DGT Holdings Corp. - FORM 10-Q

Attached files

file	filename
EX-31 - EXHIBIT 31.2 - DGT Holdings Corp.	exh_312.htm
EX-32 - EXHIBIT 32.2 - DGT Holdings Corp.	exh_322.htm
EX-32 - EXHIBIT 32.1 - DGT Holdings Corp.	exh_321.htm
EX-31 - EXHIBIT 31.1 - DGT Holdings Corp.	exh_311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 30, 2011

[ ] 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

DGT HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

NEW YORK	13-1784308
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 PINE AIRE DRIVE, BAY SHORE, NY	11706
(Address of principal executive offices)	(Zip Code)

631-231-6400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares of Registrant’s common stock outstanding as of June 1, 2011 was 3,867,572.

DGT HOLDINGS CORP.

Table of Contents

		Page No.

PART I	FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS	3
	Statements of Operations for the Three and Nine Months ended April 30, 2011 and May 1, 2010	3
	Balance Sheets as of April 30, 2011 and July 31, 2010	4
	Statements of Cash Flows for the Nine Months ended April 30, 2011 and May 1, 2010	5
	Notes to Financial Statements	6-11
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12-18
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
	Item 4. CONTROLS AND PROCEDURES	18

PART II -	OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS	20
	Item 1A. RISK FACTORS	20
	Item 6. EXHIBITS	20
	SIGNATURES	21
	EX-31.1 (EX-31.1): Certification
	EX-31.2 (EX-31.2): Certification
	EX-32.1 (EX-32.1): Certification
	EX-32.2 (EX-32.2): Certification

PART I - FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

DGT HOLDINGS CORP.

STATEMENT OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	April 30, 2011			May 1, 2010			April 30, 2011			May 1, 2010
SALES	$	12,652		$	13,150		$	53,048		$	42,790
COST OF SALES		10,025			10,059			41,362			32,278
GROSS MARGIN		2,627			3,091			11,686			10,512

Selling, general and administrative		2,410			2,202			7,397			6,777
Research and development		518			592			1,601			1,567
Total operating expenses		2,928			2,794			8,998			8,344
OPERATING INCOME (LOSS)		(301	)		297			2,688			2,168

Interest expense, net of interest income of $52 and $104 for the three and nine months ended in FY 2011 and $23 and $34 for the three and nine months ended in FY 2010		(25	)		(45	)		(162	)		(394	)
Other income (expense)		11			121			103			76
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(315	)		373			2,629			1,850
Income tax provision		35			62			1,576			745

INCOME (LOSS) FROM CONTINUING OPERATIONS		(350	)		311			1,053			1,105
Loss from discontinued operations		-			(15	)		-			(3,110	)
NET INCOME (LOSS)	$	(350	)	$	296		$	1,053		$	(2,005	)

NET INCOME (LOSS) PER BASIC SHARE:
Income from continuing operations	$	(0.09	)	$	0.17		$	0.38		$	0.61
Income (loss) from discontinued operations		-			(0.01	)		-			(1.71	)
Net income (loss)	$	(0.09	)	$	0.16		$	0.38		$	(1.10	)
Weighted average shares outstanding*		3,846,234			1,817,464			2,772,040			1,817,464

NET INCOME (LOSS) PER DILUTED SHARE:
Income from continuing operations	$	(0.09	)	$	0.17		$	0.38		$	0.61
Income (loss) from discontinued operations		-			(0.01	)		-			(1.71	)
Net income (loss)	$	(0.09	)	$	0.16		$	0.38		$	(1.10	)
Weighted average shares outstanding*		3,846,234			1,818,824			2,773,528			1,817,464

* Adjusted for 1 for 50 and 4 for 1 stock split effective January 6, 2011 (Note 1).

See notes to financial statements.

DGT HOLDINGS CORP.

