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raw/filings/0000008146/2012/0001193125-13-146041/item13.txt

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+Item 13. Certain Relationships, Related Transactions and Director Independence
+The response to this item is incorporated by reference to the Company’s definitive Proxy Statement for
+the 2013 Annual Meeting of Shareholders.

raw/filings/0000008146/2012/0001193125-13-146041/item9a.txt

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+Item 9A. Controls and Procedures 
+Evaluation of Disclosure Controls and Procedures 
+Our management has
+evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form
+10-K pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls
+and procedures are effective at January 31, 2013 to ensure that the information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and
+communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+Management’s Annual Report on Internal Control over Financial Reporting 
+The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such
+term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of its financial reporting and the
+preparation of published financial statements in accordance with generally accepted accounting principles. 
+Because of the
+inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of
+changes in conditions, or the degree of compliance may deteriorate. 
+Management conducted its evaluation of the effectiveness
+of its internal control over financial reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) as of January 31,
+2013. Based on this assessment, the principal executive officer and principal financial officer believe that as of January 31, 2013, the Company’s internal control over financial reporting was effective based on criteria set forth by COSO
+in “Internal Control-Integrated Framework.” 
+This annual report does not include an attestation report of the
+Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the
+Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report. 
+Changes in Internal Controls over Financial Reporting 
+There have been no changes in the Company’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to affect, our
+internal control over financial reporting.

raw/filings/0000896493/2008/0001144204-09-017124/filing_metadata.csv

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000896493,AULT,"Hyperscale Data, Inc.",10-K,2009-03-30,2008-12-31,2009-03-30T21:24:51.000Z,0001144204-09-017124,v144392_10k.htm,,1806885,0,0,https://www.sec.gov/Archives/edgar/data/896493/000114420409017124/v144392_10k.htm,https://www.sec.gov/Archives/edgar/data/896493/000114420409017124/,2008,2008,1

raw/filings/0000896493/2008/0001144204-09-017124/item13.txt

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+ITEM 13. 
+CERTAIN RELATIONSHIPS AND
+RELATED TRANSACTIONS, AND DIRECTOR
+INDEPENDENCE . 
+Employment
+Agreement with Amos Kohn 
+We
+entered into an employment agreement, effective June 1, 2008, with our President
+and Chief Executive Officer, Amos Kohn. See the discussion of this agreement
+located above in the section titled “Executive Compensation - Employment
+Agreements”. 
+Separation
+Agreement with Jonathan Wax 
+We
+entered into a separation agreement and release of claims, effective as of
+February 29, 2008, with Jonathan Wax, our former President and Chief Executive
+Officer. Under this agreement, we are to pay Mr. Wax: (a) his base salary
+through the date of the agreement and any vacation pay and other cash
+entitlements accrued by Mr. Wax as of the date of the agreement; and (b)
+$165,000 (less deductions required by law) payable in four equal quarterly
+installments on April 1, 2008, July 1, 2008, October 1, 2008 and January 1,
+2009. We will continue to pay until the earlier of (a) the date on which Mr. Wax
+obtains health care coverage from another employer or source or (b) one year
+from the date of the agreement, the same portion of the costs associated with
+providing group, medical, dental and vision insurance coverage to Mr. Wax as was
+paid by Digital Power during February 2008. If Mr. Wax dies before all of these
+payments have been made, we will make the remaining payments to the Wax Family
+Trust. 
+35 
+Relationship
+with Telkoor Power Supplies Ltd. 
+In the
+fiscal years ended December 31, 2008 and 2007, we purchased approximately
+$4,571,000 and $5,142,000, respectively, of products from Telkoor Power Supplies
+Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor Telecom Ltd.
+We have no written agreement for the purchase of these products, other than
+purchase orders that are placed in the ordinary course of business when the
+products are needed. 
+ITEM
+14. 
+PRINCIPAL
+ACCOUNTING FEES AND SERVICES. 
+Kost
+Forer Gabbay & Kasierer, a member of Ernst & Young Global Limited
+(“E&Y”), has served as our independent registered public accounting firm
+since 2002 and has been appointed by the Audit Committee to continue as our
+independent registered public accounting firm for the fiscal year ending
+December 31, 2009. 
+E&Y
+also serves as the independent auditors of Telkoor. The auditing of our
+financial statements and Telkoor’s financial statements are handled by separate
+teams within E&Y. 
+Fees
+and Services 
+The
+following table shows the aggregate fees billed to us for professional services
+by E&Y for the fiscal years ended December 31, 2008 and 2007: 
+2008 
+2007 
+Audit
+Fees 
+$ 
+123,000 
+$ 
+123,000 
+Audit-Related
+Fees 
+$ 
+-0- 
+$ 
+-0- 
+Tax
+Fees 
+$ 
+-0- 
+$ 
+-0- 
+All
+Other Fees 
+$ 
+-0- 
+$ 
+-0- 
+Total 
+$ 
+123,000 
+$ 
+123,000 
+Audit Fees . This category
+includes the aggregate fees billed for professional services rendered for the
+audits of our financial statements for the fiscal years ended December 31, 2008
+and 2007, for the reviews of the financial statements included in our quarterly
+reports on Form 10-QSB during fiscal 2008 and 2007, and for other services that
+are normally provided by the independent auditors in connection with statutory
+and regulatory filings or engagements for the relevant fiscal
+years. 
+Audit-Related Fees . This
+category includes the aggregate fees billed in each of the last two fiscal years
+for assurance and related services by the independent auditors that are
+reasonably related to the performance of the audits or reviews of the financial
+statements and are not reported above under "Audit Fees," and generally consist
+of fees for other engagements under professional auditing standards, accounting
+and reporting consultations, internal control-related matters, and audits of
+employee benefit plans. 
+Tax Fees . This category
+includes the aggregate fees billed in each of the last two fiscal years for
+professional services rendered by the independent auditors for tax compliance,
+tax planning and tax advice. 
+36 
+All Other Fees . This category
+includes the aggregate fees billed in each of the last two fiscal years for
+products and services provided by the independent auditors that are not reported
+above under "Audit Fees," "Audit-Related Fees," or "Tax Fees." 
+The Audit
+Committee’s policy is to pre-approve all services provided by our independent
+auditors. These services may include audit services, audit-related services, tax
+services and other services. The Audit Committee may also pre-approve particular
+services on a case-by-case basis. Our independent auditors are required to
+report periodically to the Audit Committee regarding the extent of services they
+provide in accordance with such pre-approval. 
+37 
+PART
+IV 
+ITEM
+15. 
+EXHIBITS,
+FINANCIAL STATEMENT SCHEDULES. 
+(a) 
+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 
+Revolving
+Credit Facility with San Jose National Bank(1) 
+10.2 
+KDK
+Contract(1) 
+10.3 
+Agreement
+with Fortron/Source Corp.(1) 
+10.4 
+Employment
+Agreement With Robert O. Smith(2) 
+10.5 
+1996
+Stock Option Plan(1) 
+10.6 
+Gresham
+Power Asset Purchase Agreement(3) 
+10.7 
+1998
+Stock Option Plan 
+10.8 
+Technology
+Transfer Agreement with KDK Electronics(4) 
+10.9 
+Loan
+Commitment and Letter Agreement(5) 
+10.10 
+Promissory
+Note(5) 
+10.11 
+Employment
+Agreement with Robert O. Smith (6) 
+10.12 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom, Ltd. (now
+Telkoor Power Ltd.) (7) 
+10.11 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom,
+Ltd. (now Telkoor Power Ltd.) (8) 
+10.12 
+Employment
+Letter with David Amitai (9) 
+10.13 
+Employment
+Agreement with Jonathan Wax (9) 
+10.14 
+Convertible
+Note with Telkoor Power Ltd. (10) 
+10.15 
+Lease,
+dated as of August 21, 2007, between the Company and SDC Fremont Business
+Center, Inc. (11) 
+10.16 
+Employment
+Agreement with Amos Kohn (12) 
+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 
+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 
+(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 10-QSB for
+the quarter ended September 30,
+1998. 
+(5) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1998. 
+(6) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1999. 
+(7) 
+Previously
+filed with the
+Commission with its Form 8-K
+filed on November 21, 2001. 
+(8) 
+Previously
+filed with the Commission with its Form 8-K filed on January 14,
+2004. 
+(9) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 2003. 
+(10) 
+Previously
+filed with the
+Commission with its Form 8-K
+filed on February 9, 2005. 
+(11) 
+Incorporated
+by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on October
+22, 2007. 
+(12) 
+Previously
+filed with the
+Commission with its Form 8-K
+filed on July 10, 2008. 
+38 
+. 
+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. 
+Dated: March
+30, 2009 
+DIGITAL
+POWER CORPORATION 
+By: 
+/s/ Amos Kohn 
+Amos
+Kohn 
+Chief
+Executive Officer 
+In
+accordance with the Exchange Act, this report has been signed below by the
+following persons on behalf of the registrant and in the capacities
+and on the dates indicated. 
+Dated:
+March 30, 2009 
+/s/
+Ben Zion Diamant 
+Ben
+Zion Diamant, Chairman 
+Dated:
+March 30, 2009 
+/s/
+Amos Kohn 
+Amos
+Kohn, 
+President
+and Chief Executive Officer 
+Dated:
+March 30, 2009 
+/s/
+Israel Levi 
+Israel
+Levi, Director 
+Dated:
+March 30, 2009 
+/s/
+Yeheskel Manea 
+Yeheskel
+Manea, Director 
+Dated:
+March 30, 2009 
+/s/
+Terry Steinberg 
+Terry
+Steinberg, Director 
+Dated:
+March 30, 2009 
+/s/
+Uri Friedlander 
+Uri
+Friedlander, Chief Financial Officer 
+(Principal
+Accounting and Financial
+Officer) 
+39

raw/filings/0000896493/2008/0001144204-09-017124/rpt_disclosure.txt

@@ -0,0 +1,342 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND
+RELATED TRANSACTIONS, AND DIRECTOR
+INDEPENDENCE . 
+Employment
+Agreement with Amos Kohn 
+We
+entered into an employment agreement, effective June 1, 2008, with our President
+and Chief Executive Officer, Amos Kohn. See the discussion of this agreement
+located above in the section titled “Executive Compensation - Employment
+Agreements”. 
+Separation
+Agreement with Jonathan Wax 
+We
+entered into a separation agreement and release of claims, effective as of
+February 29, 2008, with Jonathan Wax, our former President and Chief Executive
+Officer. Under this agreement, we are to pay Mr. Wax: (a) his base salary
+through the date of the agreement and any vacation pay and other cash
+entitlements accrued by Mr. Wax as of the date of the agreement; and (b)
+$165,000 (less deductions required by law) payable in four equal quarterly
+installments on April 1, 2008, July 1, 2008, October 1, 2008 and January 1,
+2009. We will continue to pay until the earlier of (a) the date on which Mr. Wax
+obtains health care coverage from another employer or source or (b) one year
+from the date of the agreement, the same portion of the costs associated with
+providing group, medical, dental and vision insurance coverage to Mr. Wax as was
+paid by Digital Power during February 2008. If Mr. Wax dies before all of these
+payments have been made, we will make the remaining payments to the Wax Family
+Trust. 
+35 
+Relationship
+with Telkoor Power Supplies Ltd. 
+In the
+fiscal years ended December 31, 2008 and 2007, we purchased approximately
+$4,571,000 and $5,142,000, respectively, of products from Telkoor Power Supplies
+Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor Telecom Ltd.
+We have no written agreement for the purchase of these products, other than
+purchase orders that are placed in the ordinary course of business when the
+products are needed. 
+ITEM
+14. 
+PRINCIPAL
+ACCOUNTING FEES AND SERVICES. 
+Kost
+Forer Gabbay & Kasierer, a member of Ernst & Young Global Limited
+(“E&Y”), has served as our independent registered public accounting firm
+since 2002 and has been appointed by the Audit Committee to continue as our
+independent registered public accounting firm for the fiscal year ending
+December 31, 2009. 
+E&Y
+also serves as the independent auditors of Telkoor. The auditing of our
+financial statements and Telkoor’s financial statements are handled by separate
+teams within E&Y. 
+Fees
+and Services 
+The
+following table shows the aggregate fees billed to us for professional services
+by E&Y for the fiscal years ended December 31, 2008 and 2007: 
+2008 
+2007 
+Audit
+Fees 
+$ 
+123,000 
+$ 
+123,000 
+Audit-Related
+Fees 
+$ 
+-0- 
+$ 
+-0- 
+Tax
+Fees 
+$ 
+-0- 
+$ 
+-0- 
+All
+Other Fees 
+$ 
+-0- 
+$ 
+-0- 
+Total 
+$ 
+123,000 
+$ 
+123,000 
+Audit Fees . This category
+includes the aggregate fees billed for professional services rendered for the
+audits of our financial statements for the fiscal years ended December 31, 2008
+and 2007, for the reviews of the financial statements included in our quarterly
+reports on Form 10-QSB during fiscal 2008 and 2007, and for other services that
+are normally provided by the independent auditors in connection with statutory
+and regulatory filings or engagements for the relevant fiscal
+years. 
+Audit-Related Fees . This
+category includes the aggregate fees billed in each of the last two fiscal years
+for assurance and related services by the independent auditors that are
+reasonably related to the performance of the audits or reviews of the financial
+statements and are not reported above under "Audit Fees," and generally consist
+of fees for other engagements under professional auditing standards, accounting
+and reporting consultations, internal control-related matters, and audits of
+employee benefit plans. 
+Tax Fees . This category
+includes the aggregate fees billed in each of the last two fiscal years for
+professional services rendered by the independent auditors for tax compliance,
+tax planning and tax advice. 
+36 
+All Other Fees . This category
+includes the aggregate fees billed in each of the last two fiscal years for
+products and services provided by the independent auditors that are not reported
+above under "Audit Fees," "Audit-Related Fees," or "Tax Fees." 
+The Audit
+Committee’s policy is to pre-approve all services provided by our independent
+auditors. These services may include audit services, audit-related services, tax
+services and other services. The Audit Committee may also pre-approve particular
+services on a case-by-case basis. Our independent auditors are required to
+report periodically to the Audit Committee regarding the extent of services they
+provide in accordance with such pre-approval. 
+37 
+PART
+IV 
+ITEM
+15. 
+EXHIBITS,
+FINANCIAL STATEMENT SCHEDULES. 
+(a) 
+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 
+Revolving
+Credit Facility with San Jose National Bank(1) 
+10.2 
+KDK
+Contract(1) 
+10.3 
+Agreement
+with Fortron/Source Corp.(1) 
+10.4 
+Employment
+Agreement With Robert O. Smith(2) 
+10.5 
+1996
+Stock Option Plan(1) 
+10.6 
+Gresham
+Power Asset Purchase Agreement(3) 
+10.7 
+1998
+Stock Option Plan 
+10.8 
+Technology
+Transfer Agreement with KDK Electronics(4) 
+10.9 
+Loan
+Commitment and Letter Agreement(5) 
+10.10 
+Promissory
+Note(5) 
+10.11 
+Employment
+Agreement with Robert O. Smith (6) 
+10.12 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom, Ltd. (now
+Telkoor Power Ltd.) (7) 
+10.11 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom,
+Ltd. (now Telkoor Power Ltd.) (8) 
+10.12 
+Employment
+Letter with David Amitai (9) 
+10.13 
+Employment
+Agreement with Jonathan Wax (9) 
+10.14 
+Convertible
+Note with Telkoor Power Ltd. (10) 
+10.15 
+Lease,
+dated as of August 21, 2007, between the Company and SDC Fremont Business
+Center, Inc. (11) 
+10.16 
+Employment
+Agreement with Amos Kohn (12) 
+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 
+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 
+(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 10-QSB for
+the quarter ended September 30,
+1998. 
+(5) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1998. 
+(6) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1999. 
+(7) 
+Previously
+filed with the
+Commission with its Form 8-K
+filed on November 21, 2001. 
+(8) 
+Previously
+filed with the Commission with its Form 8-K filed on January 14,
+2004. 
+(9) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 2003. 
+(10) 
+Previously
+filed with the
+Commission with its Form 8-K
+filed on February 9, 2005. 
+(11) 
+Incorporated
+by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on October
+22, 2007. 
+(12) 
+Previously
+filed with the
+Commission with its Form 8-K
+filed on July 10, 2008. 
+38 
+. 
+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. 
+Dated: March
+30, 2009 
+DIGITAL
+POWER CORPORATION 
+By: 
+/s/ Amos Kohn 
+Amos
+Kohn 
+Chief
+Executive Officer 
+In
+accordance with the Exchange Act, this report has been signed below by the
+following persons on behalf of the registrant and in the capacities
+and on the dates indicated. 
+Dated:
+March 30, 2009 
+/s/
+Ben Zion Diamant 
+Ben
+Zion Diamant, Chairman 
+Dated:
+March 30, 2009 
+/s/
+Amos Kohn 
+Amos
+Kohn, 
+President
+and Chief Executive Officer 
+Dated:
+March 30, 2009 
+/s/
+Israel Levi 
+Israel
+Levi, Director 
+Dated:
+March 30, 2009 
+/s/
+Yeheskel Manea 
+Yeheskel
+Manea, Director 
+Dated:
+March 30, 2009 
+/s/
+Terry Steinberg 
+Terry
+Steinberg, Director 
+Dated:
+March 30, 2009 
+/s/
+Uri Friedlander 
+Uri
+Friedlander, Chief Financial Officer 
+(Principal
+Accounting and Financial
+Officer) 
+39

raw/filings/0000896493/2009/0001144204-10-015683/filing_metadata.csv

@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000896493,AULT,"Hyperscale Data, Inc.",10-K,2010-03-25,2009-12-31,2010-03-25T21:19:10.000Z,0001144204-10-015683,v178639_10k.htm,,1697528,0,0,https://www.sec.gov/Archives/edgar/data/896493/000114420410015683/v178639_10k.htm,https://www.sec.gov/Archives/edgar/data/896493/000114420410015683/,2009,2009,1

