U.S. 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, 2003
[ ] 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
incorporation or organization) Identification No.)
41920 Christy Street, Fremont, CA 94538-3158
--------------------------------------------
(Address of principal executive offices)
(510) 657-2635
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
Number of shares of common stock outstanding as of March 31, 2003: 4,510,680
DIGITAL POWER CORPORATION
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
IN U.S. DOLLARS
UNAUDITED
INDEX
Page
----------------
Review Report of Unaudited Interim Consolidated Financial Statements 3
Consolidated Balance Sheets 4 - 5
Consolidated Statements of Operations 6
Statements of Changes in Shareholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9 - 14
- - - - - - - -
- 2 -
[Graphic omitted]
ERNST & YOUNG Kost Forer & Gabbay Phone: 972-3-6232525
3 Aminadav St. Fax: 972-3-5622555
Tel-Aviv 67067, Israel
The Board of Directors
Digital Power Corporation
-------------------------
Re: Review report of unaudited interim consolidated financial
statements
as of and for the three-month period ended March 31, 2003
------------------------------------------------------------
We have reviewed the accompanying consolidated balance sheet of Digital
Power Corporation ("the Company") and its subsidiary as of March 31, 2003, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the three-month period ended March 31, 2003, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
Company's management. The interim consolidated financial statements of the
Company and its subsidiaries for the three-month period ended March 31, 2002
were reviewed by other accountants, whose report dated May 13, 2002, stated that
they were not aware of any material modification that should be made to those
statements for them to be in conformity with accounting principles generally
accepted in the United States.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with auditing standards generally accepted in
the United States, 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 accompanying financial statements at March 31, 2003, and
the three-month period then ended in order for them to be in conformity with
accounting principles generally accepted in the United States.
/s/KOST FORER & GABBAY
Tel-Aviv, Israel KOST FORER & GABBAY
May 9, 2003 A Member of Ernst & Young
Global
- 3 -
DIGITAL POWER CORPORATION
-------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands
March 31, December
----------------------------------- 31,
2003 2002 2002
--------------- ---------------- ------------------
Unaudited
-----------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 684 $ 1,382 $ 616
Restricted short-term bank deposit 600 - 600
Trade receivables, net of doubtful accounts of
$ 39, $ 303 and $ 39 at March 31, 2003, March
31, 2002 and December 31, 2002, respectively 1,756 1,944 1,982
Deferred income taxes 307 - 649
Other current assets 147 235 134
Inventories 1,433 1,618 1,451
--------------- ---------------- ------------------
Total current assets 4,927 5,179 5,432
----- --------------- ---------------- ------------------
OTHER LONG-TERM ASSETS 37 32 43
--------------- ---------------- ------------------
PROPERTY AND EQUIPMENT, NET 341 739 364
--------------- ---------------- ------------------
Total assets $ 5,305 $ 5,950 $ 5,839
----- =============== ================ ==================
The accompanying notes are an integral part of the consolidated financial statements.
- 4 -
DIGITAL POWER CORPORATION
-------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data
March 31, December
----------------------------------- 31,
2003 2002 2002
--------------- ---------------- ------------------
Unaudited
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ 290 $ 552 $ 250
Current maturities of capital lease obligations 17 35 27
Accounts payable 1,162 1,424 1,349
Other current liabilities 757 1,452 974
--------------- ---------------- -------------------
Total current liabilities 2,226 3,463 2,600
----- --------------- ---------------- -------------------
LONG-TERM LIABILITIES
Capital lease obligations, net of current - 14 -
maturities
Other long-term liabilities - 14 -
--------------- ---------------- -------------------
- 28 -
--------------- ---------------- -------------------
SHAREHOLDERS' EQUITY:
Series A redeemable, convertible preferred
shares no par value: 500,000 shares authorized,
0 shares issued and outstanding at March 31,
2003 and 2002 and December 31, 2002 - - -
Preferred shares, no par value: 1,500,000 shares
authorized, 0 shares issued and outstanding at
March 31, 2003 and 2002 and December 31, 2002 - - -
Common shares, no par value: 10,000,000
shares authorized; 4,510,680 shares issued and
outstanding at March 31, 2003 and 2002 and
December 31, 2002 11,036 11,036 11,036
Additional paid-in capital 837 733 837
Accumulated deficit (8,597) (8,968) (8,482)
Accumulated other comprehensive loss (197) (342) (152)
--------------- ---------------- -------------------
Total shareholders' equity 3,079 2,459 3,239
----- --------------- ---------------- -------------------
Total liabilities and shareholders' equity $ 5,305 $ 5,950 $ 5,839
----- =============== ================ ===================
The accompanying notes are an integral part of the consolidated financial statements.
