Digital Power Corporation

(DPW)

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Highlights

Digital Power Corporation is revitalized as a manufacturer and business based on these recent facts:

  • A new investor bought the previous Chairman s 40% stake of Digital Power in September 2016, and the new investor replaced the prior Chairman.
  • Digital Power has been a no-growth company for years, but recently received a $50 million (over three years) purchase order from MITX Ltd. (MTIX) to assemble its proprietary equipment for the textile industry. This purchase order was received from MTIX, which is under contract by the company s controlling shareholder and was introduced to the Company by its new Chairman. This purchase order could double sales for the company in 2018 and revitalize growth.
  • In addition to the MITX order, the new board of directors, elected in December, is reviving the company by allowing management to invest in future growth both by internal investment in staff and plant, as well as through acquisition.
  • Management is actively seeking acquisitions, particularly of companies that sell or service the defense and aerospace sectors. It recently announced its plan to acquire control of Microphase, a small provider of electronic components, devices, and subsystems for the defense, aerospace, and telecommunication sectors.
  • Sales to the military (primarily the US and Israel) are approximately 30% of total sales. The new Trump administration plans to hike military spending significantly and DPW could benefit.
  • The company plans to sell equity to support its growth, and also expects to use combinations of common and preferred stock and cash for future acquisitions.
  • At its current fully diluted market value (post acquisition) of $11.5 million or 1.0. times estimated 2017 sales (taking out the half of sales from Microphase,) we believe that there is considerable upside versus its peers who trade at 1.5 times sales should the company begin to show sustainable growth and reach profitability. Spending on new business and acquisitions is expected to produce losses for at least the next two year.

Overview

Digital Power designs, manufactures and markets flexible power supply solutions for the most demanding applications in the telecom, medical, industrial and military markets. The Company is a 48-year-old California corporation that was founded in 1969 and went public in 1996. It is headquartered in Fremont, CA with a manufacturing division in Salisbury, England where the new MITX order is expected to be assembled. It currently serves a worldwide base of 220 customers with 60% of sales to entities in North America. For 2016, $2.3 million (30%) of the $7.6 million in sales was to the defense sector.

Digital Power was one of the first companies to introduce product strategy based on the premise that developing product lines with extremely flexible architecture enables rapid modifications to meet unique customer requirements for non-standard output voltages. The development and implementation of this strategy provided the company with broad acceptance in the telecom market for its new line of high density power supplies. These products set a standard for providing power output in package sizes that were smaller than any other commercially available product.


Products manufactured and sold or distributed by Digital Power include the following:

  • AC-DC power supplies
  • Desktop adaptors
  • Compact PCI
  • LED drivers
  • Distributed power front-end power supplies
  • Capacitor chargers
  • Solar systems
  • Isolated power bricks

These products go into a variety of end markets primarily healthcare, industrial and telecommunications, and defense, automotive and utilities.

Competitors

  • Bel Fuse (BELFA) ( BELFB) is a $360 million public company with 8,000 employees based in Jersey City, New Jersey. It designs, manufactures, and sells products used in networking, telecommunications, high-speed data transmission, commercial aerospace, military, transportation, and consumer electronics. These include magnetics (discrete components, power transformers and MagJack® connectors with integrated magnetics), modules (DC-DC converters and AC-DC power supplies, integrated analog front end modules and custom designs), circuit protection (miniature, micro and surface mount fuses), and interconnect devices (micro, circular and filtered DSub connectors, fiber optic connectors, passive jacks, plugs and highspeed cable assemblies). It operates facilities around the world.
  • Artesyn Embedded Technologies is a 40-year-old company based in Tempe, AZ with over 20,000 employees worldwide. The company was formerly the Embedded Computing & Power business of Emerson Network Power. It is one of the world s largest power supply companies, and includes Astec brand. The company s extensive standard AC-DC product portfolio covers a power range of 3 watts to 5 kilowatts and a wide range of form factors
  • TDK-Lambda was created in 2008 when Densai-Lamba combined with the power systems group of TDK. It is a wholly owned subsidiary of TDK based in Tokyo. It designs, manufactures, sells, and maintains switching power supplies and peripherals. As of 2015 it had 622 employees in 16 countries.
  • Delta Electronics (DELTA.BK) is a public company in Thailand that was founded in 1990. It is one of the world's leading producers of power supplies and electronic components comprising cooling fans, EMI filters, and solenoids. Delta s key power management products consist of switching power supply, DC-DC converters, and solar inverters used in applications such as automotive, medical, telecommunications, IT, and automation.
  • MuRata (6981) is a global leader in the design, manufacture and supply of advanced electronic materials, leading edge electronic components, and multi-functional, and high-density modules used in products such as mobile phones, home appliances, automotive applications, energy management systems and healthcare devices. It is headquartered in Kyoto, Japan and was established in 1944. It has 55,000 employees.
  • Mean-Well Power Supplies is also based in Japan. It was founded in 1982 and most of its sales come from standard power supply products sold under its own brand name. It has changed its emphasis from power supplies for personal computer to those for industrial purposes. It has production facilities in China, Taiwan, and The Netherlands.

