United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
for the quarterly period ended March 31, 2008
|
|
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
for the transition period from _______ to
_______
|
COMMISSION
FILE NUMBER 1-12711
DIGITAL
POWER CORPORATION
(Exact
name of small business issuer as specified in its charter)
California
|
|
94-1721931
|
(State
or other jurisdiction of
|
|
(IRS
Employer Identification No.)
|
incorporation
or organization)
|
|
|
41324
Christy Street, Fremont, CA 94538-3158
(Address
of principal executive offices)
(510)
657-2635
(Issuer's
telephone number)
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
o
DIGITAL
POWER CORPORATION
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.
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
Number
of
shares of common stock outstanding as of May 8, 2008: 6,615,708
-
- - - -
- -
DIGITAL
POWER CORPORATION
INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS
OF MARCH 31, 2008
IN
U.S. DOLLARS
UNAUDITED
INDEX
|
Page
|
|
|
Review
of Unaudited Interim Consolidated Financial Statements
|
2
|
|
|
Consolidated
Balance Sheet
|
3
|
|
|
Consolidated
Statements of Income
|
4
|
|
|
Statement
of Changes in Shareholders' Equity
|
5
|
|
|
Consolidated
Statements of Cash Flows
|
6
|
|
|
Notes
to Consolidated Financial Statements
|
7
- 11
|
ERNST
&
YOUNG
The
Board
of Directors
Digital
Power Corporation
|
Re:
|
Review
of unaudited interim consolidated financial statements
|
|
|
|
for
the three-month period ended March 31, 2008
|
|
We
have
reviewed the accompanying consolidated balance sheet of Digital Power
Corporation ("the Company") and its subsidiary as of March 31, 2008, and the
related consolidated statements of income and cash flows for the three-month
periods ended March 31, 2008 and 2007, and the statement of changes in
shareholders' equity for the three-month period ended March 31, 2008. These
financial statements are the responsibility of the Company's
management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the consolidated interim financial statements referred to above for them
to
be in conformity with U.S. generally accepted accounting
principles.
Tel-Aviv,
Israel
|
KOST
FORER GABBAY & KASIERER
|
May
15, 2008
|
A
Member of Ernst & Young Global
|
DIGITAL
POWER CORPORATION
CONSOLIDATED
BALANCE SHEET
U.S.
dollars in thousands (except share and per share data)
|
|
March
31,
2008
|
|
|
|
Unaudited
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,516
|
|
Restricted
cash
|
|
|
105
|
|
Trade
receivables, net of allowance for doubtful accounts of
$ 105
|
|
|
2,607
|
|
Prepaid
expenses and other receivables
|
|
|
152
|
|
Inventories
|
|
|
1,644
|
|
|
|
|
|
|
Total
current assets
|
|
|
6,024
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
155
|
|
|
|
|
|
|
LONG
TERM DEPOSITS
|
|
|
41
|
|
Total
assets
|
|
$
|
6,220
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$
|
656
|
|
Related
parties - trade payables
|
|
|
1,206
|
|
Deferred
revenues
|
|
|
10
|
|
Other
current liabilities
|
|
|
735
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,607
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY:
|
|
|
|
|
Share
capital:
|
|
|
|
|
Series
A redeemable, convertible Preferred shares, no par value: 500,000
shares
authorized, 0 shares issued and outstanding at March 31,
2008
|
|
|
|
|
Preferred
shares, no par value: 1,500,000 shares authorized, 0 shares issued
and outstanding at March 31, 2008
|
|
|
|
|
Common
shares, no par value: 30,000,000 shares authorized; 6,615,708 shares
issued and outstanding at March 31, 2008
|
|
|
|
|
Additional
paid-in capital
|
|
|
13,918
|
|
Accumulated
deficit
|
|
|
(10,503
|
)
|
Accumulated
other comprehensive income
|
|
|
198
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
3,613
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
6,220
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
DIGITAL
POWER CORPORATION
CONSOLIDATED STATEMENTS
OF INCOME
U.S.
