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 September 30, 2002
[ ] 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)
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 November 7, 2002: 4,510,680
DIGITAL POWER CORPORATION
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
U.S. DOLLARS
UNAUDITED
INDEX
Page
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Operations 4
Statements of Changes in Shareholders' Equity 5
Consolidated Statements of Cash Flows 6 - 7
Notes to Consolidated Financial Statements 8 - 10
- - - - - - - - - -
DIGITAL POWER CORPORATION
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
September 30, December 31,
---------------------------------
2002 2001 2001
---------------- --------------- ------------------
Unaudited
---------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 210,232 $ 240,200 $ 1,242,900
Short-term bank deposit 600,000 - -
Trade receivables, net of allowance for doubtful accounts of
$ 268,814, $ 370,000 and $ 370,000 at September 30, 2002 and
2001 and December 31, 2001, respectively 2,264,886 1,930,138 2,203,664
Income tax refund receivable - 29,200 72,388
Other current assets 4,825 88,717 91,971
Inventories, net 1,572,336 2,164,114 1,999,168
Prepaid expenses and deposits 108,583 71,712 47,534
---------------- --------------- ------------------
Total current assets 4,760,862 4,524,081 5,657,625
---------------- --------------- ------------------
PROPERTY AND EQUIPMENT, NET 400,082 955,630 820,318
---------------- --------------- ------------------
OTHER ASSETS 76,810 36,207 35,116
---------------- --------------- ------------------
Total assets $ 5,237,754 $ 5,515,918 $ 6,513,059
================ =============== ==================
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
September 30, December 31,
------------------------------------
2002 2001 2001
----------------- ----------------- ------------------
Unaudited
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ 145,000 $ 599,899 $ 652,261
Current maturities of capital lease obligation 36,110 36,728 35,856
Accounts payable 1,297,249 1,770,178 1,590,830
Other current liabilities 851,132 1,599,232 1,510,719
----------------- ----------------- ------------------
Total current liabilities 2,329,491 4,006,037 3,789,666
----------------- ----------------- ------------------
LONG-TERM LIABILITIES:
Capital lease obligations, net of current maturities - 33,789 24,376
Other long-term liabilities 190,000 16,160 13,607
----------------- ----------------- ------------------
Total long-term liabilities 190,000 49,949 37,983
----------------- ----------------- ------------------
SHAREHOLDERS' EQUITY:
Preferred stock issuable in series, no par value: 2,000,000
shares authorized, no shares issued and outstanding
Common stock, no par value: 10,000,000 shares authorized;
4,510,680, 3,260,680 and 4,510,680 shares issued and
outstanding at September 30, 2002 and 2001 and December 31,
2001, respectively 11,036,251 9,786,251 11,036,251
Additional paid-in capital 733,256 733,256 733,256
Receipts on account of shares - 150,000 -
Accumulated deficit (8,857,503) (8,938,992) (8,771,654)
Accumulated other comprehensive loss (193,741) (270,583) (312,443)
----------------- ----------------- ------------------
Total shareholders' equity 2,718,263 1,459,932 2,685,410
----------------- ----------------- ------------------
Total liabilities and shareholders' equity $ 5,237,754 $ 5,515,918 $ 6,513,059
================= ================= ==================
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
----------------------------- ------------------------------
2002 2001 2002 2001 2001
-------------- -------------- -------------- -------------- -------------------
Unaudited
------------------------------------------------------------
Revenues $ 6,771,403 $ 8,097,838 $ 2,230,454 $ 2,348,743 $ 10,329,857
Cost of revenues 4,872,625 10,881,284 1,588,127 2,162,001 11,939,985
-------------- -------------- -------------- -------------- -------------------
Gross profit (loss) 1,898,778 (2,783,446) 642,327 186,742 (1,610,128)
-------------- -------------- -------------- -------------- -------------------
Operating expenses:
Engineering and product development 600,200 853,522 227,391 222,446 1,065,872
Marketing and selling 760,591 721,848 238,475 244,361 863,898
