FORWARD LOOKING STATEMENTS

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

OVERVIEW

The Company is primarily engaged in the design, manufacture and marketing of cost-effective medical and dental diagnostic imaging systems consisting of stationary and portable imaging systems, radiographic/ fluoroscopic systems, dental imaging systems and digital radiography systems. The Company also manufactures electronic filters, high voltage capacitors, pulse modulators, transformers and reactors, and a variety of other products designed for industrial, medical, military and other commercial applications. We manage our business in two operating segments: our Medical Systems Group and our Power Conversion Group. In addition, we have a third reporting segment, other, comprised of certain unallocated corporate General and Administrative expenses. See Part I, Item 1, "Business-Operating Segments" of this Annual Report for discussions of the Company's segments.

On October 1, 2004, we sold the Del High Voltage division, which manufactured proprietary high voltage power conversion subsystems, for a purchase price of $3.1 million, plus the assumption of approximately $0.8 million of liabilities. Accordingly, the results of operations have been restated to show this division as a discontinued operation.

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

Subsequent to our fiscal year end the Board of the Company decided to exit the Del Medical U.S. business unit. This business is 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.

CRITICAL ACCOUNTING POLICIES

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

REVENUE RECOGNITION

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

DEFERRED INCOME TAXES

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

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 2009, 2008 and 2007, 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 August 1, 2009, 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 $0.6 million at August 1, 2009 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 August 1, 2009, finished goods represented approximately 25.7% of the gross carrying value of our total gross inventory. We believe the estimation methodologies used are appropriate and are consistently applied.

GOODWILL

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

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

The Company's fiscal 2009 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 August 1, 2009, 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.

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.

CONSOLIDATED RESULTS OF OPERATIONS

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, 2008
Sales                                           $         80,400     $        108,306
Gross margin as a percentage of sales                       20.8 %               24.7 %
Total operating expenses                                  19,705               20,435
Net income (loss)                                        (4,128)                2,977
Diluted income (loss) per share                 $         (0.18)     $           0.12

Sales:
The following table summarizes sales:
                                      Year Ended
(Dollars in thousands)   August 1, 2009       August 2, 2008
Medical System Group     $        68,448     $         95,052
Power Conversion Group            11,952               13,254
Total                    $        80,400     $        108,306

Consolidated net sales of $80.4 million for fiscal year 2009 reflect a decrease of $27.9 million, or 25.8%, from fiscal 2008 net sales of $108.3 million, due to decreased sales in our Medical Systems Group. Sales at the Medical Systems Group for fiscal 2009 of $68.4 million reflect a decrease of $26.6 million, or 28.0 %, from the prior fiscal year, primarily due to decreased domestic and 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 20.8% in fiscal 2009, compared to 24.7% in fiscal 2008. The Medical Systems Group fiscal year 2009 gross margin percentage of 17.6% was lower than the gross margin of 22.9% 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 38.9% versus 38.2% 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 24.5% of net sales from 18.9% 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. This increase was off-set by a $1.9 million one-time, non cash goodwill impairment charge related to the Medical Systems Group's U.S. medical business in the third quarter of fiscal 2008. In addition, research and development expenses in fiscal 2009 of $2.0 million were $0.5 million lower than fiscal 2008, primarily due to the effect of favorable currency translation rates.

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

(Dollars in thousands)                August 1, 2009
Research and Development              $          (496 )
Selling, General and Administrative            (1,609 )
Litigation Settlement Cost                      3,286
Goodwill Impairment                            (1,911 )
Change in total operating expense     $          (730 )

The operating loss for fiscal year 2009 was ($3.0) million versus operating income of $6.4 million in fiscal 2008. In fiscal year 2009, the Medical Systems Group had an operating loss of ($0.7) million and the Power Conversion Group achieved an operating profit of $2.1 million. There were also unallocated corporate costs of $4.4 million, primarily consisting of litigation settlement related charges.

Research and Development expenses for fiscal 2009 were $2.0 million or 2.5% of sales compared to $2.5 million or 2.3% 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 $14.0 million or 17.4% of sales compared to $15.6 million or 14.4% 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 $3.2 million for fiscal 2009 was due to the Company's settlement of both its Park and Moeller litigation as discussed in note 12 to the consolidated financial statements.

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 loss of ($3.0) million, comprised of foreign pretax income of $2.5 million offset by a U.S. pretax loss of ($5.5) million. During fiscal 2008, the Company recorded pretax income of $6.2 million which included foreign pretax income of $8.3 million, offset by a U.S. pretax loss of ($2.1) million. The related fiscal 2009 and 2008 income tax expense of $1.1 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 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 $13.2 million versus backlog at August 2, 2008 of approximately $22.7 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 $8.6 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 domestic and 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.

FISCAL 2008 COMPARED TO FISCAL 2007

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

                                                             Year Ended
(Dollars in thousands, except per share data)    August 2, 2008       July 28, 2007
Sales                                           $        108,306     $       104,167
Gross margin as a percentage of sales                       24.7 %              24.0 %
Total operating expenses                                  20,435              16,603
Net earnings from continuing operations                    2,977               3,816
Diluted earnings per share                      $           0.12     $          0.23

Sales:
The following table summarizes sales:
                                      Year Ended
(Dollars in thousands)    August 2, 2008       July 28, 2007
Medical System Group     $         95,052     $        90,979
Power Conversion Group             13,254              13,188
Total                    $        108,306     $       104,167

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

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

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

Operating Expenses:

The following table summarizes the key increase/(decrease) in operating expenses
for fiscal year 2008 from the prior year:

                                         Year Ended
(Dollars in thousands)                 August 2, 2008
Research and Development              $            475
Selling, General and Administrative                996
Litigation Settlement Cost                         450
Goodwill Impairment                              1,911
Change in total operating expense     $          3,832

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

The Company's sources of capital include, but are not limited to, cash flow from operations, short-term credit facilities and the residual proceeds of the Rights Offering. 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 recourses are sufficient to fund our working capital requirements, scheduled debt payments, interest payments, capital expenditures and income tax obligations for the next 12 months.

Working Capital -- At August 1, 2009 and August 2, 2008, our working capital was approximately $22.1 million and $31.2 million, respectively. The decrease in working capital for fiscal 2009 as compared to fiscal 2008 related primarily to increased cash payments for litigation settlements and decreases in ending accounts receivable resulting from lower sales and lower foreign currency translation rates. At August 1, 2009 and August 2, 2008, we had approximately $8.0 million and $7.9 million in cash and cash equivalents, respectively. This increase is primarily due to borrowings on our revolving credit facilities offset by payments for litigation settlement as well as a reduction in accounts payable. As of August 1, 2009, we had approximately $1.6 million of excess borrowing availability under our domestic revolving credit facility compared to $6.4 million at August 2, 2008.

In addition, as of August 1, 2009 and August 2, 2008, our Villa subsidiary had an aggregate of approximately $11.5 million and $13.5 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.

. . .