BALANCE SHEETS

(DOLLARS IN THOUSANDS EXCEPT PAR VALUE)

(UNAUDITED)

	April 30, 2011			July 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	22,767		$	3,987
Trade receivables (net of allowance for doubtful accounts of $1,035 and $1,214 at April 30, 2011 and July 31, 2010, respectively)		15,722			12,925
Inventories (net of allowance for excess and obsolete of $3,554 and $2,536 at April 30, 2011 and July 31, 2010, respectively)		11,040			9,123
Prepaid expenses and other current assets		4,104			2,770
Total current assets		53,633			28,805

NON-CURRENT ASSETS:
Property plant and equipment, net		5,293			5,254
Deferred income taxes		545			415
Goodwill		4,526			4,526
Other assets		121			29
Total non-current assets		10,485			10,224
TOTAL ASSETS	$	64,118		$	39,029

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving loan	$	109		$	135
Current portion of long-term debt		1,397			1,973
Accounts payable – trade		7,162			5,643
Accrued expenses		7,317			3,643
Total current liabilities		15,985			11,394

NON-CURRENT LIABILITIES:
Long-term debt, less current portion		2,379			95
Other long-term liabilities		1,919			1,763
Total non-current liabilities		4,298			1,858
Total liabilities		20,283			13,252

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
Authorized 100,000,000 and 50,000,000; April 30, 2011 and July 31, 2010, respectively; issued-3,991,057 and 1,992,050 at April 30, 2011 and July 31, 2010, respectively*		399			199
Additional paid-in capital*		97,546			83,270
Treasury shares – 174,585 shares, at cost at April 30, 2011 and July 31, 2010*		(7,176	)		(7,176	)
Accumulated other comprehensive income (loss)		2,315			(214	)
Accumulated deficit		(49,249	)		(50,302	)
Total shareholders' equity		43,835			25,777
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	64,118		$	39,029

* Adjusted for 1 for 50 and 4 for 1 stock splits effective January 6, 2011 (Note 1).

See notes to financial statements.

DGT HOLDINGS CORP.

STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

	Nine Months Ended
	April 30, 2011			May 1, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,053		$	(2,005	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		651			797
Deferred income tax provision		(59	)		-
Stock based compensation expense		145			204
Write-down of assets and additional accruals for discontinued operations		-			1,555
Changes in operating assets and liabilities:
Trade receivables		(870	)		3,614
Inventories		(733	)		4,917
Prepaid expenses and other current assets		(75	)		370
Other assets		(90	)		45
Accounts payable – trade		724			(761	)
Accrued expenses		3,080			(1,450	)
Other long-term liabilities		(114	)		(354	)
Net cash provided by operating activities		3,712			6,932

CASH FLOWS FROM INVESTING ACTIVITIES:
Property plant and equipment purchases		(183	)		(495	)
Net cash used in investing activities		(183	)		(495	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Rights Offering, net of expenses		14,340			-
Payment for fractional shares as a result of stock split		(9	)		-
Proceeds from borrowing of long-term debt		2,500			-
Repayments under revolving loan		(44	)		(7,414	)
Repayment of long-term debt		(2,095	)		(1,342	)
Net cash provided by (used in) financing activities		14,692			(8,756	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		559			(293	)
CASH AND CASH EQUIVALENTS INCREASE (DECREASE) FOR THE PERIOD		18,780			(2,612	)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		3,987			7,983
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	22,767		$	5,371

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for
Interest	$	447		$	394
Taxes paid		434			457

DGT HOLDINGS CORP.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited financial statements of DGT Holdings Corp. (formerly Del Global Technologies Corp.) (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The statements include the accounts of DGT Holdings Corp. and its subsidiaries. All material intercompany accounts and transactions have been eliminated. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the interim periods have been included. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the fiscal year ended July 31, 2010. Certain reclassifications have been made to prior years’ amounts to conform to the current year’s presentation.

STOCK SPLIT

On January 6, 2011, the Company effected a reverse split, followed by a forward split (see Note 9). The number of shares outstanding and related prices, per share amounts, share conversions and share-based data have been adjusted to reflect the stock split for all periods presented.