General and administrative 866,362 1,509,971 342,968 537,752 2,177,611
Impairment of goodwill - 946,263 - - 946,263
-------------- -------------- -------------- -------------- -------------------
Total operating expenses 2,227,153 4,031,604 808,834 1,004,559 5,053,644
-------------- -------------- -------------- -------------- -------------------
Operating loss (328,375) (6,815,050) (166,507) (817,817) (6,663,772)
Capital gain from disposal of Poder
Digital S.A. de C.V. 280,463 - 280,463 - -
Financial income (expenses), net 11,264 (39,005) (56) (17,122) (50,632)
Loss on disposal of assets - (22,769) - - (27,433)
-------------- -------------- -------------- -------------- -------------------
Income (loss) before income taxes (36,648) (6,876,824) 113,900 (834,939) (6,741,837)
Income taxes 49,201 313,000 9,485 33,000 298,883
-------------- -------------- -------------- -------------- -------------------
Net income (loss) $ (85,849) $ (7,189,824) $ 104,415 $ (867,939) $ (7,040,720)
============== ============== ============== ============== ===================
Weighted average number of Common shares 4,510,680 3,260,680 4,510,680 3,260,680 3,407,930
============== ============== ============== ============== ===================
Basic net income (loss) per share $ (0.02) $ (2.21) $ 0.02 $ (0.27) $ (2.07)
============== ============== ============== ============== ===================
Diluted net income (loss) per share $ (0.02) $ (2.21) $ 0.02 $ (0.27) $ (2.07)
============== ============== ============== ============== ===================
The accompanying notes are an integral part of the consolidated financial statements.
DIGITAL POWER CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars (except share data)
Accumulated
Common stock Additional other Total Total
----------------------- paid-in comprehensive Accumulated comprehensive shareholders'
Shares Amount capital loss deficit income (loss) equity
---------- ----------- ---------- ------------- ------------- -------------- ------------
Balance as of January 1, 2001 3,260,680 $ 9,786,251 $ 733,256 $ (247,299) $ (1,730,934) $ 8,541,274
Issuance of common stock to
Telkoor Telecom Ltd pursuant
to investment agreement 1,250,000 1,250,000 - - - 1,250,000
Comprehensive loss:
Net loss - - - - (7,040,720) $(7,040,720) (7,040,720)
Foreign currency translation
adjustment - - - (65,144) - (65,144) (65,144)
---------- ----------- ---------- ------------ ------------- -------------- ------------
Total comprehensive loss $(7,105,864)
==============
Balance as of December 31,
2001 4,510,680 11,036,251 733,256 (312,443) (8,771,654) 2,685,410
Comprehensive income:
Net loss - - - - (85,849) $ (85,849) (85,849)
Foreign currency translation
adjustment - - - 118,702 - 118,702 118,702
---------- ----------- ---------- ------------ ------------- -------------- ------------
Total comprehensive income $ 32,853
==============
Balance as of September 30,
2002 (unaudited) 4,510,680 $11,036,251 $ 733,256 $ (193,741) $ (8,857,503) $ 2,718,263
========== =========== ========== ============ ============= ============
Balance as of July 1, 2002
(unaudited) 4,510,680 $11,036,251 $ 733,256 $ (234,737) $ (8,961,918) $ 2,572,852
Comprehensive income:
Net income - - - - 104,415 $ 104,415 104,415
Foreign currency translation
adjustment - - - 40,996 - 40,996 40,996
---------- ----------- ---------- ----------- ------------- -------------- ------------
Total comprehensive income $ 145,411
============
Balance as of September 30,
2002 (unaudited) 4,510,680 $11,036,251 $ 733,256 $ (193,741) $ (8,857,503) $ 2,718,263
========== =========== ========== ============ ============= ============
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
----------------------------- -----------------------------
2002 2001 2002 2001 2001
-------------- -------------- ------------- -------------- -----------------
Unaudited
-----------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (85,849) $ (7,189,824) $ 104,415 $ (867,939) $(7,040,720)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 216,840 291,417 57,560 74,827 450,752
Capital gain from disposal of Poder
Digital S.A. de C.V. (280,463) - (280,463) - -
Loss on disposal of assets - 22,769 - - 23,069
Impairment of goodwill - 946,263 - - 946,263