dollars in thousands, except share and per share data
|
|
Three
months ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
$
|
3,169
|
|
$
|
2,742
|
|
|
|
|
2,345
|
|
|
1,967
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
824
|
|
|
775
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Engineering
and product development
|
|
|
160
|
|
|
221
|
|
Selling
and marketing
|
|
|
270
|
|
|
229
|
|
General
and administrative
|
|
|
559
|
|
|
300
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
989
|
|
|
750
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
(165
|
)
|
|
25
|
|
Financial
income (expenses), net
|
|
|
4
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(161
|
)
|
$
|
41
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net earnings per share
|
|
$
|
(0.024
|
)
|
$
|
0.006
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
DIGITAL
POWER CORPORATION
STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
U.S.
dollars in thousands, except share data
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
other
|
|
Total
other
|
|
Total
|
|
|
|
Common
shares
|
|
paid-in
|
|
Accumulated
|
|
comprehensive
|
|
comprehensive
|
|
shareholders'
|
|
|
|
Number
|
|
Amount
|
|
capital
|
|
deficit
|
|
income
|
|
income
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
|
6,615,708
|
|
$
|
-
|
|
$
|
13,885
|
|
$
|
(10,342
|
)
|
$
|
200
|
|
|
|
|
$
|
3,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation related to options granted to Telkoor's
employees
|
|
|
-
|
|
|
-
|
|
|
12
|
|
|
-
|
|
|
-
|
|
|
|
|
|
12
|
|
Stock
compensation related to options granted to employees
|
|
|
|
|
|
|
|
|
21
|
|
|
-
|
|
|
|
|
|
|
|
|
21
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(161
|
)
|
|
-
|
|
$
|
(161
|
)
|
|
(161
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Total
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2008 (unaudited)
|
|
|
6,615,708
|
|
$
|
-
|
|
$
|
13,918
|
|
$
|
(10,503
|
)
|
$
|
198
|
|
|
|
|
$
|
3,613
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
DIGITAL
POWER CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S.
dollars in thousands
|
|
Three
months ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Unaudited
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(161
|
)
|
$
|
41
|
|
Adjustments
required to reconcile net income (loss) to net cash provided by (used
in)
operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25
|
|
|
19
|
|
Stock
compensation related to options granted to employees
|
|
|
21
|
|
|
12
|
|
Stock
compensation related to options granted to Telkoor's
employees
|
|
|
12
|
|
|
12
|
|
Decrease
in trade receivables, net
|
|
|
143
|
|
|
426
|
|
Increase
in prepaid expenses and other receivables
|
|
|
(46
|
)
|
|
(47
|
)
|
Decrease
(increase) in inventories
|
|
|
12
|
|
|
(317
|
)
|
Decrease
in accounts payable and related parties- trade payables
|
|
|
(273
|
)
|
|
(203
|
)
|
Increase
(decrease) in deferred revenues and other current
liabilities
|
|
|
319
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
52
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
Proceeds
from (purchase of) property and equipment, net
|
|
|
18
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
18
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
3
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
73
|
|
|
(269
|
)
|
Cash
and cash equivalents at the beginning of the period
|
|
|
1,443
|
|
|
1,494
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
1,516
|
|
$
|
1,225
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
DIGITAL
POWER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
Digital
Power Corporation ("the Company" or "DPC") was incorporated in 1969, under
the
General Corporation Law of the state of California. The Company has a
wholly-owned subsidiary, Digital Power Limited ("DPL"), located in the United
Kingdom. The Company and its subsidiary are currently engaged in the design,
manufacture, sale and distribution of switching power supplies and converters.
The Company has two reportable geographic segments - North America (sales
through DPC) and Europe (sales through DPL).