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 financial statements.

NOTE 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 parties have subsequently completed the sale of the consigned inventory.

The Company’s discontinued operations loss for the three and nine months ended April 30, 2011 and May 1, 2010 is:

	Three Months Ended					Nine Months Ended
	April 30, 2011		May 1, 2010			April 30, 2011		May 1, 2010
Sales	$	-	$	-		$	-	$	5,428
Loss from operations	$	-	$	(15	)	$	-	$	(1,541	)
Asset realization (writedown) to net realizable value				-			-		(1,549	)
Provision for income taxes		-		-			-		(20	)
Total net income (loss) from discontinued operations	$	-	$	(15	)	$	-	$	(3,110	)

Income (loss) per share – Basic and Diluted
Income (loss) from operations	$	-	$	(0.01	)	$	-	$	(0.86	)
Income (loss) on sale of operations, asset writedowns and accrued expenses		-		-			-		(0.85	)
Income (loss) per share—discontinued operations	$	-	$	(0.01	)	$	-	$	(1.71	)

The Company reported additional losses in fiscal year 2010 subsequent periods of approximately $47 related to activity to complete the business disposition, including severance, legal and corporate relocation expenses, offset by realization of collection of receivables and sales of inventory at a greater amount than originally anticipated.

NOTE 3 - INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories and their effect on cost of sales are determined by physical count for annual reporting purposes and are evaluated using perpetual inventory records for interim reporting periods. For certain subsidiaries during interim periods, the Company estimates the amount of labor and overhead costs related to finished goods inventories. As of April 30, 2011, finished goods represented approximately 21.0% of the gross carrying value of our total gross inventory. The Company believes the estimation methodologies used are appropriate and are consistently applied.

	April 30, 2011			July 31, 2010
Raw materials and purchased parts	$	9,891		$	7,952
Work-in-process		1,647			1,047
Finished goods		3,056			2,660
		14,594			11,659
Less allowance for excess and obsolete inventories		(3,554	)		(2,536	)
Total inventories	$	11,040		$	9,123

NOTE 4 - 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 in the three and nine months of fiscal 2011 and 2010 is as follows:

	Three Months Ended						Nine Months Ended
	April 30, 2011			May 1, 2010			April 30, 2011			May 1, 2010
Balance at beginning of period	$	1,041		$	571		$	629		$	704
Provision for anticipated warranty claims		41			170			449			206
Costs incurred related to warranty claims		(84	)		(31	)		(159	)		(104	)
Liability related to discontinued operations		-			-			-			(97	)
Effect of foreign currency fluctuations		57			-			136			1
Balance at end of period	$	1,055		$	710		$	1,055		$	710

The liability related to warranties is included in accrued expenses on the accompanying Balance Sheet.

NOTE 5 - COMPREHENSIVE INCOME (LOSS)

Comprehensive income for the Company includes foreign currency translation adjustments and net income reported in the Company’s Statement of Operations.

Comprehensive income for the fiscal 2011 and 2010 periods presented is as follows:

	Three Months Ended						Nine Months Ended
	April 30, 2011			May 1, 2010			April 30, 2011		May 1, 2010
Net income (loss)	$	(350	)	$	296		$	1,053	$	(2,005	)
Foreign currency translation adjustments		1,212			(1,109	)		2,529		(828	)
Comprehensive income (loss)	$	862		$	(813	)	$	3,582	$	(2,833	)

NOTE 6 - INCOME (LOSS) PER SHARE

Common shares outstanding exclude 174,585 shares of treasury stock for the periods ended April 30, 2011 and May 1, 2010. The computation of dilutive securities includes the assumed conversion of warrants and employee stock options to purchase Company stock if such conversion is dilutive.