- 5 -
DIGITAL POWER CORPORATION
-------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
----------------------------------------------------------
Three months ended Year ended
March 31, December 31,
-----------------------------------
2003 2002 2002
--------------- ---------------- -------------------
Unaudited
-----------------------------------
Revenues $ 2,133 $ 2,183 $ 8,775
Cost of revenues 1,538 1,647 6,310
--------------- ---------------- -------------------
Gross profit 595 536 2,465
--------------- ---------------- -------------------
Operating expenses:
Engineering and product development 145 190 749
Selling and marketing 259 253 1,014
General and administrative 310 250 1,228
--------------- ---------------- -------------------
Total operating expenses 714 693 2,991
----- --------------- ---------------- -------------------
Operating loss (119) (157) (526)
Capital gain from disposal of a subsidiary - - 280
Financial income (expenses), net (4) (9) 6
Other expenses - (4) -
--------------- ---------------- -------------------
Loss before tax benefit (taxes on income) (123) (170) (240)
Tax benefit (taxes on income) 8 (26) 530
--------------- ---------------- -------------------
Net income (loss) $ (115) $ (196) $ 290
=============== ================ ===================
Basic and diluted earnings (loss) per share $ (0.03) $ (0.04) $ 0.06
=============== ================ ===================
The accompanying notes are an integral part of the consolidated financial statements.
- 6 -
DIGITAL POWER CORPORATION
-------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
--------------------------------------------
Accumulated
Common shares Additional other Total Total
---------------------- paid-in Accumulated comprehensive comprehensive shareholders'
Number Amount capital deficit loss income (loss) equity
---------- --------- ----------- ----------- ------------- -------------- ------------
Balance as of January 1, 2002 4,510,680 $ 11,036 $ 733 $ (8,772) $ (312) $ 2,685
Stock compensation related
to warrants issued to bank for
financing transaction - - 20 - - 20
Stock compensation related to
options granted to consultants
and service providers - - 84 - - 84
Comprehensive income:
Net income - - - 290 - $ 290 290
Foreign currency translation
adjustments - - - - 160 160 160
----------- ---------- ---------- ------------ ------------ ------------- -------------
Total comprehensive income $ 450
=============
Balance as of December 31, 2002 4,510,680 11,036 837 (8,482) (152) 3,239
Comprehensive income:
Net loss - - - (115) - $ (115) (115)
Foreign currency translation
adjustments - - - - (45) (45) (45)
----------- ---------- --------- ------------ ------------ -------------- -----------
Total comprehensive loss $ (160)
==============
Balance as of March 31, 2003
(unaudited) 4,510,680 $ 11,036 $ 837 $ (8,597) $ (197) $ 3,079
=========== ========== ========= ============ ============ ===========
The accompanying notes are an integral part of the consolidated financial statements.