raw/filings/0000896493/2009/0001144204-10-015683/item1.txt

@@ -0,0 +1,1082 @@
+ITEM 1. 
+DESCRIPTION OF
+BUSINESS. 
+General 
+Digital
+Power Corporation is a solution-driven organization that designs, develops,
+manufactures and sells high-grade customized and flexible power system solutions
+for the most demanding applications in the medical, military, telecom and
+industrial markets. We are highly focused on high-grade and custom
+product designs for both the commercial and military/defense markets, where
+customers demand high density, high efficiency and ruggedized products to meet
+the harshest and/or military mission critical operating
+conditions. We are a California corporation originally formed in
+1969, and our common stock trades on the NYSE Amex under the symbol
+“DPW”. Our corporate headquarters are located in the heart of the Silicon
+Valley. 
+We also
+have a wholly-owned subsidiary, Digital Power Limited ("DPL"), which operates
+under the brand name of “Gresham Power Electronics” (“Gresham”). DPL
+is located in Salisbury, England, and it designs, manufactures and sells power
+products and system solutions mainly for the European marketplace, including
+power conversion, power distribution equipment, DC/AC (Direct Current/Active
+Current) inverters and UPS (Uninterrupted Power Supply) products. DPL’s defense
+business has specialists in the field of naval applications of power
+distribution conversion. 
+We
+believe that we are one of the first companies in the power solutions industry
+to introduce a product strategy based on the premise that products developed
+with an extremely flexible architecture enable rapid modifications to meet
+unique customer requirements for non-standard output voltages. The development
+and implementation of this strategy has resulted in broad acceptance in the
+telecom/industrial, and increasingly in the medical market, segments for our new
+line of high density and high efficiency power products. These
+products set an industry standard for providing high-power output in package
+sizes that are among the smallest available for such commercial
+products. 
+We
+market and sell our products to many diverse market segments, including the
+telecom, industrial, medical and military/defense industries. Our
+products serve a global market, with an emphasis on North America and
+Europe. We offer a broad product variety, including a full custom
+product design and production, unique high-speed switching power front-end,
+modified-standard and value added products, open-frame, Compact-PCI, ATSC
+front-ends and PoE (Power over Ethernet) product solutions, providing power
+output from 50 to 25,000 watts. 
+In an
+effort to provide short lead-times, high quality products and competitive
+pricing to support our markets, we have entered into production agreements with
+several contract manufacturers located in Asia, primarily
+China. These agreements allow us to better control production costs
+and ensure high quality products deliverable in a timely manner to meet market
+demand. 
+We intend
+to remain an innovative leader in the development of cutting-edge custom power
+solutions and rich features products to meet any customer needs and
+requirements, rugged power systems to meet harsh and extreme operation
+environmental requirements, and high performance, high efficiency, high-density
+and modular power systems. We are focusing today on developing
+even more high-grade custom power system solutions for numerous customers in a
+broadly diversified range of markets and challenging environments. Each product
+development is based on best of class performance criteria, including unique,
+advanced feature sets and a special layout to meet our customers’ unique
+operating conditions where efficiency, size and time to market are key to their
+success. We are taking initiatives to develop and sell high
+efficiency “green power” solutions. 
+Power
+System Solutions 
+We
+provide custom power system solutions, high-grade flexibility series power
+supply products and value-added services to diverse industries and markets
+including military/defense, telecom, medical and industrial. We
+believe that our solutions leverage a combination of high power density,
+superior power efficiency, design flexibility and short time to
+market. 
+Custom
+Power System Solutions . We
+provide high-grade custom power system solutions to numerous customers in
+multiple industry segments. Each custom solution that we develop is based on
+high power density and a special layout to meet each of our customer’s unique
+operation environments where efficiency, size and performance are
+key. We combine our power design capabilities with the latest
+circuit designs to provide complete power solutions for virtually any
+need. In the design of custom power solutions, we work closely
+with our customers’ engineering teams to develop mechanical enclosures to ensure
+100% compatibility with any hosted platform. 
+Our
+standard contract for custom power solutions includes a multi-year high-volume
+production forecast that allows us to secure long-term production guarantees
+(and therefore possible savings on manufacturing costs for volume orders) while
+providing an environment that promotes the development of our intellectual
+property (“IP”) portfolio. We believe that this business
+model provides an incentive to our customers to be committed to high-volume
+production orders. 
+High-Grade
+Flexibility Series Power Supply Products . While some of
+our customers have special requirements that include a full custom design, other
+customers may require only certain electrical changes to standard power supply
+products, such as modified output voltages and unique status and control
+signals, and mechanical repackaging tailored to fit the specific application. We
+offer a wide range of standard and modified standard products that can be easily
+integrated with any platform across our diversified market
+segments. 
+Value-Added
+Services . 
+In addition to our custom solutions and high-grade flexibility
+series proprietary products that we offer, we also provide value-added services
+to OEMs. We incorporate an OEM’s selected electronic components,
+enclosures, cable assemblies and other compliance components into our power
+system solutions to produce a power subassembly that is compatible with the
+OEM’s own equipment and specifically tailored to meet the OEM’s
+needs. We purchase parts and components that the OEM itself would
+otherwise attach to, or integrate with, our power systems, and provide the OEM
+with the integration and installation service, thus eliminating a complex,
+time-consuming and costly integration. We believe that this
+value-added service is well suited to those OEMs who wish to reduce their vendor
+base and minimize their investment in manufacturing that leads to increased
+fixed costs. Based on these value-added services, the OEMs do not
+need to build assembly facilities to manufacture their own power subassemblies
+and thus are not required to purchase individual parts from many
+vendors. 
+2 
+Our
+products have a standard warranty of 12 months from date of shipment to the
+customer. 
+Markets 
+We sell
+our custom power system solutions, high-grade flexibility series power supply
+products and value-added services to customers in a diverse range of commercial
+and defense industries and markets throughout the world, with an emphasis on
+North America and Europe. Our current customer base consists of
+approximately 200 companies, some of which are served through our partner
+channels. We serve the North American power electronics market
+primarily through our domestic corporation, Digital Power Corporation; the
+European marketplace is served through DPL, our wholly-owned
+subsidiary. 
+Our
+products are sold in North America and Europe directly by our sales force and
+through a network of manufacturers’ representatives and
+distributors. In 2009, we implemented a new sales strategy to
+identify and focus on strategic accounts. This strategy allows us to maintain a
+close and direct relationship with them, which positions us as the supplier of
+choice for these customers’ challenging, innovative and demanding new product
+requirements. In striving for additional market share, we
+simultaneously strengthen our traditional sales channels of manufacturer
+representatives and distributors. We plan to continue to build more channels and
+increase our market share through 2010. 
+Commercial
+Customers . 
+Our commercial customers include medical, telecom, and industrial
+companies located throughout the world, with an emphasis on North America and
+Europe. Our products are deployed in a variety of applications and operate in a
+broad range of systems where customers require mission critical power
+reliability. Examples of the commercial markets we serve and products
+for these markets include: 
+§ 
+Medical
+(Non-patient Contact) 
+§ 
+Imaging,
+dispensing equipment 
+§ 
+Ventilators 
+§ 
+Dialysis,
+endoscopy, surgical equipment 
+§ 
+Ultrasound,
+MRI 
+§ 
+Telecom 
+§ 
+Switches 
+§ 
+Routers 
+§ 
+Servers 
+§ 
+Broadband
+networks and video broadcast
+systems 
+§ 
+Fiber
+optic networks 
+§ 
+Layers 
+§ 
+Industrial
+Process Equipment and Embedded
+Controls 
+§ 
+Packaging
+equipment, pumps, CNC machines,
+laser 
+§ 
+Intelligent
+/ LED lighting 
+§ 
+Industrial
+printers 
+§ 
+Laboratory
+and diagnostic equipment 
+§ 
+ATE
+(Automatic Test Equipment),
+scientific 
+These
+product solutions, which include standard, modified-standard or full custom
+designs, are designed to meet our customers’ requirements. Customers
+who have implemented our power supply product solutions, or customers for whom
+we are currently developing products, include: Ericsson, Qualcomm, Elma Group,
+Inc., Cisco, Inogen, Aurora Networks, Agilent, GE Healthcare, GE Medical, Goss
+International, Arris, Tandberg, Martin Entertainment, Harmonic Inc., and
+Motorola, among others. 
+3 
+Military/Defense
+Customers . We have developed a broad range of rugged product
+solutions for the military and defense market, featuring the ability to
+withstand harsh environments. These product solutions, which include
+both specific modifications of existing products or full custom designs, are
+designed for combat environments and meet the requirements of customers such as
+BAE Systems, Lockheed Martin, L3 Communications, Raytheon, General Dynamics,
+Boeing, Perkins and others. We are compliant with the
+regulations of International Traffic in Arms Regulations (“ITAR”) and are an
+approved vendor for the U.S. Air Force, Navy and Army. 
+At the
+core of every military electronic system is a power supply. Mission critical
+systems require rugged high performance power platforms that will operate and
+survive the harsh environmental conditions placed upon such systems. Our power
+supplies, which include the following, function effectively in these severe
+military environments: 
+§ 
+Missiles
+– Ground-to-Air, Air-to-Air and
+Sea-to-Air 
+§ 
+Naval
+– Shipboard radar, EW and
+communication 
+§ 
+Mobile
+and Ground Communications – Active Protection, Communications and
+Navigation 
+§ 
+Surveillance,
+test equipment 
+§ 
+UAV
+(Unmanned Aerial Vehicle) – Very lightweight power
+systems 
+Space,
+weight, output power, electromagnetic compatibility, power density and multiple
+output requirements are only part of the challenges that any military power
+supply design faces. With many decades of experience, our engineering teams meet
+these tough challenges. Our power supplies are a critical component
+of many major weapon systems worldwide. 
+We
+leverage our strategic alliance and collaboration with Telkoor Telecom Ltd.
+(“Telkoor”), our largest shareholder, and DPL, our wholly-owned subsidiary, to
+develop some of the MIL-SPEC products. 
+Products
+features for our military/defense customers include: 
+§ 
+Full
+custom design projects 
+§ 
+Program
+management for each project 
+§ 
+Quality
+assurance and control 
+§ 
+Compliance
+with Mil-Q-9858A and ISO 9001:2000 
+§ 
+FRACAS
+(Failure Reporting, Analysis, and Corrective Action
+System) 
+§ 
+Environmental
+testing in accordance with
+MIL-STD-810 
+§ 
+100%
+screening, including ESS (Environmental Stress Screening) and ATP
+(Acceptance Test Procedure) with random vibration and temperature cycling
+tests 
+Strategy 
+Our
+strategy is to be the supplier of choice to those companies and OEMs requiring
+high-quality power system solutions where custom design, superior product,
+high-quality, time to market and very competitive prices are critical to
+business success. We believe that we provide advanced custom product design
+services to deliver high-grade products that reach a high level of efficiency
+and density and can meet rigorous environmental requirements. Our customers
+benefit from a direct relationship with us that supports all their needs for
+designing and manufacturing power solutions and products. By implementing our
+advanced core technology, including process implementation in integrated
+circuits, we can provide cost reductions to our customers by replacing their
+existing power sources with our custom design cost-effective
+products. 
+Our
+target market segments include the industrial, telecommunication, medical, and
+military/defense industries. We do not participate in the personal
+computer power supply market because of the low margins arising out of the high
+volume and extremely competitive nature of that market. 
+4 
+Our
+strategy will continue to focus on expanding our market share by adding new
+customers from all of our target market segments. We are developing long term
+relationships, and we intend to expand our customer base in our commercial
+market segments, including medical, telecom and industrial, while continuing to
+maintain our existing customers. In the military and defense market
+segment, we will continue to provide advanced rugged products to customers, and
+we are striving to expand our business to support the military and defense
+industries. We believe that our custom power supply solutions, flexibility
+series, high-grade and high-efficiency power product solutions provide customers
+with a more effective choice as compared to products offered by other power
+solution competitors, due in part to a customer’s requirement for output
+voltages and other features such as redundancy and sense control tailored to its
+exact requirements within specific parameters. 
+Furthermore,
+we believe that we have the talent and engineering experience to satisfy any of
+our customers’ product or platform requirements. If an OEM customer
+specifies a different set of power system parameters, we will custom design or
+modify a product to meet the OEM’s requirements With a
+wide range of solutions from our custom designs to our high-grade flexibility
+series products, our professional design team can provide economical and timely
+product solutions to our OEM customers. In addition, as our power
+systems meet all appropriate environmental requirements and safety standards,
+our smaller OEM customers can expedite the process of independent safety agency
+testing by companies such as by Underwriters Laboratories, and save considerable
+expense. By offering OEM customers a new choice with Digital
+Power’s custom, flexibility series, high-grade and high-efficiency power system
+solutions, we believe we provide certain strategic advantages over our
+competitors. 
+Digital
+Power Limited (Gresham Power Electronics) 
+DPL, our
+wholly-owned subsidiary organized and headquartered in Salisbury, England,
+designs, manufactures, and distributes switching power supplies, uninterruptible
+power supplies, and power conversion and distribution equipment frequency
+converters for the commercial and military markets, under the name Gresham.
+Frequency converters manufactured by Gresham are used by navel warships to
+convert their generated 60-cycle electricity supply to 400
+cycles. This 400-cycle supply is used to power their critical
+equipment such as gyro, compass, and weapons systems. Gresham also
+designs and manufactures transformer rectifiers for naval
+use. Typically, these provide battery supported back up for critical
+DC systems, such as machinery and communications. In addition, higher
+power rectifiers are used for the starting and servicing of helicopters on naval
+vessels, and Gresham now supplies these as part of overall helicopter start and
+servicing systems. We believe that Gresham products add diversity to
+our product line, provide greater access to the United Kingdom and European
+markets, and strengthen our engineering and technical resources. For
+the years ended December 31, 2009 and 2008, Gresham contributed approximately
+51% and 53%, respectively, to our gross revenues. 
+Manufacturing
+and Testing 
+Consistent
+with our strategy of focusing on custom design products and high-grade
+flexibility series products, we aim to maintain a high degree of flexibility in
+our manufacturing through the use of strategically focused contract
+manufacturers. We select contract manufacturers to ensure that
+they will meet our near term cost, delivery, and quality goals. In
+addition, we believe these relationships will eventually give us access to new
+markets and beneficial cross-licensing opportunities. The competitive
+nature of the power supply industry has placed continual downward pressure on
+selling prices. In order to achieve our low cost manufacturing goals
+with labor-intensive products, we have entered into production agreements with
+certain contract manufacturers in Asia. At present, our principal
+contract manufacturers in Asia are Winco-Power Technology, Shenzhen Watt
+Electronics, Ultra Level Tech Co. Ltd, and Acropolis, Energy Recovery
+Products. 
+We sell
+certain products that are developed, manufactured and sold to us by Telkoor, an
+Israeli company that currently holds 43.7% of our outstanding common
+stock. In coordination with Telkoor, and in order to accelerate
+delivery and reduce the cost of some of the products we purchase from Telkoor,
+we have obtained the right to order products directly from Telkoor’s contract
+manufacturers, as well as from our own contract manufacturers in China, in
+exchange for the payment of a commission to Telkoor. 
+5 
+We are
+continually improving our internal processes, while monitoring the processes of
+our contract manufacturers, to ensure the highest quality and consistent
+manufacturing of our power solutions. We test all of our custom power assemblies
+per clearly defined test procedures developed by us and our customers. This
+approach ensures that our customers can use our systems right out of the box.
+Customer specific testing services are offered with custom designed test stands
+to simulate operation within our customer applications. 
+Compliance
+with international safety agency standards is critical in every application, and
+power solutions play a major role in meeting these compliance requirements. Our
+safety engineers and quality assurance teams help ensure that our custom
+products are designed to meet all safety requirements and are appropriately
+documented to expedite safety approval processes. 
+Regulatory
+Requirements 
+We and
+our manufacturing partners are required to meet applicable regulatory,
+environmental, emissions, safety and other requirements where specified by the
+customer and accepted by us or as required by local regulatory or legal
+requirements. The products that we market and sell in Europe may be
+subject to the 2003 European Directive on Restriction of Hazardous Substances
+(“RoHS”), which restricts the use of six hazardous materials in the manufacture
+of certain electronic and electrical equipment, as well as the 2002 European
+Directive on Waste Electrical and Electronic Equipment (“WEEE”), which
+determines collection, recycling and recovery goals for electrical
+goods. In July 2006, our industry began phasing in RoHS and WEEE
+requirements in most geographical markets with specific emphasis on
+consumer-based products. We believe that RoHS and
+WEEE-compliant components may be subject to longer lead-times and higher prices
+as the industry transitions to these new requirements. 
+Some of
+our products are subject to ITAR, which is administered by the U.S. Department
+of State. ITAR controls not only the export of certain products specifically
+designed, modified, configured or adapted for military systems, but also the
+export of related technical data and defense services as well as foreign
+production. We obtain required export licenses for any exports subject to ITAR.
+Compliance with ITAR may require a prolonged period of time; if the process of
+obtaining required export licenses for products subject to ITAR is delayed, it
+could have a materially adverse effect on our business, financial condition, and
+operating results. Any future restrictions or charges imposed by the United
+States or any other country on our international sales or sales by the
+operations of Gresham, our foreign subsidiary, could have a materially adverse
+effect on our business, financial condition, and operating results. In addition,
+from time to time, we have entered into contracts with the Israeli Ministry of
+Defense, which contracts were funded with monies subject to, and we therefore
+were required to comply with the regulations governing, the U.S. Foreign
+Military Financing program. 
+Sales
+and Marketing 
+We market
+our products directly through our internal sales force as well as through a
+partner network of independent manufacturer representatives and
+distributors. Each representative organization is responsible for
+managing sales in a particular geographic territory. Generally, the
+representative has the opportunity to earn an exclusive access to all potential
+customers in the assigned territory as a result of achieving its marketing and
+sales goals as defined in the representative agreement. Our manufacturer
+representative agreements provide for a commission equal to 5% of net sales,
+payable after the product is shipped, for any direct sale
+contribution. Typically, either we or the representative organization
+may terminate the agreement with 30 days’ written notice. 
+Historically,
+we have also sold products through multiple distributor arrangements which do
+not specify a particular territory. Each of these arrangements can be
+terminated by either party with 30 days’ written notice. 
+Our
+promotional efforts, to date, have included product data sheets, participation
+in trade shows, and our website, www.digipwr.com. We use the
+corporate website to emphasize our capabilities and marketing direction. All
+products specifications are uploaded onto our website and accessible to the
+marketplace. We will continue to enhance our website by adding more features and
+functionalities, such as ecommerce, that will allow our customers to buy
+directly through our website. Our future promotional activities will
+likely include advertising in industry-specific publications, as well as public
+relations for our new products. 
+6 
+Engineering
+and Technology 
+Our
+engineering and product development efforts are primarily directed toward
+developing new products in connection with custom product design and
+modification of our standard power systems to provide a broad array of
+individual models. In the years ended December 31, 2009 and 2008, we
+expended a total of $556,000 and $622,000, respectively, on engineering and
+product development. 
+Our new
+custom product design solutions are driven by our ability to provide to our
+customers advanced technology that meets their product needs with a short
+turnaround time and a very competitive price point. We believe that we are
+successfully executing our strategic account focus, as evidenced by the award of
+second and third generation product development contracts from some of these
+customers. Our standard contract for custom power solutions includes
+a multi-year high-volume production forecast that could allow us to secure
+long-term production guarantees while providing an environment that promotes the
+development of our IP portfolio. 
+We also
+partner with various design and contract engineering firms for development of
+some of our new products supported by our internal engineering services
+staff. Furthermore, we continue to leverage the close relationship we
+have with one of our major shareholders, Telkoor, to introduce new products that
+Telkoor develops for its market and makes available for us. Finally, from time
+to time we modify standard products to meet specific customer requirements when
+applicable. We continually seek to improve our product
+power density, adaptability, and efficiency, while attempting to anticipate
+changing market demands for increased functionality, such as PFC (power factor
+correction) and improved EMI (electromagnetic interference) filtering. We are
+experiencing an increasing demand for ruggedization of commercial products for
+military applications. To meet that requirement, our engineering team continues
+to ruggedize commercial products, which we sell as commercial off the shelf
+products to some of our military customers. We continue to differentiate all of
+our products from commodity type products by enhancing,, modifying and
+customizing our existing product portfolio, using our Freemont, California
+engineering lab. 
+Competition 
+The power
+system solutions industry is highly fragmented and characterized by intense
+competition. Our competition includes hundreds of companies located
+throughout the world, some of whom have advantages over us in terms of labor and
+component costs, and some of whom may offer products comparable in quality to
+ours. Many of our competitors, including Power-One, Emerson (Astec)
+Technologies, Inc., Lambda Electronics, and Mean-Well Power Supplies, have
+substantially greater fiscal and marketing resources and geographic presence
+than we do. If we are successful in increasing our revenues,
+competitors may notice and increase competition with our
+customers. We also face competition from current and prospective
+customers who may decide to design and manufacture internally power supplies
+needed for their products. Furthermore, certain larger OEMs tend to
+contract only with larger power supply manufacturers. 
+In April
+2008, Telkoor, one of our major shareholders and strategic suppliers, signed a
+“Private Label” agreement with Murata Power Solutions in Canada to sell
+Telkoor’s products under the Murata brand name. This agreement positions Murata
+as a direct competitor of ours with respect to the sale of Telkoor’s products in
+North America. 
+We
+anticipate that with the current economic downturn, additional competitors may
+enter into strategic alliances or even acquisitions. Competition
+could thus become more problematic if consolidation trends in the electronics
+industry continue and some of the OEMs to whom we sell our products are acquired
+by larger OEMs. To remain competitive, we must continue to compete
+favorably on the basis of value by providing reliable manufacturing, offering
+customer-driven engineering services including custom design and manufacturing,
+continuously improving quality and reliability levels, and offering flexible and
+reliable delivery schedules. 
+7 
+We
+believe that our power system solutions and advanced product design have
+significant advantages in the power supply solutions market because they have
+higher efficiency and high power density, or power-to-volume ratio, which make
+them smaller than the solutions offered by our competitors and can thus fit well
+in numerous custom environments in compliance with our customers’
+requirements. 
+Another
+advantage of our power system solutions product line is based on the “Flexible”
+series that employs adjustable power range of product design. We
+believe we have a competitive position with our targeted customers who need a
+high-quality, compact product, which can be readily modified to meet the
+customer’s unique requirements. We have designed the base model power
+system platform so that it can be quickly and economically modified and adapted
+to the specific power needs of any hosting platform or OEM. This
+“flexibility” approach has allowed us to provide samples of modified power
+systems to OEM customers in only a few days after initial consultation, an
+important capability given the emphasis placed by OEMs on “time to market.” It
+also results in very low non recurring engineering (“NRE”)
+expenses. Because of reduced NRE expenses, we do not generally charge
+our OEM customers for NRE related to tailoring a power system to a customer’s
+specific requirements. We believe this gives us an advantage over our
+competitors, many of whom do charge their customers for NRE
+expenses. 
+Raw
+Materials 
+The raw
+materials for power supplies principally consist of electronic
+components. These raw materials are available from a variety of
+sources, and we are not dependent on any one supplier. We generally
+allow our subcontractors to purchase components based on orders received or
+forecasts to minimize our risk of unusable inventory. To the extent
+necessary, we may allow them to procure materials prior to orders received to
+obtain shorter lead times and to achieve quantity discounts following a risk
+assessment. In addition, we have decided to directly procure certain
+long lead-time electronic components in an effort to reduce our
+lead-time. 
+Because
+of the global recession, many raw material vendors have reduced capacities,
+closed production lines and, in some cases, even discontinued their operations.
+As a result, there is a global shortage of certain electronic components, which
+has extended our production lead-time and our production costs. For
+example, in some cases, finished goods that used to be available in 12 weeks for
+a production purchase order are now available only after 22
+weeks. Also, some materials are no longer available to support some
+of our products, thereby requiring us to search for cross materials or, even
+worse, redesign some of our products to support currently-available
+materials. 
+Intellectual
+Property 
+We rely
+upon a combination of trade secrets, industry expertise, confidential
+procedures, and contractual provisions to protect our intellectual
+property. We believe that because our products are continually
+updated and revised, obtaining patents would be costly and not beneficial.
+However, in the future, as we continue to develop unique core technology, we may
+seek to obtain patents for some of the core technology. On July 8,
+2004, our trademark, “DP Digital Power – Powering Your Technologies,” was
+registered with the United States Patent and Trademark Office. 
+Employees 
+As of
+December 31, 2009, we had 33 employees located in the United States and the
+United Kingdom, of whom six were engaged in engineering and product development,
+nine in sales and marketing, eleven in general operations and seven in general
+administration and finance. All but five of these employees are
+employed on a full-time basis. None of our employees are currently
+represented by a trade union. We consider our relations with our employees to be
+good. 
+8 
+ITEM
+1A. 
+RISK
+FACTORS. 
+The risk
+factors listed in this section provide examples of risks, uncertainties and
+events that may cause our actual results to differ materially from the
+expectations we describe in our forward-looking statements. Readers should be
+aware that the occurrence of any of the events described in these risk factors
+could have a material adverse effect on our business, results of operations and
+financial condition. We undertake no obligation to update or revise publicly any
+forward-looking statements, whether as a result of new information, future
+events, or otherwise. 
+We
+experienced an operating loss and a net loss during the year ended December 31,
+2009, we have historically experienced net losses and we may experience net
+losses in the future. 
+For the
+year ended December 31, 2009, we had an operating loss of $102,000 and net loss
+of $148,000, compared to an operating income of $391,000 and net income of
+$558,000for the year ended December 31, 2008. Although we have
+actively taken steps to reduce our costs, we may continue to incur operating and
+net losses in the future until we increase revenues by selling current and
+custom design products, transitioning to production stage of our custom design
+products and decreasing manufacturing costs through a greater use of contract
+manufacturers in Asia and other strategic locations. 
+We
+depend on Telkoor to design and manufacture some of our products. 
+We depend
+on Telkoor, our largest shareholder and one of our third party subcontractors,
+for design and manufacturing capabilities for some of the products that we sell.
+If Telkoor is unable or unwilling to continue designing or manufacturing our
+products in required volumes and with a certain level of quality on a timely
+basis, that could lead to loss of sales and adversely affect our operating
+results and cash position. We also depend on Telkoor's intellectual property and
+ability to transfer production to third party manufacturers. Failure to obtain
+new products in a timely manner or delay in delivery of product to customers
+will have an adverse effect on our ability to meet our customers’
+expectations. In addition, we operate in highly competitive markets
+where our ability to sell Telkoor’s products could be adversely affected by
+Telkoor’s agreements with other companies, long lead-times and the high cost of
+Telkoor’s products. In April 2008, for example, Telkoor signed a
+“Private Label” agreement with Murata Power Solutions in Canada to sell
+Telkoor’s products under the Murata brand name, which agreement positions Murata
+as a direct competitor of ours with respect to the sale of Telkoor’s products in
+North America. Also, in 2009, Telkoor’s manufacturing lead-times
+increased, which has hindered our ability to respond to our customers’
+needs. Telkoor’s principal offices, research and development and
+manufacturing facilities are located in Israel. Political, economic, and
+military conditions in Israel directly affect Telkoor’s
+operations. We are also dependent upon Telkoor’s terms and conditions
+with its contract manufacturers for some of our products, which terms and
+conditions may not always be in our best interest. 
+We
+are dependent upon our ability, and our contract manufacturers’ ability, to
+timely procure electronic components. 
+Because
+of the global recession, many raw material vendors have reduced capacities,
+closed production lines and, in some cases, even discontinued their operations.
+As a result, there is a global shortage of certain electronic components, which
+has extended our production lead-time and our production costs. For
+example, in some cases, finished goods that used to be available in 12 weeks for
+a production purchase order are now available only after 22
+weeks. Also, some materials are no longer available to support some
+of our products, thereby requiring us to search for cross materials or, even
+worse, redesign some of our products to support currently-available
+materials. Such redesign efforts may require certain regulatory and
+safety agency re-submittals, which may cause further production
+delays. While we have initiated
+actions that we believe will limit our exposure to such problems, the dynamic
+business conditions in many of our markets may challenge the solutions that have
+been put in place, and issues may recur in the future. 
+In
+addition, some of our products are manufactured, assembled and tested by third
+party subcontractors and contract manufacturers located in Asia. While we have
+had relationships with many of these third parties in the past, we cannot
+predict how or whether these relationships will continue in the future. In
+addition, changes in management, financial viability, manufacturing demand or
+capacity, or other factors, at these third parties could hurt our ability to
+have our products manufactured. 
+9 
+Our
+strategic focus on our custom power supply solution competencies and concurrent
+cost reduction plans may be ineffective or may limit our ability to
+compete. 
+As a
+result of our strategic focus on custom power supply solutions, we will continue
+to devote significant resources to developing custom products for a large number
+of customers, where each product represents a uniquely tailored solution for a
+specific customer’s requirements. A failure to meet these customer
+product requirements or a failure to meet production schedules and/or product
+quality standards may put us at risk with one or more of these
+customers. The loss of one or more of our significant custom power
+supply solution customers could have a material adverse impact on our revenues,
+business or financial condition. 
+We have
+also implemented a series of initiatives designed to increase efficiency and
+reduce costs. While we believe that these actions will reduce costs,
+they may not be sufficient to achieve the required operational efficiencies that
+will enable us to respond more quickly to changes in the market or result in the
+improvements in our business that we anticipate. In such event, we may be forced
+to take additional cost-reducing initiatives, which may negatively impact
+quarterly earnings and profitability as we account for severance and other
+related costs. In addition, there is the risk that such measures could have
+long-term adverse effects on our business by reducing our pool of talent,
+decreasing or slowing improvements in our products or services, making it more
+difficult for us to respond to customers, limiting our ability to increase
+production quickly if and when the demand for our solutions increases and
+limiting our ability to hire and retain key personnel. These circumstances could
+cause our earnings to be lower than they otherwise might be. 
+If
+our new custom products development efforts fail to result in products that meet
+our customers’ needs, or if our customers fail to accept our new products, our
+revenues will be adversely affected. 
+We have
+recently introduced a new strategy of developing multiple custom product
+designs. The commercial success of this new technology will depend on a number
+of factors, including the successful development of the custom products, our
+ability to meet customer requirements, our ability to meet all product criteria,
+successful transition from development stage to production stage, our ability to
+meet product cost targets generating acceptable margins, timely remediation of
+product performance issues, if any, identified during testing, product
+performance at customer locations, differentiation of our product from our
+competitors’ products, and management of customer expectations concerning
+product capabilities and life cycles. If we fail to accomplish all of
+the above, our business could be materially and adversely affected. 
+We
+are dependent upon our ability to attract, retain and motivate our key
+personnel. 
+Our
+success depends on our ability to attract, retain and motivate our key
+management personnel, including, but not limited to, our CEO and CFO, sales
+force, and key engineers, necessary to implement our business plan and to grow
+our business. Despite the adverse economic conditions at this time, and
+occurring over the past several years, competition for certain specific
+technical and management skill sets is intense. If we are unable to identify and
+hire the personnel that we need to succeed, or if one or more of our present key
+employees were to cease to be associated with us, our future results could be
+adversely affected. 
+We
+depend upon a few major customers for a majority of our revenues, and the loss
+of any of these customers, or the substantial reduction in the quantity of
+products that they purchase from us, would significantly reduce our revenues and
+net income. 
+We
+currently depend upon a few major OEMs and other customers for a significant
+portion of our revenues. Because of the global economic downturn, we have
+already experienced a reduction of orders by OEMs and a reduction or
+cancellation of orders, scaling back of certain activities and workforce layoffs
+by other customers. The loss of any of these customers, or a
+substantial reduction in the quantity of products that they purchase from us,
+would significantly reduce our revenues and net income. Furthermore, diversions
+in the capital spending of certain of these customers to new network elements
+have and could continue to lead to their reduced demand for our products, which
+could, in turn, have a material adverse effect on our business and results of
+operations. If the financial condition of one or more of our major customers
+should deteriorate, or if they have difficulty acquiring investment capital due
+to any of these or other factors, a substantial decrease in our revenues would
+likely result. 
+10 
+We
+are dependent on the electronic equipment industry, and accordingly will be
+affected by the impact on that industry by the current economic
+downturn. 
+Substantially
+all of our existing customers are in the electronic equipment industry, and they
+manufacture products that are subject to rapid technological change,
+obsolescence, and large fluctuations in demand. This industry is
+further characterized by intense competition and volatility. The OEMs
+serving this industry are pressured for increased product performance and lower
+product prices. OEMs, in turn, make similar demands on their
+suppliers, such as us, for increased product performance and lower
+prices. The current economic downturn has affected the entire supply
+chain, including us. Recently, certain segments of the electronic
+industry have experienced a significant softening in product
+demand. Such lower demand may affect our customers, in which case the
+demand for our products may decline and our growth could be adversely
+affected. 
+Our
+reliance on subcontract manufacturers to manufacture certain aspects of our
+products involves risks, including delays in product shipments and reduced
+control over product quality. 
+Since we
+do not own significant manufacturing facilities, we must rely on, and will
+continue to rely on, a limited number of subcontract manufacturers to
+manufacture our power supply products. Our reliance upon such subcontract
+manufacturers involves several risks, including reduced control over
+manufacturing costs, delivery times, reliability and quality of components,
+unfavorable currency exchange fluctuations, and continued inflationary pressures
+on many of the raw materials used in the manufacturing of our power supply
+products. If we were to encounter a shortage of key manufacturing components
+from limited sources of supply, or experience manufacturing delays caused by
+reduced manufacturing capacity, inability of our subcontract manufacturers to
+procure raw materials, the loss of key assembly subcontractors, difficulties
+associated with the transition to our new subcontract manufacturers or other
+factors, we could experience lost revenues, increased costs, and delays in, or
+cancellations or rescheduling of, orders or shipments, any of which would
+materially harm our business. 
+We
+outsource, and are dependent upon developer partners for, the development of
+some of our custom design products. 
+We made
+an operational decision to outsource some of our custom design products to
+numerous developer partners. This business structure will remain in place until
+the custom design volume justifies expanding our in house capabilities.
+Incomplete product designs that do not fully comply with the customer
+specifications and requirements might affect our ability to transition to a
+volume production stage of the custom designed product where the revenue goals
+are dependent on the high volume of custom product production. Furthermore, we
+rely on the design partners’ ability to provide high quality prototypes of the
+designed product for our customer approval as a critical stage to approve
+production. 
+We face intense industry competition,
+price erosion and product obsolescence, which, in turn, could reduce our
+profitability . 
+We
+operate in an industry that is generally characterized by intense competition.
+We believe that the principal bases of competition in our markets are breadth of
+product line, quality of products, stability, reliability and reputation of the
+provider, along with cost. Quantity discounts, price erosion, and rapid product
+obsolescence due to technological improvements are therefore common in our
+industry as competitors strive to retain or expand market share. Product
+obsolescence can lead to increases in unsaleable inventory that may need to be
+written off and, therefore, could reduce our profitability. Similarly, price
+erosion can reduce our profitability by decreasing our revenues and our gross
+margins. In fact, we have seen price erosion over the last several years on most
+of the products we sell, and we expect additional price erosion in the
+future. 
+11 
+Our
+future results are dependent on our ability to establish, maintain and expand
+our OEM relationships and our other distribution channels. 
+We market
+and sell our products through domestic and international OEM relationships and
+other distribution channels. Our future results are dependent on our ability to
+establish, maintain and expand our relationships with OEMs as well as with other
+marketing and sales distribution channels. If, however, the third parties with
+whom we have entered into such OEM and other arrangements should fail to meet
+their contractual obligations, cease doing, or reduce the amount of their,
+business with us or otherwise fail to meet their own performance objectives,
+customer demand for our products could be adversely affected, which would have
+an adverse effect on our revenues. 
+We
+may not be able to procure necessary key components for our products, or we may
+purchase too much inventory or the wrong inventory. 
+The power
+supply industry, and the electronics industry as a whole, can be subject to
+business cycles. During periods of growth
+and high demand for our products, we may not have adequate supplies of inventory
+on hand to satisfy our customers' needs. Furthermore, during these periods of
+growth, our suppliers may also experience high demand and, therefore, may not
+have adequate levels of the components and other materials that we require to
+build products so that we can meet our customers' needs. Our inability to
+secure sufficient components to build products for our customers could
+negatively impact our sales and operating results. We may choose to mitigate
+this risk by increasing the levels of inventory for certain key components.
+Increased inventory levels can increase the potential risk for excess and
+obsolescence should our forecasts fail to materialize or if there are negative
+factors impacting our customers’ end markets. If we purchase too much inventory
+or the wrong inventory, we may have to record additional inventory reserves or
+write-off the inventory, which could have a material adverse effect on our gross
+margins and on our results of operations. 
+We
+depend on sales of our legacy products for a meaningful portion of our revenues,
+but these products are mature and their sales will continue to
+decline. 
+A large
+portion of our sales have historically been attributable to our legacy products.
+We expect that these products may continue to account for a meaningful
+percentage of our revenues for the foreseeable future. However, these sales are
+declining. Although we are unable to predict future prices for our legacy
+products, we expect that prices for these products will continue to be subject
+to significant downward pressure in certain markets for the reasons described
+above. Accordingly, our ability to maintain or increase revenues will be
+dependent on our ability to expand our customer base, to increase unit sales
+volumes of these products and to successfully, develop, introduce and sell new
+products such as custom design and value added products. We cannot assure you
+that we will be able to expand our customer base, increase unit sales volumes of
+existing products or develop, introduce and/or sell new products. 
+Our operating results may vary from
+quarter to quarter. 
+Our
+operating results have in the past been subject to quarter-to-quarter
+fluctuations, and we expect that these fluctuations will continue, and may
+increase in magnitude, in future periods. Demand for our products is driven by
+many factors, including the availability of funding for our products in
+customers’ capital budgets. There is a trend for some of our customers to place
+large orders near the end of a quarter or fiscal year, in part to spend
+remaining available capital budget funds. Seasonal fluctuations in customer
+demand for our products driven by budgetary and other concerns can create
+corresponding fluctuations in period-to-period revenues, and we therefore cannot
+assure you that our results in one period are necessarily indicative of our
+revenues in any future period. In addition, the number and timing of large
+individual sales and the ability to obtain acceptances of those sales, where
+applicable, have been difficult for us to predict, and large individual sales
+have, in some cases, occurred in quarters subsequent to those we anticipated, or
+have not occurred at all. The loss or deferral of one or more significant sales
+in a quarter could harm our operating results. It is possible that, in some
+quarters, our operating results will be below the expectations of public market
+analysts or investors. In such events, or in the event adverse conditions
+prevail, the market price of our common stock may decline
+significantly. 
+12 
+Failure
+of our information technology infrastructure to operate effectively could
+adversely affect our business. 
+We depend
+heavily on information technology infrastructure to achieve our business
+objectives. If a problem occurs that impairs this infrastructure, the resulting
+disruption could impede our ability to record or process orders, manufacture and
+ship in a timely manner, or otherwise carry on business in the normal course.
+Any such events could cause us to lose customers or revenue and could require us
+to incur significant expense to remediate. 
+We
+are subject to certain governmental regulatory restrictions relating to our
+international sales. 
+Some of
+our products are subject to ITAR rules, which are administered by the
+U.S. Department of State. ITAR controls not only the export, import and
+trade of certain products specifically designed, modified, configured or adapted
+for military systems, but also the export of related technical data and defense
+services as well as foreign production. Any delays in obtaining the
+required export, import or trade licenses for products subject to ITAR rules
+could have a materially adverse effect on our business, financial condition,
+and/or operating results. In addition, changes in United States
+export and import laws that require us to obtain additional export and import
+licenses or delays in obtaining export or import licenses currently being sought
+could cause significant shipment delays and, if such delays are too great, could
+result in the cancellation of orders. Any future restrictions or charges imposed
+by the United States or any other country on our international sales or foreign
+subsidiary could have a materially adverse effect on our business, financial
+condition, and/or operating results. In addition, from time to time, we have
+entered into contracts with the Israeli Ministry of Defense which were funded
+with monies subject to, and we therefore were required to comply with the
+regulations governing, the U.S. Foreign Military Financing
+program. Any such future sales would be subject to such
+regulations. 
+We
+depend on international operations for a substantial majority of our components
+and products. 
+We
+purchase a substantial majority of our components from foreign manufacturers and
+have a substantial majority of our commercial products assembled, packaged, and
+tested by subcontractors located outside the United States. These activities are
+subject to the uncertainties associated with international business operations,
+including trade barriers and other restrictions, changes in trade policies,
+governmental regulations, currency exchange fluctuations, reduced protection for
+intellectual property, war and other military activities, terrorism, changes in
+social, political, or economic conditions, and other disruptions or delays in
+production or shipments, any of which could have a materially adverse effect on
+our business, financial condition, and/or operating results. 
+We
+depend on international sales for a portion of our revenues. 
+Sales to
+customers outside of North America accounted for 50.8% of net revenues in the
+year ended December 31, 2009 and for 55.7% of net revenues in the year ended
+December 31, 2008, and we expect that international sales will continue to
+represent a material portion of our total revenues. International sales are
+subject to the risks of international business operations as described above, as
+well as generally longer payment cycles, greater difficulty collecting accounts
+receivable, and currency restrictions. In addition, DPL, our
+wholly-owned foreign subsidiary in the United Kingdom, supports our European and
+other international customers, distributors, and sales representatives, and
+therefore is also subject to local regulation. International sales
+are also subject to the export laws and regulations of the United States and
+other countries. 
+If
+our accounting controls and procedures are circumvented or otherwise fail to
+achieve their intended purposes, our business could be seriously
+harmed. 
+We
+evaluate our disclosure controls and procedures as of the end of each fiscal
+quarter, and are annually reviewing and evaluating our internal control over
+financial reporting in order to comply with Securities and Exchange Commission
+(“SEC”) rules relating to internal control over financial reporting adopted
+pursuant to the Sarbanes-Oxley Act of 2002. Because of its inherent limitations,
+internal control over financial reporting may not prevent or detect
+misstatements. Also, projections of any evaluation of effectiveness to future
+periods are subject to the risk that controls may become inadequate because of
+changes in conditions, or that the degree of compliance with the policies or
+procedures may deteriorate. If we fail to maintain effective internal control
+over financial reporting or our management does not timely assess the adequacy
+of such internal control, we may be subject to regulatory sanctions, and our
+reputation may decline. 
+13 
+The
+sale of our products is dependent upon our ability to satisfy the proprietary
+requirements of our customers. 
+We depend
+upon a relatively narrow range of products for the majority of our revenue. Our
+success in marketing our products is dependent upon their continued acceptance
+by our customers. In some cases, our customers require that our products meet
+their own proprietary requirements. If we are unable to satisfy such
+requirements, or forecast and adapt to changes in such requirements, our
+business could be materially harmed. 
+The
+sale of our products is dependent on our ability to respond to rapid
+technological change, including evolving industry-wide standards, and may be
+adversely affected by the development, and acceptance by our customers, of new
+technologies which may compete with, or reduce the demand for, our
+products. 
+Rapid
+technological change, including evolving industry standards, could render our
+products obsolete. To the extent our customers adopt such new technology in
+place of our products, the sales of our products may be adversely affected. Such
+competition may also increase pricing pressure for our products and adversely
+affect the revenues from such products. 
+Our
+limited ability to protect our proprietary information and technology may
+adversely affect our ability to compete, and our products could infringe upon
+the intellectual property rights of others, resulting in claims against us, the
+results of which could be costly. 
+Many of
+our products consist entirely or partly of proprietary technology owned by us.
+Although we seek to protect our technology through a combination of copyrights,
+trade secret laws and contractual obligations, these protections may not be
+sufficient to prevent the wrongful appropriation of our intellectual property,
+nor will they prevent our competitors from independently developing technologies
+that are substantially equivalent or superior to our proprietary technology. In
+addition, the laws of some foreign countries do not protect our proprietary
+rights to the same extent as the laws of the United States. In order to defend
+our proprietary rights in the technology utilized in our products from third
+party infringement, we may be required to institute legal proceedings, which
+would be costly and would divert our resources from the development of our
+business. If we are unable to successfully assert and defend our
+proprietary rights in the technology utilized in our products, our future
+results could be adversely affected. 
+Although
+we attempt to avoid infringing known proprietary rights of third parties in our
+product development efforts, we may become subject to legal proceedings and
+claims for alleged infringement from time to time in the ordinary course of
+business. Any claims relating to the infringement of third-party proprietary
+rights, even if not meritorious, could result in costly litigation, divert
+management’s attention and resources, require us to reengineer or cease sales of
+our products or require us to enter into royalty or license agreements which are
+not advantageous to us. In addition, parties making claims may be able to obtain
+an injunction, which could prevent us from selling our products in the United
+States or abroad. 
+If
+we are unable to satisfy our customers’ specific product quality, certification
+or network requirements, our business could be disrupted and our financial
+condition could be harmed. 
+Our
+customers demand that our products meet stringent quality, performance and
+reliability standards. We have, from time to time, experienced problems in
+satisfying such standards. Defects or failures have occurred in the past, and
+may in the future occur, relating to our product quality, performance and
+reliability. From time to time, our customers also require us to implement
+specific changes to our products to allow these products to operate within their
+specific network configurations. If we are unable to remedy these failures or
+defects or if we cannot effect such required product modifications, we could
+experience lost revenues, increased costs, including inventory write-offs,
+warranty expense and costs associated with customer support, delays in, or
+cancellations or rescheduling of, orders or shipments and product returns or
+discounts, any of which would harm our business. 
+14 
+If
+we ship products that contain defects, the market acceptance of our products and
+our reputation will be harmed and our customers could seek to recover their
+damages from us. 
+Our
+products are complex, and despite extensive testing, may contain defects or
+undetected errors or failures that may become apparent only after our products
+have been shipped to our customers and installed in their network or after
+product features or new versions are released. Any such defect, error or failure
+could result in failure of market acceptance of our products or damage to our
+reputation or relations with our customers, resulting in substantial costs for
+both us and our customers as well as the cancellation of orders, warranty costs
+and product returns. In addition, any defects, errors, misuse of our products or
+other potential problems within or out of our control that may arise from the
+use of our products could result in financial or other damages to our customers.
+Our customers could seek to have us pay for these losses. Although we maintain
+product liability insurance, it may not be adequate. 
+Our common stock price is
+volatile . 
+Our
+common stock is listed on the NYSE Amex and is thinly traded. In the
+past, our trading price has fluctuated widely, depending on many factors that
+may have little to do with our operations or business prospects. The
+exercise of outstanding options and warrants may adversely affect our stock
+price and a shareholder’s percentage of ownership. As of December 31,
+2009, we have outstanding options to purchase an aggregate of 598,990 shares of
+common stock, with a weighted average exercise price of $0.98 per share,
+exercisable at prices ranging from $0.48 to $3.03 per share.

