U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended March 31,
1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D)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 _______ to _______ |
COMMISSION FILE NUMBER 1-12711
DIGITAL POWER CORPORATION
(Exact
(Exact name of small business issuer as specified in its charter)
California 94-1721931
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
41920
California | | 94-1721931 |
| (State or other jurisdiction of | | (IRS Employer Identification No.) |
| incorporation or organization) | | |
41324 Christy Street, Fremont, CA 94538-3158
(Address
(Address of principal executive offices) (Zip Code)
(510) 657-2635
(Issuer's
(Issuer's telephone number)
Check
Indicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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 [ ] xNo [X]
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,
1998: 2,700,685
Transitional Small Business disclosure format
Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2008: 6,615,708
- - - - - - -
DIGITAL POWER CORPORATION AND SUBSIDIARY
CONDENSED
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
MARCH 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 287,067
Cash - Restricted 600,000
Accounts receivable - trade, net
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
allowance for
doubtful accounts of $235,000 4,601,928
Other receivables 262,772
Inventory, net 6,648,842
Prepaid expenses and deposits 82,019
Deferred income taxes 119,139
------------
Total current assets 12,601,767
PROPERTY AND EQUIPMENT, net 1,362,451
GOODWILL, net 1,101,311
DEPOSITS 22,668
------------
TOTAL ASSETS $ 15,088,197
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current debt $ 1,500,000
Current portion of long-term debt 99,541
Current portion of capital lease obligations 13,093
Accounts payable 2,912,818
Accrued liabilities 2,173,163
------------
Total current liabilities 6,698,615
LONG-TERM DEBT, less current portion 201,871
DEFERRED INCOME TAXES 32,227
OBLIGATIONS UNDER CAPITAL LEASE, less current portion 2,625
-----------
Total liabilities 6,935,338
-----------
(Continued)
the consolidated financial statements.
DIGITAL POWER CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEET
(Continued)
COMMITMENTS AND CONTINGENCIES (Note 3) -
STOCKHOLDERS' EQUITY:
Series A cumulative redeemable convertible preferred
stock, no par value, 2,000,000 shares authorized, 0
shares issuedSTATEMENTS OF INCOME
U.S. dollars in thousands, except share and outstanding -
Common stock, no par value, 10,000,000 shares authorized,
2,700,685 shares issued and outstanding 8,888,173
Warrants 96,678
Additional Paid-in Capital 381,260
Accumulated deficit (994,507)
Unearned employee stock ownership plan shares (301,412)
Foreign currency translation adjustment 82,667
-----------
Total stockholders' equity 8,152,859
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,088,197
===========
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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 AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
STATEMENT OF INCOME
THREE MONTHS ENDED
MARCH 31,
1998 1997
REVENUES $ 5,055,331 $ 3,799,154
COST OF GOODS SOLD 3,535,354 2,799,446
----------- -----------
Gross Margin 1,519,977 999,708
----------- -----------
OPERATING EXPENSES:
Engineering and product development 269,896 206,246
Marketing and selling 344,479 119,061
General and administrative 306,052 227,643
----------- -----------
Total operating expenses 920,427 552,950
----------- -----------
INCOME FROM OPERATIONS 599,550 446,758
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 1,880 23,187
Interest expense (47,234) (27,760)
Translation loss (3,521) (2,200)
----------- -----------
Other income (expense) (48,875) (6,773)
----------- -----------
INCOME BEFORE INCOME TAXES 550,675 439,985
PROVISION FOR INCOME TAXES 256,242 205,352
----------- -----------
NET INCOME $ 294,433 $ 234,633
=========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.11 $ 0.09
=========== ===========
Diluted $ 0.09 $ 0.07
=========== ===========
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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 AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 294,433 $ 234,633
----------- -----------
Adjustments to reconcile net income to net
cash used
U.S. dollars in operating activities:
Depreciation and amortization 74,265 29,231
Deferred income taxes (15,234) (67,700)
Contribution to ESOP 24,011 20,417
Compensation costs recognized upon
issuancethousands
| | | 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
warrants 48,032 -
Foreign currency translation adjustment 3,521 2,200
Changes in operating assets and liabilities:
Cash restricted (600,000) -
Accounts receivable (450,129) (142,724)
Other receivables 13,777 (108,141)
Inventory (1,062,754) (868,085)
Prepaid expenses 47,231 (31,182)
Other assets (5,408) (4,263)
Accounts payable (174,290) 452,498
Other accrued liabilities 1,275,179 (48,481)
----------- -----------
Net adjustments (821,799) (766,230)
----------- -----------
Net cash used in operating activities (527,366) (531,597)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Gresham Technology (2,939,590) -
Purchases of property and equipment (34,911) (156,503)
----------- -----------
Net cash used in investing activities (2,974,501) (156,503)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and
warrants - 493,628
Proceeds from exercise of stock options
and warrants 31,000 13,500
Principal payments on notes payable (24,011) (155,896)
Principal payments on capital lease
obligations (2,483) (3,230)
Proceeds from line of credit 1,500,000 1,990,000
Principal payments on line of credit - (3,187,330)
----------- -----------
Net cash provided by (used in) financing
activities 1,504,506 (849,328)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 79,146 (2,200)
----------- -----------
(Continued)
the consolidated financial statements.
