x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
for the quarterly period ended June 30,
2007
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
for the transition period from _______ to
_______
|
California
|
94-1721931
|
|
(State
or other jurisdiction of
|
(IRS
Employer Identification
No.)
|
|
Incorporation
or organization)
|
|
Page
|
||||
Review
of Unaudited Interim Consolidated Financial Statements
|
3
|
|||
|
||||
Consolidated
Balance Sheet
|
4
|
|||
|
||||
Consolidated
Statements of Operations
|
5
|
|||
|
||||
Statement
of Changes in Shareholders' Equity
|
6
|
|||
|
||||
Consolidated
Statements of Cash Flows
|
7
|
|||
|
||||
Notes
to Consolidated Financial Statements
|
8 -
15
|
Re:
|
Review
of unaudited interim consolidated financial statements
|
for
the six-month period ended June 30,
2007
|
Tel-Aviv,
Israel
|
KOST
FORER GABBAY & KASIERER
|
August
14 , 2007
|
A
Member of Ernst & Young Global
|
June
30,
|
||||
2007
|
||||
Unaudited
|
||||
ASSETS
|
|
|||
CURRENT
ASSETS:
|
||||
Cash
and cash equivalents
|
$
|
1,427
|
||
Restricted
cash
|
106
|
|||
Trade
receivables, net of allowance for doubtful accounts of
$ 124
|
1,738
|
|||
Prepaid
expenses and other receivables
|
153
|
|||
Inventories
|
1,621
|
|||
Total
current assets
|
$
|
5,045
|
||
PROPERTY
AND EQUIPMENT, NET
|
152
|
|||
Total
assets
|
$
|
5,197
|
||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||
CURRENT
LIABILITIES:
|
||||
Accounts
payable
|
$
|
534
|
||
Related
parties - trade payables
|
779
|
|||
Deferred
revenues
|
10
|
|||
Other
current liabilities
|
468
|
|||
Total
current liabilities
|
1,791
|
|||
SHAREHOLDERS'
EQUITY:
|
||||
Share
capital -
|
||||
Series
A redeemable, convertible Preferred shares, no par value - 500,000
shares
authorized, 0 shares issued and outstanding at June 30,
2007
|
||||
Preferred
shares, no par value - 1,500,000 shares authorized, 0 shares issued
and outstanding at June 30, 2007
|
||||
Common
shares, no par value - 30,000,000 shares authorized; 6,610,708 shares
issued and outstanding at June 30, 2007
|
11,036
|
|||
Additional
paid-in capital
|
2,782
|
|||
Accumulated
deficit
|
(10,624
|
)
|
||
Accumulated
other comprehensive income
|
212
|
|||
Total
shareholders' equity
|
$
|
3,406
|
||
Totalliabilities
and shareholders' equity
|
$
|
5,197
|
Six
months ended
June
30,
|
Three
months ended
June
30,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
|
|||||||||
Unaudited
|
|||||||||||||
Revenues
|
$
|
5,278
|
$
|
6,041
|
$
|
2,536
|
$
|
3,333
|
|||||
Cost
of revenues
|
3,939
|
4,398
|
1,972
|
2,472
|
|||||||||
Gross
profit
|
1,339
|
1,643
|
564
|
861
|
|||||||||
Operating
expenses:
|
|||||||||||||
Engineering
and product development
|
402
|
310
|
181
|
172
|
|||||||||
Selling
and marketing
|
478
|
617
|
249
|
315
|
|||||||||
General
and administrative
|
634
|
650
|
334
|
346
|
|||||||||
Total
operating expenses
|
1,514
|
1,577
|
764
|
833
|
|||||||||
Operating
income (loss)
|
(175
|
)
|
66
|
(200
|
)
|
28
|
|||||||
Financial
income (expenses), net
|
29
|
(12
|
)
|
13
|
(11
|
)
|
|||||||
Income
(loss) before income taxes
|
(146
|
)
|
54
|
(187
|
)
|
17
|
|||||||
Income
taxes
|
(9
|
)
|
-
|
(9
|
)
|
-
|
|||||||
Net
income (loss)
|
$
|
(155
|
)
|
$
|
54
|
$
|
(196
|
)
|
$
|
17
|
|||
Basic
net earnings (loss) per share
|
$
|
(0.023
|
)
|
$
|
0.009
|
$
|
(0.030
|
)
|
$
|
0.003
|
|||
Diluted
net earnings (loss) per share
|
$
|
(0.023
|
)
|
$
|
0.008
|
$
|
(0.030
|
)
|
$
|
0.002
|
Accumulated
|
||||||||||||||||||||||
|
Additional
|
other
|
Total
other
|
Total
|
||||||||||||||||||
Common
shares
|
paid-in
|
Accumulated
|
comprehensive
|
comprehensive
|
shareholders'
|
|||||||||||||||||
Number
|
Amount