raw/filings/0000896493/2009/0001144204-10-015683/item13.txt

@@ -0,0 +1,2525 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED
+TRANSACTIONS, AND DIRECTOR
+INDEPENDENCE. 
+Employment
+Agreement with Amos Kohn 
+We
+entered into an employment agreement, effective June 1, 2008, with our President
+and Chief Executive Officer, Amos Kohn. See the discussion of this
+agreement located above in the section entitled “Employment Agreement with Amos
+Kohn.” 
+Separation
+Agreement with Jonathan Wax 
+We
+entered into a separation agreement and release of claims, effective as of
+February 29, 2008, with Jonathan Wax, our former President and Chief Executive
+Officer. Under this agreement, we are to pay Mr. Wax: (a) his base salary
+through the date of the agreement and any vacation pay and other cash
+entitlements accrued by Mr. Wax as of the date of the agreement; and (b)
+$165,000 (less deductions required by law) payable in four equal quarterly
+installments on April 1, 2008, July 1, 2008, October 1, 2008 and January 1,
+2009. We will continue to pay until the earlier of (a) the date on which Mr. Wax
+obtains health care coverage from another employer or source or (b) one year
+from the date of the agreement, the same portion of the costs associated with
+providing group, medical, dental and vision insurance coverage to Mr. Wax as was
+paid by Digital Power during February 2008. If Mr. Wax dies before all of these
+payments have been made, we will make the remaining payments to the Wax Family
+Trust. 
+Relationship
+with Telkoor Power Supplies Ltd. 
+In the
+fiscal years ended December 31, 2009 and 2008, we purchased approximately
+$2,531,000 and $4,571,000, respectively, of products from Telkoor Power Supplies
+Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which
+Ben-Zion Diamant is the Chief Executive Officer. We have no written
+agreement for the purchase of these products, other than purchase orders that
+are placed in the ordinary course of business when the products are
+needed. 
+ITEM
+14. 
+PRINCIPAL
+ACCOUNTING FEES AND
+SERVICES. 
+Kost
+Forer Gabbay & Kasierer, a member of Ernst & Young Global (“Kost
+Forer”), has served as our independent registered public accounting firm since
+2002 and has been appointed by the Audit Committee to continue as our
+independent registered public accounting firm for the fiscal year ending
+December 31, 2010. 
+32 
+Kost
+Forer also serves as the independent auditors of Telkoor. The auditing of our
+financial statements and Telkoor’s financial statements are handled by separate
+teams within Kost Forer. 
+Fees
+and Services 
+The
+following table shows the aggregate fees billed to us for professional services
+by Kost Forer for the fiscal years ended December 31, 2009 and
+2008: 
+2009 
+2008 
+Audit
+Fees 
+$ 
+123,000 
+$ 
+123,000 
+Audit-Related
+Fees 
+$ 
+31,000 
+$ 
+-0- 
+Tax
+Fees 
+$ 
+5,000 
+$ 
+-0- 
+All
+Other Fees 
+$ 
+-0- 
+$ 
+-0- 
+Total 
+$ 
+159,000 
+$ 
+123,000 
+Audit Fees . This category
+includes the aggregate fees billed for professional services rendered for the
+audits of our financial statements for the fiscal years ended December 31, 2009
+and 2008, for the reviews of the financial statements included in our quarterly
+reports on Form 10-Q during fiscal 2009 and 2008, and for other services that
+are normally provided by the independent auditors in connection with statutory
+and regulatory filings or engagements for the relevant fiscal
+years. 
+Audit-Related Fees . This
+category includes the aggregate fees billed in each of the last two fiscal years
+for assurance and related services by the independent auditors that are
+reasonably related to the performance of the audits or reviews of the financial
+statements and are not reported above under "Audit Fees," and generally consist
+of fees for other engagements under professional auditing standards, accounting
+and reporting consultations, internal control-related matters, and audits of
+employee benefit plans. 
+Tax Fees . This category
+includes the aggregate fees billed in each of the last two fiscal years for
+professional services rendered by the independent auditors for tax compliance,
+tax planning and tax advice. 
+All Other Fees . This
+category includes the aggregate fees billed in each of the last two fiscal years
+for products and services provided by the independent auditors that are not
+reported above under "Audit Fees," "Audit-Related Fees," or "Tax
+Fees." 
+The Audit
+Committee’s policy is to pre-approve all services provided by our independent
+auditors. These services may include audit services, audit-related services, tax
+services and other services. The Audit Committee may also pre-approve particular
+services on a case-by-case basis. Our independent auditors are required to
+report periodically to the Audit Committee regarding the extent of services they
+provide in accordance with such pre-approval. 
+PART
+IV 
+ITEM
+15. 
+EXHIBITS AND
+FINANCIAL STATEMENT SCHEDULES.
+(a) 
+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) 
+33 
+10.1 
+Revolving
+Credit Facility with San Jose National Bank (1) 
+10.2 
+KDK
+Contract (1) 
+10.3 
+Agreement
+with Fortron/Source Corp. (1) 
+10.4 
+Employment
+Agreement With Robert O. Smith (2) 
+10.5 
+1996
+Digital Power Incentive Share Option (1) 
+10.6 
+Gresham
+Power Asset Purchase Agreement (3) 
+10.7 
+1998
+Digital Power Incentive Share Option Plan (5) 
+10.8 
+2002
+Digital Power Incentive Share Option Plan (8) 
+10.9 
+Technology
+Transfer Agreement with KDK Electronics (4) 
+10.10 
+Loan
+Commitment and Letter Agreement (5) 
+10.11 
+Promissory
+Note (5) 
+10.12 
+Employment
+Agreement with Robert O. Smith (6) 
+10.13 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom, Ltd. (now
+Telkoor Power Ltd.) (7) 
+10.14 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom,
+Ltd. (now Telkoor Power Ltd.) (8) 
+10.15 
+Employment
+Letter with David Amitai (9) 
+10.16 
+Employment
+Agreement with Jonathan Wax (9) 
+10.17 
+Convertible
+Note with Telkoor Power Ltd. (10) 
+10.18 
+Lease,
+dated as of August 21, 2007, between the Company and SDC Fremont Business
+Center, Inc. (11) 
+10.19 
+Employment
+Agreement with Amos Kohn (12) 
+23.1 
+Consent
+of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
+Global 
+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 
+(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 10-QSB for the quarter
+ended September 30, 1998. 
+(5) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1998. 
+(6) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1999. 
+(7) 
+Previously
+filed with the Commission with its Form 8-K filed on
+November 21, 2001. 
+(8) 
+Previously
+filed with the Commission with its Proxy Statement filed on September 5,
+2002. 
+(9) 
+Previously
+filed with the Commission with its Form 8-K filed on January 14,
+2004. 
+(10) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 2003. 
+(11) 
+Previously
+filed with the Commission with its Form 8-K filed on
+February 9, 2005. 
+(12) 
+Incorporated
+by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on October
+22, 2007. 
+(13) 
+Previously
+filed with the Commission with its Form 8-K filed on
+July 10, 2008. 
+34 
+DIGITAL
+POWER CORPORATION AND SUBSIDIARY 
+CONSOLIDATED
+FINANCIAL STATEMENTS 
+AS
+OF DECEMBER 31, 2009 
+IN
+U.S. DOLLARS 
+INDEX 
+Page 
+Report
+of Independent Registered Public Accounting Firm 
+F-2 
+Consolidated
+Balance Sheets 
+F-3 
+Consolidated
+Statements of Operations 
+F-4 
+Statements
+of Changes in Shareholders' Equity 
+F-5 
+Consolidated
+Statements of Cash Flows 
+F-6 
+Notes
+to Consolidated Financial Statements 
+F-7
+– F-25 
+-
+- - - - - - - 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+To
+the Shareholders and board of directors of 
+DIGITAL
+POWER CORPORATION 
+We have
+audited the accompanying consolidated balance sheets of Digital Power
+Corporation ("the Company") and subsidiary as of December 31, 2009 and 2008 and
+the related consolidated statements of operations, shareholders' equity and cash
+flows for the years then ended. These financial statements are the
+responsibility of the Company's management. Our responsibility is to express an
+opinion on these financial statements based on our audits. 
+We
+conducted our audits in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan
+and perform the audit to obtain reasonable assurance about whether the financial
+statements are free of material misstatement. We were not engaged to perform an
+audit of the Company's internal control over financial reporting. Our audits
+included consideration of internal control over financial reporting as a basis
+for designing audit procedures that are appropriate in the circumstances, but
+not for the purposes of expressing an opinion on the effectiveness of the
+Company's internal control over financial reporting. Accordingly, we express no
+such opinion. An audit also includes examining, on a test basis, evidence
+supporting the amounts and disclosures in the financial statements assessing the
+accounting principles used and significant estimates made by management, and
+evaluating the overall financial statement presentation. We believe that our
+audits provide a reasonable basis for our opinion. 
+In our
+opinion, the consolidated financial statements referred to above present fairly,
+in all material respects, the consolidated financial position of the Company and
+subsidiary at of December 31, 2009 and 2008 and the consolidated results of
+their operations and their cash flows for the years then ended, in conformity
+with U.S. generally accepted accounting principles. 
+Tel- Aviv,
+Israel 
+KOST
+FORER GABBAY & KASIERER 
+A
+Member of Ernst & Young Global 
+March
+25, 2010 
+F-2 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+BALANCE SHEETS 
+U.S.
+dollars in thousands (except share and per share data) 
+December 31, 
+2009 
+2008 
+ASSETS 
+CURRENT
+ASSETS: 
+Cash
+and cash equivalents 
+$ 
+2,967 
+$ 
+2,476 
+Restricted
+cash 
+84 
+76 
+Trade
+receivables (net of allowance for doubtful accounts of $ 127 and $ 124 as
+of December 31, 2009 and 2008, respectively) 
+1,522 
+1,901 
+Prepaid
+expenses and other receivables 
+243 
+139 
+Inventories
+(Note 3) 
+1,056 
+1,494 
+Total 
+current assets 
+5,872 
+6,086 
+PROPERTY
+AND EQUIPMENT, NET (Note 4) 
+231 
+153 
+LONG-TERM
+DEPOSITS 
+41 
+41 
+Total 
+assets 
+$ 
+6,144 
+$ 
+6,280 
+LIABILITIES
+AND SHAREHOLDERS' EQUITY 
+CURRENT
+LIABILITIES: 
+Accounts
+payable 
+$ 
+891 
+$ 
+1,069 
+Related
+parties - trade payables (Note 11) 
+531 
+957 
+Advances
+from customers and deferred revenue 
+471 
+134 
+Other
+current liabilities (Note 5) 
+492 
+514 
+Total 
+current liabilities 
+2,385 
+2,674 
+COMMITMENTS
+AND CONTINGENT LIABILITIES (Note 6) 
+SHAREHOLDERS'
+EQUITY (Note 7): 
+Share
+capital - 
+Series
+A redeemable, convertible preferred shares, no par value - 500,000 shares
+authorized, 0 shares issued and outstanding at December 31, 2009 and
+2008 
+- 
+- 
+Preferred
+shares, no par value - 1,500,000 shares authorized, 0 shares issued
+and outstanding at December 31, 2009 and 2008 
+- 
+- 
+Common
+shares, no par value - 30,000,000 shares authorized;
+6,626,468 and 6,615,708 shares issued and outstanding at
+December 31, 2009 and 2008, respectively 
+- 
+- 
+Additional
+paid-in capital 
+14,042 
+13,927 
+Accumulated
+deficit 
+(9,932 
+) 
+(9,784 
+) 
+Accumulated
+other comprehensive loss 
+(351 
+) 
+(537 
+) 
+Total 
+shareholders' equity 
+3,759 
+3,606 
+Total 
+liabilities and shareholders' equity 
+$ 
+6,144 
+$ 
+6,280 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-3 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED STATEMENTS OF OPERATIONS
+U.S.
+dollars in thousands (except per share data) 
+Year ended December 31, 
+2009 
+2008 
+Revenues
+(Note 12) 
+$ 
+8,659 
+$ 
+11,900 
+Cost
+of revenues 
+5,648 
+8,377 
+Gross
+profit 
+3,011 
+3,523 
+Operating
+expenses: 
+Engineering
+and product development 
+556 
+622 
+Selling
+and marketing 
+1,146 
+1,039 
+General
+and administrative 
+1,411 
+1,471 
+Total operating
+expenses 
+3,113 
+3,132 
+Operating
+income (loss) 
+(102 
+) 
+391 
+Financial
+income (expenses), net 
+(15 
+) 
+139 
+Income
+(loss) before income taxes 
+(117 
+) 
+530 
+Tax
+benefit (expenses) 
+(31 
+) 
+28 
+Net
+income (loss) 
+$ 
+(148 
+) 
+$ 
+558 
+Basic
+net earnings (loss) per share 
+$ 
+(0.022 
+) 
+$ 
+0.084 
+Diluted
+net earnings (loss) per share 
+$ 
+(0.022 
+) 
+$ 
+0.083 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-4 
+DIGITAL
+POWER CORPORATION 
+STATEMENTS
+OF CHANGES IN SHAREHOLDERS' EQUITY 
+U.S.
+dollars in thousands (except share data) 
+Other 
+Additional 
+accumulated 
+Total 
+Total 
+Common
+shares 
+paid-in 
+Accumulated 
+comprehensive 
+comprehensive 
+shareholders' 
+Number 
+Amount 
+capital 
+deficit 
+income
+(loss) 
+income
+(loss) 
+equity 
+Balance
+as of January 1, 2008 
+6,615,708 
+$ 
+- 
+$ 
+13,885 
+$ 
+(10,342 
+) 
+$ 
+200 
+$ 
+3,743 
+Stock
+compensation related to options granted to Telkoor's employees and other
+non-employee consultants 
+- 
+- 
+(12 
+) 
+- 
+- 
+- 
+(12 
+) 
+Stock
+compensation related to options granted to employees 
+- 
+- 
+54 
+- 
+- 
+- 
+54 
+Comprehensive
+income: 
+Net
+income 
+- 
+- 
+- 
+558 
+- 
+$ 
+558 
+558 
+Foreign
+currency translation adjustments 
+- 
+- 
+- 
+- 
+(737 
+) 
+(737 
+) 
+(737 
+) 
+Total
+comprehensive loss 
+$ 
+(179 
+) 
+Balance
+as of December 31, 2008 
+6,615,708 
+- 
+13,927 
+(9,784 
+) 
+(537 
+) 
+3,606 
+Stock
+compensation related to options granted to Telkoor's employees and other
+non- employee consultant 
+- 
+- 
+15 
+- 
+- 
+- 
+15 
+Stock
+compensation related to options granted to employees 
+- 
+- 
+88 
+- 
+- 
+- 
+88 
+Exercise
+of options granted to employees 
+10,760 
+- 
+12 
+- 
+- 
+- 
+12 
+Comprehensive
+income: 
+Net
+loss 
+- 
+- 
+- 
+(148 
+) 
+- 
+$ 
+(148 
+) 
+(148 
+) 
+Foreign
+currency translation adjustments 
+- 
+- 
+- 
+- 
+186 
+186 
+186 
+Total
+comprehensive income 
+$ 
+38 
+Balance
+as of December 31, 2009 
+6,626,468 
+$ 
+- 
+$ 
+14,042 
+$ 
+(9,932 
+) 
+$ 
+(351 
+) 
+$ 
+3,759 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-5 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+Year ended December 31, 
+2009 
+2008 
+Cash flows from operating
+activities : 
+Net
+income (loss) 
+$ 
+(148 
+) 
+$ 
+558 
+Adjustments
+required to reconcile net income (loss) to net cash provided by operating
+activities: 
+Depreciation 
+97 
+94 
+Stock
+compensation related to options granted to employees 
+88 
+54 
+Stock
+compensation related to options granted to Telkoor's employees and other
+non-employee consultants 
+15 
+(12 
+) 
+Decrease
+in trade receivables, net 
+457 
+474 
+Increase
+in prepaid expenses and other receivables 
+(98 
+) 
+(54 
+) 
+Decrease
+(increase) in inventories 
+438 
+(221 
+) 
+Increase
+(decrease) in accounts payable and related parties - trade
+payables 
+(674 
+) 
+213 
+Increase
+in advances from customers, deferred revenues and other current
+liabilities 
+274 
+338 
+Net
+cash provided by operating activities 
+449 
+1,444 
+Cash flows from investing
+activities : 
+Purchase
+of property and equipment 
+(59 
+) 
+(79 
+) 
+Net
+cash used in investing activities 
+(59 
+) 
+(79 
+) 
+Cash flows from financing
+activities : 
+Proceeds
+from exercise of options 
+12 
+- 
+Net
+cash provided by financing activities 
+12 
+- 
+Effect
+of exchange rate changes on cash and cash equivalents 
+89 
+(332 
+) 
+Increase in cash and cash equivalents 
+491 
+1,033 
+Cash and cash equivalents at the beginning of the year 
+2,476 
+1,443 
+Cash
+and cash equivalents at the end of the year 
+$ 
+2,967 
+$ 
+2,476 
+Supplemental disclosure of cash flows
+activities : 
+Income
+taxes paid 
+$ 
+7 
+$ 
+- 
+Supplemental disclosure of non-cash
+activities : 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-6 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+1:- 
+GENERAL 
+a. 
+Digital
+Power Corporation (the “Company" or "DPC") was incorporated in 1969, under
+the General Corporation Law of the State of California. The Company and
+Digital Power Limited ("DPL"), a wholly owned subsidiary located in the
+United Kingdom, 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). 
+b. 
+The
+Company depends on Telkoor Telecom Ltd. ("Telkoor"), a major shareholder
+of the Company and one of DPC's third party subcontractors, for
+manufacturing capabilities in production of the products which DPC sells.
+If these manufacturers are unable or unwilling to continue manufacturing
+the Company's products in required volumes on a timely basis, that could
+lead to loss of sales, and adversely affect the Company's operating
+results and cash position. The Company also depends on Telkoor's
+intellectual property and ability to transfer production to third party
+manufacturers. Failure to obtain new products in a timely manner or delay
+in delivery of product to customers will have an adverse effect on the
+Company's ability to meet its customers' expectations. See also Note
+11. 
+NOTE
+2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES 
+The
+consolidated financial statements have been prepared in accordance with
+generally accepted accounting principles in the United States ("U.S.
+GAAP"). 
+a. Use
+of estimates: 
+The
+preparation of the consolidated financial statements in conformity with U.S.
+GAAP requires management to make estimates, judgments and assumptions. The
+Company's management
+believes that the estimates, judgments and assumptions made are reasonable based
+upon information available at the time they are made. These estimates, judgments
+and assumptions can affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the dates of the financial
+statements, as well as the reported amounts of revenue and expenses during the
+reporting period. Actual results could differ from those estimates. 
+b. Financial
+statements in U.S. dollars: 
+A
+substantial portion of the revenues of the Company are generated in U.S. dollars
+("dollar"). In addition, a substantial portion of the costs of the Company are
+incurred in dollars. The Company's management believes that the dollar is the
+currency of the primary economic environment in which the Company
+operates. 
+F-7 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+The
+financial statements of the foreign subsidiary, whose functional currency has
+been determined to be its local currency, have been translated into U.S. dollars
+in accordance with Accounting Codification Statement (“ASC”) 830 (formerly: FASB
+No. 52 “Foreign Currency Translation” (“ASC830”). All balance sheet accounts
+have been translated using the exchange rates in effect at the balance sheet
+date. Statement of operations amounts have been translated using the
+average exchange rate for the period. The resulting translation adjustments are
+reported as a component of accumulated other comprehensive income (loss) in
+shareholders' equity. 
+c. 
+Principles
+of consolidation: 
+The
+consolidated financial statements include the accounts of the Company and its
+wholly-owned subsidiary. Intercompany transactions and balances have been
+eliminated upon consolidation. 
+d. 
+Cash
+equivalents: 
+Cash
+equivalents are short-term highly liquid investments that are readily
+convertible to cash with original maturities of three months or less at
+acquisition. 
+e. 
+Restricted
+cash: 
+Restricted
+cash is held on account of a letter of credit issued by the Company's bank and
+in respect of future lease payments and for certain customers until the
+guarantee expires. The restricted cash is invested in a deposit. 
+f. 
+Inventories: 
+Inventories
+are stated at the lower of cost or market value. Inventory write-offs are
+provided to cover risks arising from slow-moving items or technological
+obsolescence. 
+Cost is
+determined as follows: 
+Raw
+materials, parts and supplies - using the "first-in, first-out"
+method. 
+Work-in-progress
+and finished products - on the basis of direct manufacturing costs with the
+addition of indirect manufacturing costs. 
+The
+Company periodically assesses its inventories valuation in respect of obsolete
+and slow moving items by reviewing revenue forecasts and technological
+obsolescence. When inventories on hand exceed the foreseeable demand or become
+obsolete, the value of excess inventory, which at the time of the review was not
+expected to be sold, is written off. 
+During
+2009 and 2008, the Company recorded inventories write-offs of $38 and $235,
+respectively. 
+F-8 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+g. 
+Property
+and equipment: 
+Property
+and equipment are stated at cost, net of accumulated depreciation. Depreciation
+is calculated by the straight-line method over the estimated useful lives, at
+the following annual rates: 
+% 
+Computers,
+software and related equipment 
+20
+– 33 
+Office
+furniture and equipment 
+10
+– 20 
+Leasehold
+improvements 
+Over
+the term of the lease or the life 
+of
+the asset, whichever is
+earlier 
+The
+long-lived assets of the Company and its subsidiary are reviewed for impairment
+of property, plant and equipment whenever events or changes in circumstances
+indicate that the carrying amount of an asset may not be recoverable.
+Recoverability of assets to be held and used is measured by a comparison of the
+carrying amount of an asset to the future undiscounted cash flows expected to be
+generated by the assets. If such assets are considered to be impaired, the
+impairment to be recognized is measured by the amount by which the carrying
+amount of the assets exceeds the fair value of the assets. As of December 31,
+2009 and 2008, no impairment losses have been identified. 
+h. 
+Revenue
+recognition: 
+The
+Company and its subsidiary generate their revenues from the sale of their
+products through a direct and indirect sales force. 
+Revenues
+from products are recognized in accordance with Staff Accounting Bulletin
+No. 104, "Revenue Recognition in Financial Statements" ("SAB No. 104"),
+when the following criteria are met: persuasive evidence of an arrangement
+exists, delivery has occurred, the seller's price to the buyer is fixed or
+determinable, no further obligation exists and collectability is reasonably
+assured. 
+Generally,
+the Company does not grant a right of return. However, certain distributors are
+allowed, in the sixth month after the initial stock purchase, to rotate stock
+that has not been sold for other products. This may be repeated every sixth
+month thereafter for 15-18 months, at no more than a fixed percentage of the
+distributor's purchase during the previous six months. Revenues subject to stock
+rotation rights are deferred until the products are sold to the end customer or
+until the rotation rights expire. 
+Service
+revenues are deferred and recognized on a straight-line basis over the term of
+the service agreement. Service revenues are immaterial as a proportion of the
+Company's revenues. 
+F-9 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+i. 
+Engineering
+and product development: 
+Engineering
+and product development costs are charged to the statement of operations as
+incurred. 
+j. 
+Income
+taxes: 
+The
+Company and its subsidiary account for income taxes in accordance with ASC 740
+(Formerly: Statement of Financial Accounting Standards No. 109), “Income Taxes”
+(“ASC 740”). This Statement prescribes the use of the liability method whereby
+deferred tax assets and liability account balances are determined based on
+differences between financial reporting and tax bases of assets and liabilities
+and are measured using the enacted tax rates and laws that will be in effect
+when the differences are expected to reverse. The Company and its subsidiary
+provide a valuation allowance, if necessary, to reduce deferred tax assets to
+their estimated realizable value. 
+ASC 740
+contains a two-step approach to recognizing and measuring uncertain tax
+positions accounted for in accordance with ASC 740. The first step is to
+evaluate the tax position taken or expected to be taken in a tax return by
+determining if the weight of available evidence indicates that it is more likely
+than not that, on an evaluation of the technical merits, the tax position will
+be sustained on audit, including resolution of any related appeals or litigation
+processes. The second step is to measure the tax benefit as the largest amount
+that is more than 50% likely to be realized upon ultimate settlement. No
+liability for unrecognized tax benefits was recorded as a result of the
+implementation of ASC 740 as well as of December 31, 2009 and 2008. 
+k. 
+Warranty
+costs: 
+The
+Company offers a 12-month warranty period for all of its products. The Company
+estimates the costs that may be incurred under its warranty and records a
+liability in the amount of such costs at the time product revenue is recognized.
+Factors that affect the Company's warranty liability include the number of units
+sold, historical rates of warranty claims and cost per claim. The Company
+periodically assesses the adequacy of its recorded warranty liability and
+adjusts the amounts as necessary. 
+A table
+presenting the reconciliation of the changes in the Company's aggregate product
+warranty liability was not provided due to the immateriality. 
+l. 
+Accounting
+for stock-based compensation: 
+The
+Company accounts for stock-based compensation in accordance with ASC 718
+(Formerly SFAS No. 123 (revised 2004)), “Share-Based Payment” (“ASC
+718”). 
+The award
+that is ultimately expected to vest is recognized as an expense over the
+requisite service periods in the Company's consolidated income
+statements. 
+F-10 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+ASC 718
+requires companies to estimate the fair value of equity-based payment awards on
+the date of grant using an option-pricing model. The Company
+estimates the fair value of stock options granted under ASC 718 using the
+Black-Scholes option-pricing model that uses the assumption as
+follows: 
+Expected
+volatility is based on historical volatility that is representative of future
+volatility over the expected term of the options. The expected term of options
+granted was determined based on the simplified method, which is calculated as
+the midpoint between the vesting date and the end of the contractual term of the
+option. The risk free interest rate is based on the yield of U.S Treasury bonds
+with equivalent terms. The dividend yield is based on the Company's historical
+and future expectation of dividends payouts. The Company has not paid cash
+dividends historically and has no plans to pay cash dividends in the foreseeable
+future. 
+The
+Company recognizes compensation expense based on awards ultimately expected to
+vest, net of estimated forfeitures at the time of grant. Estimated forfeitures
+are based on historical pre-vesting forfeitures. ASC 718 requires forfeitures to
+be estimated and revised, if necessary, in subsequent periods if actual
+forfeitures differ from those estimates. 
+The fair
+value for options granted in 2009 and 2008 is amortized over their vesting
+period using a straight-line recognition method and estimated at the date of
+grant with the following assumptions: 
+2009 
+2008 
+Dividend
+yield 
+0% 
+0% 
+Expected
+volatility 
+89%-93% 
+88%
+–93% 
+Risk-free
+interest 
+2.7%-2.89% 
+1.7%
+- 4.0% 
+Forfeiture
+rate 
+5% 
+5% 
+Expected
+life 
+6.25
+years 
+7
+years 
+The total
+equity-based compensation expense related to all of the Company's equity-based
+awards, recognized for the years ended December 31, 2009 and 2008 were comprised
+as follows: 
+Year ended December 31, 
+2009 
+2008 
+Cost
+of goods sold 
+$ 
+3 
+$ 
+2 
+Research
+and development 
+2 
+2 
+Sales
+and marketing 
+22 
+11 
+General
+and administrative 
+61 
+39 
+Total
+equity-based compensation expense 
+$ 
+88 
+$ 
+54 
+F-11 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+A summary
+of option activity under the Company's Stock Option Plans (as hereinafter
+defined) as of December 31, 2009 and changes during year then ended are as
+follows: 
+Year ended December 31, 2009 
+Amount of 
+options 
+Weighted 
+average 
+exercise 
+price 
+Weighted- 
+average 
+remaining 
+contractual 
+term (in 
+years) 
+Aggregate 
+intrinsic 
+value 
+Outstanding
+at the beginning of the year 
+779,035 
+$ 
+1.03 
+5.59 
+$ 
+65 
+Granted 
+120,000 
+$ 
+1.50 
+Exercised 
+(10,760 
+) 
+$ 
+1.13 
+Expired 
+(1,035 
+) 
+$ 
+1.81 
+Forfeited 
+(62,000 
+) 
+$ 
+1.48 
+Outstanding
+at the end of the year 
+825,240 
+$ 
+1.05 
+5.26 
+$ 
+309 
+Vested
+or expected to vest at year end 
+779,990 
+Exercisable
+options at the end of the year 
+598,990 
+$ 
+0.98 
+3.95 
+$ 
+623 
+The
+weighted-average grant-date fair value of options granted during the year ended
+December 31, 2009 and 2008 were $ 1.50 and $ 0.81, respectively. The
+aggregate intrinsic value in the table above represents the total intrinsic
+value (the difference between the Company's closing stock price on December 31,
+2009 and the exercise price, multiplied by the number of in-the-money-options)
+that would have been received by the option holders had all option holders
+exercised their options on December 31, 2009. This amount changes based on
+the fair market value of the Company's shares. The total intrinsic value of
+options exercised during the year ended December 31, 2009 was less than $ 1 (no
+option exercised in 2008). 
+As of
+December 31, 2009, there was $ 180 of total unrecognized compensation cost
+related to non-vested share-based compensation arrangements granted under the
+Company's stock option plans. That cost is expected to be recognized over a
+weighted average period of 1.87 years. The total fair value of options vested
+during the year ended December 31, 2009 and 2008 was $ 78 and $
+42. 
+The
+Company applies ASC 718 and ASC 505-50, formerly EITF No. 96-18, with respect to
+options and warrants issued to non-employees. ASC 718 requires the use of option
+valuation models to measure the fair value of the options and warrants at the
+date of grant. 
+m. 
+Fair
+value of financial
+instruments: 
+The Company measures its
+financial instruments at fair value. Fair value is an exit price, representing
+the amount that would be received to sell an asset or paid to transfer a
+liability in an orderly transaction between market participants. As such, fair
+value is a market-based measurement that should be determined based on
+assumptions that market participants would use in pricing an asset or a
+liability. A three-tier fair value hierarchy is established as a basis for
+considering such assumptions and for inputs used in the valuation methodologies
+in measuring fair value: 
+F-12 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+Level
+1 - 
+inputs
+are based upon unadjusted quoted prices for identical instruments traded
+in active markets. 
+Level
+2 - 
+inputs
+are based upon quoted prices for similar instruments in active markets,
+quoted prices for identical or similar instruments in markets that are not
+active, and model-based valuation techniques for which all significant
+assumptions are observable in the market or can be corroborated by
+observable market data for substantially the full term of the assets or
+liabilities. 
+Level
+3 - 
+inputs
+are generally unobservable and typically reflect management's estimates of
+assumptions that market participants would use in pricing the asset or
+liability. The fair values are therefore determined using model-based
+techniques that include option pricing models, discounted cash flow
+models, and similar techniques. 
+The
+valuation methodology the Company uses to measure derivatives (forward contract)
+is based observable inputs including interest rate curves and both forward and
+spot prices for currencies. These derivatives are included in Level 2 (see also
+Note 2(P) and Note 5). 
+The
+carrying amounts of financial instruments carried at cost, including cash and
+cash equivalents, restricted cash long-term deposits, trade receivables and
+trade payables approximate their fair value due to the short-term maturities of
+such instruments. 
+n. 
+Basic
+and diluted net earnings per
+share: 
+Basic net
+earnings per share is computed based on the weighted average number of Common
+shares outstanding during each year. Diluted net earnings per share is computed
+based on the weighted average number of Common shares outstanding during each
+year, plus dilutive potential Common shares considered outstanding during the
+year, in accordance with ASC 260 (Formerly Statement of Financial Accounting
+Standard No. 128, "Earnings per Share") ("ASC 260"). 
+The total
+number of shares related to the outstanding options and warrants excluded from
+the calculations of diluted net earnings per share because these securities are
+anti-dilutive was 1,005,240 options and 644,035 options for the years ended
+December 31, 2009 and 2008, respectively. 
+o. 
+Concentrations
+of credit risks: 
+Financial
+instruments that potentially subject the Company and its subsidiary to
+concentrations of credit risk consist principally of cash and cash equivalents,
+restricted cash, long term deposits and trade receivables. 
+F-13 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+Cash and
+cash equivalents and restricted cash are invested in banks in the U.S. and in
+the U.K. Such deposits in the United States may be in excess of insured limits
+and are not insured in other jurisdictions. 
+Trade
+receivables of the Company and its subsidiary are mainly derived from sales to
+customers located primarily in the U.S. and in Europe. The Company performs
+ongoing credit evaluations of its customers and to date has not experienced any
+material losses. An allowance for doubtful accounts is determined with respect
+to those amounts that the Company and its subsidiary have determined to be
+doubtful of collection. 
+p. 
+Derivatives
+and hedging: 
+ASC 815
+(Formerly Financial Accounting Standard Board Statement No.
+133, "Accounting for Derivative Instruments and Hedging Activities") ("ASC
+815"), as amended, requires the Company to recognize all derivatives on the
+balance sheet at fair value. Derivatives that are not hedges must be adjusted to
+fair value through income. If the derivative is a hedge, depending on the nature
+of the hedge, changes in the fair value of derivatives are either offset against
+the change in fair value of the hedged assets, liabilities, or firm commitments
+through earnings or recognized in other comprehensive income until the hedged
+item is recognized in earnings. The ineffective portion of a derivative's change
+in fair value is immediately recognized in earnings. The Company uses
+derivatives to hedge certain cash flow foreign currency exposures in order to
+further reduce the Company's exposure to foreign currency risks. 
+The
+Company entered into a forward contract to hedge certain sales transactions with
+a customer denominated in foreign currencies. The Company's forward contract did
+not qualify a hedging instrument under ASC 815. 
+As of
+December 31, 2008 and 2009, the Company had outstanding forward contracts that
+did not meet the requirement for hedge accounting, in the amount of $115 and
+$17, respectively. These contracts were for a period of up to nine months. The
+Company measured the fair value of the contracts in accordance with ASC No. 820
+at level 2. The net gains (losses) recognized in "financial income, net" during
+2008 and 2009 were a loss of $147 and a gain of $63, respectively. 
+q. 
+Comprehensive
+income: 
+The
+Company accounts for comprehensive income in accordance with ASC 220 (Formerly
+SFAS No. 130, "Reporting Comprehensive Income.") (“ASC 220”). This
+Statement establishes standards for the reporting and display of comprehensive
+income and its components in a full set of general purpose financial statements.
+Comprehensive income generally represents all changes in stockholders' equity
+during the period except those resulting from investments by, or distributions
+to, stockholders. The Company determined that its items of comprehensive income
+relates to unrealized losses and gains from foreign currency translation
+adjustments. 
+F-14 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+r. 
+Operating
+lease: 
+The
+Company and its subsidiary have operating lease agreements for the lease of
+their building facilities in the US and UK. The rent in connection with the
+leases is charged to expense over the lease term. If rental payments are not
+made on a straight line basis, rental expenses are nevertheless recognized on a
+straight line basis. 
+s. 
+Recently
+issued accounting pronouncements: 
+In June
+2009, the FASB issued SFAS 168, "The FASB Accounting Standards Codification and
+the Hierarchy of Generally Accepted Accounting Principles". SFAS No. 168,
+which is incorporated in ASC Topic 105, Generally Accepted Accounting
+Principles, identifies the accounting standard codification (ASC) as the
+authoritative source of generally accepted accounting principles in the United
+States. Rules and interpretive releases of the SEC under federal securities laws
+are also sources of authoritative GAAP for SEC registrants. Throughout the notes
+to the consolidated financial statements, references that were previously made
+to former authoritative U.S. GAAP pronouncements have been changed to coincide
+with the appropriate section of the ASC. 
+For
+accounting periods ending after June 15, 2009, new authoritative accounting
+guidance became effective under ASC Topic 855 (formerly SFAS No. 165) which
+modifies the definition of what qualifies as a subsequent event—those events or
+transactions that occur following the balance sheet date, but before the
+financial statements are issued, or are available to be issued—and requires
+companies to disclose the date through which it has evaluated subsequent events
+and the basis for determining that date. The adoption of ASC Topic 855 did not
+have a material impact on our financial position or results of operations and
+financial condition. 
+In
+October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue
+Recognition (Topic 605) Multiple Deliverable Revenue Arrangements-A Consensus of
+the FASB Emerging Issues Task Force. This update provides application guidance
+on whether multiple deliverables exist, how the deliverables should be separated
+and how the consideration should be allocated to one or more units of
+accounting. This update establishes a selling price hierarchy for determining
+the selling price of a deliverable. The selling price used for each deliverable
+will be based on vendor-specific objective evidence, if available, third-party
+evidence if vendor-specific objective evidence is not available, or estimated
+Selling price if neither vendor-specific or third-party evidence is available.
+The Company will be required to apply this guidance prospectively for revenue
+arrangements entered into or materially modified after January 1, 2011; however,
+earlier application is permitted. The Company is currently evaluating
+the impact of the adoption of this new guidance on its financial
+statements. 
+F-15 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+3:- 
+INVENTORIES 
+December 31, 
+2009 
+2008 
+Raw
+materials, parts and supplies 
+$ 
+232 
+$ 
+228 
+Work
+in progress 
+285 
+308 
+Finished
+products 
+539 
+958 
+$ 
+1,056 
+$ 
+1,494 
+NOTE 4:- 
+PROPERTY
+AND EQUIPMENT 
+December 31, 
+2009 
+2008 
+Cost: 
+Computers,
+software and related equipment 
+$ 
+1,153 
+$ 
+998 
+Office
+furniture and equipment 
+187 
+175 
+Leasehold
+improvements 
+519 
+454 
+1,859 
+1,627 
+Accumulated
+depreciation 
+Computers,
+software and related equipment 
+1,014 
+960 
+Office
+furniture and equipment 
+183 
+172 
+Leasehold
+improvements 
+431 
+342 
+1,628 
+1,474 
+Depreciated
+cost 
+$ 
+231 
+$ 
+153 
+Depreciation
+expense was $97 and $94 for the years ended December 31, 2009 and 2008,
+respectively. 
+NOTE
+5:- 
+OTHER
+CURRENT LIABILITIES 
+December 31, 
+2009 
+2008 
+Accrued
+payroll and payroll taxes 
+$ 
+120 
+$ 
+81 
+Warranty
+accrual 
+103 
+61 
+Government
+authorities 
+7 
+8 
+Professional
+fees accrual 
+136 
+109 
+Accrued
+expenses and other 
+109 
+140 
+Forward
+contract 
+17 
+115 
+$ 
+492 
+$ 
+514 
+F-16 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 6:- 
+COMMITMENTS AND CONTINGENT
+LIABILITIES 
+Lease
+commitments: 
+The
+Company has an operating lease agreement in the US, which expires in 2012. The
+Company's subsidiary, DPL, had a lease agreement in respect of the U.K.
+facility, which expired on September 2009. However, DPL continues to
+occupy the facility, as the building owner has confirmed a tenancy until April
+2010. The lease agreement included certain repairing covenants, such
+as the requirement to redecorate the internal and external structure/foundation
+of the building at intervals during the term of that lease and to generally keep
+the building in good repair. DPL believes that it has satisfied all of the
+repairing covenants to date. DPL intends to remain in the building
+and to enter into a new lease agreement with the building owner after April
+2010. 
+Future
+rental commitments under non-cancelable leases are as follows: 
+Year ended December 31, 
+2010 
+$ 
+109 
+2011 
+119 
+2012 
+111 
+$ 
+339 
+Total
+rent expense for the years ended December 31, 2009 and 2008 was approximately
+$ 225 and $ 253, respectively. 
+Subsequent
+to the balance sheet date, the Company signed an amendment to its current lease
+agreement in the US to expand its office space. The amendment also reduced the
+option to renew for a five-year period under the original lease agreement to a
+one-year period. 
+NOTE
+7:- 
+SHAREHOLDERS'
+EQUITY 
+a. 
+Preferred
+shares: 
+There are
+authorized Preferred shares in the amount of 500,000 shares of Series A
+cumulative redeemable convertible Preferred shares ("Series A"), and an
+additional 1,500,000 Preferred shares that have been authorized, but the rights,
+preferences, privileges and restrictions on these shares have not been
+determined. DPC's Board of Directors is authorized to create a new series of
+Preferred shares and determine the number of shares, as well as the rights,
+preferences, privileges and restrictions granted to or imposed upon any series
+of Preferred shares. As of December 31, 2009, there were no Preferred shares
+issued or outstanding. 
+F-17 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+7:- 
+SHAREHOLDERS'
+EQUITY (Cont.) 
+b. 
+Common
+shares: 
+Common
+shares confer upon the holders the rights to receive notice to participate and
+vote in the general meeting of shareholders of the Company, to receive
+dividends, if and when declared, and to participate in a distribution of surplus
+of assets upon liquidation of the Company. 
+c. 
+Share
+Option Plans: 
+1. 
+Under
+the Company's Digital 2002, 1998 and 1996 Incentive Share Option Plans
+(the “Stock Option Plans”), options may be granted to employees, officers,
+consultants, service providers and directors of the Company or its
+subsidiary. 
+2. 
+As
+of December 31, 2009, the Company has authorized in the Stock Option Plans
+the grant of options to officers, management, other key employees and
+others of up to 513,000, 240,000 and 1,519,000, respectively of the
+Company's Common shares. For all three Stock Option Plans, the maximum
+term of the options is ten years from the date of grant. As of December
+31, 2009, an aggregate of 688,905 of the Company's options are still
+available for future grant. 
+3. 
+The
+options granted generally become fully vested after four years. Any
+options that are forfeited or cancelled before expiration become available
+for future grants. 
+The
+options outstanding as of December 31, 2009 have been classified by exercise
+price, as follows: 
+Weighted 
+Options 
+average 
+Options 
+Weighted 
+outstanding 
+remaining 
+Weighted 
+Exercisable 
+average 
+as of 
+contractual 
+average 
+as of 
+exercise price 
+Exercise 
+December 31, 
+term 
+exercise 
+December 31, 
+of options 
+Price 
+2009 
+Years 
+Price 
+2009 
+exercisable 
+$0.48-
+$0.71 
+265,000 
+2.70 
+$ 
+0.60 
+257,500 
+$ 
+0.68 
+$0.79 -
+$1.05 
+257,000 
+6.06 
+$ 
+0.96 
+177,000 
+$ 
+1.01 
+$1.16
+- $1.813 
+279,240 
+7.36 
+$ 
+1.38 
+140,490 
+$ 
+1.23 
+$2.31-
+$ 3.03 
+24,000 
+0.66 
+$ 
+2.36 
+24,000 
+$ 
+2.36 
+825,240 
+5.26 
+$ 
+1.05 
+598,990 
+$ 
+0.98 
+4. 
+Warrants
+and options issued to service providers and consultants under the Stock
+Option Plans: 
+F-18 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+7:- 
+SHAREHOLDERS'
+EQUITY (Cont.) 
+The
+Company's outstanding warrants and options to consultants and service providers
+under the Stock Option Plans as of December 31, 2009, are as
+follows: 
+Issuance date 
+Options for 
+Common 
+shares 
+Exercise 
+price per 
+share 
+Options 
+exercisable 
+May 2002 
+40,000 
+$ 
+1.00 
+40,000 
+August
+2002 
+10,000 
+$ 
+0.55 
+10,000 
+November
+2002 
+10,000 
+$ 
+1.00 
+10,000 
+February
+2005 
+20,000 
+$ 
+1.19 
+20,000 
+March
+2006 
+100,000 
+$ 
+1.16 
+75,000 
+180,000 
+155,000 
+All
+options are exercisable for ten years from the date of grant. 
+In 2005
+and 2006, the Company granted 70,000 options to Telkoor's employees and 100,000
+options to a non-employee consultant. Of the 70,000 options granted to Telkoor’s
+employees, 10,000 and 40,000 options were forfeited in 2007 and 2008,
+respectively, due to termination of employment. Those options vest
+primarily over four years. The fair value for these options was estimated using
+a Black-Scholes option-pricing model with the following assumptions for 2009:
+risk-free interest rates of 2.5%-2.9%, dividend yield of 0%, volatility of
+89.1%-93.9%, and the contractual term of the options of 5.2-5.7
+years. 
+Compensation
+expense of $15 and compensation income of $ 12 were recognized for the years
+ended December 31, 2009 and 2008, respectively, in accordance with accelerated
+method. 
+e. 
+Employee
+stock ownership plan: 
+The
+Company has an employee stock ownership plan ("ESOP") covering eligible
+employees. The ESOP provides for the Employee Stock Ownership Trust ("ESOT") to
+distribute the Company's Common shares as retirement benefits to the
+participants. The Company has not distributed shares since 1998. As of December
+31, 2009, the outstanding Common shares held by the ESOT amount to 167,504
+shares. 
+f. 
+Dividends: 
+In the
+event that cash dividends are declared in the future, such dividends will be
+paid in U.S. dollars. The Company does not intend to pay cash dividends in the
+foreseeable future. 
+F-19 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+8:- 
+TAXES
+ON INCOME 
+a. 
+Deferred
+income taxes: 
+Deferred
+income taxes reflect the net tax effects of temporary differences between the
+carrying amounts of assets and liabilities for financial reporting purposes and
+the amounts used for income tax purposes. Significant components of the
+Company's deferred tax liabilities and assets are as follows: 
+December 31, 
+2009 
+2008 
+Net
+operating loss carryforward 
+$ 
+1,745 
+$ 
+1,831 
+Reserves
+and allowances 
+380 
+348 
+Credit
+carryforward 
+112 
+81 
+Depreciation
+and amortization 
+143 
+(207 
+) 
+Net
+deferred tax asset before valuation allowance 
+2,380 
+2,053 
+Valuation
+allowance 
+(2,380 
+) 
+(2,053 
+) 
+Net
+deferred tax asset 
+$ 
+- 
+$ 
+- 
+As of
+December 31, 2009 and 2008, the Company and its subsidiary provided a valuation
+allowance of $ 2,158 and $ 1,852, respectively, in respect of deferred
+tax asset resulting from short-term temporary differences and depreciation
+charged in advance of a capital allowance taken, as well as from carryforward
+losses. 
+Management
+currently believes that since the Company and its subsidiary have a history of
+losses, it is more likely than not that the deferred tax assets regarding the
+remainder of the tax loss carryforward and other temporary differences will not
+be realized in the foreseeable future. 
+b. 
+Net
+operating tax losses
+carryforward: 
+As of
+December 31, 2009, the Company had approximately $ 3,650 in federal net
+operating loss carryforward for income tax purposes, which can be carried
+forward and offset against taxable income for 20 years and expire between 2020
+and 2030. 
+Utilization
+of U.S. net operating losses may be subject to substantial annual limitation,
+due to the "change in ownership" provisions of the Internal Revenue Code of 1986
+and similar state provisions. The annual limitation may result in the expiration
+of net operating losses before utilization. The Company believes that, as a
+result of having undergone an "Ownership change" in 2002 within the meaning of
+section 382 of the Internal Revenue Code, its ability to use its net operating
+loss carryforward and other tax attributes to offset future U.S. taxable income,
+and thereby reduce its tax liability, is severely limited. 
+F-20 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+8:- 
+TAXES
+ON INCOME (Cont.) 
+As of
+December 31, 2009, DPL had accumulated losses for income tax purposes in the
+amount of approximately $1,056. These net operating losses may be
+carried forward and offset against taxable income in the future for an
+indefinite period. 
+c. 
+Income
+before income taxes: 
+There is
+no provision in respect of unrecognized tax benefits for the years ended
+December 31, 2009 and 2008. Net income (loss) before income taxes consists of
+the following: 
+Year ended December 31, 
+2009 
+2008 
+Domestic
+(U.S.) 
+$ 
+(153 
+) 
+$ 
+199 
+Foreign
+(U.K.) 
+36 
+331 
+$ 
+(117 
+) 
+$ 
+530 
+The
+Company is required to calculate and account for income taxes in each
+jurisdiction in which the Company or its subsidiary operate. Significant
+judgment is required in determining its worldwide provision for income taxes and
+recording the related assets and liabilities. In the ordinary course of the
+Company's business, there are many transactions and calculations where the
+ultimate tax determination is uncertain. 
+d. 
+A
+reconciliation between the theoretical tax expense, assuming all income is
+taxed at the statutory tax rate applicable to income of the Company and
+the actual tax expense as reported in the statements of operations is as
+follows: 
+Year ended December 31, 
+2009 
+2008 
+Total 
+Total 
+Income
+(loss) before taxes expenses (benefit) 
+$ 
+(117 
+) 
+$ 
+530 
+Theoretical
+tax at U.S. statutory tax rate (34%) 
+$ 
+(40 
+) 
+$ 
+180 
+Taxes
+in respect of prior years 
+31 
+(28 
+) 
+State
+taxes, net of federal benefit 
+(3 
+) 
+- 
+Tax
+adjustment in respect of foreign subsidiary 
+(5 
+) 
+5 
+Nondeductible
+expenses 
+1 
+20 
+Operating
+carryforward losses and temporary differences for which valuation
+allowance was provided 
+46 
+(212 
+) 
+Other 
+1 
+7 
+Tax
+expenses (benefit) 
+$ 
+31 
+$ 
+(28 
+) 
+F-21 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 9:- 
+NET
+EARNINGS PER SHARE 
+The
+following table sets forth the computation of the basic and diluted net earnings
+per share: 
+a. 
+Numerator: 
+Year ended December 31, 
+2009 
+2008 
+Net
+income (loss) available to Common shareholders 
+$ 
+(148 
+) 
+$ 
+558 
+b. 
+Denominator: 
+Denominator
+for basic net earnings per Common share 
+6,620,695 
+6,615,708 
+Effect
+of dilutive securities: 
+Stock
+options 
+- 
+72,883 
+Denominator
+for diluted net earnings per Common share 
+6,620,695 
+6,688,591 
+NOTE 10:- 
+FINANCIAL
+INCOME, NET 
+Year ended December 31, 
+2009 
+2008 
+Financial
+income: 
+Interest 
+$ 
+1 
+$ 
+50 
+Foreign
+currency transaction differences 
+230 
+446 
+Forward
+contract transaction 
+63 
+- 
+294 
+496 
+Financial
+expenses: 
+1 
+8 
+Bank
+charges and other translation 
+10 
+8 
+Foreign
+currency transaction differences 
+299 
+202 
+Forward
+contract transaction 
+- 
+147 
+309 
+357 
+Financial
+income (expense), net 
+$ 
+(15 
+) 
+$ 
+139 
+F-22 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 11:- 
+RELATED
+PARTY TRANSACTIONS 
+Purchases
+of products from Telkoor, a major shareholder, were as follows: 
+Year ended December 31, 
+2009 
+2008 
+Purchases
+of products from Telkoor 
+$ 
+2,531 
+$ 
+4,571 
+Transactions
+with Telkoor are derived mainly from purchase of power supplies from
+Telkoor. 
+The
+Company believes that the transactions described above are on a basis no less
+favorable than could be obtained from an independent third party. Although it is
+not practical to determine the amounts that the Company would have incurred had
+it purchased from an unaffiliated entity, management believes that the amounts
+chargeable for the above transactions provided by these purchase orders are
+reasonable. All future transactions between the Company and Telkoor will be on
+terms no less favorable than could be obtained from an independent third
+party. 
+NOTE
+12:- 
+SEGMENTS
+CUSTOMERS AND GEOGRAPHICAL
+INFORMATION 
+a. 
+The
+Company has two reportable geographic segments; see Note 1a for a brief
+description of the Company's business. The data is presented in accordance
+with ASC 280 (Formerly Statement of Financial Accounting Standard No.
+131), "Disclosure about Segments of an Enterprise and Related Information"
+("ASC 280"). 
+The
+following data presents the revenues, expenditures and other operating data of
+the Company's geographic operating segments: 
+Year ended December 31, 2009 
+DPC 
+DPL 
+Eliminations 
+Total 
+Revenues 
+$ 
+4,257 
+$ 
+4,402 
+$ 
+- 
+$ 
+8,659 
+Intersegment
+revenues 
+233 
+55 
+(288 
+) 
+- 
+Total
+revenues 
+$ 
+4,490 
+$ 
+4,457 
+$ 
+(288 
+) 
+$ 
+8,659 
+Depreciation
+expense 
+$ 
+30 
+$ 
+67 
+$ 
+- 
+$ 
+97 
+Operating
+income (loss) 
+$ 
+(226 
+) 
+$ 
+124 
+$ 
+- 
+$ 
+(102 
+) 
+Financial
+expenses, net 
+(15 
+) 
+Tax
+expense 
+(31 
+) 
+Net
+loss 
+$ 
+(148 
+) 
+Expenditures
+for segment assets as of December 31, 2009 
+$ 
+13 
+$ 
+46 
+$ 
+- 
+$ 
+59 
+Identifiable
+assets as of December 31, 2009 
+$ 
+2,971 
+$ 
+3,173 
+$ 
+- 
+$ 
+6,144 
+F-23 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+Year ended December 31, 2008 
+DPC 
+DPL 
+Eliminations 
+Total 
+Revenues 
+$ 
+5,611 
+$ 
+6,289 
+$ 
+- 
+$ 
+11,900 
+Intersegment
+revenues 
+278 
+27 
+(305 
+) 
+- 
+Total
+revenues 
+$ 
+5,889 
+$ 
+6,316 
+$ 
+(305 
+) 
+$ 
+11,900 
+Depreciation
+expense 
+$ 
+29 
+$ 
+65 
+$ 
+- 
+$ 
+94 
+Operating
+income 
+$ 
+43 
+$ 
+348 
+$ 
+- 
+$ 
+391 
+Financial
+income, net 
+139 
+Tax
+benefit 
+28 
+Net
+income 
+$ 
+558 
+Expenditures
+for segment assets as of December 31, 2009 
+$ 
+12 
+$ 
+67 
+$ 
+- 
+$ 
+79 
+Identifiable
+assets as of December 31, 2009 
+$ 
+2,979 
+$ 
+3,301 
+$ 
+- 
+$ 
+6,280 
+b. 
+Major
+customers' data as percentage of total
+revenues: 
+Year ended December 31, 
+2009 
+2008 
+Customer
+A 
+( 
+*) 
+12 
+% 
+Customer
+B 
+10 
+% 
+( 
+*) 
+F-24 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+12:- 
+SEGMENTS
+CUSTOMERS AND GEOGRAPHICAL INFORMATION
+(Cont.) 
+c. 
+Total
+revenues from external customers divided on the basis of the Company's
+product lines are as follows: 
+Year ended December 31, 
+2009 
+2008 
+Revenues: 
+Commercial
+products 
+$ 
+5,766 
+$ 
+8,787 
+Defense
+products 
+2,893 
+3,113 
+$ 
+8,659 
+$ 
+11,900 
+(*) Less
+than 10% 
+F-25 
+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. 
+Dated: March
+25, 2010 
+DIGITAL
+POWER CORPORATION 
+By: 
+/s/
+Amos Kohn 
+Amos
+Kohn 
+President
+and Chief Executive Officer 
+In
+accordance with the Exchange Act, this report has been signed below by the
+following persons on behalf of the registrant and in the capacities
+and on the dates indicated. 
+Dated:
+March 25, 2010 
+/s/
+Ben-Zion Diamant 
+Ben-Zion
+Diamant, Chairman of the Board 
+Dated:
+March 25, 2010 
+/s/
+Amos Kohn 
+Amos
+Kohn, 
+President
+and Chief Executive Officer 
+Dated:
+March 25, 2010 
+/s/
+Israel Levi 
+Israel
+Levi, Director 
+Dated:
+March 25, 2010 
+/s/
+Yeheskel Manea 
+Yeheskel
+Manea, Director 
+Dated:
+March 25, 2010 
+/s/
+Terry Steinberg 
+Terry
+Steinberg, Director 
+Dated:
+March 25, 2010 
+/s/
+Assaf (Assi) Itshayek 
+Assaf
+(Assi) Itshayek, Chief Financial 
+Officer
+(Principal Financial and Accounting 
+Officer)