NOTE
2:-
|
SIGNIFICANT
ACCOUNTING POLICIES
|
|
a.
|
The
significant accounting policies applied in the annual financial statements
of the Company as of December 31, 2007, are applied consistently
in these
financial statements. In addition, the following accounting policy
is
applied:
|
The
accompanying unaudited consolidated financial statements as of March 31,
2008, and for the three months ended March 31, 2008 and 2007 are unaudited
and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of the financial condition and results of operations,
contained in the Company Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007. The results of operations for the three months ended March
31, 2008, are not necessarily indicative of the results for the entire fiscal
year ending December 31, 2008.
|
b.
|
Accounting
for stock-based compensation:
|
The
Company has several stock-based employee compensation plans, which are described
more fully in Note 4. Effective January 1, 2006, the Company adopted the fair
value recognition provisions of FASB Statement No. 123(R), "Share-Based Payment"
("SFAS 123(R)"),
using the modified-prospective-transition method.
The
Company and its subsidiaries apply SFAS 123 and Emerging Issues Task Force
No.
96-18 "Accounting for Equity Instruments that are Issued to Other than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF
96-18"), with respect to options issued to non-employees. SFAS 123 requires
use
of an option valuation model to measure the fair value of the options at the
grant date.
DIGITAL
POWER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
|
|
March
31,
2008
|
|
|
|
Unaudited
|
|
|
|
|
|
Raw
materials, parts and supplies
|
|
$
|
306
|
|
Work
in progress
|
|
|
194
|
|
Finished
products
|
|
|
1144
|
|
|
|
|
|
|
|
|
$
|
1,644
|
|
NOTE
4:-
|
ACCOUNTING
FOR STOCK BASED
COMPENSATION
|
|
1.
|
Under
the Company's stock option plans, options may be granted to employees,
officers, consultants, service providers and directors of the Company
or
its subsidiaries.
|
|
2.
|
As
of March 31, 2008, the Company has authorized, by several Incentive
Share
Option Plans, the grant of options to officers, management, other
key
employees and others of up to 2,272,000 of the Company's Common shares.
As
of March 31, 2008, an aggregate of 735,870 of the Company's options
are
still available for future grant.
|
|
3.
|
The
options granted generally become fully exercisable after four years
and
expire no later than 10 years from the approval date of the option
plan
under the terms of grant. Any options that are forfeited or cancelled
before expiration become available for future
grants.
|
A
summary
of the Company's employee share option activity (except options to consultants
and service providers) and related information is as follows:
|
|
Three
months ended March 31, 2008
|
|
|
|
Amount
of
options
|
|
Weighted
average
exercise
price
|
|
Weighted
average remaining contractual term (years)
|
|
Aggregate
intrinsic value *)
|
|
Outstanding
at the beginning of the period
|
|
|
930,190
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(31,155
|
)
|
$
|
2.31
|
|
|
|
|
|
|
|
Outstanding
at the end of the period
|
|
|
899,035
|
|
$
|
1.11
|
|
|
5.96
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
options at the end of the period
|
|
|
751,535
|
|
$
|
1.03
|
|
|
5.45
|
|
|
338
|
|
|
*)
|
Calculation
of aggregate intrinsic value is based on the share price of the Company's
Common stock as of March 31, 2008 ($ 1.41 per
share).
|
DIGITAL
POWER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
4:-
|
ACCOUNTING
FOR STOCK BASED COMPENSATION
(Cont.)
|
Under
the
provisions of SFAS 123(R), the fair value of each option is estimated on the
date of grant using a Black-Scholes option valuation model that uses the
assumptions noted in the following table. Because Black-Scholes option valuation
models incorporate various judgmental assumptions for inputs, those assumptions
are disclosed. Expected volatility is based exclusively on historical volatility
of the entity's stock as allowed by
SFAS
123(R). The Company uses historical information with respect to the employee
options exercised to estimate the expected term of options granted, representing
the period of time that options granted are expected to be outstanding The
risk-free interest rate of period within the contractual life of the option
is
based on the U.S. Treasury yield curve in effect at the time of
grant.