DIGITAL POWER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
NET DECREASE IN CASH (1,918,215) (1,539,628)
CASH AND CASH EQUIVALENTS, beginning of
period 2,205,282 2,955,299
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 287,067 $ 1,415,671
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 27,854 $ 40,757
=========== ===========
Income taxes $ 30,000 $ 256,402
=========== ===========
SEE ACCOMPANYING
NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
DIGITAL POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
NOTE 1 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 - BASIS OF PRESENTATION
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 have been preparedshould be read in accordanceconjunction with generally accepted accounting
principles for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to theconsolidated financial statements and footnotesnotes thereto, includedtogether with management's discussion and analysis of the financial condition and results of operations, contained in the Company's annual
reportCompany Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments considered necessary to
present fairly the Company's financial position at March 31, 1998,2007. The results of operations for the three month periods ended March 31, 1998
and 1997 and cash flows for the three months ended March 31, 1998 and
1997. The results for the period ended March 31, 1998,2008, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 1998.
On2008.
| 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 26, 1998,1, 2006, the Company acquiredadopted the assetsfair value recognition provisions of Gresham Power
Electronics, a division of Gresham Lion Technology Ltd.FASB Statement No. 123(R), a European
Corporation. "Share-Based Payment" ("SFAS123(R)"), using the modified-prospective-transition method.
The Company paid US$2.7 million cash plus earn-out and acquisition costs. The net asset value (NAV) will be determined asits 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 January 26, 1998 and will be equalan option valuation model to measure the fair value of the fixed assets,
accounts receivable,options at the grant date.
DIGITAL POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and inventory, lessper 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
agreed
liabilities. The cash consideration will be increased by US$1.6284
for each pounddate of grant using a Black-Scholes option valuation model that
uses the
NAV exceeds UK1,100,000 and decreasedassumptions noted in the same way. Fromfollowing 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 transfer dateentity'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,
1998, an accounting will
be done and additional consideration shall be paid as follows: (a) US$1.15
for every pound2008, there was $ 122 of
earnings before interest, taxes, and purchaser group charges
in excess of UK250,000 uptotal unrecognized compensation cost related to a maximum payment of US$300,000;
and (b) US$300,000 in the event that the postunvested share-based compensation NAV equals or
exceeds UK1,000,000. The additional consideration duearrangements granted under the agreementplan. That cost is currently estimatedexpected to be US$354,000. Asrecognized over a resultperiod of the
acquisition, the financial statements for the period ended March 31, 1998
are not comparable to the financial statements for the period ended March 31,
1997.
4 years.
| b. | Employee Stock Ownership Plan: |
The Company has
filed a Form 8-K announcing this acquisition, however, the
required audited financial statements and pro forma financial information
has not been filed, and will be filed as soon as practicable.