|
capital
|
deficit
|
income
|
loss
|
equity
|
||||||||||||||||
|
||||||||||||||||||||||
Balance
as of January 1, 2007
|
6,610,708
|
$
|
-
|
$
|
13,768
|
$
|
(10,463
|
)
|
$
|
166
|
-
|
$
|
3,471
|
|||||||||
Stock
compensation related to options granted to Telkoor's
employees
|
-
|
-
|
24
|
-
|
-
|
-
|
24
|
|||||||||||||||
Stock
compensation related to options granted to employees
|
-
|
-
|
26
|
-
|
-
|
-
|
26
|
|||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||
Net
income (loss)
|
-
|
-
|
-
|
(155
|
)
|
-
|
|
(155
|
)
|
(155
|
)
|
|||||||||||
Foreign
currency translation adjustments
|
-
|
-
|
-
|
-
|
46
|
46
|
46
|
|||||||||||||||
Cumulative
impact of change in accounting for uncertainties in income taxes
|
(6
|
)
|
(6
|
)
|
||||||||||||||||||
Total
other comprehensive income
|
$
|
(109
|
)
|
|||||||||||||||||||
Balance
as of June 30, 2007 (unaudited)
|
6,610,708
|
$
|
-
|
$
|
13,818
|
$
|
(10,624
|
)
|
$
|
212
|
$
|
3,406
|
Six
months ended
June
30,
|
|||||||
2007
|
2006
|
||||||
Unaudited
|
|||||||
Cash
flows from operating activities:
|
|||||||
Net
(loss) income
|
$
|
(155
|
)
|
$
|
54
|
||
Adjustments
required to reconcile net (loss) income to net cash provided by (used
in)
operating activities:
|
|||||||
Depreciation
|
34
|
39
|
|||||
Stock
compensation related to options granted to employees
|
26
|
12
|
|||||
Stock
compensation related to options granted to Telkoor's
employees
|
24
|
27
|
|||||
Decrease
(increase) in trade receivables, net
|
481
|
(246
|
)
|
||||
Decrease
(increase) in prepaid expenses and other receivables
|
(12
|
)
|
2
|
||||
Increase
in inventories
|
(10
|
)
|
(347
|
)
|
|||
Increase
(decrease) in accounts payable and related parties- trade
payables
|
(400
|
)
|
580
|
||||
Decrease
in deferred revenues and other current liabilities
|
(60
|
)
|
(73
|
)
|
|||
Net
cash provided by (used in) operating activities
|
(72
|
)
|
48
|
||||
Cash
flows from investing activities:
|
|||||||
Restricted
cash
|
-
|
183
|
|||||
Purchase
of property and equipment
|
(25
|
)
|
(4
|
)
|
|||
Net
cash used in investing activities
|
(25
|
)
|
179
|
||||
Cash
flows from financing activities:
|
|||||||
Exercise
of options of a director
|
-
|
160
|
|||||
Net
cash provided by financing activities
|
-
|
160
|
|||||
Effect
of exchange rate changes on cash and cash equivalents
|
30
|
41
|
|||||
Increase
(decrease) in cash and cash equivalents
|
(67
|
)
|
428
|
||||
Cash
and cash equivalents at the beginning of the period
|
1,494
|
1,409
|
|||||
Cash
and cash equivalents at the end of the period
|
$
|
1,427
|
$
|
1,837
|
|||
Supplemental
disclosure of non-cash activities:
|
|||||||
Adjustments
on account of change in accounting for uncertainties in income
taxes
|
$
|
6
|
$
|
-
|
|||
Conversion
of a convertible note
|
$
|
-
|
$
|
250
|
NOTE
1:-
|
GENERAL
|
NOTE
2:-
|
SIGNIFICANT
ACCOUNTING POLICIES
|
a.
|
The
significant accounting policies applied in the annual financial statements
of the Company as of December 31, 2006, are applied consistently
in these
financial statements. In addition, the following accounting policy
is
applied:
|
b.
|
Accounting
for stock-based compensation:
|
NOTE
2:-
|
SIGNIFICANT
ACCOUNTING POLICIES
(Cont.)
|
c.
|
FIN
48, "Uncertainty in Income Taxes":
|
NOTE
3:-
|
INVENTORIES
|
June
30,
2007
|
||||
Unaudited
|
||||
Raw
materials, parts and supplies
|
$
|
174
|
||
Work
in progress
|
295
|
|||
Finished
products
|
1,152
|
|||
$
|
1,621
|
NOTE
4:-
|
ACCOUNTING
FOR STOCK BASED
COMPENSATION
|
a.
|
Share
Option Plans:
|
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 June 30, 2007, 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 2,272,200 of the Company's Common shares.