Decrease (increase) in trade receivables (61,222) 1,325,944 (277,512) (105,588) 1,052,418
Decrease in income tax refund receivable 51,851 150,000 45,638 - 106,812
Decrease (increase) in other current assets 27,119 351,934 (24,660) (13,079) 332,520
Decrease in inventories 425,769 2,979,510 10,377 357,958 3,144,456
Decrease (increase) in prepaid expenses (61,049) 141,986 (8,225) 40,698 166,164
Decrease (increase) in other assets (52,975) (7,656) (58,659) 934 (6,565)
Increase (decrease) in accounts payable (244,141) (179,005) (126,448) 105,657 (358,353)
Increase (decrease) in other current
liabilities (106,851) 429,528 (38,193) (93,860) 341,017
Increase in other long-term liabilities 176,393 - 177,514 - 13,607
Other - - (4,428) 486 -
-------------- -------------- ------------- -------------- -----------------
Net cash provided by (used in) operating
activities 5,422 (737,134) (423,084) (499,906) (828,560)
-------------- -------------- ------------- -------------- -----------------
Cash flows from investing activities:
Short-term bank deposit (600,000) - (600,000) -
Purchase of property and equipment (27,042) (108,957) 31,454 (34,939) (133,281)
Proceeds from sale of assets - 5,876 - 118 5,876
Proceeds from disposal of Poder Digital
S.A. de C.V. (10,591) - (10,591) - -
-------------- -------------- -------------- ------------- -----------------
Net cash used in investing activities (637,633) (103,081) (579,137) (34,821) (127,405)
-------------- -------------- ------------- -------------- -----------------
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
----------------------------- -----------------------------
2002 2001 2002 2001 2001
-------------- -------------- -------------- -------------- -----------------
Unaudited
-----------------------------------------------------------
Cash flows from financing activities:
Proceeds from short-term bank credit 145,000 199,899 145,000 - 252,261
Receipts on account of shares - 150,000 - 150,000
Payments made on short term bank credit (652,261) - - (250,101) -
Principal payments on capital lease
obligations (11,898) (34,374) 4,122 (5,499) (44,659)
Investment from Telkoor Telecom Ltd. - - - 1,250,000
-------------- -------------- -------------- -------------- -----------------
Net cash provided by (used in) financing
activities (519,159) 315,525 149,122 (105,600) 1,457,602
-------------- -------------- -------------- -------------- -----------------
Effect of exchange rate changes on cash 118,702 (41,517) 40,996 115,383 (65,144)
-------------- -------------- -------------- -------------- -----------------
Increase (decrease) in cash and cash
equivalents (1,032,668) (566,207) (812,103) (524,944) 436,493
Cash and cash equivalents at the beginning
of the period 1,242,900 806,407 1,022,335 765,144 806,407
-------------- -------------- -------------- -------------- -----------------
Cash and cash equivalents at the end of the
period $ 210,232 $ 240,200 $ 210,232 $ 240,200 $ 1,242,900
============== ============== ============== ============== =================
Non cash investing activities:
Purchase of property and equipment
through capital leases $ - $ - $ - $ - $ 42,846
============== ============== ============== ============== =================
The accompanying notes are an integral part of the financial statements
DIGITAL POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 1:- GENERAL
a. Digital Power Corporation ("the Company") was incorporated in 1969,
under the General Corporation Law of the state of California. The
Company has a wholly-owned subsidiary, Digital Power Limited,
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.
b. On September 30, 2002, the Company sold its Mexican subsidiary,
Poder Digital, S.A. de C.V. ("PD"), a wholly-owned subsidiary, to
a contract manufacturer located in Guadalajara, Mexico, in
consideration of $20,000. As a result of this transaction, the
Company recorded a capital gain of $280,463. Subsequent to the
balance sheet date, and as part of this transaction, the Company
and the purchaser signed a subcontractor agreement. Under the
agreement, the Company loaned to the purchaser $50,000 to be paid
in 24 monthly installments, commencing January 1, 2003. The
subcontracting agreement between the parties provides for
manufacturing services to be provided by the purchaser at agreed
upon capacity and prices.