	Three Months Ended					Nine Months Ended
	April 30, 2011			May 1, 2010		April 30, 2011		May 1, 2010
Numerator:
Net income (loss)	$	(350	)	$	296	$	1,053	$	(2,005	)
Denominator (shares in thousands):
Weighted average number of common shares outstanding used for basic income per share		3,846			1,817		2,772		1,817
Effect of dilutive securities		-			2		2		-
Denominator for diluted income per share		3,846			1,819		2,774		1,817

Income (loss) per common share:
Basic	$	(0.09	)	$	0.16	$	0.38	$	(1.10	)
Diluted	$	(0.09	)	$	0.16	$	0.38	$	(1.10	)

Antidilutive securities excluded from above computations (shares in thousands)

Three Months Ended

Nine Months Ended

April 30,

2011

May 1,

2010

April 30,

2011

May 1,

2010

Employee stock options

126

195

126

205

NOTE 7 - SHORT-TERM CREDIT FACILITIES AND LONG-TERM DEBT

Short-term credit facilities are summarized as follows:

Revolving lines of credit:	April 30, 2011		July 31, 2010
Domestic	$	-	$	-
Foreign		109		135
Total	$	109	$	135

Long term debt at April 30, 2011 and July 31, 2010 is summarized as follows:

	April 30, 2011			July 31, 2010
Mortgage	$	2,456		$	-
Foreign capital lease obligations		1,101			1,273
Foreign credit facilities		219			647
Foreign Italian government loans		-			148
Total long term debt		3,776			2,068
Less current portion of long-term bank debt		(1,397	)		(1,973	)
Long term debt, less current portion	$	2,379		$	95

On September 1, 2010, the Company completed a mortgage financing on its property in Bay Shore, NY and received approximately $2.5 million payable over 10 years at an initial fixed rate of 4.9% for the first 5 years, adjusted for the last 5 years as defined in the agreement. Monthly principal repayments began in October 2010.

The Company’s Villa Sistemi Medicali S.p.A. (“Villa”) subsidiary maintains short term credit facilities which are renewed annually with Italian banks. The current balance due on these credit facilities at both April 30, 2011 and July 31, 2010 is $0.1 million. In addition, Villa has outstanding letters of credit of $0.1 million, which reduce availability under the short term credit facilities. Available borrowing under the credit facilities is $12.3 million and variable interest rates currently range from 3.495-14.250%.

In October 2006, Villa entered into a 1.0 million Euro loan for financing of R&D projects, which were completed in April 2008. Interest, is payable at Euribor plus 1.04 points, currently 1.92%. The note is repayable over a 5 year term. Principal repayments 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 April 30, 2011 was 14.3 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 1.84%. The loan was repaid at maturity in December 2010.

Villa is in compliance with all related financial covenants under these short and long-term financings.

Villa was also a party to an Italian government long-term loan with a fixed interest rate of 3.425% per annum which matured and was repaid in September 2010.

Villa’s manufacturing facility is subject to a capital lease obligation with an option to purchase which matured in March 2011. Subsequent to the fiscal 2011 third quarter the Company purchased the facility for $1.0 million.

NOTE 8 - SEGMENT INFORMATION

The Company has three reportable segments: Medical Systems Group, Power Conversion Group and Other. The “Other” segment includes unallocated corporate costs. Interim segment information is as follows:

For three months ended April 30, 2011	Medical Systems Group			Power Conversion Group		Other			Total
Sales to External Customers	$	9,920		$	2,732	$	-		$	12,652
Cost of sales		8,118			1,907		-			10,025
Gross margin		1,802			825					2,627

Operating expenses		1,952			704		272			2,928
Operating income (loss)	$	(150	)	$	121	$	(272	)	$	(301	)

For three months ended May 1, 2010	Medical Systems Group		Power Conversion Group		Other			Total
Sales to External Customers	$	9,872	$	3,278	$	-		$	13,150
Cost of sales		7,952		2,107		-			10,059
Gross margin		1,920		1,171		-			3,091

Operating expenses		1,882		677		235			2,794
Operating income (loss)	$	38	$	494	$	(235	)	$	297