No
options were granted during the first quarter of 2008.
As
of
March 31, 2008, there was $ 122 of total unrecognized compensation cost related
to unvested share-based compensation arrangements granted under the plan. That
cost is expected to be recognized over a period of 4 years.
|
b.
|
Employee
Stock Ownership Plan:
|
The
Company has an Employee Stock Ownership Plan ("ESOP") covering eligible
employees. The ESOP provides for the Employee Stock Ownership Trust ("ESOT")
to
distribute shares of the Company's Common shares as retirement benefits to
the
participants. The Company has not distributed shares since 1998. As of March
31,
2008, the outstanding Common shares held by the ESOT amount to 167,504
shares.
NOTE
5:- NET
EARNINGS (LOSS) PER SHARE
The
following table sets forth the computation of the basic and diluted net earnings
(loss)per share:
1. Numerator:
|
|
Three
months ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
income (loss) available to Common stockholders
|
|
$
|
(161
|
)
|
$
|
41
|
|
2. Denominator:
|
|
|
|
|
|
Denominator
for basic net earnings per share of weighted average number of Common
stock
|
|
|
6,615,708
|
|
|
6,610,708
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
-
|
|
|
346,182
|
|
Convertible
note
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net earnings per share of Common stock
|
|
|
6,615,708
|
|
|
6,956,890
|
|
DIGITAL
POWER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
6:-
|
SEGMENTS,
MAJOR CUSTOMERS AND GEOGRAPHIC
INFORMATION
|
The
Company has two reportable geographic segments, see Note 1 for a brief
description of the Company's business. The data is presented in accordance
with
Statement of Financial Accounting Standard No.131, "Disclosure About Segments
of
an Enterprise and Related Information" ("SFAS No. 131").
The
following data presents the revenues, expenditures and other operating data
of
the Company's geographic operating segments:
|
|
Three
months ended March 31, 2008 (unaudited)
|
|
|
|
DPC
|
|
DPL
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,149
|
|
$
|
2,020
|
|
$
|
-
|
|
$
|
3,169
|
|
Intersegment
revenues
|
|
|
29
|
|
|
-
|
|
|
(29
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
1,178
|
|
$
|
2,020
|
|
$
|
(29
|
)
|
$
|
3169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
$
|
8
|
|
$
|
17
|
|
$
|
-
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
(243
|
)
|
$
|
78
|
|
$
|
-
|
|
$
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income, net
|
|
|
|
|
|
|
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(236
|
)
|
$
|
75
|
|
$
|
-
|
|
$
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for segment assets,net as of March 31, 2008
|
|
$
|
-
|
|
$
|
8
|
|
$
|
-
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets as of March 31, 2008
|
|
$
|
2,413
|
|
$
|
3,807
|
|
$
|
-
|
|
$
|
6,220
|
|
DIGITAL
POWER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
6:-
|
SEGMENTS,
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
(Cont.)
|
|
|
Three
months ended March 31, 2007 (unaudited)
|
|
|
|
DPC
|
|
DPL
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,203
|
|
$
|
1,539
|
|
$
|
-
|
|
$
|
2,742
|
|
Intersegment
revenues
|
|
|
36
|
|
|
-
|
|
|
(36
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
1,239
|
|
$
|
1,539
|
|
$
|
(36
|
)
|
$
|
2,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
$
|
5
|
|
$
|
14
|
|
$
|
-
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
(57
|
)
|
$
|
82
|
|
$
|
-
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income, net
|
|
|
|
|
|
|
|
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(47
|
)
|
$
|
88
|
|
$
|
-
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for segment assets as of March 31, 2007
|
|
$
|
-
|
|
$
|
18
|
|
$
|
-
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets as of March 31, 2007
|
|
$
|
2,340
|
|
$
|
3,035
|
|
$
|
-
|
|
$
|
5,375
|
|
ITEM
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
With
the
exception of historical facts stated herein, the matters discussed in this
report are "forward looking" statements that involve risks and uncertainties
that could cause actual results to differ materially from projected results.