As a result of the disposal of PD, PD is not included in the
Company's balance sheet as of September 30, 2002. The results of
operation of PD are included for all periods presented.
Upon the disposal of PD on September 30, 2002, the Company will
expand its manufacturing of its power supplies to subcontractors in
the Far East.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2001 are applied
consistently in these financial statements.
The accompanying unaudited consolidated financial statements as of
September 30, 2002 and for the nine months ended September 30, 2002
and 2001 and for the three months ended September 30, 2002 and 2001
are unaudiated 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's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2001. The results of operations for the three and nine
months ended September 30, 2002 are not necessarily indicative of
the results for the entire fiscal year ending December 31, 2002.
b. Reclassification:
Certain amounts from prior period have been reclassified to conform
to the current period's presentation. The reclassification had no
effect on previously reported net loss, shareholders' equity or
cash flows.
NOTE 3:- SEGMENT INFORMATION
The Company has identified its segments based on its geographic
operations. These segments are represented by each of the
Company's individual legal entities: Digital Power Corporation
(DPC), Poder Digital, S.A. de C.V. and Digital Power Limited (DPL).
Due to the disposal of PD, segment information will include only
DPC and DPL for all periods presented. Segment information is as
follows:
Nine months ended September 30, 2002 (unaudited)
------------------------------------------------------------------------------
DPC DPL Eliminations Total
------------------ --------------- ------------------ ---------------
Revenues $ 3,384,285 $ 3,387,118 $ - $ 6,771,403
================== =============== ================== ===============
Intersegment revenues $ 257,590 $ - $ (257,590) $ -
================== =============== ================== ===============
Financial income (expense),
net $ (9,087) $ 20,351 $ - $ 11,264
================== =============== ================== ===============
Income tax expense $ - $ 49,201 $ - $ 49,201
================== =============== ================== ===============
Net income (loss) $ (122,978) $ 37,129 $ - $ (85,849)
================== =============== ================== ===============
Nine months ended September 30, 2001 (Unaudited)
-----------------------------------------------------------------------------
DPC DPL Eliminations Total
------------------ --------------- ----------------- ---------------
Revenues $ 4,676,051 $ 3,421,787 $ - $ 8,097,838
================== =============== ================= ===============
Intersegment revenues $ 395,499 $ 880 $ (396,379) $ -
================== =============== ================= ===============
Financial expense, net $ 24,599 $ 14,406 $ - $ 39,005
================== =============== ================= ===============
Income tax expense $ 350,500 $ (37,500) $ - $ 313,000
================== =============== ================= ===============
Net loss $ (7,053,031) $ (136,793) $ - $ (7,189,824)
================== =============== ================= ===============
NOTE 3:- SEGMENT INFORMATION (Cont.)