For nine months ended April 30, 2011	Medical Systems Group		Power Conversion Group			Other			Total
Sales to External Customers	$	45,581	$	7,467		$	-		$	53,048
Cost of sales		35,538		5,824			-			41,362
Gross margin		10,043		1,643						11,686

Operating expenses		6,068		2,107			823			8,998
Operating income (loss)	$	3,975	$	(464	)	$	(823	)	$	2,688

For nine months ended May 1, 2010	Medical Systems Group		Power Conversion Group		Other			Total
Sales to External Customers	$	34,316	$	8,474	$	-		$	42,790
Cost of sales		26,785		5,493		-			32,278
Gross margin		7,531		2,981					10,512

Operating expenses		5,670		1,918		756			8,344
Operating income (loss)	$	1,861	$	1,063	$	(756	)	$	2,168

NOTE 9 – SHAREHOLDERS’ EQUITY

On October 13, 2010, following approval by shareholders at a special meeting, the Company filed with the New York Secretary of State an amendment to the Company’s Certificate of Incorporation to increase the number of shares of common stock authorized for issuance by the Company from 50,000,000 to 100,000,000.

On December 22, 2010, the Company completed its rights offering and issued 24,999,224 shares of common stock at $0.60 per share for proceeds of $15.0 million, net of expenses of the offering of $0.7 million.

On January 6, 2011, the Company effected a one-for-fifty reverse stock split. The Company paid approximately $6 for fractional shares. The reverse split was immediately followed by a four-for-one forward stock split and paid $3 for fractional shares. After the reverse/forward stock splits, 3,991,057 shares are issued and 3,816,472 shares are outstanding.

The Company did not grant any stock options during the third quarter of fiscal 2011. In the second quarter the Company made the determination, based on the terms of the former option plan, that stock options granted an extension from the years 2000 through 2005 for exercise as a result of the delisting of our common stock in 2000 from trading on the NASDAQ stock market, are considered terminated as of the original expiration date of the respective stock option, regardless of previously granted extensions. This resulted in approximately 34,793 split adjusted options being terminated as of the beginning of the second quarter. After considering the impact of the stock split, as of April 30, 2011, there are 137,151 shares outstanding under the stock option plans.

In the three and nine months ended April 30, 2011, the Company recorded $21 and $86, respectively, of compensation expense related to stock options. In the three and nine months ended May 1, 2010, the Company recorded $79 and $204, respectively, of compensation expense related to stock options. There were no exercises of stock options during the third quarter of fiscal 2011 or 2010.

During the third quarter of fiscal 2011, the Company issued 51,100 restricted stock units valued at $10.50. Restricted stock issued to directors vest 100% on the first anniversary of their issue and restricted stock issued to employees vest 50% on the first anniversary and 50% on the second anniversary. Of the units issued, 16,100 were issued to directors and 35,000 to employees. The Company recognized $59 of expense related to restricted stock units in the third quarter of fiscal 2011.

NOTE 10 - CONTINGENCIES

The information set forth under Part II, Item 1 contained in the “Legal Proceedings” is incorporated herein by reference.

Item 2.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and 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 introduce products as scheduled, our ability to obtain necessary product certification, our ability to implement our business plan, retention of management, changing industry and competitive conditions, obtaining anticipated operating efficiencies, securing necessary capital facilities, favorable determinations in various legal and regulatory matters, market and operating risks from foreign currency exchange exposures, and favorable general economic conditions. Actual results could differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the Company’s filings with the Securities and Exchange Commission including our Annual Report on Form 10-K for the fiscal year ended July 31, 2010, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

OVERVIEW

Effective January 6, 2011, the Company changed its name to DGT Holdings Corp.

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 proprietary high-voltage power conversion systems including 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. The Company manages its business in two operating segments: the Medical Systems Group and the Power Conversion Group. In addition, the Company has a third reporting segment, Other, comprised of certain unallocated corporate General and Administrative expenses. See Note 8 of the Notes to the Unaudited Financial Statements for discussion of the Company’s segments.

