U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31,
2004
Commission File Number 1-12711
DIGITAL POWER CORPORATION
(Name of small business issuer in its charter)
California 3679 94-1721931
---------- ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code) Identification No.)
41920 Christy Street, Fremont, California 94538-3158
----------------------------------------------------
(Address of principal executive offices)
510-657-2635
------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class
-------------------
None
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues for the year ended December 31, 2004, were $8,713,000.
As of May 31, 2005, the aggregate market value of the voting common stock held
by non-affiliates was approximately $2,166,511 based on the closing price of
$0.65 per share.
As of May 31, 2005, the number of shares of common stock outstanding was
6,161,859.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT.
---------------------------------- ------------------------------------ ------- --------------------------------------
Name Position Age Period
---- -------- --- ------
Jonathan Wax Chief Executive Officer and 48 2004 - Present
President
Ben-Zion Diamant Chairman of the Board 55 2001 - Present
David Amitai Director 63 2001 - Present
Amos Kohn Director 45 2003 - Present
Yeheskel Manea Director 61 2002 - Present
Youval Menipaz Director 55 2002 - Present
Leo Yen Chief Financial Officer and 35 2004 - Present
Secretary
Robert O. Smith Former Interim Chief Executive 60 2003-2004
Officer
---------------------------------- ------------------------------------ ------- --------------------------------------
Directors
The following is a brief description of the business background of the
Company's Directors:
Ben-Zion Diamant Director since 2001
Mr. Ben-Zion Diamant has been the Chairman of the Board of the Company
since November 2001. He has also been Chairman of the Board of Telkoor Power
Ltd. since 1994. From 1992-1994, Mr. Diamant was a partner and business
development manager of Phascom. From 1989 to 1992, Mr. Diamant was a partner and
manager of Rotel Communication. He earned his BA in Political Science from
Bar-Ilan University.
David Amitai Director since 2001
Mr. David Amitai has been a Director of the Company since 2001. From
November 2003 to March 2004, he served as our Executive CEO. He served as our
President and CEO of the Company from November 2001 to November 2003. Mr. Amitai
also serves as the General Manager of Telkoor Power Ltd.(1) and its subsidiary,
Telkoor Power Supplies, since 1994. Mr. Amitai was the founder and General
Manager of Tadiran's Microelectronics Division from 1978 to 1989 and was
2
elevated to Director of Material and Logistics of Tadiran's Military Group where
he served from 1989 to 1994. Mr. Amitai held positions in engineering and
manufacturing at the California base semiconductor companies: Monolithic
Memories (MMI) and Fairchild Semiconductor. Mr. Amitai earned his engineering
degree from California State University at San Jose, California.
(1) Currently, there is a dispute among certain members of Telkoor Power Ltd.'s
Board of Directors as to Mr. Amitai's title for his position held at Telkoor
Power Ltd.
Amos Kohn Director since 2003
Mr. Amos Kohn became a Director of the Company in 2003. Mr. Kohn is the
Vice President of Network Modeling of ICTV Inc., a High Tech company located in
Los Gatos, California, which is developing a centralized software platform that
enables cable operators to deliver revenue-generating new services with full
multimedia and real-time interactivity to any digital set-top. In year 2003, Mr.
Kohn was Vice President of System Engineering & Business Development of AVIVA
Communications, Inc., a High Tech company located in Cupertino, California,
which is developing a transport solution for Video On Demand systems. From 2000
to 2003, Mr. Kohn was the Chief Architect of Liberate Technologies, a software
company specializing in telecommunications located in San Carlos, California.
From 1997 to 2000, Mr. Kohn was the Vice President of Engineering & Technology
for Golden Channel, the largest Cable Operator (MSO) in Israel. Mr. Kohn holds a
Bachelors of Science in Electronics from ORT Technological College, Israel.
Yeheskel Manea Director since 2002
Mr. Yeheskel Manea has served as a Director of the Company since 2002.
Since 1996, he has been a Branch Manager of Bank Hapoalim, one of the leading
banks in Israel. Mr. Manea has been employed with Bank Hapoalim since 1972. He
holds a Bachelors of Science in Economy and Business Administration from Ferris
College, University of Michigan.
Youval Menipaz Director since 2002
Mr. Youval Menipaz has served as a Director of the Company since 2002. Mr.