As
of June 30, 2007, an aggregate of 648,715 of the Company's options
are
still available for future grant.
|
NOTE
4:-
|
ACCOUNTING
FOR STOCK BASED COMPENSATION
(Cont.)
|
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:
|
Six
months ended June 30, 2007
|
|||||||||||||
Amount
of
options
|
Weighted
average
exercise
price
|
Weighted
average remaining contractual term (years)
|
Aggregate
intrinsic value *)
|
||||||||||
Outstanding
at the beginning of
the period
|
901,225
|
$
|
1.12
|
6.63
|
|||||||||
Granted
|
100,000
|
$
|
1.61
|
||||||||||
Forfeited
|
(20,035
|
)
|
$
|
1.12
|
|||||||||
Outstanding
at the end of the period
|
981,190
|
$
|
1.17
|
6.49
|
$
|
302,740
|
|||||||
Exercisable
options at the end of the period
|
772,440
|
$
|
1.08
|
5.75
|
$
|
0.37
|
*)
|
Calculation
of aggregate intrinsic value is based on the share price of the Company's
Common shares as of June 30, 2007 ($ 1.33 per
share).
|
NOTE
4:-
|
ACCOUNTING
FOR STOCK BASED COMPENSATION
(Cont.)
|
Six
months ended
June
30, 2007
|
||||
Unaudited
|
||||
Expected
volatility
|
93.6%-107.1
|
%
|
||
Divided
Yield
|
0
|
%
|
||
Expected
life of up to (in years)
|
5-7
|
|||
Risk
free interest rate
|
4.47%-5.09
|
%
|
As
of June 30, 2007, there was $ 184 of total unrecognized compensation
cost
related to unvested share-based compensation arrangements granted
under
the plan. That cost is expected to be recognized over a period of
4 years.
|
b.
|
Employee
Stock Ownership Plan:
|
Six
months ended
June
30,
|
Three
months ended
June
30,
|
||||||||||||
2007
|
2006
|
2007
|
|
2006
|
|||||||||
Unaudited
|
|||||||||||||
Net
income (loss) available to Common shareholders
|
$
|
(155
|
)
|
$
|
54
|
$
|
(196
|
)
|
$
|
17
|
Denominator
for basic net earnings per share of weighted average number of Common
shares
|
6,610,708
|
$
|
6,381,738
|
$
|
6,610,708
|
$
|
6,501,618
|
||||||
Effect
of dilutive securities:
|
|||||||||||||
Employee
stock options
|
-
|
318,187
|
-
|
494,669
|
|||||||||
Convertible
note
|
-
|
169,025
|
-
|
102,201
|
|||||||||
Denominator
for diluted net earnings per Common share
|
$
|
6,610,708
|
$
|
6,868,950
|
$
|
6,610,708
|
$
|
7,098,488
|
NOTE
6:-
|
SEGMENTS,
MAJOR CUSTOMERS AND GEOGRAPHIC
INFORMATION
|
Six
months ended June 30, 2007 (unaudited)
|
|||||||||||||
DPC
|
DPL
|
|
Eliminations
|
Total
|
|||||||||
Revenues
|
$
|
2,314
|
$
|
2,964
|
$
|
-
|
$
|
5,278
|
|||||
Intersegment
revenues
|
88
|
-
|
(88
|
)
|
-
|
||||||||
Total
revenues
|
$
|
2,402
|
$
|
2,964
|
$
|
(88
|
)
|
$
|
5,278
|
||||
Depreciation
expense
|
$
|
9
|
$
|
25
|
$
|
-
|
$
|
34
|
|||||
Operating
income (loss)
|
$
|
(230
|
)
|
$
|
55
|
$
|
-
|
$
|
(175
|
)
|
|||
Financial
income, net
|
$
|
29
|
|||||||||||
Net
income (loss)
|
$
|
(211
|
)
|
$
|
65
|
$
|
-
|
$
|
(146
|
)
|
|||
Expenditures
for segment assets as of June 30, 2007
|
$
|
-
|
$
|
25
|
$
|
-
|
$
|
25
|
|||||
Identifiable
assets as of June 30, 2007
|
$
|
2,212
|
$
|
2,985
|
$
|
-
|
$
|
5,197
|
NOTE
6:-
|
SEGMENTS,
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
(Cont.)