Effective November 24, 2009, the Company sold the Del Medical Imaging business. It is reflected as a discontinued operation in the financial statements of the Company and prior periods have been restated. See Note 2 of the Notes to the Unaudited Financial Statements for details.

CRITICAL ACCOUNTING POLICIES

Complete descriptions of significant accounting policies are outlined in Note 1 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2010. Within these policies, the Company has identified the accounting for revenue recognition, deferred tax assets and the allowance for excess and obsolete inventory as being critical accounting policies due to the significant amount of estimates involved. In addition, for interim periods, the Company has 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 sale 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 collectability of their accounts receivable and provides an allowance for doubtful accounts when collection is not certain.

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 carryforwards.

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. The Company’s determination is based on what it believes will be the more likely than not result.

For fiscal year 2010 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 income tax assets. For the quarter ended April 30, 2011, the Company continues to carry a 100% valuation allowance on its net U.S. deferred income tax asset.

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 at April 30, 2011, will be realized.

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 Inventory

In addition, we use certain estimates in determining interim operating results. The most significant estimates in interim reporting relate to the valuation of finished goods inventories. For certain subsidiaries, for interim periods, we estimate the amount of labor and overhead costs related to finished goods inventories. As of April 30, 2011, finished goods represented approximately 21.0% of the gross carrying value of our total gross inventory. We believe the estimation methodologies used are appropriate and are consistently applied.

RESULTS OF OPERATIONS

Three Months and Nine Months Ended April 30, 2011 Compared to Three Months and Nine Months Ended May 1, 2010

The following table summarizes key indicators of results of operations:

	Three Months Ended						Nine Months Ended
(Dollars in thousands, except per share data)	Apr. 30, 2011			May 1, 2010			Apr. 30, 2011			May 1, 2010
Sales:
Medical Systems Group	$	9,920		$	9,872		$	45,581		$	34,316
Power Conversion Group		2,732			3,278			7,467			8,474
Total	$	12,652		$	13,150		$	53,048		$	42,790

Gross margin as a percentage of sales		20.8	%		23.5	%		22.0	%		24.6	%
Total operating expenses		2,928			2,794			8,998			8,344
Net income (loss) from continuing operations		(350	)		311			1,053			1,105
Diluted earnings per share—continuing operations	$	(0.09	)	$	0.17		$	0.38		$	0.61

Sales for the third quarter of fiscal 2011 declined 3.8% to $12.7 million from $13.2 million in the third quarter of fiscal 2010, due to decreased volume at the Power Conversion Group, where sales declined 16.7% to $2.7 million from $3.3 million in the prior year period, as a result of a decline in customer orders. Sales for the Medical Systems Group, which consists solely of the Villa Sistemi Medicali S.p.A. (“Villa”) subsidiary, were $9.9 million, approximately the same as in the prior year’s third quarter. The Power Conversion Group encompasses the operations of the Company’s RFI Corporation subsidiary (“RFI”).

Sales for the first nine months of fiscal 2011 increased 24.0% to $53.0 million from $42.8 million, due to increased volume at the Medical Systems Group in the first half of the year where sales of $45.6 million reflect an increase of $11.3 million, or 32.8%, from the prior year’s first nine months. The Power Conversion Group’s sales for the first nine months of fiscal 2011 of $7.5 million were approximately $1.0 million, or 11.9%, lower than the prior year’s sales.

Backlog at April 30, 2011, was $13.3 million compared to $11.9 million at July 31, 2010. Backlog at the Medical Systems Group at April 30, 2011 increased $0.6 million from July 31, 2010. Backlog at the Power Conversion Group increased $0.7 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.

Gross margin for the fiscal 2011 third quarter was 20.8% as compared to 23.5% in same period last year. The Medical Systems Group third quarter gross margin of 18.2% was lower than the gross margin of 19.5% in the third quarter of fiscal 2010, primarily due to the mix of product shipped. The Power Conversion Group’s gross margin for the third quarter of fiscal 2011 was 30.2% versus 35.7% in the prior year third quarter due to the reduction in sales.