Year ended December 31, 2001
---------------------------------------------------------------------------
DPC DPL Eliminations Total
----------------- -------------- ------------------ ---------------
Revenues $ 6,475,533 $ 3,854,324 $ - $ 10,329,857
================= ============== ================== ===============
Intersegment revenues $ - $ 599,848 $ (599,848) $ -
================= ============== ================== ===============
Financial expense, net $ 32,214 $ 18,418 $ - $ 50,632
================= ============== ================== ===============
Depreciation and
amortization $ 336,081 $ 114,671 $ - $ 450,752
================= ============== ================== ===============
Income tax expense (tax
benefit) $ 361,879 $ (62,996) $ - $ 298,883
================= ============== ================== ===============
Net income (loss) $ (6,957,051) $ (207,140) $ 123,471 $ (7,040,720)
================= ============== ================== ===============
Expenditures for segment
assets $ 109,681 $ 23,600 $ - $ 133,281
================= ============== ================== ===============
Segment assets $ 7,243,300 $ 2,562,562 $ (3,292,803) $ 6,513,059
================= ============== ================== ===============
Three months ended September 30, 2002 (unaudited)
-----------------------------------------------------------------------------
DPC DPL Eliminations Total
---------------- --------------- ------------------ ---------------
Revenues $ 798,918 $ 1,431,536 $ - $ 2,230,454
================ =============== ================== ===============
Intersegment revenues $ 44,366 $ - $ (44,366) $ -
================ =============== ================== ===============
Financial income (expense),
net $ (3,567) $ 3,511 $ - $ (56)
================ =============== ================== ===============
Income tax expense $ - $ 9,485 $ - $ 9,485
================ =============== ================== ===============
Net income (loss) $ 105,378 $ (963) $ - $ 104,415
================ =============== ================== ===============
Three months ended September 30, 2001 (unaudited)
-----------------------------------------------------------------------------
DPC DPL Eliminations Total
---------------- --------------- ------------------ ---------------
Revenues $ 1,283,813 $ 1,064,930 $ - $ 2,348,743
================ =============== ================== ===============
Intersegment revenues $ (40,325) $ - $ 40,325 $ -
================ =============== ================== ===============
Financial expense, net $ 8,914 $ 8,208 $ - $ 17,122
================ =============== ================== ===============
Income tax expense $ - $ 33,000 $ - $ 33,000
================ =============== ================== ===============
Net income (loss) $ (887,187) $ 19,248 $ - $ (867,939)
================ =============== ================== ===============
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 and other risks
factors detailed in the Company's Securities and Exchange Commission ("SEC")
filings including the "Certain Considerations" section in the Company's Form
10-KSB for the year ended December 31, 2001. 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.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30,
2001
REVENUES
Revenues deceased by 5.0% to $2,230,454 for the three months ended September 30,
2002, from $2,348,743 for the three months ended September 30, 2001. Revenues
from the domestic operation of the Company decreased 37.3% to $798,918 for the
three months ended September 30,2002, from 1,273,813 for the three months ended
September 30,2001. Domestic revenues operations have been impacted by the
continued weakness in the electronics industry.
Revenues from the Company's United Kingdom's operations of Digital Power Ltd.
increased 34.4% to $1,431,536 for the three months ended September 30, 2002,
from $1,064,930 for the three months ended September 30, 2001.
For the nine months ended September 30, 2002, revenues decreased by 16.4% to
$6,771,403 from $8,097,838 for the nine months ended September 30, 2001. For the
nine months ended September 30, 2002, the domestic operation contributed
$3,384,285 to the Company's revenues compared to $4,676,051 for the nine months
ended September 30, 2001.
GROSS MARGINS
Gross margins were 28.8% for the three months ended September 30, 2002, compared
to 8.0% for the three months ended September 30, 2001. The increase in the gross
margin for the quarter ended September 30, 2002, was primarily a result of
reducing the Company's Mexican manufacturing operations, PD. The Company did
take steps during the year 2002 to reduce this capacity through variable cost
reductions.
Gross margins were 28.04% for the nine months ended September 30, 2002, compared
to negative 34.4% for the nine months ended September 30, 2001. The negative
result in the gross margin for the nine months ended September 30, 2001 was
primarily a result of the Company's Mexican manufacturing operations,
significant charges taken for severance pay and obsolescence of inventory during
the nine months ended September 30, 2001.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were 26.1% of revenues for the
three months ended September 30, 2002, compared to 33.3% for the three months
ended September 30, 2001. Selling, general and administrative expenses were 24%
of revenues for the nine months ended September 30, 2002, compared to 27.6% for
the nine months ended September 30, 2001.