NOTE 2 - EARNINGS PER SHAREan Employee Stock Ownership Plan ("ESOP") covering eligible employees. The
following represents the calculation of the earnings per share:
March 31,
1998 1997
BASIC
Net income $ 294,433 $ 234,633
Less - preferred stock dividends - -
---------- ----------
Net income applicable to common
shareholders $ 294,433 $ 234,633
========== ==========
Weighted average number of common
shares 2,698,723 2,502,542
Basic earnings per share $ 0.11 $ 0.09
========== =========
DILUTED
Net income available to common
shareholders $ 294,433 $ 234,633
Preferred stock dividend - -
---------- ----------
Net income available to common
shareholders plus assumed conversion $ 294,433 $ 234,633
========== ==========
Weighted average number of common
shares 2,698,723 2,502,542
========== ==========
Common stock equivalent shares
representing shares issuable upon
exercise of stock options 421,735 437,309
Common stock equivalent shares
representing shares issuable upon
exercise of warrants 160,523 260,543
---------- ----------
Weighted average number of shares used
in calculation of diluted income per
share 3,280,981 3,200,394
========== ==========
Diluted earnings per share $ 0.09 $ 0.07
========== ==========
NOTE 3 - COMMITMENTS AND CONTINGENCIES
On April 20, 1998, the Company was served with a complaint in the
Superior Court of California in andESOP provides for the County of Santa Clara
(Case No. CV773108) by KDK Electronics, Inc.Employee Stock Ownership Trust ("KDK"ESOT"). In its
complaint, KDK alleges breach of contract, misappropriation of trade
secrets, fraud, and negligent misrepresentation in connection with,
among other things, the Company's alleged failure to pay KDK royalties
on sales of products that were allegedly derived from KDK's designs,
and for failure to issue 100,000distribute shares of the Company's Common Stock
based on revenues from those products. KDK's complaint seeks economic
damages of approximately $300,000, punitive and exemplary damages,
injunctive relief, attorneys' fees and costs.shares as retirement benefits to the participants. The Company has answerednot distributed shares since 1998. As of March 31, 2008, the complaintoutstanding 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 intends to vigorously defend itselfdiluted 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 the lawsuit.
thousands, except share and per share data
NOTE 6:- | SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION |
The litigation is in its initial stages.
On March 17, 1998,Company has two reportable geographic segments, see Note 1 for a lawsuit was filed by Ignacio Valencia against the
Company in the Superior Courtbrief description of Santa Clara County (No. CV772665)
alleging deceit and breach of contract. In the complaint, Mr. Valencia
alleges that in 1986, Mr. Valencia moved his family to Guadalajara,
Mexico on reliance that he would become president of Poder Digital S.A.
de C.V. ("Poder"), the Company's wholly-owned subsidiarybusiness. The data is presented in accordance with Statement of Financial Accounting Standard No.131, "Disclosure About Segments of an Enterprise and would
receive forty percentRelated Information" ("SFAS No. 131").
The following data presents the revenues, expenditures and other operating data of the profits of Poder. Mr. Valencia is claiming
lost wages of $52,000Company'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 lost stock options of $350,000 and punitive
damages. The litigation is in its initial stages, and the Company
intends to vigorously defend itself in the lawsuit.
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,
a high degree of customer concentration,
dependence on the
computer and other electronic equipment industry, competition in the power supply industry, dependence on
the
Guadalajara, Mexico facility,manufacturers in China and other risks factors detailed in the Company's
Securities and Exchange Commission ("SEC") filings
including the risk factors set forth in Company's Registration
Statement on Form SB-2, SEC File No. 333-14199 and "Certain
Consideration" section in the Company's Form 10-KSB for the year
ended December 31, 1997.2007. 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, 1998,2008, COMPARED TO MARCH 31, 1997.
2007
REVENUES
Revenues
Total revenues increased by 33%15.6% to $5,055,331$3,169,000 for the first quarter ended March 31, 1998,2008, from $3,799,154$2,742,000 for the first quarter ended March 31, 1997. This increase in sales can be attributed2007.
Revenues from the domestic operations of DPC decreased by 4.5% to the
acquisition on January 26, 1998, of Gresham Power in the United
Kingdom which contributed $1,799,867 to the Company's revenues of
the first quarter ended March 31, 1998. The electronics industry is
experiencing some softness and demand for the Company's products will
be adversely affected through at least the Company's second quarter.
GROSS MARGINS
Gross margins were 30.0%$1,149,000 for the first quarter ended March 31, 1998,
compared to 26.3%2008, from $1,203,000 for the first quarter ended March 31, 1997.2007. The improvementdecrease in gross margins can primarily beproduct revenues is mainly attributed to greater
capacity utilization andmaturation 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 sales of higher wattage supplies
which generated higher gross margins.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were 12.9% of revenues31.3% to $2,020,000 for the first quarter ended March 31, 1998, compared to 9.1%2008, from $1,539,000 for the first quarter ended March 31, 1997.2007. The increase in selling,
general and administrative expenses wasrevenues is due primarily to an increase in sales of our high density product lines offset partially by the increased legal and accounting expenses requireddecrease in sales of our older product lines.