|
Six
months ended June 30, 2006 (unaudited)
|
|||||||||||||
DPC
|
DPL
|
Eliminations
|
|
Total
|
|||||||||
Revenues
|
$
|
2,861
|
$
|
3,180
|
$
|
-
|
$
|
6,041
|
|||||
Intersegment
revenues
|
318
|
-
|
(318
|
)
|
-
|
||||||||
Total
revenues
|
$
|
3,179
|
$
|
3,180
|
$
|
(318
|
)
|
$
|
6,041
|
||||
Depreciation
expense
|
$
|
9
|
$
|
30
|
$
|
-
|
$
|
39
|
|||||
Operating
income
|
$
|
(31
|
)
|
$
|
97
|
$
|
-
|
$
|
66
|
||||
Financial
expenses, net
|
(12
|
)
|
|||||||||||
Net
income (loss)
|
$
|
(31
|
)
|
$
|
85
|
$
|
-
|
$
|
54
|
||||
Expenditures
for segment assets as of June 30, 2006
|
$
|
2
|
$
|
2
|
$
|
-
|
$
|
4
|
|||||
Identifiable
assets as of June 30, 2006
|
$
|
2,787
|
$
|
3,514
|
$
|
-
|
$
|
6,301
|
Three
months ended June 30, 2007 (unaudited)
|
|||||||||||||
DPC
|
DPL
|
Eliminations
|
|
Total
|
|
||||||||
Revenues
|
$
|
1,111
|
$
|
1,425
|
$
|
$2,536
|
|||||||
Intersegment
revenues
|
52
|
-
|
(52
|
)
|
-
|
||||||||
Total
revenues
|
$
|
1,163
|
$
|
1,425
|
$
|
(52
|
)
|
$
|
2,536
|
||||
Depreciation
expense
|
$
|
4
|
$
|
11
|
$
|
-
|
$
|
15
|
|||||
Operating
income (loss)
|
$
|
(173
|
)
|
$
|
(27
|
)
|
$
|
-
|
$
|
(200
|
)
|
||
Financial
income, net
|
$
|
13
|
|||||||||||
Net
income (loss)
|
$
|
(164
|
)
|
$
|
(23
|
)
|
$
|
-
|
$
|
(187
|
)
|
||
Expenditures
for segment assets as of June 30, 2007
|
$
|
-
|
$
|
7
|
$
|
-
|
$
|
7
|
|||||
Identifiable
assets as of June 30, 2007
|
$
|
2,212
|
$
|
2,985
|
$
|
-
|
$
|
5,197
|
NOTE
6:-
|
SEGMENTS,
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
(Cont.)
|
Three
months ended June 30, 2006 (unaudited)
|
|||||||||||||
DPC
|
DPL
|
Eliminations
|
Total
|
||||||||||
Revenues
|
$
|
1,438
|
$
|
1,895
|
$
|
-
|
$
|
3,333
|
|||||
Intersegment
revenues
|
108
|
-
|
(108
|
)
|
-
|
||||||||
Total
revenues
|
$
|
1,546
|
$
|
1,895
|
$
|
(108
|
)
|
$
|
3,333
|
||||
Depreciation
expenses
|
$
|
4
|
$
|
15
|
$
|
-
|
$
|
19
|
|||||
Operating
income (loss)
|
$
|
(40
|
)
|
$
|
68
|
$
|
-
|
$
|
28
|
||||
Financial
expenses, net
|
$
|
(11
|
)
|
||||||||||
Net
income (loss)
|
$
|
(43
|
)
|
$
|
60
|
$
|
-
|
$
|
17
|
||||
Expenditures
for segment assets as of June 30, 2006
|
$
|
2
|
$
|
-
|
$
|
-
|
$
|
2
|
|||||
Identifiable
assets as of June 30, 2006
|
$
|
2,787
|
$
|
3,514
|
$
|
-
|
$
|
6,301
|
Exhibits
|
|||
31.1
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
32.1
|
Certification
of the Chief Executive Officer & Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
DIGITAL POWER CORPORATION | ||
|
|
(Registrant)
|
Date: August 15, 2007 |
/s/
Jonathan Wax
|
|
Jonathan
Wax,
Chief
Executive Officer
|
||
(Principal
Executive Officer)
|
Date: August 15, 2007 |
/s/
Leo Yen
|
|
Leo
Yen,
Chief
Financial Officer
(Principal
Financial Officer)
|