARS ENDEDJULY 31, 2010

AUGUST 1, 2009

AUGUST 2, 2008Statutory Federal income tax rate


34.0
%


34.0
%


34.0
%State tax, less Federal tax effect


0.0
%


0.0
%


0.0
%Foreign taxes


6.3
%


6.5
%


7.6
%Valuation allowance adjustment


(8.4
)%


(1.3
)%


15.6
%Provision (reversal) for undistributed earnings of foreign subsidiary


0.0
%


0.0
%


(24.0
)%Provision for distributed earnings of foreign subsidiary


0.0
%


55.7
%


0.0
%Other


0.0
%


3.5
%


0.2
%Effective tax rate


31.9
%


98.4
%


33.4
%
 
 Deferred income tax assets (liabilities) are comprised of the following:
  JULY 31, 2010

AUGUST 1, 2009Deferred income tax assets:Federal net operating loss carry forward

$
18,378


$
16,722State tax credits and operating loss carry forwards


2,116



2,318Reserve for inventory obsolescence


819



1,556Allowances and reserves not currently deductible


591



932Amortization


-



207Stock based compensation


816



694Fixed assets


-



-Other


-



27Gross deferred income tax assets


22,720



22,456Deferred income tax liabilities:Undistributed earnings of foreign subsidiary


-



-Fixed assets


(7
)


(4
)Other


-



(-
)Gross deferred income tax liabilities


(7
)


(4
)Less: valuation allowance


(22,298
)


(21,841
)Net deferred income tax assets

$
415


$
611
 
 Deferred income tax assets and liabilities are recorded in the consolidated balance sheets as follows:
  JULY 31, 2010

AUGUST 1, 2009Deferred income tax assets - non-current

$
415


$
611Deferred income tax liabilities - non-current


-



-$
415


$
611
 
 The Company accounts for deferred income taxes in accordance with ASC 740 “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 2010, 2009 and 2008, the Company’s foreign tax reporting entity was profitable, and its U.S. tax reporting entities incurred a loss.  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 July 31, 2010.
  F-20
 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 $415 at July 31, 2010 will be realized.
  The Company’s foreign subsidiary operates in Italy.  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 an income tax rate reduction in Italy.
  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 operating results, expectations of future results and available cash and credit in the U.S., the Company determined it no longer intended to repatriate monies and reversed this tax obligation during Fiscal 2008.  The reversal resulted in an adjustment to available net operating loss carryforwards and the related valuation allowance.  In addition, there was a reduction in tax expense for Fiscal 2008 resulting from the reversal of accrued Italian withholding taxes on undistributed earnings.
  At July 31, 2010, the Company has federal net operating loss carry forwards of $54,012 that expire at various times between July, 2020 and July, 2030.
  It is the Company’s practice to recognize interest and/or penalties related to income tax matters in tax expense.  As of July 31, 2010, there were no material interest or penalty amounts to accrue.  The Company does not expect any significant changes in its computation of interest, penalties or unrecognized tax benefits within the next 12 months.
  The Company or one of its subsidiaries files income tax returns in the U.S., various state and/or local jurisdictions, and a non-U.S. jurisdiction.  With few exceptions, the Company is no longer subject to U.S., state and local tax examinations for years before the fiscal year ended in 2007 and non-U.S. income tax examinations for years before the fiscal year ended in 2006.  The Company is not currently under an income tax examination by any taxing jurisdiction.
  13.           COMMITMENTS AND CONTINGENCIES
  LITIGATION MATTERS
  RFI-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..
  OTHER-From time to time, the Company may be a defendant in legal actions in various U.S. and foreign jurisdictions, arising from the normal course of business.
  F-21
 LEASE COMMITMENTS - The Company leases facilities for its warehouse and manufacturing operations with expiration dates ranging from 2010 through 2015.  In addition, the Company has various office equipment and auto leases accounted for as operating leases. The future minimum annual lease commitments as of July 31, 2010 are as follows:
  FISCAL YEARS

AMOUNT2011

$
2722012


1872013


1072014 and 2015


19Total

$
585
 
 Rent expense for fiscal years 2010, 2009 and 2008 was $259, $333 and $168, respectively.  Rent expense for discontinued operations for fiscal years 2010, 2009 and 2008 was $42, $145 and $248, respectively
  14.            SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  YEAR ENDED JULY 31, 2010
  QUARTERFIRST

SECOND

THIRD

FOURTHNet sales

$
11,582


$
18,058


$
13,150


$
13,378Gross margin

$
2,575


$
4,846


$
3,091


$
3,538Income (loss) from continuing operations

$
(388
)

$
1,182


$
311


$
1,240Net income (loss)

$
(3,502
)

$
1,201


$
296


$
1,193Net income (loss) per basic share

$
(0.15
)

$
0.05


$
0.01


$
0.05Net income (loss) per diluted share

$
(0.15
)

$
0.05


$
0.01


$
0.05
 
 YEAR ENDED AUGUST 1, 2009
  QUARTERFIRST

SECOND

THIRD

FOURTHNet sales

$
14,220


$
15,681


$
11,816


$
11,168Gross margin

$
3,708


$
4,393


$
2,469


$
3,076Income (loss) from continuing operations

$
572


$
(1,661
)

$
216


$
889Net income (loss)

$
(609
)

$
(1,800
)

$
(815
)

$
(904
)Net income (loss) per basic share

$
(0.03
)

$
(0.08
)

$
(0.04
)

$
(0.04
)Net income (loss) per diluted share

$
(0.03
)

$
(0.08
)

$
(0.04
)

$
(0.04
)
 
  F-22