Revenues from the military products of the Company decreased by
public companies
for financial and regulatory reporting.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses increased by $63,6506.5% to $676,000 for the first quarter ended March 31,
1998, compared to the first quarter
ended March 31, 1997. This increase in expenses was due primarily
to engineering staff additions and increased consulting fees for
advanced development effort.
INTEREST EXPENSE
Interest expense, net of interest income, was $45,3542008, from $723,000 for the first quarter ended March 31, 1998, compared2007. The decrease in military product revenues is mainly due to $4,573scheduling 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, 1997.2007. The increase in interest was duecommercial product revenues is mainly attributed to increased borrowingsincrease of revenues from the newer product lines offset partially by the declining demand on the bank line of credit for partial financing
of the Gresham Power acquisition.
INCOME BEFORE INCOME TAXES
Income before income taxes increased by $110,690 from $439,985our older product lines.
GROSS MARGINS
Gross margins were 26.0% for the first quarterthree months ended March 31, 1997,2008, compared to $550,67528.3% for the first
quarterthree months ended March 31, 1998. This increase can be attributed2007. The decrease in gross margin is mainly due to the improvementincrease in grossrevenues from our high density product lines which generate lower margins, which more than offsetand to inventory reserves.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses were 5.05% of revenues for the increases
in the Company's operating expenses.
INCOME TAX
Provision for income tax increased from $205,352 in the first
quarterthree months ended March 31, 1997, to $256,2422008, and 8.1 % for the first quarterthree months ended March 31, 1998. For2007. The decrease is mainly due to lower consulting services expenses.
SELLING AND MARKETING
Selling and marketing expenses were 8.5% of revenues for the quarterthree months ended March 31, 1998, taxes
were provided at an effective rate of 41% for income earned in the
United States and 24% for income earned in the United Kingdom.
NET INCOME
Net income2008, compared to 8.4% for the first quarterthree months ended March 31, 1998, was $294,433
compared2007. Actual dollar expenditures increased by $41,000 partially due to $234,633the addition of one sales person.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were 17.6% of revenues for the first quarterthree months ended March 31, 1997, an
increase2008 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 25%. The increaseall 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 wasof $41,000 for the three months ended March 31, 2007, primarily due to increased
revenuesaccrued liabilities in relation to the separation agreement of the former President and improved gross margins which more than offset increases
in operating expenses.
Chief Executive Officer
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1998,2008, the Company had cash, cash equivalent and cash equivalentsa short-term bank deposit of $287,067$1,516,000 and working capital of $5,903,152.$3,417,000. This compares with cash and cash equivalentsequivalent of $1,415,671$1,225,000 and working capital of $5,011,466
at$3,373,000 on March 31, 1997.2007. The increase in working capital is primarilymainly due to an increase in receivablescash and inventory, offset bycash equivalent, an increase in accounts payable and bank line of credit borrowings resulting intrade receivables, offset partially by a decrease in cashinventory, and cash equivalents. an increase in related party trade payables and in other current liabilities.
Cash
usedprovided by operating activities for the Company totaled
$527,366 and $531,597$52,000 for the three months ended March 31,
1998 and 1997, respectively. Cash2008, compared to cash used
in investing
activities consisted of
expenditures$252,000 for
the acquisition of Gresham
Power in the United Kingdom and expenditures for the purchase of production
and testing equipment. Such expenditures increased to $2,974,501
during the three months ended March 31, 1998,2007. The cash provided by operating activities was mainly from $156,503 during
the prior year period. Duringdecrease in trade receivable and an increase in current liabilities.
Cash provided by investing activities was $18,000 for the three months ended March 31, 1998,2008, compared to cash provided by financing activities included net increase in
borrowingsused of $1,473,506 plus proceeds from the sale of warrants of $31,000.
The increase in the borrowings came from the Company's amended line of
credit and was used to pay part of the purchase price of the acquisition
of Gresham. The line of credit allows$18,000 for borrowings up to a maximum
of $3,000,000, requires monthly interest payments at the bank's prime
rate and expires June 15, 1998. During the three months ended March 31, 1997, cash used in financing2007. Cash provided by investing activities included net reduction in borrowings
of $1,356,456 offset byis due to proceeds of $507,128received from the sale of common stock,
warrantslandlord 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
exerciseChief Financial Officer of
stock options. During the
three months ended
March 31, 1997,Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of the
Company's lineend of
creditthe period covered by this report, that the Company’s disclosure controls and
bank loans were paid in
full.