In actual dollars, selling expenses decreased by $5,886 for the three months
ended September 30,2002 and increased by $38,743 for the nine months ended
September 30, 2002, compared to the prior periods. For the quarter ended
September 30, 2002, general and administrative expenses decreased by $194,784
compared to the quarter ended September 30, 2001. For the nine months ended
September 30, 2002, general and administrative expenses decreased by $643,609
compared to September 30, 2001, due to the severance pay accruals, and higher
legal, accounting and Amex filing fees paid in the nine months ended September
30, 2001.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses were 10.2% of revenues for the
three months ended September 30, 2002, and 9.5% for the three months ended
September 30, 2001. Engineering and product development expenses were 8.9% of
revenues for the nine months ended September 30, 2002, compared to 10.5% for the
nine months ended September 30, 2001. Engineering expenses for the quarter ended
September 30, 2002 increased by $4,945.
FINANCIAL INCOME AND EXPENSES
Financial expenses net was $56 for the three months ended September 30, 2002,
compared to $17,122 for the three months ended September 30, 2001. Financial
income net was $11,264 for the nine months ended September 30, 2002, compared to
financial expenses net of $39,005 for the nine months ended September 30, 2001.
The decrease in financial expenses of the Company is related primarily to the
investment of Telkor Telecom Ltd. which enabled the Company to reduce its credit
facility.
INCOME (LOSS) BEFORE INCOME TAXES
For the three months ended September 30, 2002, the Company had an income before
income taxes of $113,900 compared to a loss before income taxes of $834,939 for
the three months ended September 30, 2001. For the nine months ended September
30, 2002, the Company had a loss before income taxes of $36,648 compared to a
loss of $6,876,824 for the nine months ended September 30, 2001.
INCOME TAX
The provision for income tax decreased from $33,000 for the three months ended
September 30, 2001, to $9,485 for the three months ended September 30, 2002, and
decreased from $313,000 for the nine months ended September 30, 2001, to $49,201
for the nine months ended September 30, 2002. The decrease in the company's
income tax is related to a provision for deferred taxes of $58,900.
NET INCOME (LOSS)
Net income for the three months ended September 30, 2002, was $104,415 compared
to net loss of $867,939 for the three months ended September 30, 2001. Net loss
for the nine months ended September 30, 2002, was $85,849 compared to net loss
of $7,189,824 for the nine months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2002, the Company had cash and cash equivalents of $210,232,
short-term bank deposit of $600,000 and working capital of $2,396,371. This
compares to cash and cash equivalents of $240,200 and working capital of
$518,044 at September 30, 2001. Cash provided by operating activities for the
Company totaled $5,422 compared to cash used in operating activity of $737,134
for the nine months ended September 30, 2002 and 2001 respectively.
Cash used in investing activities was $637,633 for the nine months ended
September 30, 2002, compared to $103,081 for the nine months ended September 30,
2001. Cash used in investment activities was increased primarily for short-term
bank deposit.
Net cash used in financing activities was $519,159 for the nine months ended
September 30, 2002, compared to cash provided by financing activity of $315,525.
Cash used in financing activities in 2002 was primarily the payments made on
short-term bank credit. The cash provided by financing activities in 2001 was
primarily proceeds from short-term bank credit and receipts on account of
shares.
A $750,000 line of credit with San Jose National Bank ("SJNB") terminated on
June 2002 due to a change in business direction at SJNB. The Company opened a
new line of credit with Silicon Valley Bank on May 31, 2002. The Company can
borrow up to $600,000 at the bank's prime rate (currently 4.75%) as long as the
Company maintains a balance of $600,000 in a certificate of deposit ("CD"). Also
the Company can borrow up to $400,000 against our eligible accounts receivable.
The rate for this line of credit would be at the bank's prime rate plus 2.0%.