- 7 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
--------------------------------------------------------------------------------
U.S. dollars in thousands
Three months ended Year ended
March 31, December 31,
2003 2002 2002
--------------- ---------------- -------------------
Unaudited
-----------------------------------
Cash flows from operating activities:
------------------------------------
Net income (loss) $ (115) $ (196) $ 290
Adjustments required to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 37 86 298
Capital gain from disposal of a subsidiary - - (280)
Compensation related to options granted to
consultants and service providers - - 90
Decrease in trade receivables 204 261 358
Decrease (increase) in deferred income taxes, net 342 - (649)
Decrease (increase) in other current assets (14) (24) 40
Decrease in inventories 3 381 634
Increase in other long-term assets - 3 6
Decrease in accounts payable (178) (167) (242)
Decrease in other current liabilities (213) (59) (15)
Other - - (14)
--------------- ---------------- -------------------
Net cash provided by operating activities 66 285 516
--------------- ---------------- -------------------
Cash flows from investing activities:
------------------------------------
Restricted short-term bank deposit - - (600)
Purchase of property and equipment (19) (4) (37)
Proceeds from disposal of a subsidiary - - (12)
Investment in long term loan - - (50)
Proceeds from long-term loan 6 - -
--------------- ---------------- -------------------
Net cash used in investing activities (13) (4) (699)
--------------- ---------------- -------------------
Cash flows from financing activities:
-------------------------------------
Proceeds from short term bank credit 40 - 250
Payments made on short-term bank credit - (100) (652)
Principal payments on capital lease obligations (10) (12) (21)
--------------- ---------------- -------------------
Net cash provided by (used in) financing activities 30 (112) (423)
--------------- ---------------- -------------------
Effect of exchange rate changes on cash (15) (30) (21)
--------------- ---------------- -------------------
Increase (decrease) in cash and cash equivalents 68 139 (627)
Cash and cash equivalents at the beginning of the
period 616 1,243 1,243
--------------- ---------------- -------------------
Cash and cash equivalents at the end of the period $ 684 $ 1,382 $ 616
=============== ================ ===================
Supplemental disclosure of cash flows activities:
-------------------------------------------------
Cash paid during the period for interest $ 5 $ 14 $ 26
=============== ================ ===================
The accompanying notes are an integral part of the consolidated financial statements.
- 8 -
NOTE 1:- GENERAL
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 and sale 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, 2002, 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, 2003 and for the three months ended March 31, 2003 and 2002
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, 2002. The results of
operations for the three months ended March 31, 2003 are not
necessarily indicative of the results for the entire fiscal year
ending December 31, 2003.
b. Accounting for stock-based compensation:
The Company and its subsidiary has elected to follow Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB No. 25") in accounting for its employee stock option
plans. Under APB No. 25, when the exercise price of the Company's
share options is less than the market price of the underlying shares
on the date of grant, compensation expense is recognized.
The Company and its subsidiary apply SFAS No. 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 No. 123 requires use of an option
valuation model to measure the fair value of the options at the grant
date.
Under Statement of Financial Accounting Standard No. 123 "Accounting
for Stock Based compensation ("SFAS No. 123") SFAS No. 123, proforma
- 9 -
information regarding net earnings (loss) and net earnings (loss) per
share is required and has been determined as if the Company had
accounted for its employee options under the fair value method of that
statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes Option Valuation Model, with the
following weighted-average assumptions for March 31, 2003, March 31,
2002 and December 31, 2002. Expected volatility of 45.6%, and ranging
from 55.0%, 125.9% and 33.8% respectively, risk-free interest rates of
1.5%, ranging from 4.23%, 5.6% and 1.5% respectively, dividend yield
of 0% for each period, and a weighted-average expected life of the
option of 4 years for each period. Stock compensation, for pro-forma
purposes, is amortized over the vesting period.
The following table illustrates the effect on net income (loss) and
earnings (loss) per share as if the fair value method had been applied
to all outstanding and unvested awards in each period:
Three months ended Year ended
March 31, December 31,
2003 2002 2002
-------------- -------------- ------------------
Unaudited
--------------------------------
Net income (loss), as reported $ (115) $ (196) $ 290
Deduct: Total stock-based
compensation expense
determined under fair value
method for all awards, net of
related tax effect (620) (388) (607)
-------------- -------------- ------------------
Pro forma net loss $ (735) $ (584) $ (317)
============== ============== ==================
Basic and diluted net earnings (loss)
per share, as reported $ (0.03) $ (0.04) $ 0.06
============== ============== ==================
Basic and diluted net loss per share,
pro forma $ (0.16) $ (0.13) $ (0.07)
============== ============== ==================
NOTE 3:- SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHICAL 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").