Menipaz has been the Managing Director of Foriland Investments since 2000, a
privately owned company that invests in and manages several companies. Since
1977, he has held several executive positions in leading companies within the
Israeli market. Among others, he served as the Operation Manager of Osem
Industries Ltd, Vice President of Elite Industries Ltd, President of Supershuk
Greenberg Ltd. Mr. Menipaz holds a Bachelors of Science in Industrial
Engineering from the Technion, the Israeli Institute of Technology.
3
Family Relationships
Mr. Manea's daughter is married to Mr. Diamont's son. Mr. Menipaz is the
son of Mr. Amitai's cousin. There are no other family relationships between any
of the officers or directors.
Audit Committee Financial Expert
The Board of Directors determined that Mr. Manea is qualified as an Audit
Committee Financial Expert. Mr. Manea is independent as determined by the AMEX
listing standards.
Audit Committee
The Board of Directors of the Company has an Audit Committee. The members
of the Audit Committee in 2004 were Messrs. Mark Thum, Amos Kohn, Yeheskel Manea
and Youval Menipaz. The current members of the Audit Committee are: Messrs.
Kohn, Manea and Menipaz. All Audit Committee members are independent directors.
Executive Officers
The following is a brief description of the business background of the Company's
officers:
The biography of Mr. Diamant can be found above under Directors.
Jonathan Wax Officer since 2004
Mr. Jonathan Wax became our CEO and President in January 2004. Mr. Wax held
Vice President positions with Artesyn Technologies, Inc. and was stationed both
domestically and in the Far East, in addition to holding a wide variety of sales
positions, including global account responsibilities with some of Artesyn
Technologies, Inc.'s largest accounts. From 1994 to 1998, prior to the merger
with Zytec and Computer Products, which formed Artesyn Technologies, Inc., Mr.
Wax was Vice President of Customer Support and Quality for Computer Products.
Mr. Wax holds a Bachelor's degree in Business from the University of Nebraska.
Leo Yen
Mr. Leo Yen became our Chief Financial Officer in January 2005. Mr. Yen is
the President of Sagent Management, a financial, accounting and tax consulting
firm. From 2002 to 2004, Mr. Yen founded and managed Crystal Compass, which was
acquired by Sagent Management in 2004. From 1999 to 2002, he was a Senior
Associate with Pricewaterhousecoopers LLP and from 1997 to 1999, he was a Senior
Tax Consultant with Ernst & Young LLP. Mr. Yen holds a BS in Finance, Real
Estate and Law and a BS in Accounting from California State Polytechnic
University Pomona.
4
Robert O. Smith Officer from 1989-2001, 2003 to 2004
Mr. Robert O. Smith served as the Company's interim Chief Executive Officer
from November 2003 to January 2004. Currently, Mr. Smith returned as an employee
of the Company in April 2005 for Strategic Business Planning. Mr. Smith has been
a Director of Castelle (NASDAQ: CSTL) since 2004. Mr. Smith served as a Director
of the Company from 1989 to 2002. Since 2001, he has served as a consultant to
the Company. Mr. Smith served as Chief Executive Officer from 1989 to 2001,
President from 1996 to 2001 and Chairman of the Board from 1999 to 2001. From
1980 to 1989, he served as Vice President/Group Controller of Power Conversion
Group, General Manager of Compower Division, and President of Boschert, a
subsidiary of Computer Products, Inc., a manufacturer of power conversion
products and industrial automation systems. Mr. Smith received his B.S. in
Business Administration from Ohio University and has completed course work at
the M.B.A. program at Kent State University.
SECTION 16 TRANSACTIONS
Section 16(a) of the Exchange Act requires our executive officers and
directors to file reports of ownership and changes in ownership of our common
stock with the SEC. Executive officers and directors are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 delivered to the Securities and
Exchange Commission ("Commission") during fiscal year 2002, all current
directors and officers of the Company timely filed all required reports pursuant
to Section 16(a) of the Securities Exchange Act of 1934.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer, controller
and other persons performing similar functions. A copy of our code of ethics can
be found on our website at http://www.digipwr.com/CodeofEthics.doc. The Company
will report any amendment or wavier to the code of ethics on our website within
five (5) days.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
This table lists the aggregate compensation paid in the past three years
for all services of the Chief Executive Officer and other persons who earned
over $100,000 during the last fiscal year.