raw/filings/0000896493/2009/0001144204-10-015683/item9a.txt

@@ -0,0 +1,68 @@
+ITEM9A. 
+CONTROLS AND
+PROCEDURES. 
+Evaluation
+of Disclosure Controls and Procedures 
+As of
+December 31, 2009, we have carried out an evaluation, under the supervision of,
+and with the participation of, our management, including our Chief Executive
+Officer and principal financial officer, of the effectiveness of the design and
+operation of our controls and procedures pursuant to Rule 13a-15(b) under the
+Securities Exchange Act of 1934, as amended (the “Exchange
+Act”). Based upon that evaluation, our Chief Executive Officer and
+principal financial officer concluded that our disclosure controls and
+procedures (as defined in Rules 13a-15(e) under the Exchange Act) were effective
+as of the end of the period covered by the report to ensure that information
+required to be disclosed by us in the reports that we file or submit under the
+Exchange Act is recorded, processed, summarized and reported within the time
+periods specified by the SEC's rules and forms, and that such information is
+accumulated and communicated to our management, including our Chief Executive
+Officer and principal financial officer, as appropriate, to allow timely
+decisions regarding required financial disclosure. 
+Management’s
+Annual Report on Internal Control Over Financial Reporting 
+Our
+management is responsible for establishing and maintaining adequate internal
+control over financial reporting (as defined in Rule 13a-15(f) under the
+Exchange Act). Our internal control over financial reporting is a
+process designed to provide reasonable assurance regarding the reliability of
+financial reporting and the preparation of financial statements for external
+purposes in accordance with generally accepted accounting
+principles. A company's internal control over financial reporting
+includes those policies and procedures that (i) pertain to the maintenance of
+records that, in reasonable detail, accurately and fairly reflect the
+transactions and dispositions of the assets of the company; (ii) provide
+reasonable assurance that transactions are recorded as necessary to permit
+preparation of financial statements in accordance with generally accepted
+accounting principles, and that receipts and expenditures of the company are
+being made only in accordance with authorizations of management and directors of
+the company; and (iii) provide reasonable assurance regarding prevention or
+timely detection of unauthorized acquisition, use, or disposition of the
+company's assets that could have a material effect on the financial
+statements. 
+Because
+of its inherent limitations, internal control over financial reporting may not
+prevent or detect misstatements. Also, projections of any evaluation
+of effectiveness to future periods are subject to the risk that controls may
+become inadequate because of changes in conditions, or that the degree of
+compliance with the policies or procedures may deteriorate. 
+Our
+management assessed the effectiveness of our internal control over financial
+reporting as of December 31, 2009. In making this assessment, our
+management used the criteria set forth by the Committee of Sponsoring
+Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated
+Framework. Our management has concluded that, as of December 31,
+2009, our internal control over financial reporting was effective. 
+This Annual Report does not include an
+attestation report of our independent registered public accounting firm
+regarding internal control over financial reporting. Management’s
+report was not subject to attestation by our independent registered public
+accounting firm pursuant to temporary rules of the SEC that permit us to provide
+only management’s report in this Annual Report. 
+Evaluation
+of Changes in Internal Controls over Financial Reporting 
+There
+were no changes in our internal control over financial reporting (as defined in
+Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31,
+2009, that have materially affected, or are reasonably likely to materially
+affect, our internal control over financial reporting.