Gross margin decreased to 22.0% of sales for the first nine months of fiscal 2011 from 24.6% of sales in the first nine months of fiscal 2010. Gross margin at the Medical Systems Group during the first nine months of fiscal 2011 at 22.0% was approximately the same as the same period in the prior year. Gross margin at the Power Conversion Group decreased to 22.0% from 35.2% in the first nine months of fiscal 2010. The decrease in gross margin was attributable to an increase in inventory reserves of $0.5 million

recorded in the second quarter of fiscal 2011 and to higher employee costs, consisting primarily of medical insurance expense.

Total operating expenses in the fiscal 2011 third quarter were $2.9 million, or 23.1% of sales, compared to $2.8 million, or 21.3% of sales, in the prior year’s third quarter. The following table summarizes the key changes in operating expenses for fiscal 2011 from the prior year:

(Dollars in thousands)	Three months ended April 30, 2011			Nine Months ended April 30, 2011
Research and development	$	(74	)	$	34
Selling, general and administrative		208			620
Change in operating expenses	$	134		$	654

Operating loss for the fiscal 2011 third quarter was $0.3 million compared to operating income of $0.3 million in the third quarter of fiscal 2010. The Medical Systems Group incurred an operating loss of $0.2 million in the fiscal 2011 third quarter compared to breakeven operating income in the third quarter of fiscal 2010, on comparable sales volume. The Power Conversion Group had operating income of $0.1 million in the fiscal 2011 third quarter, compared to operating income of $0.5 million in the comparable period last year. Unallocated corporate expenses for the third quarter of fiscal 2011 totaled $0.3 million as compared to $0.2 million in the prior year.

Operating income for the first nine months of fiscal 2011 was $2.7 million compared to $2.2 million in the comparable prior year period. Operating income at the Medical Systems Group was $4.0 million compared to operating income of $1.9 million in the first nine months of fiscal 2010. The Power Conversion Group had an operating loss of $0.5 million for the first nine months of fiscal 2011 primarily related to the increase in inventory reserves, compared to operating income of $1.1 million in the comparable prior year period. Unallocated corporate expenses for the first nine months of fiscal 2011 totaled $0.8 million as compared to $0.8 million in the comparable prior year period.

Discontinued operations had no profit or loss during the third quarter or first nine months of fiscal 2011. The discontinued operations had a minimal loss in the third quarter of fiscal 2010 and a loss of $3.1 million for the first nine months of fiscal 2010.

Loss from continuing operations in the third quarter of fiscal 2011 was $0.4 million, or $0.09 per basic and diluted share, compared to operating income of $0.3 million, or $0.17 per basic and diluted share in the prior year period. For the third quarter of fiscal 2011, there were 3.8 million weighted average diluted common shares outstanding (“shares outstanding”), compared to 1.8 million in the third quarter of fiscal 2010.

Net income for the first nine months of fiscal 2011 was $1.1 million, or $0.38 per basic and diluted share, compared to a net loss of $2.0 million, or $1.10 per basic and diluted share in the comparable prior year period. For the first nine months of fiscal 2011, there were 2.8 million weighted average shares outstanding, compared to 1.8 million in the first nine months of fiscal 2010. The shares outstanding have been restated to reflect the reverse and forward stock splits effected in January 2011.

FINANCIAL CONDITION

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. 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 our foreign subsidiary.

Working Capital — At April 30, 2011 and July 31, 2010, our working capital was $37.6 million and $17.4 million, respectively. The increase in working capital for the first nine months of fiscal 2011 related primarily to the proceeds from the rights offering during the second quarter of fiscal 2011, as well as the mortgage on the property in Bay Shore, NY. At April 30, 2011 and July 31, 2010, the Company had $22.8 million and $4.0 million in cash and cash equivalents, respectively. This increase is due to the rights offering and mortgage proceeds and increases in accounts payable and accrued expenses, offset by increases in our receivables as a result of the increase in sales at the Medical Systems Group.