5
------------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
----------------------- ------------ ------------ -------------- -- ----------------------------------------------------------------
Long Term Compensation
-- --------------------------------- --- ----------- --------------
Annual Compensation Awards Payouts
----------------------- ------------ ------------ -------------- -- --------------- ----------------- --- ----------- --------------
Restricted Securities
Name and Other Annual Stock Underlying LTIP
Principal Position Salary Compensation Award(s) ($) Options Payouts All Other
Year ($) ($) (#) ($) Compensation
----------------------- ------------ ------------ -------------- -- --------------- ----------------- --- ----------- --------------
Jonathan Wax, Chief 2004 $153,066 $12,541 $0 $0 $0 $0
Executive Officer
----------------------- ------------ ------------ -------------- -- --------------- ----------------- --- ----------- --------------
Robert O. Smith, 2004 $ 0 $100,000 $0 0 $0 $0
Strategic Business 2003 $ 0 $100,000 $0 0((1)) $0 $0
Planning, Former 2002 $ 0 $100,000 $0 100,000((1)) $0 $0
Consultant and
President and CEO
----------------------- ------------ ------------ -------------- -- --------------- ----------------- --- ----------- --------------
(1) Pursuant to Mr. Smith's consulting agreement, he was entitled to
receive options to purchase 100,000 shares at $3.00 per share on the
first business day of the year in 2002, 2003 and 2004. On January 16,
2004, the Company and Mr. Smith agreed to cancel the options to
purchase 100,000 common shares at $3.00 per share that were granted on
January 2002, and 100,000 common shares at $3.00 per share that were
granted on January 2004, which the Company was obligated to grant under
the Termination and Consulting Agreement. In lieu thereof, Mr. Smith
was granted options to purchase 100,000 shares at $1.16 per share.
Options Granted in Last Fiscal Year
Individual Grants
==============================================================================================
Number of Percent of Total
Securities Options Granted to Exercise Base
Underlying Employees in Fiscal Price ($/share) Expiration
Name Options Granted Year Date
==============================================================================================
Jonathan Wax 150,000 39.6% $0.99 1/2014
----------------------------------------------------------------------------------------------
Robert O. Smith 100,000 26.4% $1.16 1/2014
==============================================================================================
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth executive officer options exercised and
option values for fiscal year ended December 31, 2004, for all executive
officers at the end of the year.
6
========================================================================================================================
Value of Unexercised Options
In-the-Money
Number of Options at at December 31, 2004
Shares Acquired December 31, 2004 (Exercisable/ Unexercisable)(1)
or Exercised Value Realized (Exercisable/
Name Unexercisable)
========================================================================================================================
0 0 37,500/112,500 $9,750/$29,250
Jonathan Wax
========================================================================================================================
0 0 511,500/0 $9,000/0
Robert O. Smith
========================================================================================================================
Footnotes to Table
------------------
(1) Market price at December 31, (200)(4) for a share of common stock was
$(1.25)(.)
Directors' Compensation
All directors who are not employees of the Company are paid $10,000 per
annum paid quarterly. Upon joining the Board, they are granted options to
purchase 10,000 shares of common stock vesting upon completion of one year of
service.
Employment Agreements
In January 2004, we entered into an employment agreement with Mr. Jonathan
Wax, our President and Chief Executive Officer. The agreement has a term of one
year with annual renewals thereafter. Annual compensation is $165,000. In the
event of a change in control or early termination without cause, we will be
required to pay Mr. Wax one year's compensation. As a part of the employment
contract, Mr. Wax was granted options to purchase 150,000 shares, 37,500 shares
vested immediately and the remainder vests over three years.
Subsequent to the year end, on April 2, 2005, we entered into an employment
agreement with Mr. Robert O. Smith for Strategic Business Planning. Under the
agreement, Mr. Smith is paid $1,000 per month and is eligible for a stock option
grant.
Consulting Agreement
On November 16, 2001, the Company and Mr. Robert Smith entered into a
consulting agreement for a period of three years. Under the Consulting
Agreement, Mr. Smith is paid $100,000 per year and granted options to purchase
100,000 shares of common stock each year. On January 16, 2004, the Company and
Mr. Smith agreed to cancel the options to purchase 100,000 shares of common
stock at $3.00 per share that were granted on January 2002 and 100,000 shares of
common stock at $3.00 per share that were granted on January 2004, which the
Company was obligated to grant under the Termination and Consulting Agreement.