raw/filings/0000896493/2009/0001144204-10-015683/rpt_disclosure.txt

@@ -0,0 +1,2525 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED
+TRANSACTIONS, AND DIRECTOR
+INDEPENDENCE. 
+Employment
+Agreement with Amos Kohn 
+We
+entered into an employment agreement, effective June 1, 2008, with our President
+and Chief Executive Officer, Amos Kohn. See the discussion of this
+agreement located above in the section entitled “Employment Agreement with Amos
+Kohn.” 
+Separation
+Agreement with Jonathan Wax 
+We
+entered into a separation agreement and release of claims, effective as of
+February 29, 2008, with Jonathan Wax, our former President and Chief Executive
+Officer. Under this agreement, we are to pay Mr. Wax: (a) his base salary
+through the date of the agreement and any vacation pay and other cash
+entitlements accrued by Mr. Wax as of the date of the agreement; and (b)
+$165,000 (less deductions required by law) payable in four equal quarterly
+installments on April 1, 2008, July 1, 2008, October 1, 2008 and January 1,
+2009. We will continue to pay until the earlier of (a) the date on which Mr. Wax
+obtains health care coverage from another employer or source or (b) one year
+from the date of the agreement, the same portion of the costs associated with
+providing group, medical, dental and vision insurance coverage to Mr. Wax as was
+paid by Digital Power during February 2008. If Mr. Wax dies before all of these
+payments have been made, we will make the remaining payments to the Wax Family
+Trust. 
+Relationship
+with Telkoor Power Supplies Ltd. 
+In the
+fiscal years ended December 31, 2009 and 2008, we purchased approximately
+$2,531,000 and $4,571,000, respectively, of products from Telkoor Power Supplies
+Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which
+Ben-Zion Diamant is the Chief Executive Officer. We have no written
+agreement for the purchase of these products, other than purchase orders that
+are placed in the ordinary course of business when the products are
+needed. 
+ITEM
+14. 
+PRINCIPAL
+ACCOUNTING FEES AND
+SERVICES. 
+Kost
+Forer Gabbay & Kasierer, a member of Ernst & Young Global (“Kost
+Forer”), has served as our independent registered public accounting firm since
+2002 and has been appointed by the Audit Committee to continue as our
+independent registered public accounting firm for the fiscal year ending
+December 31, 2010. 
+32 
+Kost
+Forer also serves as the independent auditors of Telkoor. The auditing of our
+financial statements and Telkoor’s financial statements are handled by separate
+teams within Kost Forer. 
+Fees
+and Services 
+The
+following table shows the aggregate fees billed to us for professional services
+by Kost Forer for the fiscal years ended December 31, 2009 and
+2008: 
+2009 
+2008 
+Audit
+Fees 
+$ 
+123,000 
+$ 
+123,000 
+Audit-Related
+Fees 
+$ 
+31,000 
+$ 
+-0- 
+Tax
+Fees 
+$ 
+5,000 
+$ 
+-0- 
+All
+Other Fees 
+$ 
+-0- 
+$ 
+-0- 
+Total 
+$ 
+159,000 
+$ 
+123,000 
+Audit Fees . This category
+includes the aggregate fees billed for professional services rendered for the
+audits of our financial statements for the fiscal years ended December 31, 2009
+and 2008, for the reviews of the financial statements included in our quarterly
+reports on Form 10-Q during fiscal 2009 and 2008, and for other services that
+are normally provided by the independent auditors in connection with statutory
+and regulatory filings or engagements for the relevant fiscal
+years. 
+Audit-Related Fees . This
+category includes the aggregate fees billed in each of the last two fiscal years
+for assurance and related services by the independent auditors that are
+reasonably related to the performance of the audits or reviews of the financial
+statements and are not reported above under "Audit Fees," and generally consist
+of fees for other engagements under professional auditing standards, accounting
+and reporting consultations, internal control-related matters, and audits of
+employee benefit plans. 
+Tax Fees . This category
+includes the aggregate fees billed in each of the last two fiscal years for
+professional services rendered by the independent auditors for tax compliance,
+tax planning and tax advice. 
+All Other Fees . This
+category includes the aggregate fees billed in each of the last two fiscal years
+for products and services provided by the independent auditors that are not
+reported above under "Audit Fees," "Audit-Related Fees," or "Tax
+Fees." 
+The Audit
+Committee’s policy is to pre-approve all services provided by our independent
+auditors. These services may include audit services, audit-related services, tax
+services and other services. The Audit Committee may also pre-approve particular
+services on a case-by-case basis. Our independent auditors are required to
+report periodically to the Audit Committee regarding the extent of services they
+provide in accordance with such pre-approval. 
+PART
+IV 
+ITEM
+15. 
+EXHIBITS AND
+FINANCIAL STATEMENT SCHEDULES.
+(a) 
+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) 
+33 
+10.1 
+Revolving
+Credit Facility with San Jose National Bank (1) 
+10.2 
+KDK
+Contract (1) 
+10.3 
+Agreement
+with Fortron/Source Corp. (1) 
+10.4 
+Employment
+Agreement With Robert O. Smith (2) 
+10.5 
+1996
+Digital Power Incentive Share Option (1) 
+10.6 
+Gresham
+Power Asset Purchase Agreement (3) 
+10.7 
+1998
+Digital Power Incentive Share Option Plan (5) 
+10.8 
+2002
+Digital Power Incentive Share Option Plan (8) 
+10.9 
+Technology
+Transfer Agreement with KDK Electronics (4) 
+10.10 
+Loan
+Commitment and Letter Agreement (5) 
+10.11 
+Promissory
+Note (5) 
+10.12 
+Employment
+Agreement with Robert O. Smith (6) 
+10.13 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom, Ltd. (now
+Telkoor Power Ltd.) (7) 
+10.14 
+Securities
+Purchase Agreement between the Company and Telkoor Telecom,
+Ltd. (now Telkoor Power Ltd.) (8) 
+10.15 
+Employment
+Letter with David Amitai (9) 
+10.16 
+Employment
+Agreement with Jonathan Wax (9) 
+10.17 
+Convertible
+Note with Telkoor Power Ltd. (10) 
+10.18 
+Lease,
+dated as of August 21, 2007, between the Company and SDC Fremont Business
+Center, Inc. (11) 
+10.19 
+Employment
+Agreement with Amos Kohn (12) 
+23.1 
+Consent
+of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
+Global 
+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 
+(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 10-QSB for the quarter
+ended September 30, 1998. 
+(5) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1998. 
+(6) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 1999. 
+(7) 
+Previously
+filed with the Commission with its Form 8-K filed on
+November 21, 2001. 
+(8) 
+Previously
+filed with the Commission with its Proxy Statement filed on September 5,
+2002. 
+(9) 
+Previously
+filed with the Commission with its Form 8-K filed on January 14,
+2004. 
+(10) 
+Previously
+filed with the Commission with its Form 10-KSB for the year ended December
+31, 2003. 
+(11) 
+Previously
+filed with the Commission with its Form 8-K filed on
+February 9, 2005. 
+(12) 
+Incorporated
+by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on October
+22, 2007. 
+(13) 
+Previously
+filed with the Commission with its Form 8-K filed on
+July 10, 2008. 
+34 
+DIGITAL
+POWER CORPORATION AND SUBSIDIARY 
+CONSOLIDATED
+FINANCIAL STATEMENTS 
+AS
+OF DECEMBER 31, 2009 
+IN
+U.S. DOLLARS 
+INDEX 
+Page 
+Report
+of Independent Registered Public Accounting Firm 
+F-2 
+Consolidated
+Balance Sheets 
+F-3 
+Consolidated
+Statements of Operations 
+F-4 
+Statements
+of Changes in Shareholders' Equity 
+F-5 
+Consolidated
+Statements of Cash Flows 
+F-6 
+Notes
+to Consolidated Financial Statements 
+F-7
+– F-25 
+-
+- - - - - - - 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+To
+the Shareholders and board of directors of 
+DIGITAL
+POWER CORPORATION 
+We have
+audited the accompanying consolidated balance sheets of Digital Power
+Corporation ("the Company") and subsidiary as of December 31, 2009 and 2008 and
+the related consolidated statements of operations, shareholders' equity and cash
+flows for the years then ended. These financial statements are the
+responsibility of the Company's management. Our responsibility is to express an
+opinion on these financial statements based on our audits. 
+We
+conducted our audits in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan
+and perform the audit to obtain reasonable assurance about whether the financial
+statements are free of material misstatement. We were not engaged to perform an
+audit of the Company's internal control over financial reporting. Our audits
+included consideration of internal control over financial reporting as a basis
+for designing audit procedures that are appropriate in the circumstances, but
+not for the purposes of expressing an opinion on the effectiveness of the
+Company's internal control over financial reporting. Accordingly, we express no
+such opinion. An audit also includes examining, on a test basis, evidence
+supporting the amounts and disclosures in the financial statements assessing the
+accounting principles used and significant estimates made by management, and
+evaluating the overall financial statement presentation. We believe that our
+audits provide a reasonable basis for our opinion. 
+In our
+opinion, the consolidated financial statements referred to above present fairly,
+in all material respects, the consolidated financial position of the Company and
+subsidiary at of December 31, 2009 and 2008 and the consolidated results of
+their operations and their cash flows for the years then ended, in conformity
+with U.S. generally accepted accounting principles. 
+Tel- Aviv,
+Israel 
+KOST
+FORER GABBAY & KASIERER 
+A
+Member of Ernst & Young Global 
+March
+25, 2010 
+F-2 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+BALANCE SHEETS 
+U.S.
+dollars in thousands (except share and per share data) 
+December 31, 
+2009 
+2008 
+ASSETS 
+CURRENT
+ASSETS: 
+Cash
+and cash equivalents 
+$ 
+2,967 
+$ 
+2,476 
+Restricted
+cash 
+84 
+76 
+Trade
+receivables (net of allowance for doubtful accounts of $ 127 and $ 124 as
+of December 31, 2009 and 2008, respectively) 
+1,522 
+1,901 
+Prepaid
+expenses and other receivables 
+243 
+139 
+Inventories
+(Note 3) 
+1,056 
+1,494 
+Total 
+current assets 
+5,872 
+6,086 
+PROPERTY
+AND EQUIPMENT, NET (Note 4) 
+231 
+153 
+LONG-TERM
+DEPOSITS 
+41 
+41 
+Total 
+assets 
+$ 
+6,144 
+$ 
+6,280 
+LIABILITIES
+AND SHAREHOLDERS' EQUITY 
+CURRENT
+LIABILITIES: 
+Accounts
+payable 
+$ 
+891 
+$ 
+1,069 
+Related
+parties - trade payables (Note 11) 
+531 
+957 
+Advances
+from customers and deferred revenue 
+471 
+134 
+Other
+current liabilities (Note 5) 
+492 
+514 
+Total 
+current liabilities 
+2,385 
+2,674 
+COMMITMENTS
+AND CONTINGENT LIABILITIES (Note 6) 
+SHAREHOLDERS'
+EQUITY (Note 7): 
+Share
+capital - 
+Series
+A redeemable, convertible preferred shares, no par value - 500,000 shares
+authorized, 0 shares issued and outstanding at December 31, 2009 and
+2008 
+- 
+- 
+Preferred
+shares, no par value - 1,500,000 shares authorized, 0 shares issued
+and outstanding at December 31, 2009 and 2008 
+- 
+- 
+Common
+shares, no par value - 30,000,000 shares authorized;
+6,626,468 and 6,615,708 shares issued and outstanding at
+December 31, 2009 and 2008, respectively 
+- 
+- 
+Additional
+paid-in capital 
+14,042 
+13,927 
+Accumulated
+deficit 
+(9,932 
+) 
+(9,784 
+) 
+Accumulated
+other comprehensive loss 
+(351 
+) 
+(537 
+) 
+Total 
+shareholders' equity 
+3,759 
+3,606 
+Total 
+liabilities and shareholders' equity 
+$ 
+6,144 
+$ 
+6,280 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-3 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED STATEMENTS OF OPERATIONS
+U.S.
+dollars in thousands (except per share data) 
+Year ended December 31, 
+2009 
+2008 
+Revenues
+(Note 12) 
+$ 
+8,659 
+$ 
+11,900 
+Cost
+of revenues 
+5,648 
+8,377 
+Gross
+profit 
+3,011 
+3,523 
+Operating
+expenses: 
+Engineering
+and product development 
+556 
+622 
+Selling
+and marketing 
+1,146 
+1,039 
+General
+and administrative 
+1,411 
+1,471 
+Total operating
+expenses 
+3,113 
+3,132 
+Operating
+income (loss) 
+(102 
+) 
+391 
+Financial
+income (expenses), net 
+(15 
+) 
+139 
+Income
+(loss) before income taxes 
+(117 
+) 
+530 
+Tax
+benefit (expenses) 
+(31 
+) 
+28 
+Net
+income (loss) 
+$ 
+(148 
+) 
+$ 
+558 
+Basic
+net earnings (loss) per share 
+$ 
+(0.022 
+) 
+$ 
+0.084 
+Diluted
+net earnings (loss) per share 
+$ 
+(0.022 
+) 
+$ 
+0.083 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-4 
+DIGITAL
+POWER CORPORATION 
+STATEMENTS
+OF CHANGES IN SHAREHOLDERS' EQUITY 
+U.S.
+dollars in thousands (except share data) 
+Other 
+Additional 
+accumulated 
+Total 
+Total 
+Common
+shares 
+paid-in 
+Accumulated 
+comprehensive 
+comprehensive 
+shareholders' 
+Number 
+Amount 
+capital 
+deficit 
+income
+(loss) 
+income
+(loss) 
+equity 
+Balance
+as of January 1, 2008 
+6,615,708 
+$ 
+- 
+$ 
+13,885 
+$ 
+(10,342 
+) 
+$ 
+200 
+$ 
+3,743 
+Stock
+compensation related to options granted to Telkoor's employees and other
+non-employee consultants 
+- 
+- 
+(12 
+) 
+- 
+- 
+- 
+(12 
+) 
+Stock
+compensation related to options granted to employees 
+- 
+- 
+54 
+- 
+- 
+- 
+54 
+Comprehensive
+income: 
+Net
+income 
+- 
+- 
+- 
+558 
+- 
+$ 
+558 
+558 
+Foreign
+currency translation adjustments 
+- 
+- 
+- 
+- 
+(737 
+) 
+(737 
+) 
+(737 
+) 
+Total
+comprehensive loss 
+$ 
+(179 
+) 
+Balance
+as of December 31, 2008 
+6,615,708 
+- 
+13,927 
+(9,784 
+) 
+(537 
+) 
+3,606 
+Stock
+compensation related to options granted to Telkoor's employees and other
+non- employee consultant 
+- 
+- 
+15 
+- 
+- 
+- 
+15 
+Stock
+compensation related to options granted to employees 
+- 
+- 
+88 
+- 
+- 
+- 
+88 
+Exercise
+of options granted to employees 
+10,760 
+- 
+12 
+- 
+- 
+- 
+12 
+Comprehensive
+income: 
+Net
+loss 
+- 
+- 
+- 
+(148 
+) 
+- 
+$ 
+(148 
+) 
+(148 
+) 
+Foreign
+currency translation adjustments 
+- 
+- 
+- 
+- 
+186 
+186 
+186 
+Total
+comprehensive income 
+$ 
+38 
+Balance
+as of December 31, 2009 
+6,626,468 
+$ 
+- 
+$ 
+14,042 
+$ 
+(9,932 
+) 
+$ 
+(351 
+) 
+$ 
+3,759 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-5 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+Year ended December 31, 
+2009 
+2008 
+Cash flows from operating
+activities : 
+Net
+income (loss) 
+$ 
+(148 
+) 
+$ 
+558 
+Adjustments
+required to reconcile net income (loss) to net cash provided by operating
+activities: 
+Depreciation 
+97 
+94 
+Stock
+compensation related to options granted to employees 
+88 
+54 
+Stock
+compensation related to options granted to Telkoor's employees and other
+non-employee consultants 
+15 
+(12 
+) 
+Decrease
+in trade receivables, net 
+457 
+474 
+Increase
+in prepaid expenses and other receivables 
+(98 
+) 
+(54 
+) 
+Decrease
+(increase) in inventories 
+438 
+(221 
+) 
+Increase
+(decrease) in accounts payable and related parties - trade
+payables 
+(674 
+) 
+213 
+Increase
+in advances from customers, deferred revenues and other current
+liabilities 
+274 
+338 
+Net
+cash provided by operating activities 
+449 
+1,444 
+Cash flows from investing
+activities : 
+Purchase
+of property and equipment 
+(59 
+) 
+(79 
+) 
+Net
+cash used in investing activities 
+(59 
+) 
+(79 
+) 
+Cash flows from financing
+activities : 
+Proceeds
+from exercise of options 
+12 
+- 
+Net
+cash provided by financing activities 
+12 
+- 
+Effect
+of exchange rate changes on cash and cash equivalents 
+89 
+(332 
+) 
+Increase in cash and cash equivalents 
+491 
+1,033 
+Cash and cash equivalents at the beginning of the year 
+2,476 
+1,443 
+Cash
+and cash equivalents at the end of the year 
+$ 
+2,967 
+$ 
+2,476 
+Supplemental disclosure of cash flows
+activities : 
+Income
+taxes paid 
+$ 
+7 
+$ 
+- 
+Supplemental disclosure of non-cash
+activities : 
+The
+accompanying notes are an integral part of the consolidated financial
+statements. 
+F-6 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+1:- 
+GENERAL 
+a. 
+Digital
+Power Corporation (the “Company" or "DPC") was incorporated in 1969, under
+the General Corporation Law of the State of California. The Company and
+Digital Power Limited ("DPL"), a wholly owned subsidiary located in the
+United Kingdom, 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). 
+b. 
+The
+Company depends on Telkoor Telecom Ltd. ("Telkoor"), a major shareholder
+of the Company and one of DPC's third party subcontractors, for
+manufacturing capabilities in production of the products which DPC sells.
+If these manufacturers are unable or unwilling to continue manufacturing
+the Company's products in required volumes on a timely basis, that could
+lead to loss of sales, and adversely affect the Company's operating
+results and cash position. The Company also depends on Telkoor's
+intellectual property and ability to transfer production to third party
+manufacturers. Failure to obtain new products in a timely manner or delay
+in delivery of product to customers will have an adverse effect on the
+Company's ability to meet its customers' expectations. See also Note
+11. 
+NOTE
+2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES 
+The
+consolidated financial statements have been prepared in accordance with
+generally accepted accounting principles in the United States ("U.S.
+GAAP"). 
+a. Use
+of estimates: 
+The
+preparation of the consolidated financial statements in conformity with U.S.
+GAAP requires management to make estimates, judgments and assumptions. The
+Company's management
+believes that the estimates, judgments and assumptions made are reasonable based
+upon information available at the time they are made. These estimates, judgments
+and assumptions can affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the dates of the financial
+statements, as well as the reported amounts of revenue and expenses during the
+reporting period. Actual results could differ from those estimates. 
+b. Financial
+statements in U.S. dollars: 
+A
+substantial portion of the revenues of the Company are generated in U.S. dollars
+("dollar"). In addition, a substantial portion of the costs of the Company are
+incurred in dollars. The Company's management believes that the dollar is the
+currency of the primary economic environment in which the Company
+operates. 
+F-7 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+The
+financial statements of the foreign subsidiary, whose functional currency has
+been determined to be its local currency, have been translated into U.S. dollars
+in accordance with Accounting Codification Statement (“ASC”) 830 (formerly: FASB
+No. 52 “Foreign Currency Translation” (“ASC830”). All balance sheet accounts
+have been translated using the exchange rates in effect at the balance sheet
+date. Statement of operations amounts have been translated using the
+average exchange rate for the period. The resulting translation adjustments are
+reported as a component of accumulated other comprehensive income (loss) in
+shareholders' equity. 
+c. 
+Principles
+of consolidation: 
+The
+consolidated financial statements include the accounts of the Company and its
+wholly-owned subsidiary. Intercompany transactions and balances have been
+eliminated upon consolidation. 
+d. 
+Cash
+equivalents: 
+Cash
+equivalents are short-term highly liquid investments that are readily
+convertible to cash with original maturities of three months or less at
+acquisition. 
+e. 
+Restricted
+cash: 
+Restricted
+cash is held on account of a letter of credit issued by the Company's bank and
+in respect of future lease payments and for certain customers until the
+guarantee expires. The restricted cash is invested in a deposit. 
+f. 
+Inventories: 
+Inventories
+are stated at the lower of cost or market value. Inventory write-offs are
+provided to cover risks arising from slow-moving items or technological
+obsolescence. 
+Cost is
+determined as follows: 
+Raw
+materials, parts and supplies - using the "first-in, first-out"
+method. 
+Work-in-progress
+and finished products - on the basis of direct manufacturing costs with the
+addition of indirect manufacturing costs. 
+The
+Company periodically assesses its inventories valuation in respect of obsolete
+and slow moving items by reviewing revenue forecasts and technological
+obsolescence. When inventories on hand exceed the foreseeable demand or become
+obsolete, the value of excess inventory, which at the time of the review was not
+expected to be sold, is written off. 
+During
+2009 and 2008, the Company recorded inventories write-offs of $38 and $235,
+respectively. 
+F-8 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+g. 
+Property
+and equipment: 
+Property
+and equipment are stated at cost, net of accumulated depreciation. Depreciation
+is calculated by the straight-line method over the estimated useful lives, at
+the following annual rates: 
+% 
+Computers,
+software and related equipment 
+20
+– 33 
+Office
+furniture and equipment 
+10
+– 20 
+Leasehold
+improvements 
+Over
+the term of the lease or the life 
+of
+the asset, whichever is
+earlier 
+The
+long-lived assets of the Company and its subsidiary are reviewed for impairment
+of property, plant and equipment whenever events or changes in circumstances
+indicate that the carrying amount of an asset may not be recoverable.
+Recoverability of assets to be held and used is measured by a comparison of the
+carrying amount of an asset to the future undiscounted cash flows expected to be
+generated by the assets. If such assets are considered to be impaired, the
+impairment to be recognized is measured by the amount by which the carrying
+amount of the assets exceeds the fair value of the assets. As of December 31,
+2009 and 2008, no impairment losses have been identified. 
+h. 
+Revenue
+recognition: 
+The
+Company and its subsidiary generate their revenues from the sale of their
+products through a direct and indirect sales force. 
+Revenues
+from products are recognized in accordance with Staff Accounting Bulletin
+No. 104, "Revenue Recognition in Financial Statements" ("SAB No. 104"),
+when the following criteria are met: persuasive evidence of an arrangement
+exists, delivery has occurred, the seller's price to the buyer is fixed or
+determinable, no further obligation exists and collectability is reasonably
+assured. 
+Generally,
+the Company does not grant a right of return. However, certain distributors are
+allowed, in the sixth month after the initial stock purchase, to rotate stock
+that has not been sold for other products. This may be repeated every sixth
+month thereafter for 15-18 months, at no more than a fixed percentage of the
+distributor's purchase during the previous six months. Revenues subject to stock
+rotation rights are deferred until the products are sold to the end customer or
+until the rotation rights expire. 
+Service
+revenues are deferred and recognized on a straight-line basis over the term of
+the service agreement. Service revenues are immaterial as a proportion of the
+Company's revenues. 
+F-9 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+i. 
+Engineering
+and product development: 
+Engineering
+and product development costs are charged to the statement of operations as
+incurred. 
+j. 
+Income
+taxes: 
+The
+Company and its subsidiary account for income taxes in accordance with ASC 740
+(Formerly: Statement of Financial Accounting Standards No. 109), “Income Taxes”
+(“ASC 740”). This Statement prescribes the use of the liability method whereby
+deferred tax assets and liability account balances are determined based on
+differences between financial reporting and tax bases of assets and liabilities
+and are measured using the enacted tax rates and laws that will be in effect
+when the differences are expected to reverse. The Company and its subsidiary
+provide a valuation allowance, if necessary, to reduce deferred tax assets to
+their estimated realizable value. 
+ASC 740
+contains a two-step approach to recognizing and measuring uncertain tax
+positions accounted for in accordance with ASC 740. The first step is to
+evaluate the tax position taken or expected to be taken in a tax return by
+determining if the weight of available evidence indicates that it is more likely
+than not that, on an evaluation of the technical merits, the tax position will
+be sustained on audit, including resolution of any related appeals or litigation
+processes. The second step is to measure the tax benefit as the largest amount
+that is more than 50% likely to be realized upon ultimate settlement. No
+liability for unrecognized tax benefits was recorded as a result of the
+implementation of ASC 740 as well as of December 31, 2009 and 2008. 
+k. 
+Warranty
+costs: 
+The
+Company offers a 12-month warranty period for all of its products. The Company
+estimates the costs that may be incurred under its warranty and records a
+liability in the amount of such costs at the time product revenue is recognized.
+Factors that affect the Company's warranty liability include the number of units
+sold, historical rates of warranty claims and cost per claim. The Company
+periodically assesses the adequacy of its recorded warranty liability and
+adjusts the amounts as necessary. 
+A table
+presenting the reconciliation of the changes in the Company's aggregate product
+warranty liability was not provided due to the immateriality. 
+l. 
+Accounting
+for stock-based compensation: 
+The
+Company accounts for stock-based compensation in accordance with ASC 718
+(Formerly SFAS No. 123 (revised 2004)), “Share-Based Payment” (“ASC
+718”). 
+The award
+that is ultimately expected to vest is recognized as an expense over the
+requisite service periods in the Company's consolidated income
+statements. 
+F-10 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+ASC 718
+requires companies to estimate the fair value of equity-based payment awards on
+the date of grant using an option-pricing model. The Company
+estimates the fair value of stock options granted under ASC 718 using the
+Black-Scholes option-pricing model that uses the assumption as
+follows: 
+Expected
+volatility is based on historical volatility that is representative of future
+volatility over the expected term of the options. The expected term of options
+granted was determined based on the simplified method, which is calculated as
+the midpoint between the vesting date and the end of the contractual term of the
+option. The risk free interest rate is based on the yield of U.S Treasury bonds
+with equivalent terms. The dividend yield is based on the Company's historical
+and future expectation of dividends payouts. The Company has not paid cash
+dividends historically and has no plans to pay cash dividends in the foreseeable
+future. 
+The
+Company recognizes compensation expense based on awards ultimately expected to
+vest, net of estimated forfeitures at the time of grant. Estimated forfeitures
+are based on historical pre-vesting forfeitures. ASC 718 requires forfeitures to
+be estimated and revised, if necessary, in subsequent periods if actual
+forfeitures differ from those estimates. 
+The fair
+value for options granted in 2009 and 2008 is amortized over their vesting
+period using a straight-line recognition method and estimated at the date of
+grant with the following assumptions: 
+2009 
+2008 
+Dividend
+yield 
+0% 
+0% 
+Expected
+volatility 
+89%-93% 
+88%
+–93% 
+Risk-free
+interest 
+2.7%-2.89% 
+1.7%
+- 4.0% 
+Forfeiture
+rate 
+5% 
+5% 
+Expected
+life 
+6.25
+years 
+7
+years 
+The total
+equity-based compensation expense related to all of the Company's equity-based
+awards, recognized for the years ended December 31, 2009 and 2008 were comprised
+as follows: 
+Year ended December 31, 
+2009 
+2008 
+Cost
+of goods sold 
+$ 
+3 
+$ 
+2 
+Research
+and development 
+2 
+2 
+Sales
+and marketing 
+22 
+11 
+General
+and administrative 
+61 
+39 
+Total
+equity-based compensation expense 
+$ 
+88 
+$ 
+54 
+F-11 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+A summary
+of option activity under the Company's Stock Option Plans (as hereinafter
+defined) as of December 31, 2009 and changes during year then ended are as
+follows: 
+Year ended December 31, 2009 
+Amount of 
+options 
+Weighted 
+average 
+exercise 
+price 
+Weighted- 
+average 
+remaining 
+contractual 
+term (in 
+years) 
+Aggregate 
+intrinsic 
+value 
+Outstanding
+at the beginning of the year 
+779,035 
+$ 
+1.03 
+5.59 
+$ 
+65 
+Granted 
+120,000 
+$ 
+1.50 
+Exercised 
+(10,760 
+) 
+$ 
+1.13 
+Expired 
+(1,035 
+) 
+$ 
+1.81 
+Forfeited 
+(62,000 
+) 
+$ 
+1.48 
+Outstanding
+at the end of the year 
+825,240 
+$ 
+1.05 
+5.26 
+$ 
+309 
+Vested
+or expected to vest at year end 
+779,990 
+Exercisable
+options at the end of the year 
+598,990 
+$ 
+0.98 
+3.95 
+$ 
+623 
+The
+weighted-average grant-date fair value of options granted during the year ended
+December 31, 2009 and 2008 were $ 1.50 and $ 0.81, respectively. The
+aggregate intrinsic value in the table above represents the total intrinsic
+value (the difference between the Company's closing stock price on December 31,
+2009 and the exercise price, multiplied by the number of in-the-money-options)
+that would have been received by the option holders had all option holders
+exercised their options on December 31, 2009. This amount changes based on
+the fair market value of the Company's shares. The total intrinsic value of
+options exercised during the year ended December 31, 2009 was less than $ 1 (no
+option exercised in 2008). 
+As of
+December 31, 2009, there was $ 180 of total unrecognized compensation cost
+related to non-vested share-based compensation arrangements granted under the
+Company's stock option plans. That cost is expected to be recognized over a
+weighted average period of 1.87 years. The total fair value of options vested
+during the year ended December 31, 2009 and 2008 was $ 78 and $
+42. 
+The
+Company applies ASC 718 and ASC 505-50, formerly EITF No. 96-18, with respect to
+options and warrants issued to non-employees. ASC 718 requires the use of option
+valuation models to measure the fair value of the options and warrants at the
+date of grant. 
+m. 
+Fair
+value of financial
+instruments: 
+The Company measures its
+financial instruments at fair value. Fair value is an exit price, representing
+the amount that would be received to sell an asset or paid to transfer a
+liability in an orderly transaction between market participants. As such, fair
+value is a market-based measurement that should be determined based on
+assumptions that market participants would use in pricing an asset or a
+liability. A three-tier fair value hierarchy is established as a basis for
+considering such assumptions and for inputs used in the valuation methodologies
+in measuring fair value: 
+F-12 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+Level
+1 - 
+inputs
+are based upon unadjusted quoted prices for identical instruments traded
+in active markets. 
+Level
+2 - 
+inputs
+are based upon quoted prices for similar instruments in active markets,
+quoted prices for identical or similar instruments in markets that are not
+active, and model-based valuation techniques for which all significant
+assumptions are observable in the market or can be corroborated by
+observable market data for substantially the full term of the assets or
+liabilities. 
+Level
+3 - 
+inputs
+are generally unobservable and typically reflect management's estimates of
+assumptions that market participants would use in pricing the asset or
+liability. The fair values are therefore determined using model-based
+techniques that include option pricing models, discounted cash flow
+models, and similar techniques. 
+The
+valuation methodology the Company uses to measure derivatives (forward contract)
+is based observable inputs including interest rate curves and both forward and
+spot prices for currencies. These derivatives are included in Level 2 (see also
+Note 2(P) and Note 5). 
+The
+carrying amounts of financial instruments carried at cost, including cash and
+cash equivalents, restricted cash long-term deposits, trade receivables and
+trade payables approximate their fair value due to the short-term maturities of
+such instruments. 
+n. 
+Basic
+and diluted net earnings per
+share: 
+Basic net
+earnings per share is computed based on the weighted average number of Common
+shares outstanding during each year. Diluted net earnings per share is computed
+based on the weighted average number of Common shares outstanding during each
+year, plus dilutive potential Common shares considered outstanding during the
+year, in accordance with ASC 260 (Formerly Statement of Financial Accounting
+Standard No. 128, "Earnings per Share") ("ASC 260"). 
+The total
+number of shares related to the outstanding options and warrants excluded from
+the calculations of diluted net earnings per share because these securities are
+anti-dilutive was 1,005,240 options and 644,035 options for the years ended
+December 31, 2009 and 2008, respectively. 
+o. 
+Concentrations
+of credit risks: 
+Financial
+instruments that potentially subject the Company and its subsidiary to
+concentrations of credit risk consist principally of cash and cash equivalents,
+restricted cash, long term deposits and trade receivables. 
+F-13 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+Cash and
+cash equivalents and restricted cash are invested in banks in the U.S. and in
+the U.K. Such deposits in the United States may be in excess of insured limits
+and are not insured in other jurisdictions. 
+Trade
+receivables of the Company and its subsidiary are mainly derived from sales to
+customers located primarily in the U.S. and in Europe. The Company performs
+ongoing credit evaluations of its customers and to date has not experienced any
+material losses. An allowance for doubtful accounts is determined with respect
+to those amounts that the Company and its subsidiary have determined to be
+doubtful of collection. 
+p. 
+Derivatives
+and hedging: 
+ASC 815
+(Formerly Financial Accounting Standard Board Statement No.
+133, "Accounting for Derivative Instruments and Hedging Activities") ("ASC
+815"), as amended, requires the Company to recognize all derivatives on the
+balance sheet at fair value. Derivatives that are not hedges must be adjusted to
+fair value through income. If the derivative is a hedge, depending on the nature
+of the hedge, changes in the fair value of derivatives are either offset against
+the change in fair value of the hedged assets, liabilities, or firm commitments
+through earnings or recognized in other comprehensive income until the hedged
+item is recognized in earnings. The ineffective portion of a derivative's change
+in fair value is immediately recognized in earnings. The Company uses
+derivatives to hedge certain cash flow foreign currency exposures in order to
+further reduce the Company's exposure to foreign currency risks. 
+The
+Company entered into a forward contract to hedge certain sales transactions with
+a customer denominated in foreign currencies. The Company's forward contract did
+not qualify a hedging instrument under ASC 815. 
+As of
+December 31, 2008 and 2009, the Company had outstanding forward contracts that
+did not meet the requirement for hedge accounting, in the amount of $115 and
+$17, respectively. These contracts were for a period of up to nine months. The
+Company measured the fair value of the contracts in accordance with ASC No. 820
+at level 2. The net gains (losses) recognized in "financial income, net" during
+2008 and 2009 were a loss of $147 and a gain of $63, respectively. 
+q. 
+Comprehensive
+income: 
+The
+Company accounts for comprehensive income in accordance with ASC 220 (Formerly
+SFAS No. 130, "Reporting Comprehensive Income.") (“ASC 220”). This
+Statement establishes standards for the reporting and display of comprehensive
+income and its components in a full set of general purpose financial statements.
+Comprehensive income generally represents all changes in stockholders' equity
+during the period except those resulting from investments by, or distributions
+to, stockholders. The Company determined that its items of comprehensive income
+relates to unrealized losses and gains from foreign currency translation
+adjustments. 
+F-14 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 2:- 
+SIGNIFICANT
+ACCOUNTING POLICIES (Cont.) 
+r. 
+Operating
+lease: 
+The
+Company and its subsidiary have operating lease agreements for the lease of
+their building facilities in the US and UK. The rent in connection with the
+leases is charged to expense over the lease term. If rental payments are not
+made on a straight line basis, rental expenses are nevertheless recognized on a
+straight line basis. 
+s. 
+Recently
+issued accounting pronouncements: 
+In June
+2009, the FASB issued SFAS 168, "The FASB Accounting Standards Codification and
+the Hierarchy of Generally Accepted Accounting Principles". SFAS No. 168,
+which is incorporated in ASC Topic 105, Generally Accepted Accounting
+Principles, identifies the accounting standard codification (ASC) as the
+authoritative source of generally accepted accounting principles in the United
+States. Rules and interpretive releases of the SEC under federal securities laws
+are also sources of authoritative GAAP for SEC registrants. Throughout the notes
+to the consolidated financial statements, references that were previously made
+to former authoritative U.S. GAAP pronouncements have been changed to coincide
+with the appropriate section of the ASC. 
+For
+accounting periods ending after June 15, 2009, new authoritative accounting
+guidance became effective under ASC Topic 855 (formerly SFAS No. 165) which
+modifies the definition of what qualifies as a subsequent event—those events or
+transactions that occur following the balance sheet date, but before the
+financial statements are issued, or are available to be issued—and requires
+companies to disclose the date through which it has evaluated subsequent events
+and the basis for determining that date. The adoption of ASC Topic 855 did not
+have a material impact on our financial position or results of operations and
+financial condition. 
+In
+October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue
+Recognition (Topic 605) Multiple Deliverable Revenue Arrangements-A Consensus of
+the FASB Emerging Issues Task Force. This update provides application guidance
+on whether multiple deliverables exist, how the deliverables should be separated
+and how the consideration should be allocated to one or more units of
+accounting. This update establishes a selling price hierarchy for determining
+the selling price of a deliverable. The selling price used for each deliverable
+will be based on vendor-specific objective evidence, if available, third-party
+evidence if vendor-specific objective evidence is not available, or estimated
+Selling price if neither vendor-specific or third-party evidence is available.
+The Company will be required to apply this guidance prospectively for revenue
+arrangements entered into or materially modified after January 1, 2011; however,
+earlier application is permitted. The Company is currently evaluating
+the impact of the adoption of this new guidance on its financial
+statements. 
+F-15 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+3:- 
+INVENTORIES 
+December 31, 
+2009 
+2008 
+Raw
+materials, parts and supplies 
+$ 
+232 
+$ 
+228 
+Work
+in progress 
+285 
+308 
+Finished
+products 
+539 
+958 
+$ 
+1,056 
+$ 
+1,494 
+NOTE 4:- 
+PROPERTY
+AND EQUIPMENT 
+December 31, 
+2009 
+2008 
+Cost: 
+Computers,
+software and related equipment 
+$ 
+1,153 
+$ 
+998 
+Office
+furniture and equipment 
+187 
+175 
+Leasehold
+improvements 
+519 
+454 
+1,859 
+1,627 
+Accumulated
+depreciation 
+Computers,
+software and related equipment 
+1,014 
+960 
+Office
+furniture and equipment 
+183 
+172 
+Leasehold
+improvements 
+431 
+342 
+1,628 
+1,474 
+Depreciated
+cost 
+$ 
+231 
+$ 
+153 
+Depreciation
+expense was $97 and $94 for the years ended December 31, 2009 and 2008,
+respectively. 
+NOTE
+5:- 
+OTHER
+CURRENT LIABILITIES 
+December 31, 
+2009 
+2008 
+Accrued
+payroll and payroll taxes 
+$ 
+120 
+$ 
+81 
+Warranty
+accrual 
+103 
+61 
+Government
+authorities 
+7 
+8 
+Professional
+fees accrual 
+136 
+109 
+Accrued
+expenses and other 
+109 
+140 
+Forward
+contract 
+17 
+115 
+$ 
+492 
+$ 
+514 
+F-16 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 6:- 
+COMMITMENTS AND CONTINGENT
+LIABILITIES 
+Lease
+commitments: 
+The
+Company has an operating lease agreement in the US, which expires in 2012. The
+Company's subsidiary, DPL, had a lease agreement in respect of the U.K.
+facility, which expired on September 2009. However, DPL continues to
+occupy the facility, as the building owner has confirmed a tenancy until April
+2010. The lease agreement included certain repairing covenants, such
+as the requirement to redecorate the internal and external structure/foundation
+of the building at intervals during the term of that lease and to generally keep
+the building in good repair. DPL believes that it has satisfied all of the
+repairing covenants to date. DPL intends to remain in the building
+and to enter into a new lease agreement with the building owner after April
+2010. 
+Future
+rental commitments under non-cancelable leases are as follows: 
+Year ended December 31, 
+2010 
+$ 
+109 
+2011 
+119 
+2012 
+111 
+$ 
+339 
+Total
+rent expense for the years ended December 31, 2009 and 2008 was approximately
+$ 225 and $ 253, respectively. 
+Subsequent
+to the balance sheet date, the Company signed an amendment to its current lease
+agreement in the US to expand its office space. The amendment also reduced the
+option to renew for a five-year period under the original lease agreement to a
+one-year period. 
+NOTE
+7:- 
+SHAREHOLDERS'
+EQUITY 
+a. 
+Preferred
+shares: 
+There are
+authorized Preferred shares in the amount of 500,000 shares of Series A
+cumulative redeemable convertible Preferred shares ("Series A"), and an
+additional 1,500,000 Preferred shares that have been authorized, but the rights,
+preferences, privileges and restrictions on these shares have not been
+determined. DPC's Board of Directors is authorized to create a new series of
+Preferred shares and determine the number of shares, as well as the rights,
+preferences, privileges and restrictions granted to or imposed upon any series
+of Preferred shares. As of December 31, 2009, there were no Preferred shares
+issued or outstanding. 
+F-17 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+7:- 
+SHAREHOLDERS'
+EQUITY (Cont.) 
+b. 
+Common
+shares: 
+Common
+shares confer upon the holders the rights to receive notice to participate and
+vote in the general meeting of shareholders of the Company, to receive
+dividends, if and when declared, and to participate in a distribution of surplus
+of assets upon liquidation of the Company. 
+c. 
+Share
+Option Plans: 
+1. 
+Under
+the Company's Digital 2002, 1998 and 1996 Incentive Share Option Plans
+(the “Stock Option Plans”), options may be granted to employees, officers,
+consultants, service providers and directors of the Company or its
+subsidiary. 
+2. 
+As
+of December 31, 2009, the Company has authorized in the Stock Option Plans
+the grant of options to officers, management, other key employees and
+others of up to 513,000, 240,000 and 1,519,000, respectively of the
+Company's Common shares. For all three Stock Option Plans, the maximum
+term of the options is ten years from the date of grant. As of December
+31, 2009, an aggregate of 688,905 of the Company's options are still
+available for future grant. 
+3. 
+The
+options granted generally become fully vested after four years. Any
+options that are forfeited or cancelled before expiration become available
+for future grants. 
+The
+options outstanding as of December 31, 2009 have been classified by exercise
+price, as follows: 
+Weighted 
+Options 
+average 
+Options 
+Weighted 
+outstanding 
+remaining 
+Weighted 
+Exercisable 
+average 
+as of 
+contractual 
+average 
+as of 
+exercise price 
+Exercise 
+December 31, 
+term 
+exercise 
+December 31, 
+of options 
+Price 
+2009 
+Years 
+Price 
+2009 
+exercisable 
+$0.48-
+$0.71 
+265,000 
+2.70 
+$ 
+0.60 
+257,500 
+$ 
+0.68 
+$0.79 -
+$1.05 
+257,000 
+6.06 
+$ 
+0.96 
+177,000 
+$ 
+1.01 
+$1.16
+- $1.813 
+279,240 
+7.36 
+$ 
+1.38 
+140,490 
+$ 
+1.23 
+$2.31-
+$ 3.03 
+24,000 
+0.66 
+$ 
+2.36 
+24,000 
+$ 
+2.36 
+825,240 
+5.26 
+$ 
+1.05 
+598,990 
+$ 
+0.98 
+4. 
+Warrants
+and options issued to service providers and consultants under the Stock
+Option Plans: 
+F-18 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+7:- 
+SHAREHOLDERS'
+EQUITY (Cont.) 
+The
+Company's outstanding warrants and options to consultants and service providers
+under the Stock Option Plans as of December 31, 2009, are as
+follows: 
+Issuance date 
+Options for 
+Common 
+shares 
+Exercise 
+price per 
+share 
+Options 
+exercisable 
+May 2002 
+40,000 
+$ 
+1.00 
+40,000 
+August
+2002 
+10,000 
+$ 
+0.55 
+10,000 
+November
+2002 
+10,000 
+$ 
+1.00 
+10,000 
+February
+2005 
+20,000 
+$ 
+1.19 
+20,000 
+March
+2006 
+100,000 
+$ 
+1.16 
+75,000 
+180,000 
+155,000 
+All
+options are exercisable for ten years from the date of grant. 
+In 2005
+and 2006, the Company granted 70,000 options to Telkoor's employees and 100,000
+options to a non-employee consultant. Of the 70,000 options granted to Telkoor’s
+employees, 10,000 and 40,000 options were forfeited in 2007 and 2008,
+respectively, due to termination of employment. Those options vest
+primarily over four years. The fair value for these options was estimated using
+a Black-Scholes option-pricing model with the following assumptions for 2009:
+risk-free interest rates of 2.5%-2.9%, dividend yield of 0%, volatility of
+89.1%-93.9%, and the contractual term of the options of 5.2-5.7
+years. 
+Compensation
+expense of $15 and compensation income of $ 12 were recognized for the years
+ended December 31, 2009 and 2008, respectively, in accordance with accelerated
+method. 
+e. 
+Employee
+stock ownership plan: 
+The
+Company has an employee stock ownership plan ("ESOP") covering eligible
+employees. The ESOP provides for the Employee Stock Ownership Trust ("ESOT") to
+distribute the Company's Common shares as retirement benefits to the
+participants. The Company has not distributed shares since 1998. As of December
+31, 2009, the outstanding Common shares held by the ESOT amount to 167,504
+shares. 
+f. 
+Dividends: 
+In the
+event that cash dividends are declared in the future, such dividends will be
+paid in U.S. dollars. The Company does not intend to pay cash dividends in the
+foreseeable future. 
+F-19 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+8:- 
+TAXES
+ON INCOME 
+a. 
+Deferred
+income taxes: 
+Deferred
+income taxes reflect the net tax effects of temporary differences between the
+carrying amounts of assets and liabilities for financial reporting purposes and
+the amounts used for income tax purposes. Significant components of the
+Company's deferred tax liabilities and assets are as follows: 
+December 31, 
+2009 
+2008 
+Net
+operating loss carryforward 
+$ 
+1,745 
+$ 
+1,831 
+Reserves
+and allowances 
+380 
+348 
+Credit
+carryforward 
+112 
+81 
+Depreciation
+and amortization 
+143 
+(207 
+) 
+Net
+deferred tax asset before valuation allowance 
+2,380 
+2,053 
+Valuation
+allowance 
+(2,380 
+) 
+(2,053 
+) 
+Net
+deferred tax asset 
+$ 
+- 
+$ 
+- 
+As of
+December 31, 2009 and 2008, the Company and its subsidiary provided a valuation
+allowance of $ 2,158 and $ 1,852, respectively, in respect of deferred
+tax asset resulting from short-term temporary differences and depreciation
+charged in advance of a capital allowance taken, as well as from carryforward
+losses. 
+Management
+currently believes that since the Company and its subsidiary have a history of
+losses, it is more likely than not that the deferred tax assets regarding the
+remainder of the tax loss carryforward and other temporary differences will not
+be realized in the foreseeable future. 
+b. 
+Net
+operating tax losses
+carryforward: 
+As of
+December 31, 2009, the Company had approximately $ 3,650 in federal net
+operating loss carryforward for income tax purposes, which can be carried
+forward and offset against taxable income for 20 years and expire between 2020
+and 2030. 
+Utilization
+of U.S. net operating losses may be subject to substantial annual limitation,
+due to the "change in ownership" provisions of the Internal Revenue Code of 1986
+and similar state provisions. The annual limitation may result in the expiration
+of net operating losses before utilization. The Company believes that, as a
+result of having undergone an "Ownership change" in 2002 within the meaning of
+section 382 of the Internal Revenue Code, its ability to use its net operating
+loss carryforward and other tax attributes to offset future U.S. taxable income,
+and thereby reduce its tax liability, is severely limited. 
+F-20 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+8:- 
+TAXES
+ON INCOME (Cont.) 
+As of
+December 31, 2009, DPL had accumulated losses for income tax purposes in the
+amount of approximately $1,056. These net operating losses may be
+carried forward and offset against taxable income in the future for an
+indefinite period. 
+c. 
+Income
+before income taxes: 
+There is
+no provision in respect of unrecognized tax benefits for the years ended
+December 31, 2009 and 2008. Net income (loss) before income taxes consists of
+the following: 
+Year ended December 31, 
+2009 
+2008 
+Domestic
+(U.S.) 
+$ 
+(153 
+) 
+$ 
+199 
+Foreign
+(U.K.) 
+36 
+331 
+$ 
+(117 
+) 
+$ 
+530 
+The
+Company is required to calculate and account for income taxes in each
+jurisdiction in which the Company or its subsidiary operate. Significant
+judgment is required in determining its worldwide provision for income taxes and
+recording the related assets and liabilities. In the ordinary course of the
+Company's business, there are many transactions and calculations where the
+ultimate tax determination is uncertain. 
+d. 
+A
+reconciliation between the theoretical tax expense, assuming all income is
+taxed at the statutory tax rate applicable to income of the Company and
+the actual tax expense as reported in the statements of operations is as
+follows: 
+Year ended December 31, 
+2009 
+2008 
+Total 
+Total 
+Income
+(loss) before taxes expenses (benefit) 
+$ 
+(117 
+) 
+$ 
+530 
+Theoretical
+tax at U.S. statutory tax rate (34%) 
+$ 
+(40 
+) 
+$ 
+180 
+Taxes
+in respect of prior years 
+31 
+(28 
+) 
+State
+taxes, net of federal benefit 
+(3 
+) 
+- 
+Tax
+adjustment in respect of foreign subsidiary 
+(5 
+) 
+5 
+Nondeductible
+expenses 
+1 
+20 
+Operating
+carryforward losses and temporary differences for which valuation
+allowance was provided 
+46 
+(212 
+) 
+Other 
+1 
+7 
+Tax
+expenses (benefit) 
+$ 
+31 
+$ 
+(28 
+) 
+F-21 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 9:- 
+NET
+EARNINGS PER SHARE 
+The
+following table sets forth the computation of the basic and diluted net earnings
+per share: 
+a. 
+Numerator: 
+Year ended December 31, 
+2009 
+2008 
+Net
+income (loss) available to Common shareholders 
+$ 
+(148 
+) 
+$ 
+558 
+b. 
+Denominator: 
+Denominator
+for basic net earnings per Common share 
+6,620,695 
+6,615,708 
+Effect
+of dilutive securities: 
+Stock
+options 
+- 
+72,883 
+Denominator
+for diluted net earnings per Common share 
+6,620,695 
+6,688,591 
+NOTE 10:- 
+FINANCIAL
+INCOME, NET 
+Year ended December 31, 
+2009 
+2008 
+Financial
+income: 
+Interest 
+$ 
+1 
+$ 
+50 
+Foreign
+currency transaction differences 
+230 
+446 
+Forward
+contract transaction 
+63 
+- 
+294 
+496 
+Financial
+expenses: 
+1 
+8 
+Bank
+charges and other translation 
+10 
+8 
+Foreign
+currency transaction differences 
+299 
+202 
+Forward
+contract transaction 
+- 
+147 
+309 
+357 
+Financial
+income (expense), net 
+$ 
+(15 
+) 
+$ 
+139 
+F-22 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE 11:- 
+RELATED
+PARTY TRANSACTIONS 
+Purchases
+of products from Telkoor, a major shareholder, were as follows: 
+Year ended December 31, 
+2009 
+2008 
+Purchases
+of products from Telkoor 
+$ 
+2,531 
+$ 
+4,571 
+Transactions
+with Telkoor are derived mainly from purchase of power supplies from
+Telkoor. 
+The
+Company believes that the transactions described above are on a basis no less
+favorable than could be obtained from an independent third party. Although it is
+not practical to determine the amounts that the Company would have incurred had
+it purchased from an unaffiliated entity, management believes that the amounts
+chargeable for the above transactions provided by these purchase orders are
+reasonable. All future transactions between the Company and Telkoor will be on
+terms no less favorable than could be obtained from an independent third
+party. 
+NOTE
+12:- 
+SEGMENTS
+CUSTOMERS AND GEOGRAPHICAL
+INFORMATION 
+a. 
+The
+Company has two reportable geographic segments; see Note 1a for a brief
+description of the Company's business. The data is presented in accordance
+with ASC 280 (Formerly Statement of Financial Accounting Standard No.
+131), "Disclosure about Segments of an Enterprise and Related Information"
+("ASC 280"). 
+The
+following data presents the revenues, expenditures and other operating data of
+the Company's geographic operating segments: 
+Year ended December 31, 2009 
+DPC 
+DPL 
+Eliminations 
+Total 
+Revenues 
+$ 
+4,257 
+$ 
+4,402 
+$ 
+- 
+$ 
+8,659 
+Intersegment
+revenues 
+233 
+55 
+(288 
+) 
+- 
+Total
+revenues 
+$ 
+4,490 
+$ 
+4,457 
+$ 
+(288 
+) 
+$ 
+8,659 
+Depreciation
+expense 
+$ 
+30 
+$ 
+67 
+$ 
+- 
+$ 
+97 
+Operating
+income (loss) 
+$ 
+(226 
+) 
+$ 
+124 
+$ 
+- 
+$ 
+(102 
+) 
+Financial
+expenses, net 
+(15 
+) 
+Tax
+expense 
+(31 
+) 
+Net
+loss 
+$ 
+(148 
+) 
+Expenditures
+for segment assets as of December 31, 2009 
+$ 
+13 
+$ 
+46 
+$ 
+- 
+$ 
+59 
+Identifiable
+assets as of December 31, 2009 
+$ 
+2,971 
+$ 
+3,173 
+$ 
+- 
+$ 
+6,144 
+F-23 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+Year ended December 31, 2008 
+DPC 
+DPL 
+Eliminations 
+Total 
+Revenues 
+$ 
+5,611 
+$ 
+6,289 
+$ 
+- 
+$ 
+11,900 
+Intersegment
+revenues 
+278 
+27 
+(305 
+) 
+- 
+Total
+revenues 
+$ 
+5,889 
+$ 
+6,316 
+$ 
+(305 
+) 
+$ 
+11,900 
+Depreciation
+expense 
+$ 
+29 
+$ 
+65 
+$ 
+- 
+$ 
+94 
+Operating
+income 
+$ 
+43 
+$ 
+348 
+$ 
+- 
+$ 
+391 
+Financial
+income, net 
+139 
+Tax
+benefit 
+28 
+Net
+income 
+$ 
+558 
+Expenditures
+for segment assets as of December 31, 2009 
+$ 
+12 
+$ 
+67 
+$ 
+- 
+$ 
+79 
+Identifiable
+assets as of December 31, 2009 
+$ 
+2,979 
+$ 
+3,301 
+$ 
+- 
+$ 
+6,280 
+b. 
+Major
+customers' data as percentage of total
+revenues: 
+Year ended December 31, 
+2009 
+2008 
+Customer
+A 
+( 
+*) 
+12 
+% 
+Customer
+B 
+10 
+% 
+( 
+*) 
+F-24 
+DIGITAL
+POWER CORPORATION 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+U.S.
+dollars in thousands (except share and per share data) 
+NOTE
+12:- 
+SEGMENTS
+CUSTOMERS AND GEOGRAPHICAL INFORMATION
+(Cont.) 
+c. 
+Total
+revenues from external customers divided on the basis of the Company's
+product lines are as follows: 
+Year ended December 31, 
+2009 
+2008 
+Revenues: 
+Commercial
+products 
+$ 
+5,766 
+$ 
+8,787 
+Defense
+products 
+2,893 
+3,113 
+$ 
+8,659 
+$ 
+11,900 
+(*) Less
+than 10% 
+F-25 
+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. 
+Dated: March
+25, 2010 
+DIGITAL
+POWER CORPORATION 
+By: 
+/s/
+Amos Kohn 
+Amos
+Kohn 
+President
+and Chief Executive Officer 
+In
+accordance with the Exchange Act, this report has been signed below by the
+following persons on behalf of the registrant and in the capacities
+and on the dates indicated. 
+Dated:
+March 25, 2010 
+/s/
+Ben-Zion Diamant 
+Ben-Zion
+Diamant, Chairman of the Board 
+Dated:
+March 25, 2010 
+/s/
+Amos Kohn 
+Amos
+Kohn, 
+President
+and Chief Executive Officer 
+Dated:
+March 25, 2010 
+/s/
+Israel Levi 
+Israel
+Levi, Director 
+Dated:
+March 25, 2010 
+/s/
+Yeheskel Manea 
+Yeheskel
+Manea, Director 
+Dated:
+March 25, 2010 
+/s/
+Terry Steinberg 
+Terry
+Steinberg, Director 
+Dated:
+March 25, 2010 
+/s/
+Assaf (Assi) Itshayek 
+Assaf
+(Assi) Itshayek, Chief Financial 
+Officer
+(Principal Financial and Accounting 
+Officer)

raw/filings/0000896493/2010/0001144204-11-018077/filing_metadata.csv

@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000896493,AULT,"Hyperscale Data, Inc.",10-K,2011-03-30,2010-12-31,2011-03-30T00:42:53.000Z,0001144204-11-018077,v216521_10k.htm,,1546464,0,0,https://www.sec.gov/Archives/edgar/data/896493/000114420411018077/v216521_10k.htm,https://www.sec.gov/Archives/edgar/data/896493/000114420411018077/,2010,2010,1