The Company completed its rights offering in December 2010 and raised $14.3 million, net of expenses of the offering. In addition, the company paid $9 thousand for fractional shares as a result of a one-for-fifty reverse stock split, followed by a four-for-one forward split on January 6, 2011.

In addition, as of April 30, 2011 and July 31, 2010, our Villa subsidiary had $12.3 and $9.1 million 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. subsidiary.

	Nine Months Ended
(Dollars in thousands)	Apr. 30, 2011			May 1, 2010
Net cash provided by operating activities	$	3,712		$	6,932
Net cash used in investing activities		(183	)		(495	)
Net cash provided by (used in) financing activities		14,692			(8,756	)
Effect of exchange rate changes on cash		559			(293	)
Net increase/(decrease) in cash and cash equivalents		18,780			(2,612	)
Cash and cash equivalents at beginning of year		3,987			7,983
Cash and cash equivalents at end of period	$	22,767		$	5,371

Cash Flows from Operating Activities – For the nine months ended April 30, 2011, the Company generated $3.7 million of cash from operations, compared to $6.9 million in the comparable prior fiscal year period from increases in receivables and inventory levels.

Cash Flows from Investing Activities — The Company made $0.2 million of facility improvements and capital equipment expenditures for the nine months ended April 30, 2011, as compared to $0.5 million for the comparable prior fiscal year period.

Cash Flows from Financing Activities — During the nine-month period ended April 30, 2011 the Company received $14.3 million on completion of the Rights Offering in December. The Company also received $2.5 million of proceeds from a mortgage on its Bay Shore, NY facility. Subsequent to the third quarter of fiscal 2011, the Company purchased its facility in Milan, Italy at the conclusion of the lease for

$1.0 million. The Company repaid a total of $0.1 million of indebtedness on our revolving loan agreement, as well as on our Italian borrowings, as compared to $8.8 million in the comparable prior fiscal year period.

The Company’s contractual obligations, including debt and operating leases, as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2010, have not changed materially at April 30, 2011, except for the issuance of a mortgage on the Bay Shore, NY facility, which calls for payments of $17 per month through August 31, 2020. The annual rate is currently 4.9%, adjustable in September 2015. The Company has short-term credit facilities and long-term debt, including a capital lease obligation at the Company’s Villa subsidiary located in Italy. Villa’s manufacturing facility is subject to a capital lease obligation which matured in March 2011 with an option to purchase. Subsequent to the end of the quarter the Company exercised the option to purchase the facility. The terms of these facilities are more fully described in Note 7 of the “Notes to Financial Statements” and incorporated herein by reference.

As of April 30, 2011, the Company had $0.1 million in borrowings under its foreign short-term credit facilities. As of April 30, 2011, the Company had $12.3 million of excess borrowing availability under its Italian bank credit facilities.

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 Quarterly Report on Form 10-Q.

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 financial statements.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not hold market risk sensitive instruments for trading purposes. The Company, however, recognizes market risk from interest rate and foreign currency exchange exposure. There have been no changes in financial market risks as described in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2010.

Item 4.

CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of the Company’s management, including John J. Quicke, President and 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report to ensure that all material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported as specified in the SEC’s rules and forms.

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

PART II - OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

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. In the opinion of management, such legal actions are not expected to have a material adverse effect on the financial condition or results of operations of the Company.

Item 1A.

RISK FACTORS

The risk factors included in our Annual Report on Form 10-K for fiscal year ended July 31, 2010 have not materially changed.

Item 6.

EXHIBITS


31.1*	Certification of the Principal Executive Officer, John J. Quicke, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Principal Financial Officer, Mark A. Zorko, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*	Certification of the Principal Executive Officer, John J. Quicke, pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*	Certification of the Principal Financial Officer, Mark A. Zorko, pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DGT HOLDINGS CORP.

	/s/ John J. Quicke
	John J. Quicke
	President and Chief Executive Officer


	/s/ Mark A. Zorko
	Mark A. Zorko
	Chief Financial Officer

Dated: June 10, 2011

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