In lieu thereof, Mr. Robert Smith was granted options to purchase 100,000 shares
of common stock at $1.16 per share. The Consulting Agreement expired on December
31, 2004.
7
Ten-Year Options/SAR Repricings
There were no repricings during the year ended December 31, 2004
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
STOCK OWNERSHIP
The following table shows the amount of our shares of common stock (AMEX
Symbol: DPW) beneficially owned (unless otherwise indicated) by each shareholder
known by us to be the beneficial owner of more than 5% of our common stock, by
each of our directors and nominees and the executive officers, directors and
nominees as a group. As of April 29, 2005, there were 6,161,859 shares of common
stock outstanding. All information is as of April 29, 2005. Unless indicated
otherwise, the address of all shareholders listed is Digital Power Corporation,
41920 Christy Street, Fremont, California 94538.
-------------------------------------------------------------------------- -------------------------------
Shares Beneficially
Owned(1)
Name & Address of Beneficial Owner Number Percent
----------------------------------- ------ -------
Telkoor Power Ltd. 2,661,261 43.2%
5 Giborei Israel
Netanya 42293
Israel
Ben-Zion Diamant 3,028,765(2) 47.6%
David Amitai 2,861,261(3) 45.0%
Yeheskel Manea 20,000(4) *
Youval Menipaz 20,000(4) *
Amos Kohn 20,000(4) *
Digital Power ESOP 167,504 2.7%
Barry W. Blank 450,800 7.3%
P.O. Box 32056 Phoenix, AZ 85064
All directors and executive officers as a group 3,363,765(5) 50.2%
(6 persons)
Footnotes to Table
------------------
* Less than one percent.
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Mr. Diamant serves as a director of Telkoor Power Ltd. Includes options
to purchase 200,000 shares owned by Mr. Diamant and 2,661,261 shares
beneficially owned by Telkoor Power Ltd., which may also be deemed
beneficially owned by Mr. Diamant.
8
(3) Mr. Amitai serves as a director of Telkoor Power Ltd. Includes options
to purchase 200,000 shares owned by Mr. Amitai and 2,661,261 shares
beneficially owned by Telkoor Power Ltd., which may also be deemed
beneficially owned by Mr. Amitai,.
(4) Includes options to purchase 20,000 shares exercisable within 60 days.
(5) Includes 2,661,261 shares owned by Telkoor Power Ltd., which may be
deemed beneficially owned by Mr. Diamant and Mr. Amitai, options to
purchase 460,000 shares owned by directors, options to purchase
75,000 shares owned by Mr. Wax and 167,504 shares owned by Digital
Power ESOP of which Mr. Wax and Mr. Diamant are trustees and may be
deemed beneficial owners.
Equity Compensation Plan Information
The following table provides aggregate information as of the end of the
fiscal year ended December 31, 2004 with respect to all compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance.
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under
warrants and rights equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
Equity compensation plans 1,550,425 1.37 522,480
approved by security holders
Equity compensation plans - - -
not approved by security
holders
Total 1,550,425 1.37 522,480
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 31, 2003, we entered into an agreement to sell 900,000 shares of
common stock to Telkoor Power Ltd. ("Telkoor") in consideration of $600,000. As
a part of the transaction, Telkoor's warrant to purchase 900,000 shares was
canceled. The warrant to purchase 900,000 shares would have expired on May 23,
2003. Our Chairman, Mr. Diamant owns 42.45% and our Director, Mr. Amitai owns
39.98% of the outstanding shares of Telkoor Power Ltd.
On January 12, 2004, we entered into a securities purchase agreement with
Telkoor. Under the securities purchase agreement, Telkoor acquired 290,023
shares of common stock for the aggregate purchase price of $250,000.
Additionally, under the agreement, Telkoor had the right to invest an additional
$250,000 on or before June 30, 2004. The purchase price per share for the
additional investment was agreed to be the average closing price of the
Company's common stock twenty (20) trading days prior to notice of intent to
9
invest. On June 14, 2004, Telkoor gave notice of its intent to invest $250,000
and the parties entered into a definitive agreement on June 16, 2004. Telkoor
purchased 221,238 shares at $1.13 per share.