raw/filings/0000896493/2010/0001144204-11-018077/item1.txt

@@ -0,0 +1,176 @@
+ITEM 1. 
+DESCRIPTION OF BUSINESS. 
+General 
+Digital Power Corporation is a solution-driven organization that designs, develops, manufactures and sells high-grade customized and flexible power system solutions for the most demanding applications in the medical, military, telecom and industrial markets. We are highly focused on high-grade and custom product designs for both the commercial and military/defense markets, where customers demand high density, high efficiency and ruggedized products to meet the harshest and/or military mission critical operating conditions. We are a California corporation originally formed in 1969, and our common stock trades on the NYSE Amex under the symbol “DPW”. Our corporate headquarters are located in the heart of the Silicon Valley. 
+We also have a wholly-owned subsidiary, Digital Power Limited ("DPL"), which operates under the brand name of “Gresham Power Electronics” (“Gresham”). DPL is located in Salisbury, England, and it designs, manufactures and sells power products and system solutions mainly for the European marketplace, including power conversion, power distribution equipment, DC/AC (Direct Current/Active Current) inverters and UPS (Uninterrupted Power Supply) products. DPL’s defense business has specialists in the field of naval applications of power distribution conversion. 
+We believe that we are one of the first companies in the power solutions industry to introduce a product strategy based on the premise that products developed with an extremely flexible architecture enable rapid modifications to meet unique customer requirements for non-standard output voltages. The development and implementation of this strategy has resulted in broad acceptance in the telecom/industrial, and increasingly in the medical market, segments for our new line of high density and high efficiency power products. These products set an industry standard for providing high-power output in package sizes that are among the smallest available for such commercial products. 
+We market and sell our products to many diverse market segments, including the telecom, industrial, medical and military/defense industries. Our products serve a global market, with an emphasis on North America and Europe. We offer a broad product variety, including a full custom product design and production, unique high-speed switching power front-end, modified-standard and value added products, open-frame, Compact-PCI, ATSC, Micro TCA Front-Ends Systems and PoE (Power over Ethernet) product solutions, providing power output from 50 to 24,000 watts. 
+In an effort to provide short lead-times, high quality products and competitive pricing to support our markets, we have entered into production agreements with several contract manufacturers located in Asia, primarily China. These agreements allow us to better control production costs and ensure high quality products deliverable in a timely manner to meet market demand. 
+We intend to remain an innovative leader in the development of cutting-edge custom power solutions and rich features products to meet any customer needs and requirements, rugged power systems to meet harsh and extreme operation environmental requirements, and high performance, high efficiency, high-density and modular power systems. We are focusing today on developing even more high-grade custom power system solutions for numerous customers in a broadly diversified range of markets and challenging environments. Each product development is based on best of class performance criteria, including unique, advanced feature sets and a special layout to meet our customers’ unique operating conditions where efficiency, size and time to market are key to their success. We are taking initiatives to develop and sell high efficiency “green power” solutions. 
+Power System Solutions 
+We provide custom power system solutions, high-grade flexibility series power supply products and value-added services to diverse industries and markets including military/defense, telecom, medical and industrial. We believe that our solutions leverage a combination of high power density, superior power efficiency, design flexibility and short time to market. 
+Custom Power System Solution . We provide high-grade custom power system solutions to numerous customers in multiple industry segments. Each custom solution that we develop is based on high power density and a special layout to meet each of our customer’s unique operation environments where efficiency, size and performance are key. We combine our power design capabilities with the latest circuit designs to provide complete power solutions for virtually any need. In the design of custom power solutions, we work closely with our customers’ engineering teams to develop mechanical enclosures to ensure 100% compatibility with any hosted platform. 
+Our standard contract for custom power solutions includes a multi-year high-volume production forecast that allows us to secure long-term production guarantees (and therefore possible savings on manufacturing costs for volume orders) while providing an environment that promotes the development of our intellectual property (“IP”) portfolio. We believe that this business model provides an incentive to our customers to be committed to high-volume production orders. 
+High-Grade Flexibility Series Power Supply Product . While some of our customers have special requirements that include a full custom design, other customers may require only certain electrical changes to standard power supply products, such as modified output voltages and unique status and control signals, and mechanical repackaging tailored to fit the specific application. We offer a wide range of standard and modified standard products that can be easily integrated with any platform across our diversified market segments. 
+Value-Added Services . In addition to our custom solutions and high-grade flexibility series proprietary products that we offer, we also provide value-added services to OEMs. We incorporate an OEM’s selected electronic components, enclosures, cable assemblies and other compliance components into our power system solutions to produce a power subassembly that is compatible with the OEM’s own equipment and specifically tailored to meet the OEM’s needs. We purchase parts and components that the OEM itself would otherwise attach to, or integrate with, our power systems, and provide the OEM with the integration and installation service, thus eliminating a complex, time-consuming and costly integration. We believe that this value-added service is well suited to those OEMs who wish to reduce their vendor base and minimize their investment in manufacturing that leads to increased fixed costs. Based on these value-added services, the OEMs do not need to build assembly facilities to manufacture their own power subassemblies and thus are not required to purchase individual parts from many vendors. 
+2 
+Our products have a warranty period from date of shipment to the customer. 
+Markets 
+We sell our custom power system solutions, high-grade flexibility series power supply products and value-added services to customers in a diverse range of commercial and defense industries and markets throughout the world, with an emphasis on North America and Europe. Our current customer base consists of approximately 200 companies, some of which are served through our partner channels. We serve the North American power electronics market primarily through our domestic corporation, Digital Power Corporation; the European marketplace is served through DPL, our wholly-owned subsidiary. 
+Our products are sold in North America and Europe directly by our sales force and through a network of manufacturers’ representatives and distributors. In 2009, we implemented a new sales strategy to identify and focus on strategic accounts. This strategy allows us to maintain a close and direct relationship with them, which positions us as the supplier of choice for these customers’ challenging, innovative and demanding new product requirements. In striving for additional market share, we simultaneously strengthen our traditional sales channels of manufacturer representatives and distributors. We plan to continue to build more channels and increase our market share through 2011. 
+Commercial Customers . Our commercial customers include medical, telecom, and industrial companies located throughout the world, with an emphasis on North America and Europe. Our products are deployed in a variety of applications and operate in a broad range of systems where customers require mission critical power reliability. Examples of the commercial markets we serve and products for these markets include: 
+§ 
+Medical (Non-patient Contact) 
+§ 
+Imaging, dispensing equipment 
+§ 
+Ventilators 
+§ 
+Dialysis, endoscopy, surgical equipment 
+§ 
+Ultrasound, MRI 
+§ 
+Oxygen concentration 
+§ 
+Telecom 
+§ 
+Switches 
+§ 
+Routers 
+§ 
+Servers 
+§ 
+Broadband networks and video broadcast systems 
+§ 
+Fiber optic networks 
+§ 
+Wireless systems 
+§ 
+Industrial Process Equipment and Embedded Controls 
+§ 
+Packaging equipment, pumps, CNC machines, laser 
+§ 
+Intelligent / LED lighting 
+§ 
+Industrial printers 
+§ 
+Laboratory and diagnostic equipment 
+§ 
+ATE (Automatic Test Equipment), scientific 
+§ 
+Advanced projectors 
+These product solutions, which include standard, modified-standard or full custom designs, are designed to meet our customers’ requirements. Customers who have implemented our power supply product solutions, or customers for whom we are currently developing products, include: Tyco, Ericsson, Qualcomm, Elma Group, Inc., Cisco, Inogen, Aurora Networks, Agilent, GE Medical, Goss International, Arris, Martin Lightning and Harmonic Inc., among others. 
+3 
+Military/Defense Customers . We have developed a broad range of rugged product solutions for the military and defense market, featuring the ability to withstand harsh environments. These product solutions, which include both specific modifications of existing products or full custom designs, are designed for combat environments and meet the requirements of customers such as BAE Systems, Lockheed Martin, L3 Communications, Raytheon, General Dynamics, Boeing, Perkins and others. We are compliant with the regulations of International Traffic in Arms Regulations (“ITAR”) and are an approved vendor for the U.S. Air Force, Navy and Army. 
+At the core of every military electronic system is a power supply. Mission critical systems require rugged high performance power platforms that will operate and survive the harsh environmental conditions placed upon such systems. Our power supplies, which include the following, function effectively in these severe military environments: 
+§ 
+Missiles – Ground-to-Air, Air-to-Air and Sea-to-Air 
+§ 
+Naval – Shipboard radar, EW and communication 
+§ 
+Mobile and Ground Communications – Active Protection, Communications and Navigation 
+§ 
+Surveillance, test equipment 
+§ 
+UAV (Unmanned Aerial Vehicle) – Very lightweight power systems 
+Space, weight, output power, electromagnetic compatibility, power density and multiple output requirements are only part of the challenges that any military power supply design faces. With many decades of experience, our engineering teams meet these tough challenges. Our power supplies are a critical component of many major weapon systems worldwide. 
+We leverage our strategic alliance and collaboration with Telkoor Telecom Ltd. (“Telkoor”), our largest shareholder, and DPL, our wholly-owned subsidiary, to develop some of the MIL-SPEC products. 
+Full custom military project services: 
+· 
+Program management for each project 
+· 
+Quality assurance and control: 
+o 
+ISO 9001: 2008 and ISO 17025: 2005 certified 
+o 
+Compliance with Mil-Q-9858A 
+o 
+Compliance with environmental testing in accordance with MIL-STD-810 
+o 
+FRACAS (Failure Reporting, Analysis, and Corrective Action System) 
+o 
+100% screening, including ESS (Environmental Stress Screening) and ATP (Acceptance Test Procedure) with random vibration and temperature cycling tests 
+· 
+Product Tests: 
+o 
+Vertical Random Vibration 
+o 
+Sine Sweep Vibrations 
+o 
+Shock 
+o 
+Salt 
+o 
+Fog 
+o 
+Polar Temperatures 
+Typical Product Features: 
+· 
+Wide input voltage range 
+· 
+Multi-output voltages (DC and AC) 
+· 
+Fully approved according to MIL-STD-704, MIL-STD-1275 and MIL-STD-1399 
+· 
+Environmental conditions per MIL-STD-810 
+· 
+EMI/RFI per MIL-STD-461 
+4 
+· 
+Wide operating temperature range of -40°C up to +105°C 
+· 
+Power output up to 72,000 Watts (3 x 24,000 Watts system) 
+· 
+High switching frequency up to 500KHz 
+· 
+High efficiency up to 90% 
+· 
+High power density up to 26 watts/inch 3 
+· 
+Power factor correction 
+· 
+Redundancy and hot swap N+1 
+· 
+Switching Frequency sync to external clock 
+· 
+Free convection, forced air cooling and base plate cooling 
+Strategy 
+Our strategy is to be the supplier of choice to those companies and OEMs requiring high-quality power system solutions where custom design, superior product, high quality, time to market and very competitive prices are critical to business success. We believe that we provide advanced custom product design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental requirements. Our customers benefit from a direct relationship with us that supports all of their needs for designing and manufacturing power solutions and products. By implementing our advanced core technology, including process implementation in integrated circuits, we can provide cost reductions to our customers by replacing their existing power sources with our custom design cost-effective products. 
+Our target market segments include the industrial, telecommunication, medical, and military/defense industries. We do not participate in the personal computer power supply market because of the low margins arising out of the high volume and extremely competitive nature of that market. 
+Our strategy will continue to focus on expanding our market share by adding new customers from all of our target market segments. We are developing long term relationships, and we intend to expand our customer base in our commercial market segments, including medical, telecom and industrial, while continuing to maintain our existing customers. In the military and defense market segment, we will continue to provide advanced rugged products to customers, and we are striving to expand our business to support the military and defense industries. We believe that our custom power supply solutions, flexibility series, high-grade and high-efficiency power product solutions provide customers with a more effective choice as compared to products offered by other power solution competitors, due in part to a customer’s requirement for output voltages and other features such as redundancy and sense control tailored to its exact requirements within specific parameters. 
+Furthermore, we believe that we have the talent and engineering experience to satisfy any of our customers’ product or platform requirements. If an OEM customer specifies a different set of power system parameters, we will custom design or modify a product to meet the OEM’s requirements With a wide range of solutions from our custom designs to our high-grade flexibility series products, our professional design team can provide economical and timely product solutions to our OEM customers. In addition, as our power systems meet all appropriate environmental requirements and safety standards, our smaller OEM customers can expedite the process of independent safety agency testing by companies such as Underwriters Laboratories, and save considerable expense. By offering OEM customers a new choice with Digital Power’s custom, flexibility series, high-grade and high-efficiency power system solutions, we believe we provide certain strategic advantages over our competitors. 
+Digital Power Limited (Gresham Power Electronics) 
+DPL, our wholly-owned subsidiary organized and headquartered in Salisbury, England, designs, manufactures, and distributes switching power supplies, uninterruptible power supplies, and power conversion and distribution equipment frequency converters for the commercial and military markets, under the name Gresham. Frequency converters manufactured by Gresham are used by navel warships to convert their generated 60-cycle electricity supply to 400 cycles. This 400-cycle supply is used to power their critical equipment such as gyro, compass, and weapons systems. Gresham also designs and manufactures transformer rectifiers for naval use. Typically, these provide battery supported back up for critical DC systems, such as machinery and communications. In addition, higher power rectifiers are used for the starting and servicing of helicopters on naval vessels, and Gresham now supplies these as part of overall helicopter start and servicing systems. We believe that Gresham products add diversity to our product line, provide greater access to the United Kingdom and European markets, and strengthen our engineering and technical resources. For the years ended December 31, 2010 and 2009, Gresham contributed approximately 44% and 51%, respectively, to our gross revenues. 
+5 
+Manufacturing and Testing 
+Consistent with our strategy of focusing on custom design products and high-grade flexibility series products, we aim to maintain a high degree of flexibility in our manufacturing through the use of strategically focused contract manufacturers. We select contract manufacturers to ensure that they will meet our near term cost, delivery, and quality goals. In addition, we believe these relationships will eventually give us access to new markets and beneficial cross-licensing opportunities. The competitive nature of the power supply industry has placed continual downward pressure on selling prices. In order to achieve our low cost manufacturing goals with labor-intensive products, we have entered into production agreements with certain contract manufacturers in Asia. At present, our principal contract manufacturers in Asia are Winco-Power Technology, Shenzhen Watt Electronics, Ultra Level Tech Co. Ltd, and Energy Recovery Products. 
+We sell certain products that are developed, manufactured and sold to us by Telkoor, an Israeli company that currently holds 43.25% of our outstanding common stock. In coordination with Telkoor, and in order to accelerate delivery and reduce the cost of some of the products we purchase from Telkoor, we have obtained the right to order products directly from Telkoor’s contract manufacturers, as well as from our own contract manufacturers in China, in exchange for the payment of a commission to Telkoor. 
+We are continually improving our internal processes, while monitoring the processes of our contract manufacturers, to ensure the highest quality and consistent manufacturing of our power solutions. We test all of our custom power assemblies per clearly defined test procedures developed by us and our customers. This approach ensures that our customers can use our systems right out of the box. Customer specific testing services are offered with custom designed test stands to simulate operation within our customer applications. 
+Compliance with international safety agency standards is critical in every application, and power solutions play a major role in meeting these compliance requirements. Our safety engineers and quality assurance teams help ensure that our custom products are designed to meet all safety requirements and are appropriately documented to expedite safety approval processes. 
+Regulatory Requirements 
+We and our manufacturing partners are required to meet applicable regulatory, environmental, emissions, safety and other requirements where specified by the customer and accepted by us or as required by local regulatory or legal requirements. The products that we market and sell in Europe may be subject to the 2003 European Directive on Restriction of Hazardous Substances (“RoHS”), which restricts the use of six hazardous materials in the manufacture of certain electronic and electrical equipment, as well as the 2002 European Directive on Waste Electrical and Electronic Equipment (“WEEE”), which determines collection, recycling and recovery goals for electrical goods. In July 2006, our industry began phasing in RoHS and WEEE requirements in most geographical markets with specific emphasis on consumer-based products. We believe that RoHS and WEEE-compliant components may be subject to longer lead-times and higher prices as the industry transitions to these new requirements. 
+6 
+Some of our products are subject to ITAR, which is administered by the U.S. Department of State. ITAR controls not only the export of certain products specifically designed, modified, configured or adapted for military systems, but also the export of related technical data and defense services and foreign production. We obtain required export licenses for any exports subject to ITAR. Compliance with ITAR may require a prolonged period of time; if the process of obtaining required export licenses for products subject to ITAR is delayed, it could have a materially adverse effect on our business, financial condition, and operating results. Any future restrictions or charges imposed by the United States or any other country on our international sales or sales by the operations of DPL, our foreign subsidiary, could have a materially adverse effect on our business, financial condition, and operating results. In addition, from time to time, we entered into contracts with defense contract manufacturers for the government of Israel’s defense programs, which were funded by, and governed by the regulations of, the U.S. Foreign Military Financing program. 
+Sales and Marketing 
+We market our products directly through our internal sales force as well as through a partner network of independent manufacturer representatives and distributors. Each representative organization is responsible for managing sales in a particular geographic territory. Generally, the representative has the opportunity to earn exclusive access to all potential customers in the assigned territory as a result of achieving its marketing and sales goals as defined in the representative agreement. Our manufacturer representative agreements provide for a commission equal to 5% of net sales, payable after the product is shipped, for any direct sale contribution. Typically, either we or the representative organization may terminate the agreement upon 30 days’ written notice. 
+Historically, we have also sold products through multiple distributor arrangements which do not specify a particular territory. Each of these arrangements can be terminated by either party upon 30 days’ written notice. 
+Our promotional efforts, to date, have included product data sheets, participation in trade shows, and our website, www.digipwr.com. We use the corporate website to emphasize our capabilities and marketing direction. All products specifications are uploaded onto our website and accessible to the marketplace. We will continue to enhance our website by adding more features and functionalities, such as ecommerce, that will allow our customers to buy directly through our website. Our future promotional activities will likely include advertising in industry-specific publications, as well as public relations for our new products. 
+Engineering and Technology 
+Our engineering and product development efforts are primarily directed toward developing new products in connection with custom product design and modification of our standard power systems to provide a broad array of individual models. In the years ended December 31, 2010 and 2009, we expended a total of $561,000 and $556,000, respectively, on engineering and product development. 
+Our new custom product design solutions are driven by our ability to provide to our customers advanced technology that meets their product needs and supports special operation and environmental requirements, with a short turnaround time and a very competitive price point. We believe that we are successfully executing our strategic account focus, as evidenced by the award of second and third generation product development contracts from some of these customers. Our standard contract for custom power solutions includes a multi-year high-volume production forecast that could allow us to secure long-term production guarantees while providing an environment that promotes the development of our IP portfolio. 
+7 
+We also partner with various design and contract engineering firms for development of some of our new products supported by our internal engineering services staff. Furthermore, we continue to leverage the close relationship we have with one of our major shareholders, Telkoor, to introduce new products that Telkoor develops for its market and makes available for us. Finally, from time to time, we modify standard products to meet specific customer requirements, including, but not limited to, converting commercial products into full military MIL-SPEC products and other unique modification and adjustments, when applicable. We are experiencing an increasing demand for ruggedization of commercial products for military applications. To meet that requirement, our engineering team continues to ruggedize commercial products, which we sell as commercial off the shelf products to some of our military customers. We continually seek to improve our product power density, adaptability, and efficiency, while attempting to anticipate changing market demands for increased functionality, such as PFC (power factor correction) and improved EMI (electromagnetic interference) filtering. We continue to differentiate all of our products from commodity-type products by enhancing, modifying and customizing our existing product portfolio, using our Freemont, California engineering lab. In August 2010, we purchased the IP and production packages of the compact peripheral component interface (Compact PCI, or CPCI) 600 Watt AC/DC power supply series from Telkoor Power Systems Ltd. (TPS). The IP was purchased in order to decrease lead time and the costs associated with the production process. We have gained from this purchase a rich portfolio of industry-leading CPCI AC/DC power supplies delivering 600 Watts of continuous power. These hot-swappable power supplies feature N+1 redundant connection and active load current share. This IP strategic acquisition expands our presence in telecom, broadcast, advanced multimedia and military applications that require increasing amounts of power. As a result of this purchase, we have decreased our manufacturing costs. 
+Competition 
+The power system solutions industry is highly fragmented and characterized by intense competition. Our competition includes hundreds of companies located throughout the world, some of which have advantages over us in terms of labor and component costs, and some of which may offer products comparable in quality to ours. Many of our competitors, including Power-One, Emerson (Astec) Technologies, Inc., Lambda Electronics, and Mean-Well Power Supplies, have substantially greater fiscal and marketing resources and geographic presence than we do. If we are successful in increasing our revenues, competitors may notice and increase competition with our customers. We also face competition from current and prospective customers who may decide to design and manufacture internally power supplies needed for their products. Furthermore, certain larger OEMs tend to contract only with larger power supply manufacturers. 
+In April 2008, Telkoor, one of our major shareholders and strategic suppliers, signed a “Private Label” agreement with Murata Power Solutions in Canada to sell Telkoor’s products under the Murata brand name. This agreement positions Murata as a direct competitor of ours with respect to the sale of Telkoor’s products in North America. However, this agreement expires in April 2011. 
+We anticipate that with the current economic downturn, additional competitors may enter into strategic alliances or even acquisitions. Competition could thus become more problematic if consolidation trends in the electronics industry continue and some of the OEMs to whom we sell our products are acquired by larger OEMs. To remain competitive, we must continue to compete favorably on the basis of value by providing reliable manufacturing, offering customer-driven engineering services including custom design and manufacturing, continuously improving quality and reliability levels, and offering flexible and reliable delivery schedules. 
+We believe that our power system solutions and advanced product design have significant advantages in the power supply solutions market because they have higher efficiency and high-power density, or power-to-volume ratio, which make them smaller than the solutions offered by our competitors and can thus fit well in numerous custom environments in compliance with our customers’ requirements. 
+Another advantage of our power system solutions product line is based on the “Flexible” series that employs adjustable power range of product design. We believe we have a competitive position with our targeted customers who need a high-quality, compact product, which can be readily modified to meet the customer’s unique requirements. We have designed the base model power system platform so that it can be quickly and economically modified and adapted to the specific power needs of any hosting platform or OEM. This “flexibility” approach has allowed us to provide samples of modified power systems to OEM customers in only a few days after initial consultation, an important capability given the emphasis placed by OEMs on “time to market.” It also results in very low non-recurring engineering (“NRE”) expenses. Because of reduced NRE expenses, we do not generally charge our OEM customers for NRE related to tailoring a power system to a customer’s specific requirements. We believe this gives us an advantage over our competitors, many of which charge their customers for NRE expenses. 
+8 
+Raw Materials 
+The raw materials for power supplies principally consist of electronic components. These raw materials are available from a variety of sources, and we are not dependent on any one supplier. We generally allow our subcontractors to purchase components based on orders received or forecasts to minimize our risk of unusable inventory. To the extent necessary, we may allow them to procure materials prior to orders received to obtain shorter lead times and to achieve quantity discounts following a risk assessment. In addition, we have decided to directly procure certain long lead-time electronic components in an effort to reduce our lead-time. 
+Because of the global recession, many raw material vendors have reduced capacities, closed production lines and, in some cases, even discontinued their operations. As a result, there is a global shortage of certain electronic components, which has extended our production lead-time and our production costs. For example, in some cases, finished goods that used to be available in 12 weeks for a production purchase order are now available only after 22 weeks. Also, some materials are no longer available to support some of our products, thereby requiring us to search for cross materials or, even worse, redesign some of our products to support currently-available materials. 
+Intellectual Property 
+We rely upon a combination of trade secrets, industry expertise, confidential procedures, and contractual provisions to protect our intellectual property. We believe that because our products are continually updated and revised, obtaining patents would be costly and not beneficial. However, in the future, as we continue to develop unique core technology, we may seek to obtain patents for some of the core technology. On July 8, 2004, our trademark, “DP Digital Power – Powering Your Technologies,” was registered with the United States Patent and Trademark Office. 
+Employees 
+As of December 31, 2010, we had 31 employees located in the United States and the United Kingdom, of whom eight were engaged in engineering and product development, seven in sales and marketing, nine in general operations and seven in general administration and finance. All but five of these employees are employed on a full-time basis. None of our employees are currently represented by a trade union. We consider our relations with our employees to be good.

raw/filings/0000896493/2010/0001144204-11-018077/item13.txt

@@ -0,0 +1,6 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the fiscal years ended December 31, 2010 and 2009, we purchased approximately $3,877,000 and $2,531,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis.

raw/filings/0000896493/2010/0001144204-11-018077/item9a.txt

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+ITEM 9A. 
+CONTROLS AND PROCEDURES. 
+Evaluation of Disclosure Controls and Procedures 
+As of December 31, 2010, we have carried out an evaluation, under the supervision of, and with the participation of, our management, including our Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of our controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) were effective as of the end of the period covered by the report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2010, our internal control over financial reporting was effective. 
+This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to a provision under the Dodd-Frank Wall Street Reform and Consumer Protection Act which grants a permanent exemption for non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002. 
+Evaluation of Changes in Internal Control over Financial Reporting 
+There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

raw/filings/0000896493/2010/0001144204-11-018077/rpt_disclosure.txt

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+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the fiscal years ended December 31, 2010 and 2009, we purchased approximately $3,877,000 and $2,531,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis.

raw/filings/0000896493/2011/0001437749-12-003297/filing_metadata.csv

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raw/filings/0000896493/2011/0001437749-12-003297/item1.txt