- 10 -
The following data presents the revenues, expenditures and other
operating data of the Company's geographic operating segments:
Three months ended March 31, 2003 (unaudited)
------------------------------------------------------------------------
DPC DPL Eliminations Total
--------------- --------------- --------------- ---------------
Revenues $ 994 $ 1,139 $ - $ 2,133
Intersegment revenues 203 - (203) -
--------------- --------------- --------------- ---------------
Total revenues $ 1,197 $ 1,139 $ (203) 2,133
=============== =============== =============== ===============
Depreciation expenses $ 8 $ 29 $ - $ 37
=============== =============== =============== ===============
Operating loss $ (109) $ (10) $ - $ (119)
=============== =============== =============== ===============
Financial expenses, net $ (4)
===============
Loss before tax benefit $ (123)
===============
Tax benefit $ - $ 8 $ - $ 8
=============== =============== =============== ===============
Net income (loss) $ (117) $ 2 $ - $ (115)
=============== =============== =============== ===============
Expenditures for segment assets as
of March 31, 2003 $ - $ 19 $ - $ 19
=============== =============== =============== ===============
Identifiable assets as of March
31, 2003 $ 2,145 $ 2,853 $ - $ 4,998
=============== =============== =============== ===============
- 11 -
NOTE 3:- SEGMENTS CUSTOMERS AND GEOGRAPHICAL INFORMATION (Cont.)
Three months ended March 31, 2002 (unaudited)
------------------------------------------------------------------------
DPC DPL Eliminations Total
--------------- ---------------- -------------- --------------
Revenues $ 1,260 $ 923 $ - $ 2,183
Intersegment revenues 98 - (98) -
--------------- ---------------- -------------- --------------
Total revenues $ 1,358 $ 923 $ (98) $ 2,183
=============== ================ ============== ==============
$
Depreciation expenses $ 24 $ 62 - $ 86
=============== ================ ============== ==============
$
Operating income (loss) $ (217) $ 60 - $ (157)
=============== ================ ============== ==============
Financial expenses, net $ (9)
==============
Loss before taxes on income $ (170)
==============
Taxes on income $ - $ (26) $ - $ (26)
=============== ================ ============== ==============
Net income (loss) $ (225) $ 29 $ - $ (196)
=============== ================ ============== ==============
Expenditures for segment assets
as of March 31, 2002 $ 4 $ - $ - $ 4
=============== ================ ============== ==============
Identifiable assets as of
March 31, 2002 $ 3,440 $ 2,510 $ - $ 5,950
=============== ================ ============== ==============
- 12 -
NOTE 3:- SEGMENTS CUSTOMERS AND GEOGRAPHICAL INFORMATION (Cont.)
Year ended December 31, 2002
---------------------------------------------------------------
DPC DPL Total
Eliminations
------------- ------------ ------------- -------------
Revenues $ 4,348 $ 4,427 $ - $ 8,775
Intersegment revenues 383 - (383) -
------------- ------------ ------------- -------------
Total revenues $ 4,731 $ 4,427 $ (383) $ 8,775
============= ============ ============= =============
Depreciation expenses $ 184 $ 114 $ - $ 298
============= ============ ============= =============
Operating income (loss) $ (761) $ 235 $ - $ (526)
============= ============ ============= =============
Capital gain from disposal of a subsidiary $ 280 $ - $ - $ 280
============= ============ ============= =============
Financial income, net $ 6
=============
Loss before tax benefit (taxes on income) $ (240)
=============
Tax benefit (taxes on income) $ 649 $ (119) $ - $ 530
============= ============ ============= =============
Net income $ 151 $ 139 $ - $ 290
============= ============ ============= =============
Expenditures for segment assets as of
December 31, 2002 $ 13 $ 24 $ - $ 37
============= ============ ============= =============
Identifiable assets as of December 31, 2002 $ 2,292 $ 2,898 $ - $ 5,190
============= ============ ============= =============
- 13 -
NOTE 4:- SUBSEQUENT EVENTS
a. On March 31, 2003, the Company entered into an agreement to sell
900,000 shares of Common stock to Telkoor Telecom Ltd. in
consideration of $ 600. As part of the transaction, Telkoor Telecom
Ltd.'s warrant to purchase 900,000 shares was cancelled.