The Company will beprocedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 are effective to ensure that information required to
pay additional consideration related to the
Gresham acquisition currently estimated to be
$354,000. The Company has
placed $600,000 in an escrow account to pay for the additional consideration.
As of March 31, 1998, the $600,000 was included in restricted cash.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's, or its suppliers' and customers' computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or mis-
calcuations causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company has recently acquired new software and has been informeddisclosed by
its suppliers that such software used by the Company is Year 2000 compliant.
The software from these suppliers is used in major areas of the Company's
operations such as for financial, sales, warehousing and administrative
purposes. The Company has no internally generated software. In
connection with the acquisition of Gresham Power, the Company has determined
that Gresham Power's existing software will not be Year 2000 compliant,
and intends to acquire new software to address the Year 2000 Issue. Other
than Gresham Power, and after reasonable investigation, the Company has not
yet identified any other Year 2000 problem but will continue to monitor the
issue. However, there can be no assurances that the Year 2000 problem
will not occur with respect to the Company's computer systems.
Neither the Company nor its subsidiary has initiated formal communications
with significant suppliers and large customers to determine the extent to
which those third parties' failure to remedy their own Year 2000 Issues
would materially effect the Company and its subsidiaries. The Company
has not received any indication from its suppliers and large customers
that the Year 2000 Issue may materially effect their ability to conduct
business and the Company has no current plans to formally undertake such
an assessment.
PART II. OTHER INFORMATION
ITEM 1.
On April 20, 1998, the Company was served with a complaint in the
Superior Court of California in and for the County of Santa Clara
(Case No. CV773108) by KDK Electronics, Inc. ("KDK"). In its
complaint, KDK alleges breach of contract, misappropriation of trade
secrets, fraud, and negligent misrepresentation in connection with,
among other things, the Company's alleged failure to pay KDK
royalties on sales of products that were allegedly derived from
KDK's designs, and for failure to issue 100,000 shares of the
Company's Common Stock based on revenues from those products. KDK's
complaint seeks economic damages of approximately $300,000, punitive
and exemplary damages, injunctive relief, attorneys' fees and costs.
The Company has answered the complaint and intends to vigorously
defend itself in the lawsuit. The litigation is in its initial
stages.
On March 17, 1998, a lawsuit was filed by Ignacio Valencia against the Company in the Superior Courtreports filed or submitted by it under the Securities Exchange Act of Santa Clara County (No.
CV772665) alleging deceit1934, as amended, is recorded, processed, summarized and breachreported 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 contract. In1934) that occurred during the complaint,
Mr. Valencia allegesfiscal quarter ended March 31, 2008 that in 1986, Mr. Valencia moved his familyhave materially affected or are reasonably likely to Guadalajara, Mexico on reliance that he would become president of
Poder Digital S.A. de C.V. ("Poder"),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
Company's wholly-owned
subsidiary and would receive forty percentUnited States State Department regarding violations of the
profits of Poder.
Mr. Valencia is claiming lost wages of $52,000 and lost stock
options of $350,000 and punitive damages. The litigation is in its
initial stages, andITAR 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
intendshas filed applications with the State Department to
vigorously defend itself
inregister as a “Broker” and “Manufacturer/Exporter” of Defense Articles/Services under the
lawsuit.
ITEMS 2, 3, 4,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. Not Applicable.
OTHER INFORMATION
None.
ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K
(a) None
(b) Report on Form 8-K for the period ended January 26, 1998, was
filed February 10, 1998, regarding the acquisition of Gresham
Power.
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 Securities Exchange Act, of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIGITAL POWER CORPORATION
(Registrant)
Date: May 20, 1998 ROBERT O. SMITH
________________________________
Robert O. Smith
Chief Executive Officer
(Principal Executive Officer)
Date: May 20, 1998 PHILIP SWANY
________________________________
Philip Swany
Chief Financial Officer
(Principal Financial Officer)
| Date: | _________ | __________________________ |
| | Ben-Zion Diamant, |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| Date: | _________ | __________________________ |
| | Uri Friedlander, |
| | Chief Financial Officer |
| | (Principal Financial Officer) |