Silicon Valley Bank was granted a warrant to purchase the Company's stock equal
to 10.0% of commitment amount of Facility B at an exercise price of $1.00 per
share. The warrant is exercisable for ten years from the date of issuance.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Within 90 days of the filing date of this report, the Chief Executive Officer
and Chief Financial Officer of the Company evaluated the disclosure controls and
procedures of the Company and have determined that such controls and procedures
are effective.
Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation referred to in the paragraph above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders reconvened on Thursday, October 17,
2002 held in Fremont, California, a quorum of shareholders voted to elect the
following persons as directors of the Company:
Name Votes For Withhold
---- --------- --------
Benzion Diamont 2,234,198 72,998
David Amitai 2,230,348 76,848
Mark Thum 2,235,186 72,010
Josef Berger 2,233,736 73,460
Yeheskel Manea 2,234,198 72,998
Youal Menipaz 2,234,198 72,998
The shareholders approved the 2002 Stock Option Plan:
Votes Against Withhold
------------- --------
2,088,596 218,600
ITEM 5. OTHER INFORMATION
On September 30, 2002, the Company sold its Mexican subsidiary, Poder Digital,
S.A. de C.V. to a contract manufacturer located in Guadalajara, Mexico, in
consideration of $ 20,000. As a result of this transaction the Company recorded
capital gain of $ 280,463. Subsequent to the balance sheet date, and as part of
this transaction, the Company and the purchaser signed a subcontractor
agreement. Under the agreement the Company loaned to the purchaser $ 50,000 to
be paid in 24 monthly installments, commencing January 1, 2003. The
subcontracting agreement between the parties provides for manufacturing services
to be provided by the purchaser at agreed upon capacity and prices.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99.1 CEO Certification under Sarbanes-Oxley Act of 2002
Exhibit 99.2 CFO Certification under Sabranes-Oxley Act of 2002
(b) Reports on Form 8-K
The Company filed the following reports:
Date of Report Date of Event Item Reported
-------------- ------------- -------------
September 12, 2002 September 10, 2002 Change in registrants' certifying
accountant
September 26, 2002 September 23, 2002 Annual meeting was adjourned to
October 17, 2002
October 18, 2002 October 17, 2002 Annual meeting elected the Board
of Directors and Approved the
2002 Stock Option Plan.
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: November 13, 2002 /S/ DAVID AMITAI
---------------------- ---------------------------------------
David Amitai,
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2002 /S/ HAIM YATIM
---------------------- ---------------------------------------
Haim Yatim,
Chief Financial Officer
(Principal Financial Officer)
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: November 13, 2002 /S/ DAVID AMITAI
----------------- ----------------------------
David Amitai
Chief Executive Officer
(Principal Executive Officer)
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: November 13, 2002 /S/ HAIM YATIM
----------------- ------------------------------------
Haim Yatim
Chief Financial Officer
(Principal Accounting and Financial
Officer)
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of Title 18, United States Code), the
undersigned officer of Digital Power Corporation (the "Company"), does hereby
certify with respect to the quarterly report of the Company on Form 10-QSB as
filed with the Securities and Exchange Commission that, to the best of his
knowledge:
(1) the quarterly report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the quarterly report fairly presents, in
all material respects, the financial condition and results of operations of
the Company.
Date: November 13, 2002 /S/ DAVID AMITAI
----------------- ------------------------------
David Amitai,
Chief Executive Officer
(Principal Executive Officer)
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of Title 18, United States Code), the
undersigned officer of Digital Power Corporation (the "Company"), does hereby
certify with respect to the quarterly report of the Company on Form 10-QSB as
filed with the Securities and Exchange Commission that, to the best of his
knowledge:
(1) the quarterly report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the quarterly report fairly presents, in
all material respects, the financial condition and results of operations of
the Company.
Date: November 13, 2002 /S/ HAIM YATIM
----------------- -----------------------------------
Haim Yatim,
Chief Financial Officer
(Principal Accounting and Financial
Officer)