@@ -0,0 +1,177 @@
+ITEM 1. 
+DESCRIPTION OF BUSINESS. 
+General 
+Digital Power Corporation is a solution-driven organization that designs, develops, manufactures and sells high-grade customized and flexible power system solutions for the most demanding applications in the medical, military, telecom and industrial markets. We are highly focused on high-grade and custom product designs for both the commercial and military/defense markets, where customers demand high density, high efficiency and ruggedized products to meet the harshest and/or military mission critical operating conditions. We are a California corporation originally formed in 1969, and our common stock trades on the NYSE Amex under the symbol “DPW”. Our corporate headquarters are located in the heart of the Silicon Valley. 
+We also have a wholly-owned subsidiary, Digital Power Limited ("DPL"), which operates under the brand name of “Gresham Power Electronics” (“Gresham”). DPL is located in Salisbury, England, and it designs, manufactures and sells power products and system solutions mainly for the European marketplace, including power conversion, power distribution equipment, DC/AC (Direct Current/Active Current) inverters and UPS (Uninterrupted Power Supply) products. DPL’s defense business has specialists in the field of naval applications of power distribution conversion. 
+We believe that we are one of the first companies in the power solutions industry to introduce a product strategy based on the premise that products developed with an extremely flexible architecture enable rapid modifications to meet unique customer requirements for non-standard output voltages. The development and implementation of this strategy has resulted in broad acceptance in the telecom/industrial, and increasingly in the medical market, segments for our new line of high density and high efficiency power products. These products set an industry standard for providing high-power output in package sizes that are among the smallest available for such commercial products. 
+We market and sell our products to many diverse market segments, including the telecom, industrial, medical and military/defense industries. Our products serve a global market, with an emphasis on North America and Europe. We offer a broad product variety, including a full custom product design, standard and modified-standard products. Our unique high-speed switching power rectifiers includes but not limited to custom power products, front-end, open-frame, enclosed, Compact PCI, MicroTCA, , PoE (Power over Ethernet) and other product solutions, providing power output from 50 to 24,000 watts. 
+In an effort to provide short lead-times, high quality products and competitive pricing to support our markets, we have entered into production agreements with several contract manufacturers located in Asia, primarily China. These agreements allow us to better control production costs and ensure high quality products deliverable in a timely manner to meet market demand. 
+We intend to remain an innovative leader in the development of cutting-edge custom power solutions and rich features products to meet any customer needs and requirements, rugged power systems to meet harsh and extreme operation environmental requirements, and high performance, high efficiency, high-density and modular power systems. We are focusing today on developing even more high-grade custom power system solutions for numerous customers in a broadly diversified range of markets and challenging environments. Each product development is based on best of class performance criteria, including unique, advanced feature sets and a special layout to meet our customers’ unique operating conditions where efficiency, size and time to market are key to their success. We are taking initiatives to develop and sell high efficiency “green power” solutions. 
+Power System Solutions 
+We provide custom power system solutions, high-grade flexibility series power supply products, off-the-shelf products and value-added services to our diverse industries and markets including military/defense, telecom, medical and industrial. We believe that our solutions leverage a combination of low leakage power emissions, high power density, superior power efficiency, design flexibility and short time to market. 
+Custom Power System Solution . We provide high-grade custom power system solutions to numerous customers in multiple industry segments. Each custom solution that we develop is based on high power density, digital power processing and a special layout to meet each of our customer’s unique operation environments where efficiency, size and performance are key. We combine our power design capabilities with the latest circuit designs to provide complete power solutions for virtually any need. In the design of custom power solutions, we work closely with our customers’ engineering teams to develop mechanical enclosures to ensure 100% compatibility with any hosted platform. 
+Our standard contract for custom power solutions includes a multi-year high-volume production forecast that allows us to secure long-term production guarantees (and therefore possible savings on manufacturing costs for volume orders) while providing an environment that promotes the development of our intellectual property (“IP”) portfolio. We believe that this business model provides an incentive to our customers to be committed to high-volume production orders. 
+High-Grade Flexibility Series Power Supply Product . We offer our rich features based power rectifiers that support flexible configuration and high-grade design implementation. This include innovative designs and implementation including Digital Signal Processing (“DSP”) control for Power Factor Correction (“PFC”) and DC/DC, synchronous rectifier outputs under DSP control, two phase PFC, hot pluggable, current sharing and other features. While some of our customers have special requirements that include a full custom design, other customers may require only certain electrical changes to standard power supply products, such as modified output voltages and unique status and control signals, and mechanical repackaging tailored to fit the specific application. We offer a wide range of standard and modified standard products that can be easily integrated with any platform across our diversified market segments. 
+Value-Added Services . In addition to our custom solutions and high-grade flexibility series proprietary products that we offer, we also provide value-added services to OEMs. We incorporate an OEM’s selected electronic components, enclosures, cable assemblies and other compliance components into our power system solutions to produce a power subassembly that is compatible with the OEM’s own equipment and specifically tailored to meet the OEM’s needs. We purchase parts and components that the OEM itself would otherwise attach to, or integrate with, our power systems, and provide the OEM with the integration and installation service, thus eliminating a complex, time-consuming and costly integration. We believe that this value-added service is well suited to those OEMs who wish to reduce their vendor base and minimize their investment in manufacturing that leads to increased fixed costs. Based on these value-added services, the OEMs do not need to build assembly facilities to manufacture their own power subassemblies and thus are not required to purchase individual parts from many vendors. 
+2 
+Our products have a warranty period from date of shipment to the customer. 
+Markets 
+We sell our custom power system solutions, high-grade flexibility series power supply products and value-added services to customers in a diverse range of commercial and defense industries and markets throughout the world, with an emphasis on North America and Europe. Our current customer base consists of approximately 200 companies, some of which are served through our partner channels. We serve the North American power electronics market primarily through our domestic corporation, Digital Power Corporation; the European marketplace is served through DPL, our wholly-owned subsidiary. 
+Our products are sold directly by our sales force and through a network of manufacturers’ representatives and distributors. Our sales strategy is to identify and focus on strategic accounts. This strategy allows us to maintain a close and direct relationship with them, which positions us as the supplier of choice for these customers’ challenging, innovative and demanding new product requirements. In striving for additional market share, we simultaneously strengthen our traditional sales channels of manufacturer representatives and distributors. We plan to continue to build more channels and increase our market share through 2012. 
+Commercial Customers . We serve global commercial markets including medical, telecom, and industrial companies. Our products are deployed in a variety of applications and operate in a broad range of systems where customers require mission critical power reliability and occasionally extreme environmental conditions. Examples of the commercial markets we serve and products for these markets include: 
+§ 
+Medical (Non-patient Contact) 
+§ 
+Imaging, dispensing equipment 
+§ 
+Ventilators 
+§ 
+Dialysis, endoscopy, surgical equipment 
+§ 
+Ultrasound, MRI 
+§ 
+Oxygen concentration 
+§ 
+Telecom 
+§ 
+Switches 
+§ 
+Routers 
+§ 
+Servers 
+§ 
+Broadband networks and video broadcast systems 
+§ 
+Fiber optic networks 
+§ 
+Wireless systems 
+§ 
+Industrial Process Equipment and Embedded Controls 
+§ 
+Packaging equipment, pumps, CNC machines, laser 
+§ 
+Intelligent / LED lighting 
+§ 
+Industrial printers 
+§ 
+Laboratory and diagnostic equipment 
+§ 
+ATE (Automatic Test Equipment), scientific 
+§ 
+Advanced projectors 
+These product solutions, which include standard, modified-standard or full custom designs, are designed to meet our customers’ requirements. 
+Military/Defense Customers . We have developed a broad range of rugged product solutions for the military and defense market, featuring the ability to withstand harsh environments. These ruggedized product solutions, which include both specific modifications of existing products or full custom designs, are designed for combat environments and meet the requirements of our defense customers. We are compliant with the regulations of International Traffic in Arms Regulations (“ITAR”) and are an approved vendor for the U.S. Air Force, Navy and Army. 
+3 
+At the core of every military electronic system is a power supply. Mission critical systems require rugged high performance power platforms that will operate and survive the harsh environmental conditions placed upon such systems. Our power supplies, which include the following, function effectively in these severe military environments: 
+§ 
+Missiles – Ground-to-Air, Air-to-Air and Sea-to-Air 
+§ 
+Naval – Shipboard radar, EW and communication 
+§ 
+Mobile and Ground Communications – Active Protection, Communications and Navigation 
+§ 
+Surveillance, test equipment 
+§ 
+UAV (Unmanned Aerial Vehicle) – Very lightweight power systems 
+Space, weight, output power, electromagnetic compatibility, power density and multiple output requirements are only part of the challenges that any military power supply design faces. With many decades of experience, our engineering teams meet these tough challenges. Our power supplies are a critical component of many major weapon systems worldwide. 
+We leverage our strategic alliance and collaboration with Telkoor Telecom Ltd. (“Telkoor”), our largest shareholder, and Digital Power Limited (“DPL”), our wholly-owned subsidiary, to develop some of the MIL-SPEC products. 
+Full custom military project services: 
+· 
+Program management for each project 
+· 
+Quality assurance and control: 
+o 
+ISO 9001: 2008 and ISO 17025: 2005 certified 
+o 
+Compliance with AS9100 
+o 
+Compliance with MIL-Q 9858A 
+o 
+Compliance with environmental testing in accordance with MIL-STD 810, MIL-STD 202 
+o 
+FRACAS (Failure Reporting, Analysis, and Corrective Action System) 
+o 
+100% screening, including ESS (Environmental Stress Screening) and ATP (Acceptance Test Procedure) with random vibration and temperature cycling tests 
+· 
+Product Tests: 
+o 
+Vertical Random Vibration 
+o 
+Sine Sweep Vibrations 
+o 
+Shock 
+o 
+Salt 
+o 
+Fog 
+o 
+Polar Temperatures 
+Typical Product Features: 
+· 
+Wide input voltage range 
+· 
+Multi-output voltages (DC and AC) 
+· 
+Fully approved according to MIL-STD 704, MIL-STD 1275 and MIL-STD 1399 
+· 
+Environmental conditions per MIL-STD 810 
+· 
+EMI/RFI per MIL-STD 461 
+· 
+Wide operating temperature range of -40°C up to +90°C 
+· 
+Power output up to 72,000 Watts (3 x 24,000 Watts system) 
+· 
+High switching frequency up to 500KHz 
+· 
+High efficiency, over 90% 
+· 
+High power density up to 26 watts/inch 3 
+· 
+Power factor correction 
+· 
+Redundancy and hot swap N+1 
+· 
+Switching Frequency sync to external clock 
+· 
+Free convection, forced air cooling and base plate cooling 
+4 
+Strategy 
+Our strategy is to be the supplier of choice to those companies and OEMs requiring high-quality power system solutions where custom design, superior product, high quality, time to market and very competitive prices are critical to business success. We believe that we provide advanced custom product design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental requirements. Our customers benefit from a direct relationship with us that support all of their needs for designing and manufacturing power solutions and products. By implementing our advanced core technology, including process implementation in integrated circuits, we can provide cost reductions to our customers by replacing their existing power sources with our custom design cost-effective products. 
+Our target market segments include the industrial, telecommunication, medical, and military/defense industries. We do not participate in the personal computer power supply market because of the low margins arising out of the high volume and extremely competitive nature of that market. 
+Our strategy will continue to focus on expanding our market share by adding new customers from all of our target market segments. We are developing long term relationships, and we intend to expand our customer base in our commercial market segments, including medical, telecom and industrial, while continuing to maintain our existing customers. In the military and defense market segment, we will continue to provide advanced rugged products to customers, and we are striving to expand our business to support the military and defense industries. We believe that our custom power supply solutions, flexibility series, high-grade and high-efficiency power product solutions provide customers with a more effective choice as compared to products offered by other power solution competitors, due in part to a customer’s requirement for output voltages and other features such as redundancy and sense control tailored to its exact requirements within specific parameters. 
+Furthermore, we believe that we have the talent and engineering experience to satisfy any of our customers’ product or platform requirements. If an OEM customer specifies a different set of power system parameters, we will custom design or modify a product to meet the OEM’s requirements With a wide range of solutions from our custom designs to our high-grade flexibility series products, our professional design team can provide economical and timely product solutions to our OEM customers. In addition, as our power systems meet all appropriate environmental requirements and safety standards, our smaller OEM customers can expedite the process of independent safety agency testing by companies such as Underwriters Laboratories, and save considerable expense. By offering OEM customers a new choice with Digital Power’s custom, flexibility series, high-grade and high-efficiency power system solutions, we believe we provide certain strategic advantages over our competitors. 
+Digital Power Limited (Gresham Power Electronics) 
+Digital Power Limited, our wholly-owned subsidiary organized and headquartered in Salisbury, United Kingdom , designs, manufactures, and distributes switching power supplies, uninterruptible power supplies, and power conversion and distribution equipment frequency converters for the commercial and military markets, under the name Gresham Power Electronics (“Gresham”). Frequency converters manufactured by Gresham are used by navel warships to convert their generated 60-cycle electricity supply to 400 cycles. This 400-cycle supply is used to power their critical equipment such as gyro, compass, and weapons systems. Gresham also designs and manufactures transformer rectifiers for naval use. Typically, these provide battery supported back up for critical DC systems, such as machinery and communications. In addition, higher power rectifiers are used for the starting and servicing of helicopters on naval vessels, and Gresham now supplies these as part of overall helicopter start and servicing systems. We believe that Gresham products add diversity to our product line, provide greater access to the United Kingdom and European markets, and strengthen our engineering and technical resources. 
+Manufacturing and Testing 
+Consistent with our strategy of focusing on custom design products and high-grade flexibility series products, we aim to maintain a high degree of flexibility in our manufacturing through the use of strategically focused contract manufacturers. We select contract manufacturers to ensure that they will meet our near term cost, delivery, and quality goals. In addition, we believe these relationships will eventually give us access to new markets and beneficial cross-licensing opportunities. The competitive nature of the power supply industry has placed continual downward pressure on selling prices. In order to achieve our low cost manufacturing goals with labor-intensive products, we have entered into production agreements with certain contract manufacturers in Asia. At present, our principal contract manufacturers in Asia are Winco-Power Technology, Shenzhen Watt Electronics, Ultra Level Tech Co. Ltd, Teamwise and Energy Recovery Products. 
+5 
+We sell certain products that are developed, manufactured and sold to us by Telkoor, an Israeli company that currently holds 40.4% of our outstanding common stock. In coordination with Telkoor, and in order to accelerate delivery and reduce the cost of some of the products we purchase from Telkoor, we have obtained the right to order products directly from Telkoor’s contract manufacturers, as well as from our own contract manufacturers in China, in exchange for the payment of royalties to Telkoor. 
+We are continually improving our internal processes, while monitoring the processes of our contract manufacturers, to ensure the highest quality and consistent manufacturing of our power solutions. We test all of our custom power assemblies per clearly defined test procedures developed by us and our customers. This approach ensures that our customers can use our systems right out of the box. Customer specific testing services are offered with custom designed test stands to simulate operation within our customer applications. 
+Compliance with international safety agency standards is critical in every application, and power solutions play a major role in meeting these compliance requirements. Our safety engineers and quality assurance teams help ensure that our custom products are designed to meet all safety requirements and are appropriately documented to expedite safety approval processes. 
+Regulatory Requirements 
+We and our manufacturing partners are required to meet applicable regulatory, environmental, emissions, safety and other requirements where specified by the customer and accepted by us or as required by local regulatory or legal requirements. The products that we market and sell in Europe may be subject to the 2003 European Directive on Restriction of Hazardous Substances (“RoHS”), which restricts the use of six hazardous materials in the manufacture of certain electronic and electrical equipment, as well as the 2002 European Directive on Waste Electrical and Electronic Equipment (“WEEE”), which determines collection, recycling and recovery goals for electrical goods. In July 2006, our industry began phasing in RoHS and WEEE requirements in most geographical markets with specific emphasis on consumer-based products. We believe that RoHS and WEEE-compliant components may be subject to longer lead-times and higher prices as the industry transitions to these new requirements. 
+Some of our products are subject to ITAR, which is administered by the U.S. Department of State. ITAR controls not only the export of certain products specifically designed, modified, configured or adapted for military systems, but also the export of related technical data and defense services and foreign production. We obtain required export licenses for any exports subject to ITAR. Compliance with ITAR may require a prolonged period of time; if the process of obtaining required export licenses for products subject to ITAR is delayed, it could have a materially adverse effect on our business, financial condition, and operating results. Any future restrictions or charges imposed by the United States or any other country on our international sales or sales by the operations of DPL, our foreign subsidiary, could have a materially adverse effect on our business, financial condition, and operating results. In addition, from time to time, we entered into contracts with defense contract manufacturers for the government of Israel’s defense programs, which were funded by, and governed by the regulations of, the U.S. Foreign Military Financing program. 
+Sales and Marketing 
+We market our products directly through our internal sales force as well as through a partner network of independent manufacturer representatives and distributors. Each representative organization is responsible for managing sales in a particular geographic territory. Generally, the representative has the opportunity to earn exclusive access to all potential customers in the assigned territory as a result of achieving its marketing and sales goals as defined in the representative agreement. Our manufacturer representative agreements provide for a commission equal to 5% of net sales of new “design-in” and 1.75% of net sales for retention, payable after the product is shipped, for any direct sale contribution. Typically, either we or the representative organization may terminate the agreement upon 30 days’ written notice. 
+6 
+Historically, we have also sold products through multiple distributor arrangements which do not specify a particular territory. Each of these arrangements can be terminated by either party upon 30 days’ written notice. 
+Our promotional efforts, to date, have included product data sheets, participation in trade shows, and our website, www.digipwr.com. We use the corporate website to emphasize our capabilities and marketing direction. All products specifications are uploaded onto our website and accessible to the marketplace. We will continue to enhance our website by adding more features and functionalities, such as ecommerce, that will allow our customers to buy directly through our website. Our future promotional activities will likely include advertising in industry-specific publications, as well as public relations for our new products. 
+Engineering and Technology 
+Our engineering and product development efforts are primarily directed toward developing new products in connection with custom product design and modification of our standard power systems to provide a broad array of individual models. 
+Our new custom product design solutions are driven by our ability to provide to our customers advanced technology that meets their product needs and supports special operation and environmental requirements, with a short turnaround time and a very competitive price point. We believe that we are successfully executing our strategic account focus, as evidenced by the award of second and third generation product development contracts from some of these customers. Our standard contract for custom power solutions includes a multi-year high-volume production forecast that could allow us to secure long-term production guarantees while providing an environment that promotes the development of our IP portfolio. 
+We also partner with various design and contract engineering firms for development of some of our new products supported by our internal engineering services staff. Furthermore, we continue to leverage the close relationship we have with one of our major shareholders, Telkoor, to introduce new products that Telkoor develops for its market and makes available for us. Finally, from time to time, we modify standard products to meet specific customer requirements, including, but not limited to, converting commercial products into full military MIL-SPEC products and other unique modification and adjustments, when applicable. We are experiencing an increasing demand for ruggedization of commercial products for military applications. To meet that requirement, our engineering team continues to ruggedize commercial products, which we sell as commercial off the shelf products to some of our military customers. We continually seek to improve our product power density, adaptability, and efficiency, while attempting to anticipate changing market demands for increased functionality, such as PFC and improved EMI (electromagnetic interference) filtering. We continue to differentiate all of our products from commodity-type products by enhancing, modifying and customizing our existing product portfolio, using our engineering lab in California. In August 2010, we purchased the IP and production packages of the compact peripheral component interface (Compact PCI, or CPCI) AC/DC and DC/DC power supply series from Telkoor Power Systems Ltd. (“TPS”). The IP purchase was to support our strategy being a leader supplier of CPCI products for commercial and defense markets. We received from this purchase a rich portfolio of industry-leading CPCI AC/DC power supplies delivering 600 Watts and 650 Watt of continuous power. These hot-swappable power supplies feature N+1 redundant connection and active load current share. This IP strategic acquisition expands our presence for industrial, telecom, and military/defense applications that require increasing amounts of power. As a result of this purchase, we have decreased our manufacturing costs. 
+7 
+Competition 
+The power system solutions industry is highly fragmented and characterized by intense competition. Our competition includes hundreds of companies located throughout the world, some of which have advantages over us in terms of labor and component costs, and some of which may offer products comparable in quality to ours. Many of our competitors, including Power-One, Emerson (Astec) Technologies, Inc., Lambda Electronics, and Mean-Well Power Supplies, have substantially greater fiscal and marketing resources and geographic presence than we do. If we are successful in increasing our revenues, competitors may notice and increase competition with our customers. We also face competition from current and prospective customers who may decide to design and manufacture internally power supplies needed for their products. Furthermore, certain larger OEMs tend to contract only with larger power supply manufacturers. 
+We anticipate that with the current economic downturn, additional competitors may enter into strategic alliances or even acquisitions. Competition could thus become more problematic if consolidation trends in the electronics industry continue and some of the OEMs to whom we sell our products are acquired by larger OEMs. To remain competitive, we must continue to compete favorably on the basis of value by providing reliable manufacturing, offering customer-driven engineering services including custom design and manufacturing, continuously improving quality and reliability levels, and offering flexible and reliable delivery schedules. 
+We believe that our power system solutions and advanced product design have significant advantages in the power supply solutions market because they have higher efficiency and high-power density, or power-to-volume ratio, which make them smaller than the solutions offered by our competitors and can thus fit well in numerous custom environments in compliance with our customers’ requirements. 
+Another advantage of our power system solutions product line is based on the “Flexible” series that employs adjustable power range of product design. We believe we have a competitive position with our targeted customers who need a high-quality, compact product, which can be readily modified to meet the customer’s unique requirements. We have designed the base model power system platform so that it can be quickly and economically modified and adapted to the specific power needs of any hosting platform or OEM. This “flexibility” approach has allowed us to provide samples of modified power systems to OEM customers in only a few days after initial consultation, an important capability given the emphasis placed by OEMs on “time to market.” It also results in very low non-recurring engineering (“NRE”) expenses. Because of reduced NRE expenses, we do not generally charge our OEM customers for NRE related to tailoring a power system to a customer’s specific requirements. We believe this gives us an advantage over our competitors, many of which charge their customers for NRE expenses. 
+Raw Materials 
+The raw materials for power supplies principally consist of electronic components. These raw materials are available from a variety of sources, and we are not dependent on any one supplier. We generally allow our subcontractors to purchase components based on orders received or forecasts to minimize our risk of unusable inventory. To the extent necessary, we may allow them to procure materials prior to orders received to obtain shorter lead times and to achieve quantity discounts following a risk assessment. In addition, we have decided to directly procure certain long lead-time electronic components in an effort to reduce our lead-time. 
+Because of the global recession, many raw material vendors have reduced capacities, closed production lines and, in some cases, even discontinued their operations. As a result, there is a global shortage of certain electronic components, which has extended our production lead-time and our production costs. For example, in some cases, finished goods that used to be available in 12 weeks for a production purchase order are now available only after 22 weeks. Also, some materials are no longer available to support some of our products, thereby requiring us to search for cross materials or, even worse, redesign some of our products to support currently-available materials. 
+Intellectual Property 
+We rely upon a combination of trade secrets, industry expertise, confidential procedures, and contractual provisions to protect our intellectual property. We believe that because our products are continually updated and revised, obtaining patents would be costly and not beneficial. However, in the future, as we continue to develop unique core technology, we may seek to obtain patents for some of the core technology. On July 8, 2004, our trademark, “DP Digital Power – Powering Your Technologies,” was registered with the United States Patent and Trademark Office. 
+8 
+Employees 
+As of December 31, 2011, we had 30 employees located in the United States and the United Kingdom, of whom seven were engaged in engineering and product development, eight in sales and marketing, eight in general operations and seven in general administration and finance. All but five of these employees are employed on a full-time basis. None of our employees are currently represented by a trade union. We consider our relations with our employees to be good.

raw/filings/0000896493/2011/0001437749-12-003297/item13.txt

@@ -0,0 +1,9 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the fiscal years ended December 31, 2011 and 2010, we purchased approximately $2,595,866 and $3,877,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis. 
+Acquisition of Shares of Telkoor 
+On June 16, 2011 the Company has acquired 1,136,666 shares of Telkoor, a major shareholder of the Company and an Israeli company listed in the Tel Aviv stock exchange, for $0.88 (NIS 3) per share, which represents 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between Digital Power and Telkoor will be updated and extended. The investment is accounted for as available-for-sale security 
+32

raw/filings/0000896493/2011/0001437749-12-003297/item9a.txt

@@ -0,0 +1,14 @@
+ITEM 9A. 
+CONTROLS AND PROCEDURES. 
+Evaluation of Disclosure Controls and Procedures 
+As of December 31, 2011, we have carried out an evaluation, under the supervision of, and with the participation of, our management, including our Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of our controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) were effective as of the end of the period covered by the report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2011, our internal control over financial reporting was effective. 
+This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to a provision under the Dodd-Frank Wall Street Reform and Consumer Protection Act which grants a permanent exemption for non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002. 
+21 
+Evaluation of Changes in Internal Control over Financial Reporting 
+There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
+22 
+PART III

raw/filings/0000896493/2011/0001437749-12-003297/rpt_disclosure.txt

@@ -0,0 +1,9 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the fiscal years ended December 31, 2011 and 2010, we purchased approximately $2,595,866 and $3,877,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis. 
+Acquisition of Shares of Telkoor 
+On June 16, 2011 the Company has acquired 1,136,666 shares of Telkoor, a major shareholder of the Company and an Israeli company listed in the Tel Aviv stock exchange, for $0.88 (NIS 3) per share, which represents 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between Digital Power and Telkoor will be updated and extended. The investment is accounted for as available-for-sale security 
+32

raw/filings/0000896493/2012/0001437749-13-003708/filing_metadata.csv

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raw/filings/0000896493/2012/0001437749-13-003708/item1.txt

@@ -0,0 +1,177 @@
+ITEM 1. 
+DESCRIPTION OF BUSINESS. 
+General 
+Digital Power Corporation is a solution-driven organization that designs, develops, manufactures and sells high-grade customized and flexible power system solutions for the most demanding applications in the medical, military, telecom and industrial markets. We are highly focused on high-grade and custom product designs for both the commercial and military/defense markets, where customers demand high density, high efficiency and ruggedized products to meet the harshest and/or military mission critical operating conditions. We are a California corporation originally formed in 1969, and our common stock trades on the NYSE MKT under the symbol “DPW”. Our corporate headquarters are located in the heart of the Silicon Valley. 
+We also have a wholly-owned subsidiary, Digital Power Limited ("DPL"), which operates under the brand name of “Gresham Power Electronics” (“Gresham”). DPL is located in Salisbury, England, and designs, manufactures and sells power products and system solutions mainly for the European marketplace, including power conversion, power distribution equipment, DC/AC (Direct Current/Active Current) inverters and UPS (Uninterrupted Power Supply) products. DPL’s defense business has specialists in the field of naval applications of power distribution conversion. 
+We believe that we are one of the first companies in the power solutions industry to introduce a product strategy based on the premise that products developed with an extremely flexible architecture enable rapid modifications to meet unique customer requirements for non-standard output voltages. The development and implementation of this strategy has resulted in broad acceptance in the telecom/industrial, and increasingly in the medical market, segments for our new line of high density and high efficiency power products. These products set an industry standard for providing high-power output in package sizes that are among the smallest available for such commercial products. 
+We market and sell our products to many diverse market segments, including the telecom, industrial, medical and military/defense industries. Our products serve a global market, with an emphasis on North America and Europe. We offer a broad product variety, including a full custom product design, standard and modified-standard products. Our unique high-speed switching power rectifiers includes but is not limited to custom power products, front-end, open-frame, enclosed, Compact PCI, MicroTCA, PoE (Power over Ethernet) and other product solutions, providing power output from 50 to 24,000 watts. 
+In an effort to provide short lead-times, high quality products and competitive pricing to support our markets, we have entered into production agreements with several contract manufacturers located in Asia, primarily China. These agreements allow us to better control production costs and ensure high quality products deliverable in a timely manner to meet market demand. 
+We intend to remain an innovative leader in the development of cutting-edge custom power solutions and feature rich products to meet any customer needs and requirements, rugged power systems to meet harsh and extreme operation environmental requirements, and high performance, high efficiency, high-density and modular power systems. We are focusing today on developing even more high-grade custom power system solutions for numerous customers in a broadly diversified range of markets and challenging environments. Each product development is based on best of class performance criteria, including unique, advanced feature sets and a special layout to meet our customers’ unique operating conditions where efficiency, size and time to market are key to their success. We are taking initiatives to develop and sell high efficiency “green power” solutions. 
+Power System Solutions 
+We provide custom power system solutions, high-grade flexibility series power supply products, off-the-shelf products and value-added services to diverse industries and markets including military/defense, telecom, medical and industrial. We believe that our solutions leverage a combination of low leakage power emissions, high power density, superior power efficiency, design flexibility and short time to market. 
+Custom Power System Solution. We provide high-grade custom power system solutions to numerous customers in multiple industry segments. Each custom solution that we develop is based on high power density, digital power processing and a special layout to meet each of our customer’s unique operation environments where efficiency, size and performance are key. We combine our power design capabilities with the latest circuit designs to provide complete power solutions for virtually any need. In the design of custom power solutions, we work closely with our customers’ engineering teams to develop mechanical enclosures to ensure 100% compatibility with any hosted platform. 
+Our standard contract for custom power solutions includes a multi-year high-volume production forecast that allows us to secure long-term production guarantees (and therefore possible savings on manufacturing costs for volume orders) while providing an environment that promotes the development of our intellectual property (“IP”) portfolio. We believe that this business model provides an incentive to our customers to be committed to high-volume production orders. 
+High-Grade Flexibility Series Power Supply Product . We offer our feature rich based power rectifiers that support flexible configuration and high-grade design implementation. This include innovative designs and implementation including Digital Signal Processing (“DSP”) control for Power Factor Correction (“PFC”) and DC/DC, synchronous rectifier outputs under DSP control, two phase PFC, hot pluggable, current sharing and other features. While some of our customers have special requirements that include a full custom design, other customers may require only certain electrical changes to standard power supply products, such as modified output voltages and unique status and control signals, and mechanical repackaging tailored to fit the specific application. We offer a wide range of standard and modified standard products that can be easily integrated with any platform across our diversified market segments. 
+Value-Added Services . In addition to our custom solutions and high-grade flexibility series proprietary products that we offer, we also provide value-added services to original equipment manufacturers (“OEMs”). We incorporate an OEM’s selected electronic components, enclosures, cable assemblies and other compliance components into our power system solutions to produce a power subassembly that is compatible with the OEM’s own equipment and specifically tailored to meet the OEM’s needs. We purchase parts and components that the OEM itself would otherwise attach to, or integrate with, our power systems, and provide the OEM with the integration and installation service, thus eliminating a complex, time-consuming and costly integration. We believe that this value-added service is well suited to those OEMs who wish to reduce their vendor base and minimize their investment in manufacturing that leads to increased fixed costs. Based on these value-added services, the OEMs do not need to build assembly facilities to manufacture their own power subassemblies and thus are not required to purchase individual parts from many vendors. 
+2 
+Our products have a warranty period from date of shipment to the customer. 
+Markets 
+We sell our custom power system solutions, high-grade flexibility series power supply products and value-added services to customers in a diverse range of commercial and defense industries and markets throughout the world, with an emphasis on North America and Europe. Our current customer base consists of approximately 200 companies, some of which are served through our partner channels. We serve the North American power electronics market primarily through our domestic corporation, Digital Power Corporation; the European marketplace is served through DPL, our wholly-owned subsidiary. 
+Our products are sold directly by our sales force and through a network of manufacturers’ representatives and distributors. Our sales strategy is to identify and focus on strategic accounts. This strategy allows us to maintain a close and direct relationship with them, which positions us as the supplier of choice for these customers’ challenging, innovative and demanding new product requirements. In striving for additional market share, we simultaneously seek to strengthen our traditional sales channels of manufacturer representatives and distributors. We plan to continue to build more channels and increase our market share through 2013. 
+Commercial Customers . We serve global commercial markets including medical, telecom, and industrial companies. Our products are deployed in a variety of applications and operate in a broad range of systems where customers require mission critical power reliability and occasionally extreme environmental conditions. Examples of the commercial markets we serve and products for these markets include: 
+§ 
+Medical (Non-patient Contact) 
+§ 
+Imaging, dispensing equipment 
+§ 
+Ventilators 
+§ 
+Dialysis, endoscopy, surgical equipment 
+§ 
+Ultrasound, MRI 
+§ 
+Oxygen concentration 
+§ 
+Telecom 
+§ 
+Switches 
+§ 
+Routers 
+§ 
+Servers 
+§ 
+Broadband networks and video broadcast systems 
+§ 
+Fiber optic networks 
+§ 
+Wireless systems 
+§ 
+Industrial Process Equipment and Embedded Controls 
+§ 
+Packaging equipment, pumps, CNC machines, laser 
+§ 
+Intelligent / LED lighting 
+§ 
+Industrial printers 
+§ 
+Laboratory and diagnostic equipment 
+§ 
+ATE (Automatic Test Equipment), scientific 
+§ 
+Advanced projectors 
+These product solutions, which include standard, modified-standard or full custom designs, are designed to meet our customers’ requirements. 
+Military/Defense Customers . We have developed a broad range of rugged product solutions for the military and defense market, featuring the ability to withstand harsh environments. These ruggedized product solutions, which include both specific modifications of existing products or full custom designs, are designed for combat environments and meet the requirements of our defense customers. We are compliant with the regulations of International Traffic in Arms Regulations (“ITAR”) and are an approved vendor for the U.S. Air Force, Navy and Army. 
+3 
+At the core of every military electronic system is a power supply. Mission critical systems require rugged high performance power platforms that will operate and survive the harsh environmental conditions placed upon such systems. Our power supplies, which include the following, function effectively in these severe military environments: 
+§ 
+Missiles – Ground-to-Air, Air-to-Air and Sea-to-Air 
+§ 
+Naval – Shipboard radar, EW and communication 
+§ 
+Mobile and Ground Communications – Active Protection, Communications and Navigation 
+§ 
+Surveillance, test equipment 
+§ 
+UAV (Unmanned Aerial Vehicle) – Very lightweight power systems 
+Space, weight, output power, electromagnetic compatibility, power density and multiple output requirements are only part of the challenges that any military power supply design faces. With many decades of experience, our engineering teams meet these tough challenges. Our power supplies are a critical component of many major weapon systems worldwide. 
+We leverage our strategic alliance and collaboration with Telkoor Telecom Ltd. (“Telkoor”), our largest shareholder, and DPL, our wholly-owned subsidiary, to develop some of the MIL-SPEC products. 
+Full custom military project services: 
+· 
+Program management for each project 
+· 
+Quality assurance and control: 
+o 
+ISO 9001: 2008 and ISO 17025: 2005 certified 
+o 
+Compliance with AS9100 
+o 
+Compliance with MIL-Q 9858A 
+o 
+Compliance with environmental testing in accordance with MIL-STD 810, MIL-STD 202 
+o 
+FRACAS (Failure Reporting, Analysis, and Corrective Action System) 
+o 
+100% screening, including ESS (Environmental Stress Screening) and ATP (Acceptance Test Procedure) with random vibration and temperature cycling tests 
+· 
+Product Tests: 
+o 
+Vertical Random Vibration 
+o 
+Sine Sweep Vibrations 
+o 
+Shock 
+o 
+Salt 
+o 
+Fog 
+o 
+Polar Temperatures 
+Typical Product Features: 
+· 
+Wide input voltage range 
+· 
+Multi-output voltages (DC and AC) 
+· 
+Fully approved according to MIL-STD 704, MIL-STD 1275 and MIL-STD 1399 
+· 
+Environmental conditions per MIL-STD 810 
+· 
+EMI/RFI per MIL-STD 461 
+· 
+Wide operating temperature range of -40°C up to +90°C 
+· 
+Power output up to 72,000 Watts (3 x 24,000 Watts system) 
+· 
+High switching frequency up to 500KHz 
+· 
+High efficiency, over 90% 
+· 
+High power density up to 26 watts/inch 3 
+· 
+Power factor correction 
+· 
+Redundancy and hot swap N+1 
+· 
+Switching Frequency sync to external clock 
+· 
+Free convection, forced air cooling and base plate cooling 
+4 
+Strategy 
+Our strategy is to be the supplier of choice to those companies and OEMs requiring high-quality power system solutions where custom design, superior product, high quality, time to market and very competitive prices are critical to business success. We believe that we provide advanced custom product design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental requirements. Our customers benefit from a direct relationship with us that support all of their needs for designing and manufacturing power solutions and products. By implementing our advanced core technology, including process implementation in integrated circuits, we can provide cost reductions to our customers by replacing their existing power sources with our custom design cost-effective products. 
+Our target market segments include the industrial, telecommunication, medical, and military/defense industries. We do not participate in the personal computer power supply market because of the low margins arising out of the high volume and extremely competitive nature of that market. 
+Our strategy will continue to focus on expanding our market share by adding new customers from all of our target market segments. We are developing long term relationships, and we intend to expand our customer base in our commercial market segments, including medical, telecom and industrial, while continuing to maintain our existing customers. In the military and defense market segment, we will continue to provide advanced rugged products to customers, and we are striving to expand our business to support the military and defense industries. We believe that our custom power supply solutions, flexibility series, high-grade and high-efficiency power product solutions provide customers with a more effective choice as compared to products offered by other power solution competitors, due in part to a customer’s requirement for output voltages and other features such as redundancy and sense control tailored to its exact requirements within specific parameters. 
+Furthermore, we believe that we have the talent and engineering experience to satisfy any of our customers’ product or platform requirements. If an OEM customer specifies a different set of power system parameters, we will custom design or modify a product to meet the OEM’s requirements With a wide range of solutions from our custom designs to our high-grade flexibility series products, our professional design team can provide economical and timely product solutions to our OEM customers. In addition, as our power systems meet all appropriate environmental requirements and safety standards, our smaller OEM customers can expedite the process of independent safety agency testing by companies such as Underwriters Laboratories, and save considerable expense. By offering OEM customers choices with Digital Power’s custom, flexibility series, high-grade and high-efficiency power system solutions, we believe we provide certain strategic advantages over our competitors. 
+Digital Power Limited (Gresham Power Electronics) 
+Digital Power Limited, our wholly-owned subsidiary organized and headquartered in Salisbury, United Kingdom , designs, manufactures, and distributes switching power supplies, uninterruptible power supplies, and power conversion and distribution equipment frequency converters for the commercial and military markets, under the name Gresham Power Electronics (“Gresham”). Frequency converters manufactured by Gresham are used by navel warships to convert their generated 60-cycle electricity supply to 400 cycles. This 400-cycle supply is used to power their critical equipment such as gyro, compass, and weapons systems. Gresham also designs and manufactures transformer rectifiers for naval use. Typically, these provide battery supported back up for critical DC systems, such as machinery and communications. In addition, higher power rectifiers are used for the starting and servicing of helicopters on naval vessels, and Gresham now supplies these as part of overall helicopter start and servicing systems. We believe that Gresham products add diversity to our product line, provide greater access to the United Kingdom and European markets, and strengthen our engineering and technical resources. 
+Manufacturing and Testing 
+Consistent with our strategy of focusing on custom design products and high-grade flexibility series products, we aim to maintain a high degree of flexibility in our manufacturing through the use of strategically focused contract manufacturers. We select contract manufacturers to ensure that they will meet our near term cost, delivery, and quality goals. In addition, we believe these relationships will eventually give us access to new markets and beneficial cross-licensing opportunities. The competitive nature of the power supply industry has placed continual downward pressure on selling prices. In order to achieve our low cost manufacturing goals with labor-intensive products, we have entered into production agreements with certain contract manufacturers in Asia. At present, our principal contract manufacturers in Asia are Winco-Power Technology, Shenzhen Watt Electronics, Ultra Level Tech Co. Ltd, Teamwise and Energy Recovery Products. 
+5 
+We sell certain products that are developed, manufactured and sold to us by Telkoor, an Israeli company that currently holds 42.3% of our outstanding common stock. In coordination with Telkoor, and in order to accelerate delivery and reduce the cost of some of the products we purchase from Telkoor, we have obtained the right to order products directly from Telkoor’s contract manufacturers, as well as from our own contract manufacturers in China, in exchange for the payment of royalties to Telkoor. 
+We are continually improving our internal processes, while monitoring the processes of our contract manufacturers, to ensure the highest quality and consistent manufacturing of our power solutions. We test all of our custom power assemblies per clearly defined test procedures developed by us and our customers. This approach ensures that our customers can use our systems right out of the box. Customer specific testing services are offered with custom designed test stands to simulate operation within our customer applications. 
+Compliance with international safety agency standards is critical in every application, and power solutions play a major role in meeting these compliance requirements. Our safety engineers and quality assurance teams help ensure that our custom products are designed to meet all safety requirements and are appropriately documented to expedite safety approval processes. 
+Regulatory Requirements 
+We and our manufacturing partners are required to meet applicable regulatory, environmental, emissions, safety and other requirements where specified by the customer and accepted by us or as required by local regulatory or legal requirements. The products that we market and sell in Europe may be subject to the 2003 European Directive on Restriction of Hazardous Substances (“RoHS”), which restricts the use of six hazardous materials in the manufacture of certain electronic and electrical equipment, as well as the 2002 European Directive on Waste Electrical and Electronic Equipment (“WEEE”), which determines collection, recycling and recovery goals for electrical goods. In July 2006, our industry began phasing in RoHS and WEEE requirements in most geographical markets with specific emphasis on consumer-based products. We believe that RoHS and WEEE-compliant components may be subject to longer lead-times and higher prices as the industry transitions to these new requirements. 
+Some of our products are subject to ITAR, which is administered by the U.S. Department of State. ITAR controls not only the export of certain products specifically designed, modified, configured or adapted for military systems, but also the export of related technical data and defense services and foreign production. We obtain required export licenses for any exports subject to ITAR. Compliance with ITAR may require a prolonged period of time; if the process of obtaining required export licenses for products subject to ITAR is delayed, it could have a materially adverse effect on our business, financial condition, and operating results. Any future restrictions or charges imposed by the United States or any other country on our international sales or sales by DPL, our foreign subsidiary, could have a materially adverse effect on our business, financial condition, and operating results. In addition, from time to time, we entered into contracts with defense contract manufacturers for the government of Israel’s defense programs, which were funded by, and governed by the regulations of, the U.S. Foreign Military Financing program. 
+Sales and Marketing 
+We market our products directly through our internal sales force as well as through a partner network of independent manufacturer representatives and distributors. Each representative organization is responsible for managing sales in a particular geographic territory. Generally, the representative has the opportunity to earn exclusive access to all potential customers in the assigned territory as a result of achieving its marketing and sales goals as defined in the representative agreement. Our manufacturer representative agreements provide for a commission equal to 5% of net sales of new “design-in” and 1.75% of net sales for retention, payable after the product is shipped, for any direct sale contribution. Typically, either we or the representative organization may terminate the agreement upon 30 days’ written notice. 
+6 
+Historically, we have also sold products through multiple distributor arrangements which do not specify a particular territory. Each of these arrangements can be terminated by either party upon 30 days’ written notice. 
+Our promotional efforts, to date, have included product data sheets, participation in trade shows, and our website, www.digipwr.com. We use the corporate website to emphasize our capabilities and marketing direction. All products specifications are uploaded onto our website and accessible to the marketplace. We will continue to enhance our website by adding more features and functionalities, such as ecommerce, that will allow our customers to buy directly through our website. Our future promotional activities will likely include advertising in industry-specific publications, as well as public relations for our new products. 
+Engineering and Technology 
+Our engineering and product development efforts are primarily directed toward developing new products in connection with custom product design and modification of our standard power systems to provide a broad array of individual models. 
+Our new custom product design solutions are driven by our ability to provide to our customers advanced technology that meets their product needs and supports special operation and environmental requirements, with a short turnaround time and a very competitive price point. We believe that we are successfully executing our strategic account focus, as evidenced by the award of second and third generation product development contracts from some of these customers. Our standard contract for custom power solutions includes a multi-year high-volume production forecast that could allow us to secure long-term production guarantees while providing an environment that promotes the development of our IP portfolio. 
+We also partner with various design and contract engineering firms for development of some of our new products supported by our internal engineering services staff. Furthermore, we continue to leverage the close relationship we have with one of our major shareholders, Telkoor, to introduce new products that Telkoor develops for its market and makes available for us. Finally, from time to time, we modify standard products to meet specific customer requirements, including, but not limited to, converting commercial products into full military MIL-SPEC products and other unique modification and adjustments, when applicable. We are experiencing an increasing demand for ruggedization of commercial products for military applications. To meet that requirement, our engineering team continues to ruggedize commercial products, which we sell as commercial off the shelf products to some of our military customers. We continually seek to improve our product power density, adaptability, and efficiency, while attempting to anticipate changing market demands for increased functionality, such as PFC and improved EMI (electromagnetic interference) filtering. We continue to differentiate all of our products from commodity-type products by enhancing, modifying and customizing our existing product portfolio, using our engineering lab in California. In August 2010, we purchased the IP and production packages of the compact peripheral component interface (Compact PCI, or CPCI) AC/DC and DC/DC power supply series from Telkoor Power Systems Ltd. (“TPS”), a wholly owned subsidiary of Telkoor. The IP purchase was to support our strategy being a leader supplier of CPCI products for commercial and defense markets. We received from this purchase a portfolio of industry-leading CPCI AC/DC power supplies delivering 600 Watts and 650 Watt of continuous power. These hot-swappable power supplies feature N+1 redundant connection and active load current share. This IP strategic acquisition expands our presence for industrial, telecom, and military/defense applications that require increasing amounts of power. As a result of this purchase, we have decreased our manufacturing costs. 
+7 
+Competition 
+The power system solutions industry is highly fragmented and characterized by intense competition. Our competition includes hundreds of companies located throughout the world, some of which have advantages over us in terms of labor and component costs, and some of which may offer products comparable in quality to ours. Many of our competitors, including Power-One, Emerson (Astec) Technologies, Inc., Lambda Electronics, and Mean-Well Power Supplies, have substantially greater fiscal and marketing resources and geographic presence than we do. If we are successful in increasing our revenues, competitors may notice and increase competition with our customers. We also face competition from current and prospective customers who may decide to design and manufacture internally power supplies needed for their products. Furthermore, certain larger OEMs tend to contract only with larger power supply manufacturers. 
+We anticipate in the current economic situation, additional competitors may enter into strategic alliances or even acquisitions. Competition could thus become more problematic if consolidation trends in the electronics industry continue and some of the OEMs to whom we sell our products are acquired by larger OEMs. To remain competitive, we must continue to compete favorably on the basis of value by providing reliable manufacturing, offering customer-driven engineering services including custom design and manufacturing, continuously improving quality and reliability levels, and offering flexible and reliable delivery schedules. 
+We believe that our power system solutions and advanced product design have significant advantages in the power supply solutions market because they have higher efficiency and high-power density, or power-to-volume ratio, which make them smaller than the solutions offered by our competitors and can thus fit well in numerous custom environments in compliance with our customers’ requirements. 
+Another advantage of our power system solutions product line is based on the “Flexible” series that employs adjustable power range of product design. We believe we have a competitive position with our targeted customers who need a high-quality, compact product, which can be readily modified to meet the customer’s unique requirements. We have designed the base model power system platform so that it can be quickly and economically modified and adapted to the specific power needs of any hosting platform or OEM. This “flexibility” approach has allowed us to provide samples of modified power systems to OEM customers in only a few days after initial consultation, an important capability given the emphasis placed by OEMs on “time to market.” It also results in very low non-recurring engineering (“NRE”) expenses. Because of reduced NRE expenses, we do not generally charge our OEM customers for NRE related to tailoring a power system to a customer’s specific requirements. We believe this gives us an advantage over our competitors, many of which charge their customers for NRE expenses. 
+Raw Materials 
+The raw materials for power supplies principally consist of electronic components. These raw materials are available from a variety of sources, and we are not dependent on any one supplier. We generally allow our subcontractors to purchase components based on orders received or forecasts to minimize our risk of unusable inventory. To the extent necessary, we may allow them to procure materials prior to orders received to obtain shorter lead times and to achieve quantity discounts following a risk assessment. In addition, we have decided to directly procure certain long lead-time electronic components in an effort to reduce our lead-time. 
+Many raw material vendors have reduced capacities, closed production lines and, in some cases, even discontinued their operations. As a result, there is a global shortage of certain electronic components, which has extended our production lead-time and our production costs. For example, in some cases, finished goods that used to be available in 12 weeks for a production purchase order are now available only after 22 weeks. Also, some materials are no longer available to support some of our products, thereby requiring us to search for cross materials or, even worse, redesign some of our products to support currently-available materials. 
+Intellectual Property 
+We rely upon a combination of trade secrets, industry expertise, confidential procedures, and contractual provisions to protect our intellectual property. We believe that because our products are continually updated and revised, obtaining patents would be costly and not beneficial. However, in the future, as we continue to develop unique core technology, we may seek to obtain patents for some of the core technology. On July 8, 2004, our trademark, “DP Digital Power – Powering Your Technologies,” was registered with the United States Patent and Trademark Office. 
+8 
+Employees 
+As of December 31, 2012, we had 29 employees located in the United States and the United Kingdom, of whom seven were engaged in engineering and product development, seven in sales and marketing, seven in general operations and eight in general administration and finance. All but four of these employees are employed on a full-time basis. None of our employees are currently represented by a trade union. We consider our relations with our employees to be good.