On February 3, 2005, Telkoor loaned the Company $250,000 through a
Convertible Note. Under the terms of the Convertible Note, Telkoor loaned
$250,000 interest free until the tenth business day after the Company announces
its financial results for fiscal 2005. Telkoor has the right to convert the debt
to common stock at $1.06 per share. The loan will automatically convert at $1.06
per share if the Company meets its set budget for the fiscal year 2005.
There is currently a dispute between certain shareholders and managers of
Telkoor, which is subject to litigation in Israel. Two of the members of our
Board of Directors and the two members that comprise the Board of Directors of
Digital Power Limited are involved in this dispute. Although, the Company does
not believe the dispute has seriously effected the day-to-day operations of the
Company, it is having impact on certain decision making in the Company or with
one of its suppliers (Telkoor).
ITEM 13. EXHIBITS
3.1 Amended and Restated Articles of Incorporation of Digital Power Corporation (1)
3.2 Amendment to Articles of Incorporation (1)
3.3 Bylaws of Digital Power Corporation (1)
4.1 Specimen Common Stock Certificate (2)
4.2 Specimen Warrant (1)
4.3 Representative's Warrant (1)
10.1 Agreement with Fortron/Source Corp.(1)
10.2 Gresham Power Asset Purchase Agreement (3)
10.3 Securities Purchase Agreement between the Company and Telkoor Telecom Ltd. (now Telkoor Power Ltd.) (4)
10.4 2002 Stock Option Plan (5)
10.5 Securities Purchase Agreement between the Company and Telkoor Telecom, Ltd. (now Telkoor Power Ltd.)(6)
10.6 Employment Letter with David Amitai (7)
10.7 Employment Agreement with Jonathan Wax (7)
10.8 Convertible Note with Telkoor Power Ltd. (8)
21.1 The Company's sole subsidiary is Digital Power Limited, a corporation formed under the laws of the United Kingdom.
23.1 Consent of Ernst & Young (9)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
10
(1) Previously filed with the Commission on October 16, 1996, to the Company's
Registration Statement on Form SB-2.
(2) Previously filed with the Commission on December 3, 1996, to the Company's
Pre-Effective Amendment No. 1 to Registration Statement on Form SB-2.
(3) Previously filed with the Commission on February 2, 1998, to the Company's
Form 8-K.
(4) Previously filed with the Commission with its Form 8-K filed on November
21, 2001.
(5) Previously filed with the Commission with its Proxy Statement for the
Shareholders Meeting held on September 23, 2002.
(6) Previously filed with the Commission with its Form 8-K filed on January
14, 2004.
(7) Previously filed with the Commission with its Form 10-KSB for the year
ended December 31, 2003.
(8) Previously filed with the Commission with its Form 8-K filed on February
9, 2005.
(9) Previously filed with the Commission with its Form 10-KSB for the year
ended December 31, 2004.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global served as
our independent auditors for the annual audit for the year ended December 31,
2004 and 2003.
Audit Fees
The aggregate fees billed by Kost Forer Gabbay & Kasierer, a Member of
Ernst & Young Global, for professional services rendered for the audit of the
Company's financial statements for the fiscal year ended December 31, 2004 was
$98,000 and December 31, 2003 was $95,000.
Audit-Related Fees
The aggregate fees billed for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
or review of the Company's financial statements for the year ended December 31,
2004 was $0 and December 31, 2003 was $0.
Tax Fees
The aggregate fees billed for tax compliance, tax advice and tax planning
rendered by our independent auditors for the fiscal year ended December 31, 2004
was $24,000 and December 31, 2003 was $30,000.
All Other Fees
The aggregate fees billed for all other professional services rendered by
the Company's independent auditors for the fiscal year ended December 31, 2004
was $0 and December 31, 2003 was $0.
The Audit Committee approved 100% of the fees paid to the principal
accountant for audit-related, tax and other fees in the fiscal year 2004. The
Audit Committee pre-approves all non-audit services to be performed by the
auditor in accordance with the Audit Committee Charter. The percentage of hours
expended on the principal accountant's engagement to audit the Company's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees was 0%.
11
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGITAL POWER CORPORATION,
a California Corporation
/s/ Johnathan Wax
Dated: June 28, 2005 -----------------------------
Jonathan Wax,
Chief Executive Officer
(Principal Executive Officer)
/s/ Leo Yen
Dated: June 28, 2005 -----------------------------
Leo Yen,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13