Such "forward looking" statements include, but are not necessarily limited
to,
statements regarding anticipated levels of future revenues and earnings from
operations of the Company. Factors that could cause actual results to differ
materially include, in addition to other factors identified in this report,
dependence on the electronic equipment industry, competition in the power supply
industry, dependence on manufacturers in China and other risks factors detailed
in the Company's Form 10-KSB for the year ended December 31, 2007. Readers
of
this report are cautioned not to put undue reliance on "forward looking"
statements which are, by their nature, uncertain as reliable indicators of
future performance. The Company disclaims any intent or obligation to publicly
update these "forward looking" statements, whether as a result of new
information, future events, or otherwise.
GENERAL
We
are
engaged in the business of designing, developing, manufacturing, marketing,
selling and distributing switching power supplies to the industrial,
telecommunication, and data communication, medical and military industries.
Revenues are generated from sales to distributors and OEMs in North America
and
Europe.
We
have
continued our efforts to increase sales to existing and new customers, and
continue our strategy to manufacture our products in the Far East. While we
believe our revenues have increased to a sufficient amount to offset our
expenses, we may be subject to net losses in an individual quarter. We believe
that our cash will be sufficient to fund those losses for at least 12
months.
Our
corporate office, which contains our administrative, sales, and engineering
functions, is located in Fremont, California (DPC). In addition the Company
has
a wholly-owned subsidiary, Digital Power Limited ("DPL"), located in Salisbury,
England.
THREE
MONTHS ENDED MARCH 31, 2008, COMPARED TO MARCH 31, 2007
REVENUES
Total
revenues increased by 15.6% to $3,169,000 for the first quarter ended March
31,
2008, from $2,742,000 for the first quarter ended March 31, 2007.
Revenues
from the domestic operations of DPC decreased by 4.5% to $1,149,000 for the
first quarter ended March 31, 2008, from $1,203,000 for the first quarter ended
March 31, 2007. The decrease in product revenues is mainly attributed to
maturation issues related to older product lines, offset partially by increase
product revenue from the newer product lines.
Revenues
from the Company’s European operations of (Digital Power, LTD) DPL increased
31.3% to $2,020,000 for the first quarter ended March 31, 2008, from $1,539,000
for the first quarter ended March 31, 2007. The increase in revenues is due
to
an increase in sales of our high density product lines offset partially by
the
decrease in sales of our older product lines.
Revenues
from the military products of the Company decreased by 6.5% to $676,000 for
the
first quarter ended March 31, 2008, from $723,000 for the first quarter ended
March 31, 2007. The decrease in military product revenues is mainly due to
scheduling and lead-time requirements of customer orders.
Revenue
from the commercial products of the Company increased by 23.5% to $2,493,000
from the first quarter ended March 31, 2008, from $2,019,000 for the first
quarter ended March 31, 2007. The increase in commercial product revenues is
mainly attributed to increase of revenues from the newer product lines offset
partially by the declining demand on our older product lines.
GROSS
MARGINS
Gross
margins were 26.0% for the three months ended March 31, 2008, compared to 28.3%
for the three months ended March 31, 2007. The decrease in gross margin is
mainly due to the increase in revenues from our high density product lines
which
generate lower margins, and to inventory reserves.
ENGINEERING
AND PRODUCT DEVELOPMENT
Engineering
and product development expenses were 5.05% of revenues for the three months
ended March 31, 2008, and 8.1 % for the three months ended March 31, 2007.
The
decrease is mainly due to lower consulting services expenses.
SELLING
AND MARKETING
Selling
and marketing expenses were 8.5% of revenues for the three months ended March
31, 2008, compared to 8.4% for the three months ended March 31, 2007. Actual
dollar expenditures increased by $41,000 partially due to the addition of one
sales person.