On April 3, 2003, the Company issued the 900,000 shares to Telkoor and
received the total consideration of $ 600.
b. Subsequent to the balance sheet date, a claim was filed against the
Company, by one of its former customers in the amount of $ 300.
Company's management believes that the fundamental allegations in the
complaint are false and intends to vigorously defend itself.
At this point, management, after consulting with legal counsel, is of
the opinion that it is not possible to predict the likelihood of an
unfavorable outcome or the range of a potential verdict against the
Company.
- - - - - - - - -
- 14 -
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 computer and other electronic
equipment industry, competition in the power supply industry, dependence on
manufacturers in Mexico, China and other risks factors detailed in the Company's
Form 10-KSB for the year ended December 31, 2002. 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.
The financial statements included in this report include additional information
not otherwise required by regulations of the Securities and Exchange Commission.
The Company is providing this additional information in connection with Telkoor
Telecom Ltd. filings with the securities agencies in Israel.
THREE MONTHS ENDED MARCH 31, 2003, COMPARED TO MARCH 31, 2002
REVENUES
Total revenues decreased by 2.3% to $2,133,000 for the first quarter ended March
31, 2003, from $2,183,000 for the first quarter ended March 31, 2002. Revenues
from the Company's United Kingdom's operations of Digital Power Ltd. increased
23.4% to $1,139,000 for the first quarter ended March 31, 2003, from $923,000
for the first quarter ended March 31, 2002. Revenues attributed to the United
States operations decreased by 21.0% to $994,000 for the first quarter ended
March 31, 2003, from $1,260,000 for the first quarter ended March 31, 2002. The
decrease in revenues was primarily attributed to the impact of continued
weakness in the electronics industry.
GROSS MARGINS
Gross margins were 27.9% for the three months ended March 31, 2003, compared to
24.6% for the three months ended March 31, 2002. The increase in gross margins
can be primarily attributed to cost control and the use of lower cost
subcontractors in Mexico and China.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses were 6.8% of revenues for the three
months ended March 31, 2003, and 8.7% for the three months ended March 31, 2002.
Actual dollar expenditures were down by 23.7% mainly due to the reduced salaries
as a result of lay offs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were 26.7 % of revenues for the
three months ended March 31, 2003, compared to 23.0% for the three months ended
March 31, 2002. In actual dollar terms, these expenses increased by 13.1%,
mainly due to salary related expenses.
FINANCIAL EXPENSE
Financial expense, net of interest income, was $4,000 for the three months ended
March 31, 2003, compared to $9,000 for the three months ended March 31, 2002.
- 15 -
LOSS BEFORE INCOME TAXES
For the three months ended March 31, 2003, the Company had a loss before income
taxes of $123,000 compared to a loss before income taxes of $170,000 for the
three months ended March 31, 2002.
INCOME TAX
For the three months ended March 31, 2003 net tax benefit was $8,000 compared to
provision for income tax of $26,000 for the three months ended March 31, 2002.
Due to the net loss, the company has no income tax provisions. The tax benefit
of $8,000 for the first quarter of 2003 was from Digital Power Ltd.
NET LOSS
Net loss for the three months ended March 31, 2003, was $115,000 compared to net
loss of $196,000 for the three months ended March 31, 2002. The net loss
reduction is contributed mainly by the cost reduction efforts including the sale
of our Mexican subsidiary Poder Digital.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2003, the Company had cash, cash equivalent and short-term bank
deposit of $1,284,000 and working capital of $2,701,000. This compares with cash
and cash equivalent of $1,382,000 and working capital of $1,716,000 at March 31,
2002. The increase in working capital was mainly due to deferred tax assets of
$307,000, and decrease in accounts payable and other current liabilities of
$957,000, partly offset by a decrease in inventory of $185,000 and trade
receivable of $188,000.