raw/filings/0000896493/2012/0001437749-13-003708/item13.txt

@@ -0,0 +1,11 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the years ended December 31, 2012 and 2011, we purchased approximately $474,000 and $2,596,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor Telecom Ltd., of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis. 
+Acquisition of Shares of Telkoor 
+On June 16, 2011 the Company has acquired 1,136,666 shares of Telkoor, a major shareholder of the Company and an Israeli company listed in the Tel Aviv stock exchange, for $0.88 (NIS 3) per share, which represents 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between Digital Power and Telkoor was updated and extended. Until September 30, 2012 the investment was accounted for as an available-for-sale investment and then reclassified the accounting of the investment at cost. 
+Manufacturing Agreement with Telkoor 
+On December 31, 2012, the Company entered into a Manufacturing Rights Agreement (the "Manufacturing Agreement") with Telkoor, pursuant to which among other things, Telkoor granted to the Company the non-exclusive right to directly place purchase orders for certain products from third party manufacturers for the purpose of marketing, selling and distributing the products for telecom, industrial, medical and military market segments in North and South America in consideration for the payment of royalty fees by the Company to Telkoor. The Manufacturing Agreement has a term of five years from the date of signature. During the agreement, Telkoor agreed not to directly or indirectly participate or engage, or assist any other party in engaging or preparing to engage, the customers of the Company in North and South America in connection with the sale or distribution of any of the products under the Manufacturing Agreement 
+32

raw/filings/0000896493/2012/0001437749-13-003708/item9a.txt

@@ -0,0 +1,14 @@
+ITEM 9A. 
+CONTROLS AND PROCEDURES. 
+Evaluation of Disclosure Controls and Procedures 
+As of December 31, 2012, we have carried out an evaluation, under the supervision of, and with the participation of, our management, including our Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of our controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) were effective as of the end of the period covered by the report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2012, our internal control over financial reporting was effective. 
+This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to a provision under the Dodd-Frank Wall Street Reform and Consumer Protection Act which grants a permanent exemption for non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002. 
+21 
+Evaluation of Changes in Internal Control over Financial Reporting 
+There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
+22 
+PART III

raw/filings/0000896493/2012/0001437749-13-003708/rpt_disclosure.txt

@@ -0,0 +1,11 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the years ended December 31, 2012 and 2011, we purchased approximately $474,000 and $2,596,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor Telecom Ltd., of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis. 
+Acquisition of Shares of Telkoor 
+On June 16, 2011 the Company has acquired 1,136,666 shares of Telkoor, a major shareholder of the Company and an Israeli company listed in the Tel Aviv stock exchange, for $0.88 (NIS 3) per share, which represents 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between Digital Power and Telkoor was updated and extended. Until September 30, 2012 the investment was accounted for as an available-for-sale investment and then reclassified the accounting of the investment at cost. 
+Manufacturing Agreement with Telkoor 
+On December 31, 2012, the Company entered into a Manufacturing Rights Agreement (the "Manufacturing Agreement") with Telkoor, pursuant to which among other things, Telkoor granted to the Company the non-exclusive right to directly place purchase orders for certain products from third party manufacturers for the purpose of marketing, selling and distributing the products for telecom, industrial, medical and military market segments in North and South America in consideration for the payment of royalty fees by the Company to Telkoor. The Manufacturing Agreement has a term of five years from the date of signature. During the agreement, Telkoor agreed not to directly or indirectly participate or engage, or assist any other party in engaging or preparing to engage, the customers of the Company in North and South America in connection with the sale or distribution of any of the products under the Manufacturing Agreement 
+32

raw/filings/0000896493/2013/0001437749-14-005312/filing_metadata.csv

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raw/filings/0000896493/2013/0001437749-14-005312/item1.txt

@@ -0,0 +1,179 @@
+ITEM 1. DESCRIPTION OF BUSINESS. 
+General 
+Digital Power Corporation is a solution-driven organization that designs, develops, manufactures and sells high-grade customized and flexible power system solutions for the most demanding applications in the medical, military, telecom and industrial markets. We are highly focused on high-grade and custom product designs for both the commercial and military/defense markets, where customers demand high density, high efficiency and ruggedized products to meet the harshest and/or military mission critical operating conditions. We are a California corporation originally formed in 1969, and our common stock trades on the NYSE MKT under the symbol “DPW”. Our corporate headquarters are located in the heart of the Silicon Valley. 
+We also have a wholly-owned subsidiary, Digital Power Limited ("DPL"), which operates under the brand name of “Gresham Power Electronics” (“Gresham”). DPL is located in Salisbury, England, and designs, manufactures and sells power products and system solutions mainly for the European marketplace, including power conversion, power distribution equipment, DC/AC (Direct Current/Active Current) inverters and UPS (Uninterrupted Power Supply) products. DPL’s defense business has specialists in the field of naval applications of power distribution conversion. 
+We believe that we are one of the first companies in the power solutions industry to introduce a product strategy based on the premise that products developed with an extremely flexible architecture enable rapid modifications to meet unique customer requirements for non-standard output voltages. The development and implementation of this strategy has resulted in broad acceptance in the telecom/industrial, and increasingly in the medical market, segments for our new line of high density and high efficiency power products. These products set an industry standard for providing high-power output in package sizes that are among the smallest available for such commercial products. 
+We market and sell our products to many diverse market segments, including the telecom, industrial, medical and military/defense industries. Our products serve a global market, with an emphasis on North America and Europe. We offer a broad product variety, including a full custom product design, standard and modified-standard products. Our unique high-speed switching power rectifiers includes but is not limited to custom power products, front-end, open-frame, enclosed, Compact PCI, MicroTCA, PoE (Power over Ethernet) and other product solutions, providing power output from 50 to 24,000 watts. 
+1 
+In an effort to provide short lead-times, high quality products and competitive pricing to support our markets, we have entered into production agreements with several contract manufacturers located in Asia, primarily China. These agreements allow us to better control production costs and ensure high quality products deliverable in a timely manner to meet market demand. 
+We intend to remain an innovative leader in the development of cutting-edge custom power solutions and feature rich products to meet any customer needs and requirements, rugged power systems to meet harsh and extreme operation environmental requirements, and high performance, high efficiency, high-density and modular power systems. We are focusing today on developing even more high-grade custom power system solutions for numerous customers in a broadly diversified range of markets and challenging environments. Each product development is based on best of class performance criteria, including unique, advanced feature sets and a special layout to meet our customers’ unique operating conditions where efficiency, size and time to market are key to their success. We are taking initiatives to develop and sell high efficiency “green power” solutions. 
+Power System Solutions 
+We provide custom power system solutions, high-grade flexibility series power supply products, off-the-shelf products and value-added services to diverse industries and markets including military/defense, telecom, medical and industrial. We believe that our solutions leverage a combination of low leakage power emissions, high power density, superior power efficiency, design flexibility and short time to market. 
+Custom Power System Solution. We provide high-grade custom power system solutions to numerous customers in multiple industry segments. Each custom solution that we develop is based on high power density, digital power processing and a special layout to meet each of our customer’s unique operation environments where efficiency, size and performance are key. We combine our power design capabilities with the latest circuit designs to provide complete power solutions for virtually any need. In the design of custom power solutions, we work closely with our customers’ engineering teams to develop mechanical enclosures to ensure 100% compatibility with any hosted platform. 
+Our standard contract for custom power solutions includes a multi-year high-volume production forecast that allows us to secure long-term production guarantees (and therefore possible savings on manufacturing costs for volume orders) while providing an environment that promotes the development of our intellectual property (“IP”) portfolio. We believe that this business model provides an incentive to our customers to be committed to high-volume production orders. 
+High-Grade Flexibility Series Power Supply Product . We offer our feature rich based power rectifiers that support flexible configuration and high-grade design implementation. This include innovative designs and implementation including Digital Signal Processing (“DSP”) control for Power Factor Correction (“PFC”) and DC/DC, synchronous rectifier outputs under DSP control, two phase PFC, hot pluggable, current sharing and other features. While some of our customers have special requirements that include a full custom design, other customers may require only certain electrical changes to standard power supply products, such as modified output voltages and unique status and control signals, and mechanical repackaging tailored to fit the specific application. We offer a wide range of standard and modified standard products that can be easily integrated with any platform across our diversified market segments. 
+Value-Added Services . In addition to our custom solutions and high-grade flexibility series proprietary products that we offer, we also provide value-added services to original equipment manufacturers (“OEMs”). We incorporate an OEM’s selected electronic components, enclosures, cable assemblies and other compliance components into our power system solutions to produce a power subassembly that is compatible with the OEM’s own equipment and specifically tailored to meet the OEM’s needs. We purchase parts and components that the OEM itself would otherwise attach to, or integrate with, our power systems, and provide the OEM with the integration and installation service, thus eliminating a complex, time-consuming and costly integration. We believe that this value-added service is well suited to those OEMs who wish to reduce their vendor base and minimize their investment in manufacturing that leads to increased fixed costs. Based on these value-added services, the OEMs do not need to build assembly facilities to manufacture their own power subassemblies and thus are not required to purchase individual parts from many vendors. 
+2 
+Our products have a warranty period from date of shipment to the customer. 
+Markets 
+We sell our custom power system solutions, high-grade flexibility series power supply products and value-added services to customers in a diverse range of commercial and defense industries and markets throughout the world, with an emphasis on North America and Europe. Our current customer base consists of approximately 200 companies, some of which are served through our partner channels. We serve the North American power electronics market primarily through our domestic corporation, Digital Power Corporation; the European marketplace is served through DPL, our wholly-owned subsidiary. 
+Our products are sold directly by our sales force and through a network of manufacturers’ representatives and distributors. Our sales strategy is to identify and focus on strategic accounts. This strategy allows us to maintain a close and direct relationship with them, which positions us as the supplier of choice for these customers’ challenging, innovative and demanding new product requirements. In striving for additional market share, we simultaneously seek to strengthen our traditional sales channels of manufacturer representatives and distributors. We plan to continue to build more channels and increase our market share through 2014. 
+Commercial Customers . We serve global commercial markets including medical, telecom, and industrial companies. Our products are deployed in a variety of applications and operate in a broad range of systems where customers require mission critical power reliability and occasionally extreme environmental conditions. Examples of the commercial markets we serve and products for these markets include: 
+■ 
+Medical (Patient Contact and Non-patient Contact) 
+■ 
+Colonoscopy imaging system 
+■ 
+Imaging, dispensing equipment 
+■ 
+Ventilators 
+■ 
+Dialysis, endoscopy, surgical equipment 
+■ 
+Ultrasound, MRI 
+■ 
+Oxygen concentration 
+■ 
+Telecom 
+■ 
+Switches 
+■ 
+Routers 
+■ 
+Servers 
+■ 
+Broadband networks and video broadcast systems 
+■ 
+Fiber optic networks 
+■ 
+Wireless systems 
+■ 
+Industrial Process Equipment and Embedded Controls 
+■ 
+Packaging equipment, pumps, CNC machines, laser 
+■ 
+Intelligent / LED lighting 
+■ 
+Industrial printers 
+■ 
+Laboratory and diagnostic equipment 
+■ 
+ATE (Automatic Test Equipment), scientific 
+■ 
+Advanced projectors 
+These product solutions, which include standard, modified-standard or full custom designs, are designed to meet our customers’ requirements. 
+Military/Defense Customers . We have developed a broad range of rugged product solutions for the military and defense market, featuring the ability to withstand harsh environments. These ruggedized product solutions, which include both specific modifications of existing products or full custom designs, are designed for combat environments and meet the requirements of our defense customers. We are compliant with the regulations of International Traffic in Arms Regulations (“ITAR”) and are an approved vendor for the U.S. Air Force, Navy and Army. 
+3 
+At the core of every military electronic system is a power supply. Mission critical systems require rugged high performance power platforms that will operate and survive the harsh environmental conditions placed upon such systems. Our power supplies, which include the following, function effectively in these severe military environments: 
+■ 
+Missiles – Ground-to-Air, Air-to-Air and Sea-to-Air 
+■ 
+Naval – Shipboard radar, EW and communication 
+■ 
+Mobile and Ground Communications – Active Protection, Communications and Navigation 
+■ 
+Surveillance, test equipment 
+■ 
+UAV (Unmanned Aerial Vehicle) – Very lightweight power systems 
+Space, weight, output power, electromagnetic compatibility, power density and multiple output requirements are only part of the challenges that any military power supply design faces. With many decades of experience, our engineering teams meet these tough challenges. Our power supplies are a critical component of many major weapon systems worldwide. 
+We leverage our strategic alliance and collaboration with Telkoor Telecom Ltd. (“Telkoor”), our largest shareholder, and DPL, our wholly-owned subsidiary, to develop some of the MIL-SPEC products. 
+Full custom military project services: 
+● 
+Program management for each project 
+● 
+Quality assurance and control: 
+o 
+ISO 9001: 2008 and ISO 17025: 2005 certified 
+o 
+Compliance with AS9100 through our manufacturing 
+o 
+Compliance with MIL-Q 9858A 
+o 
+Compliance with environmental testing in accordance with MIL-STD 810, MIL-STD 202 
+o 
+FRACAS (Failure Reporting, Analysis, and Corrective Action System) 
+o 
+100% screening, including ESS (Environmental Stress Screening) and ATP (Acceptance Test Procedure) with random vibration and temperature cycling tests 
+● 
+Product Tests: 
+o 
+Vertical Random Vibration 
+o 
+Sine Sweep Vibrations 
+o 
+Shock 
+o 
+Salt 
+o 
+Fog 
+o 
+Polar Temperatures 
+Typical Product Features: 
+● 
+Wide input voltage range 
+● 
+Multi-output voltages (DC and AC) 
+● 
+Fully approved according to MIL-STD 704, MIL-STD 1275 and MIL-STD 1399 
+● 
+Environmental conditions per MIL-STD 810 
+● 
+EMI/RFI per MIL-STD 461 
+● 
+Wide operating temperature range of -40°C up to +90°C 
+● 
+Power output up to 72,000 Watts (3 x 24,000 Watts system) 
+● 
+High switching frequency up to 500KHz 
+● 
+High efficiency, over 90% 
+● 
+High power density up to 26 watts/inch 3 
+● 
+Power factor correction 
+● 
+Redundancy and hot swap N+1 
+● 
+Switching Frequency sync to external clock 
+● 
+Free convection, forced air cooling and base plate cooling 
+4 
+Strategy 
+Our strategy is to be the supplier of choice to those companies and OEMs requiring high-quality power system solutions where custom design, superior product, high quality, time to market and very competitive prices are critical to business success. We believe that we provide advanced custom product design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental requirements. Our customers benefit from a direct relationship with us that support all of their needs for designing and manufacturing power solutions and products. By implementing our advanced core technology, including process implementation in integrated circuits, we can provide cost reductions to our customers by replacing their existing power sources with our custom design cost-effective products. 
+Our target market segments include the industrial, telecommunication, medical, and military/defense industries. We do not participate in the personal computer power supply market because of the low margins arising out of the high volume and extremely competitive nature of that market. 
+Our strategy will continue to focus on expanding our market share by adding new customers from all of our target market segments. We are developing long term relationships, and we intend to expand our customer base in our commercial market segments, including medical, telecom and industrial, while continuing to maintain our existing customers. In the military and defense market segment, we will continue to provide advanced rugged products to customers, and we are striving to expand our business to support the military and defense industries. We believe that our custom power supply solutions, flexibility series, high-grade and high-efficiency power product solutions provide customers with a more effective choice as compared to products offered by other power solution competitors, due in part to a customer’s requirement for output voltages and other features such as redundancy and sense control tailored to its exact requirements within specific parameters. 
+Furthermore, we believe that we have the talent and engineering experience to satisfy any of our customers’ product or platform requirements. If an OEM customer specifies a different set of power system parameters, we will custom design or modify a product to meet the OEM’s requirements With a wide range of solutions from our custom designs to our high-grade flexibility series products, our professional design team can provide economical and timely product solutions to our OEM customers. In addition, as our power systems meet all appropriate environmental requirements and safety standards, our smaller OEM customers can expedite the process of independent safety agency testing by companies such as Underwriters Laboratories, and save considerable expense. By offering OEM customers choices with Digital Power’s custom, flexibility series, high-grade and high-efficiency power system solutions, we believe we provide certain strategic advantages over our competitors. 
+Digital Power Limited (Gresham Power Electronics) 
+Digital Power Limited, our wholly-owned subsidiary organized and headquartered in Salisbury, United Kingdom , designs, manufactures, and distributes switching power supplies, uninterruptible power supplies, and power conversion and distribution equipment frequency converters for the commercial and military markets, under the name Gresham Power Electronics (“Gresham”). Frequency converters manufactured by Gresham are used by navel warships to convert their generated 60-cycle electricity supply to 400 cycles. This 400-cycle supply is used to power their critical equipment such as gyro, compass, and weapons systems. Gresham also designs and manufactures transformer rectifiers for naval use. Typically, these provide battery supported back up for critical DC systems, such as machinery and communications. In addition, higher power rectifiers are used for the starting and servicing of helicopters on naval vessels, and Gresham now supplies these as part of overall helicopter start and servicing systems. We believe that Gresham products add diversity to our product line, provide greater access to the United Kingdom and European markets, and strengthen our engineering and technical resources. 
+Manufacturing and Testing 
+Consistent with our strategy of focusing on custom design products and high-grade flexibility series products, we aim to maintain a high degree of flexibility in our manufacturing through the use of strategically focused contract manufacturers. We select contract manufacturers to ensure that they will meet our near term cost, delivery, and quality goals. In addition, we believe these relationships will eventually give us access to new markets and beneficial cross-licensing opportunities. The competitive nature of the power supply industry has placed continual downward pressure on selling prices. In order to achieve our low cost manufacturing goals with labor-intensive products, we have entered into production agreements with certain contract manufacturers in Asia. At present, our principal contract manufacturers in Asia are Winco-Power Technology, Shenzhen Watt Electronics, Ultra Level Tech Co. Ltd, Teamwise and Energy Recovery Products. 
+5 
+We sell certain products that are developed, manufactured and sold to us by Telkoor, an Israeli company that currently holds 42.3% of our outstanding common stock. In coordination with Telkoor, and in order to accelerate delivery and reduce the cost of some of the products we purchase from Telkoor, we have obtained the right to order products directly from Telkoor’s contract manufacturers, as well as from our own contract manufacturers in China, in exchange for the payment of royalties to Telkoor. 
+We are continually improving our internal processes, while monitoring the processes of our contract manufacturers, to ensure the highest quality and consistent manufacturing of our power solutions. We test all of our custom power assemblies per clearly defined test procedures developed by us and our customers. This approach ensures that our customers can use our systems right out of the box. Customer specific testing services are offered with custom designed test stands to simulate operation within our customer applications. 
+Compliance with international safety agency standards is critical in every application, and power solutions play a major role in meeting these compliance requirements. Our safety engineers and quality assurance teams help ensure that our custom products are designed to meet all safety requirements and are appropriately documented to expedite safety approval processes. 
+Regulatory Requirements 
+We and our manufacturing partners are required to meet applicable regulatory, environmental, emissions, safety and other requirements where specified by the customer and accepted by us or as required by local regulatory or legal requirements. The products that we market and sell in Europe may be subject to the 2003 European Directive on Restriction of Hazardous Substances (“RoHS”), which restricts the use of six hazardous materials in the manufacture of certain electronic and electrical equipment, as well as the 2002 European Directive on Waste Electrical and Electronic Equipment (“WEEE”), which determines collection, recycling and recovery goals for electrical goods. In July 2006, our industry began phasing in RoHS and WEEE requirements in most geographical markets with specific emphasis on consumer-based products. We believe that RoHS and WEEE-compliant components may be subject to longer lead-times and higher prices as the industry transitions to these new requirements. 
+Some of our products are subject to ITAR, which is administered by the U.S. Department of State. ITAR controls not only the export of certain products specifically designed, modified, configured or adapted for military systems, but also the export of related technical data and defense services and foreign production. We obtain required export licenses for any exports subject to ITAR. Compliance with ITAR may require a prolonged period of time; if the process of obtaining required export licenses for products subject to ITAR is delayed, it could have a materially adverse effect on our business, financial condition, and operating results. Any future restrictions or charges imposed by the United States or any other country on our international sales or sales by DPL, our foreign subsidiary, could have a materially adverse effect on our business, financial condition, and operating results. In addition, from time to time, we entered into contracts with defense contract manufacturers for the government of Israel’s defense programs, which were funded by, and governed by the regulations of, the U.S. Foreign Military Financing program. 
+Sales and Marketing 
+We market our products directly through our internal sales force as well as through a partner network of independent manufacturer representatives and distributors. Each representative organization is responsible for managing sales in a particular geographic territory. Generally, the representative has the opportunity to earn exclusive access to all potential customers in the assigned territory as a result of achieving its marketing and sales goals as defined in the representative agreement. Our manufacturer representative agreements provide for a commission equal to 5% of net sales of new “design-in” and 1.75% of net sales for retention, payable after the product is shipped, for any direct sale contribution. Typically, either we or the representative organization may terminate the agreement upon 30 days’ written notice. 
+6 
+Historically, we have also sold products through multiple distributor arrangements which do not specify a particular territory. Each of these arrangements can be terminated by either party upon 30 days’ written notice. 
+Our promotional efforts, to date, have included product data sheets, participation in trade shows, and our website, www.digipwr.com. We use the corporate website to emphasize our capabilities and marketing direction. All products specifications are uploaded onto our website and accessible to the marketplace. We will continue to enhance our website by adding more features and functionalities, such as ecommerce, that will allow our customers to buy directly through our website. Our future promotional activities will likely include advertising in industry-specific publications, as well as public relations for our new products. 
+Engineering and Technology 
+Our engineering and product development efforts are primarily directed toward developing new products in connection with custom product design and modification of our standard power systems to provide a broad array of individual models. 
+Our new custom product design solutions are driven by our ability to provide to our customers advanced technology that meets their product needs and supports special operation and environmental requirements, with a short turnaround time and a very competitive price point. We believe that we are successfully executing our strategic account focus, as evidenced by the award of second and third generation product development contracts from some of these customers. Our standard contract for custom power solutions includes a multi-year high-volume production forecast that could allow us to secure long-term production guarantees while providing an environment that promotes the development of our IP portfolio. 
+We also partner with various design and contract engineering firms for development of some of our new products supported by our internal engineering services staff. Furthermore, we continue to leverage the close relationship we have with one of our major shareholders, Telkoor, to introduce new products that Telkoor develops for its market and makes available for us. Finally, from time to time, we modify standard products to meet specific customer requirements, including, but not limited to, converting commercial products into full military MIL-SPEC products and other unique modification and adjustments, when applicable. We are experiencing an increasing demand for ruggedization of commercial products for military applications. To meet that requirement, our engineering team continues to ruggedize commercial products, which we sell as commercial off the shelf products to some of our military customers. We continually seek to improve our product power density, adaptability, and efficiency, while attempting to anticipate changing market demands for increased functionality, such as PFC and improved EMI (electromagnetic interference) filtering. We continue to differentiate all of our products from commodity-type products by enhancing, modifying and customizing our existing product portfolio, using our engineering lab in California. In August 2010, we purchased the IP and production packages of the compact peripheral component interface (Compact PCI, or CPCI) AC/DC and DC/DC power supply series from Telkoor Power Systems Ltd. (“TPS”), a wholly owned subsidiary of Telkoor. The IP purchase was to support our strategy being a leader supplier of CPCI products for commercial and defense markets. We received from this purchase a portfolio of industry-leading CPCI AC/DC power supplies delivering 600 Watts and 650 Watt of continuous power. These hot-swappable power supplies feature N+1 redundant connection and active load current share. This IP strategic acquisition expands our presence for industrial, telecom, and military/defense applications that require increasing amounts of power. As a result of this purchase, we have decreased our manufacturing costs. 
+7 
+Competition 
+The power system solutions industry is highly fragmented and characterized by intense competition. Our competition includes hundreds of companies located throughout the world, some of which have advantages over us in terms of labor and component costs, and some of which may offer products comparable in quality to ours. Many of our competitors, including Power-One, Emerson (Astec) Technologies, Inc., Lambda Electronics, and Mean-Well Power Supplies, have substantially greater fiscal and marketing resources and geographic presence than we do. If we are successful in increasing our revenues, competitors may notice and increase competition with our customers. We also face competition from current and prospective customers who may decide to design and manufacture internally power supplies needed for their products. Furthermore, certain larger OEMs tend to contract only with larger power supply manufacturers. 
+We anticipate in the current economic situation, additional competitors may enter into strategic alliances or even acquisitions. Competition could thus become more problematic if consolidation trends in the electronics industry continue and some of the OEMs to whom we sell our products are acquired by larger OEMs. To remain competitive, we must continue to compete favorably on the basis of value by providing reliable manufacturing, offering customer-driven engineering services including custom design and manufacturing, continuously improving quality and reliability levels, and offering flexible and reliable delivery schedules. 
+We believe that our power system solutions and advanced product design have significant advantages in the power supply solutions market because they have higher efficiency and high-power density, or power-to-volume ratio, which make them smaller than the solutions offered by our competitors and can thus fit well in numerous custom environments in compliance with our customers’ requirements. 
+Another advantage of our power system solutions product line is based on the “Flexible” series that employs adjustable power range of product design. We believe we have a competitive position with our targeted customers who need a high-quality, compact product, which can be readily modified to meet the customer’s unique requirements. We have designed the base model power system platform so that it can be quickly and economically modified and adapted to the specific power needs of any hosting platform or OEM. This “flexibility” approach has allowed us to provide samples of modified power systems to OEM customers in only a few days after initial consultation, an important capability given the emphasis placed by OEMs on “time to market.” It also results in very low non-recurring engineering (“NRE”) expenses. Because of reduced NRE expenses, we do not generally charge our OEM customers for NRE related to tailoring a power system to a customer’s specific requirements. We believe this gives us an advantage over our competitors, many of which charge their customers for NRE expenses. 
+Raw Materials 
+The raw materials for power supplies principally consist of electronic components. These raw materials are available from a variety of sources, and we are not dependent on any one supplier. We generally allow our subcontractors to purchase components based on orders received or forecasts to minimize our risk of unusable inventory. To the extent necessary, we may allow them to procure materials prior to orders received to obtain shorter lead times and to achieve quantity discounts following a risk assessment. In addition, we have decided to directly procure certain long lead-time electronic components in an effort to reduce our lead-time. 
+Many raw material vendors have reduced capacities, closed production lines and, in some cases, even discontinued their operations. As a result, there is a global shortage of certain electronic components, which has extended our production lead-time and our production costs. For example, in some cases, finished goods that used to be available in 12 weeks for a production purchase order are now available only after 22 weeks. Also, some materials are no longer available to support some of our products, thereby requiring us to search for cross materials or, even worse, redesign some of our products to support currently-available materials. 
+Intellectual Property 
+We rely upon a combination of trade secrets, industry expertise, confidential procedures, and contractual provisions to protect our intellectual property. We believe that because our products are continually updated and revised, obtaining patents would be costly and not beneficial. However, in the future, as we continue to develop unique core technology, we may seek to obtain patents for some of the core technology. On July 8, 2004, our trademark, “DP Digital Power – Powering Your Technologies,” was registered with the United States Patent and Trademark Office. 
+8 
+Employees 
+As of December 31, 2013, we had 28 employees located in the United States and the United Kingdom, of whom seven were engaged in engineering and product development, eight in sales and marketing, seven in general operations and six in general administration and finance. All but three of these employees are employed on a full-time basis. None of our employees are currently represented by a trade union. We consider our relations with our employees to be good.

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+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the years ended December 31, 2013 and 2012, we purchased approximately $1,381,000 and $474,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor Telecom Ltd., of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis. In accordance with the agreement, the consideration for the IP may be reduced over a four-year period in the event annual sales for each year between 2011 and 2014 are less than a fixed threshold of units on an annual basis based upon an offset value per unit as described in the agreement. If there is a shortfall in sale of units in one annual period and in the subsequent period the Company sells more than the fixed unit threshold, this difference will be offset from any reduced consideration in any annual periods between 2011 and 2014. As a result of lower than anticipated sales by our DPL subsidiary of the Compact Peripheral Component Interface 600W AC/DC power supply series (CPCI 600W) through 2013, the Company amended its agreement with Telkoor (effective January 1, 2014 for the duration of the original agreement or until the shortfall of CPCI 600W product sales will be offset) to include additional products in addition to the original CPCI 600W product. We will not be required to make any royalty payments to Telkoor under the Manufacturing Agreement with Telkoor (described below) until the shortfall of CPCI 600W product sales will be offset. 
+Acquisition of Shares of Telkoor 
+On June 16, 2011 the Company acquired 1,136,666 shares of Telkoor, a major shareholder of the Company and an Israeli company listed in the Tel Aviv stock exchange, for $0.88 (NIS 3) per share, which represents 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between Digital Power and Telkoor was updated and extended. Until September 30, 2012 the investment was accounted for as an available-for-sale investment and then reclassified the accounting of the investment at cost less accumulated impairments derived from independent appraisals or available market valuations 
+Manufacturing Agreement with Telkoor 
+On December 31, 2012, the Company entered into a Manufacturing Rights Agreement (the "Manufacturing Agreement") with Telkoor, pursuant to which among other things, Telkoor granted to the Company the non-exclusive right to directly place purchase orders for certain products from third party manufacturers for the purpose of marketing, selling and distributing the products for telecom, industrial, medical and military market segments in North and South America in consideration for the payment of royalty fees by the Company to Telkoor. The royalty fees paid by the Company to Telkoor under the Manufacturing Agreement are between 5% and 25%, depending on the product. The Company incurred $44,000 in Telkoor royalty expense in 2013.The Manufacturing Agreement has a term of five years from the date of signature. During the agreement, Telkoor agreed not to directly or indirectly participate or engage, or assist any other party in engaging or preparing to engage, the customers of the Company in North and South America in connection with the sale or distribution of any of the products under the Manufacturing Agreement. We will not be required to make any royalty payments to Telkoor under the Manufacturing Agreement with Telkoor until the shortfall of CPCI 600W product sales will be offset, as described under “Purchase of IP from Telkoor by DPL” above. 
+33 
+Hiring of Dori Kohn as Procurement and Supply Chain Manager 
+In December, 2013, Mr. Dori Kohn,the son of Mr. Amos Kohn, was hired as the Procurement and Supply Chain Manager for the Company following Board of Directors’ approval of the appointment. The annual salary of Mr. Dori Kohn is $65,000. 
+34

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+ITEM 9A. CONTROLS AND PROCEDURES. 
+Evaluation of Disclosure Controls and Procedures 
+As of December 31, 2013, we have carried out an evaluation, under the supervision of, and with the participation of, our management, including our Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of our controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) were effective as of the end of the period covered by the report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2013, our internal control over financial reporting was effective. 
+This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to a provision under the Dodd-Frank Wall Street Reform and Consumer Protection Act which grants a permanent exemption for non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002. 
+Evaluation of Changes in Internal Control over Financial Reporting 
+There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
+Relationship with Telkoor Power Supplies Ltd. 
+In the years ended December 31, 2013 and 2012, we purchased approximately $1,381,000 and $474,000, respectively, of products from Telkoor Power Supplies, Ltd., a wholly-owned subsidiary of our largest shareholder, Telkoor, of which Ben-Zion Diamant is the Chief Executive Officer. We have no written agreement for the purchase of these products, other than purchase orders that are placed in the ordinary course of business when the products are needed. 
+Purchase of IP from Telkoor by DPL 
+On August 25, 2010, we and our wholly-owned subsidiary, DPL, entered into an agreement with TPS, a wholly-owned subsidiary of our largest shareholder, Telkoor Telecom Ltd., of which Mr. Diamant is the Chief Executive Officer. Pursuant to such agreement, (1) TPS sold, assigned and conveyed to DPL all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets”) and (2) DPL granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. In consideration for the purchase of the Assets, DPL has paid TPS $480,000. The consideration for the license provided to TPS to sell the Assets in Israel is a royalty fee of 15% of TPS's direct production costs of sales, due on a quarterly basis. In accordance with the agreement, the consideration for the IP may be reduced over a four-year period in the event annual sales for each year between 2011 and 2014 are less than a fixed threshold of units on an annual basis based upon an offset value per unit as described in the agreement. If there is a shortfall in sale of units in one annual period and in the subsequent period the Company sells more than the fixed unit threshold, this difference will be offset from any reduced consideration in any annual periods between 2011 and 2014. As a result of lower than anticipated sales by our DPL subsidiary of the Compact Peripheral Component Interface 600W AC/DC power supply series (CPCI 600W) through 2013, the Company amended its agreement with Telkoor (effective January 1, 2014 for the duration of the original agreement or until the shortfall of CPCI 600W product sales will be offset) to include additional products in addition to the original CPCI 600W product. We will not be required to make any royalty payments to Telkoor under the Manufacturing Agreement with Telkoor (described below) until the shortfall of CPCI 600W product sales will be offset. 
+Acquisition of Shares of Telkoor 
+On June 16, 2011 the Company acquired 1,136,666 shares of Telkoor, a major shareholder of the Company and an Israeli company listed in the Tel Aviv stock exchange, for $0.88 (NIS 3) per share, which represents 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between Digital Power and Telkoor was updated and extended. Until September 30, 2012 the investment was accounted for as an available-for-sale investment and then reclassified the accounting of the investment at cost less accumulated impairments derived from independent appraisals or available market valuations 
+Manufacturing Agreement with Telkoor 
+On December 31, 2012, the Company entered into a Manufacturing Rights Agreement (the "Manufacturing Agreement") with Telkoor, pursuant to which among other things, Telkoor granted to the Company the non-exclusive right to directly place purchase orders for certain products from third party manufacturers for the purpose of marketing, selling and distributing the products for telecom, industrial, medical and military market segments in North and South America in consideration for the payment of royalty fees by the Company to Telkoor. The royalty fees paid by the Company to Telkoor under the Manufacturing Agreement are between 5% and 25%, depending on the product. The Company incurred $44,000 in Telkoor royalty expense in 2013.The Manufacturing Agreement has a term of five years from the date of signature. During the agreement, Telkoor agreed not to directly or indirectly participate or engage, or assist any other party in engaging or preparing to engage, the customers of the Company in North and South America in connection with the sale or distribution of any of the products under the Manufacturing Agreement. We will not be required to make any royalty payments to Telkoor under the Manufacturing Agreement with Telkoor until the shortfall of CPCI 600W product sales will be offset, as described under “Purchase of IP from Telkoor by DPL” above. 
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+Hiring of Dori Kohn as Procurement and Supply Chain Manager 
+In December, 2013, Mr. Dori Kohn,the son of Mr. Amos Kohn, was hired as the Procurement and Supply Chain Manager for the Company following Board of Directors’ approval of the appointment. The annual salary of Mr. Dori Kohn is $65,000. 
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