GENERAL
AND ADMINISTRATIVE
General
and administrative expenses were 17.6% of revenues for the three months ended
March 31, 2008 compared to 10.9% for the three months ended March 31, 2007.
In
actual dollars, general and administrative expenses increased by $259,000,
mainly due to the accrual of all liabilities in relation to the separation
agreement with the Company’s former President and Chief Executive
Officer.
FINANCIAL
INCOME
Net
financial income was $4,000 for the three months ended March 31, 2008, compared
to net financial expense of $16,000 for the three months ended March 31, 2007.
Financial income is mainly from interest received from cash and cash
equivalents.
NET
INCOME (LOSS)
Net
loss
for the three months ended March 31, 2008, was $161,000 compared to net income
of $41,000 for the three months ended March 31, 2007, primarily due to accrued
liabilities in relation to the separation agreement of the former President
and
Chief Executive Officer
LIQUIDITY
AND CAPITAL RESOURCES
On
March
31, 2008, the Company had cash, cash equivalent and a short-term bank deposit
of
$1,516,000 and working capital of $3,417,000. This compares with cash and cash
equivalent of $1,225,000 and working capital of $3,373,000 on March 31, 2007.
The increase in working capital is mainly due to an increase in cash and cash
equivalent, an increase in trade receivables, offset partially by a decrease
in
inventory, and an increase in related party trade payables and in other current
liabilities.
Cash
provided by operating activities for the Company totaled $52,000 for the three
months ended March 31, 2008, compared to cash used of $252,000 for the three
months ended March 31, 2007. The cash provided by operating activities was
mainly from decrease in trade receivable and an increase in current
liabilities.
Cash
provided by investing activities was $18,000 for the three months ended March
31, 2008, compared to cash used of $18,000 for the three months ended March
31,
2007. Cash provided by investing activities is due to proceeds received from
the
landlord for leasehold improvements completed and expensed during the prior
quarter in the new location in Fremont, California.
ITEM
3.
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable to “smaller reporting companies.”
ITEM
4T
CONTROLS AND PROCEDURES
The
Chief
Executive Officer and the Chief Financial Officer of the Company (its principal
executive officer and principal financial officer, respectively) have concluded,
based on their evaluation as of the end of the period covered by this report,
that the Company’s disclosure controls and procedures pursuant to
Rule 13a-15 of the Securities Exchange Act of 1934 are effective to ensure
that information required to be disclosed by the Company in the reports filed
or
submitted by it under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Company in such reports
is accumulated and communicated to the Company’s management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
There
were no changes in the Company’s internal controls over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that
occurred during the fiscal quarter ended March 31, 2008 that have
materially affected or are reasonably likely to materially affect these
controls.
PART
II.
OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
ITAR
(International Trafficking and Arms Regulation): The Company filed a voluntary
disclosure with the United States State Department regarding violations of
the
ITAR it discovered. On April 22, 2008, the company received a notice from the
State Department closing this case without taking civil penalty action. In
addition, the Company has filed applications with the State Department to
register as a “Broker” and “Manufacturer/Exporter” of Defense Articles/Services
under the ITAR.
ITEM
1A.
RISK FACTORS
Not
applicable to “smaller reporting companies.”
ITEM
2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
SECURITIES
None.
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5.
OTHER INFORMATION
None.
ITEM
6.
EXHIBITS
Exhibits
31.1
|
Certification
of the CEO under the Sarbanes-Oxley Act
|
31.2
|
Certification
of the CFO under the Sarbanes-Oxley Act
|
32
|
Certification
of the CEO & CFO under the Sarbanes-Oxley Act
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGITAL
POWER CORPORATION
(Registrant)
Date:
|
_________
|
__________________________
|
|
|
Ben-Zion
Diamant,
|
|
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
|
Date:
|
_________
|
__________________________
|
|
|
Uri
Friedlander,
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial Officer)
|