Cash provided in operating activities for the Company totaled $66,000 for the
three months ended March 31, 2003, compared to $285,000 for the three months
ended March 31, 2002. Cash used in investing activities was $13,000 for the
three months ended March 31, 2003, compared to $4,000 for the three months ended
March 31, 2002. Net cash provided by financing activities was $30,000 for the
three months ended March 31, 2003, compared to the net cash used in financing
used of $112,000 for the three months ended March 31, 2002.
The Company opened a new line of credit with Silicon Valley Bank ("SVB") on May
31, 2002. The Company can borrow up to $600,000 at Silicon Valley Bank's prime
rate (currently 4.75%) as long as the Company maintains a balance of $600,000 in
a certificate of deposit ("CD"). As of March 31, 2003 the company used $290,000
from this line of credit. Also the Company can borrow up to $400,000 if it
maintains certain ratios and is in compliance with other covenants. The rate for
this line of credit would be at Silicon Valley Bank's prime rate plus 2.0%. In
May 2002, Silicon Valley Bank was granted a warrant to purchase up to 40,000
shares of common stock. Those options vested immediately at an exercise price of
$1.00 per share. The warrant is exercisable for ten years from the date of
issuance.
On March 31, 2003, the Company entered into an agreement to sell 900,000 shares
of Common stock to Telkoor Telecom Ltd. in consideration for $600,000. As part
of the transaction, Telkoor telecom Ltd.'s warrant to purchase 900,000 shares
was cancelled. On April 3, 2003, the Company issued the 900,000 shares to
Telkoor and received the total consideration of $600,000.
The Company also has a $483,000 line of credit with Lloyds TSB Bank in the UK
bearing interest of 1.75% per annum over the bank's base rate (currently 5.75%).
- 16 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 2, 2003, a claim was filed against the Company by Tek-Tron Enterprises
Inc. in state court of Pennsylvania, specifically, the Court of Common Pleas of
Bucks County, at Case No. 0302116-24-1. Tek-Tron Enterprises, Inc is seeking
damages of approximately $300,000. This case is a complaint for breaking of
contract and conversion of parts and infrastructure owned by Tek-Tron
Enterprises, Inc. located in the Company's former subsidiary, Poder Digital
S.A's, Mexico manufacturing plant.
The Company's management believes that the fundamental allegations in the
complaint are false and intends to vigorously defend itself.
At this point, management, after consulting with legal counsel, is of the
opinion that it is not possible to predict the liklihood of an unfavorable
outcome or the range of a potential verdict against the Company.
ITEM 2. CHANGES IN 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 AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of the CEO and CFO under the Sarbanes-Oxley Act.
(b) Reports on Form 8-K
The Company filed the following reports
Date of Report Date of Event Item reported
-------------- ------------- -------------
April 4th, 2003 March 31, 2003 Agreement to sell 900,000
shares to Telkoor Telecom Ltd.
- 17 -
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: 5/12/2003 /s/David Amitai
David Amitai
Chief Executive Officer
(Principal Executive Officer)
Date: 5/12/2003 /s/Haim Yatim
Haim Yatim
Chief Financial Officer
(Principal Financial Officer)
- 18 -
CERTIFICATION
I, David Amatai, Chief Executive Officer of Digital Power Corporation, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of Digital Power
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: 5/12/2003 /s/David Amatai
--------- -----------------------
David Amatai
Chief Executive Officer
(Principal Executive Officer)
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CERTIFICATION
I, Haim Yatim, Chief Financial Officer of Digital Power Corporation, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of Digital Power
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: 5/12/2003 /s/Haim Yatim
--------- -----------------------
Haim Yatim
Chief Financial Officer
(Principal Accounting and Financial Officer)
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