Digital Power Enters Into an Agreement to Buy 50.5% of Microphase

On May 3, 2017, Digital Power announced its agreement to purchase 50.5% of Microphase, a small electronics manufacturer based in Shelton, CT. The deal is expected to close May 25, 2017 and pro- forma financials have not yet been released. Microphase did announce that it expects to report revenues of $1.6 million and a loss of $820,000 in the quarter ending March 31, 2017, which puts it at an annual run rate of $6.5 million. In calendar year 2016, Microphase generated $6.6 million in sales and lost $3.1 million. The deal cost is approximately $2 million in stock and debt.

To acquire this majority interest Digital Power will buy 1,603,434 shares of Microphase common stock (or 50.2% on a fully diluted basis) in exchange for:

  1. An equivalent of 2,600,000 shares consisting of Digital Power common stock and Series D Convertible Preferred Stock, assuming full conversion thereof, plus
  2. 1 million warrants exercisable at $1.10.

In connection with the transaction, Digital Power also agreed to issue 10,000 shares of its Series E Convertible Preferred Stock to guarantee the payment of an 8% promissory note in the amount of $450,000 issued by Microphase to certain of its creditors.

Since Digital Power will be majority holder, it will consolidate 100% of Microphase s revenues and expenses and deduct the 49.8% losses or profits as minority income.

New Business Opportunity Could More than Double the Company Size

On March 15, 2017, Digital Power announced it had received a purchase order for $50 million over three years that should more than double the company’s revenues. This purchase order from MTIX Ltd., a startup in the textile machinery business, is for equipment that delivers its proprietary MSLE® platform harnesses the power of plasma, photonic energy and inert gases to treat natural and synthetic fabrics . The purchase order requires Digital Power to build, install, and service a number of machines worldwide. We believe that this is a conservative preliminary order and actual orders could be significantly higher over time. The purchase order specifies that two machines to be delivered to customers by December 31, 2017 with Digital Power being paid on a cost-plus basis as well as recurring revenues for ongoing equipment maintenance. After the next two machines are manufactured, Digital Power is expected to negotiate a fixed fee price for the units. While pricing for these units has not been revealed, we believe they could be priced as high as seven digits fora single machine.

On March 3, 2017, Avalanche International Corp, a Nevada corporation (OTC: AVLP) entered an agreement with MTIX and the three current shareholders of MTIX. Avalanche plans to acquire MTIX for:

(a) $9.5 million of 7% secured convertible promissory notes, (b) (i) $500,000 in cash, $50,000 of which has already been paid, and (ii) 100,000 shares of the AVLP s newly designated shares of Class B Convertible Preferred Stock to Pravin Mistry. Avalanche then plans to change the name of the company to MTIX.

On March 31, 2017, Digital Power made an investment in Avalanche International Corp, which acquired MTIX s proprietary rights. MTIX is an advanced materials processing technology company dedicated to revolutionizing the treatment of textiles through the direct synthesis of novel material compositions. MTIX has developed and proven an unequaled technology for the cost-effective, efficient and eco-friendly treatment of fabrics across a range of industries and applications. Digital Power‘s investment consists of a series of convertible loans totaling approximately $1,530,000. Avalanche is a development stage holding company whose primary business up until now was the manufacturing and distribution of premium vape liquid and the distributing of vape accessories as well as the development and operation of boutique niche restaurants.

Philou Ventures, LLC (which owns 33% of Digital Power) owns 214,000 shares of Avalanche common stock and 50,000 shares of Avalanche Class A preferred stock. Consequently, Philou is the owner of approximately 31.22% of the issued and outstanding Avalanche common stock and considered the controlling shareholder of Avalanche. Milton Todd Ault, III is the Chairman of the board of both Avalanche and Digital Power; William Horne is also on the board of both companies. Kristine Ault, the manager of Philou Ventures, LLC, is also on the Board of Directors of Digital Power and the wife of Mr. Ault.

Rather than have MTIX invest in manufacturing capabilities, it was decided to outsource the manufacturing and servicing of these new machines to Digital Power. MTIX uses a proprietary, patented, Multiplexed Laser Surface Enhancement (MLSE) platorm to treat fabrics and other surfaces.

To fulfill this recent purchase order, Digital Power is expanding operations in the UK. It is setting up a facility near its current UK facility and has hired four employees dedicated to the MTIX order. The company plans to invest $400,000 into this operation.

This profile is an excerpt from Zack's Small Cap Research. To view the full report please click here.

For more information on Digital Power please click here.

Management Team

President and CEO

Amos Kohn has served as a member of our board or of directors since 2003 and as Digital Power President and Chief Executive Officer since 2008. Mr. Kohn has more than 20 years of successful global executive management experience, including multiple C-level roles across private and established, publicly-traded companies. Mr. Kohn has successfully managed cross-functional teams, driven corporations to high profitability, built customer loyalty and led businesses through expansion and sustained growth. His areas of expertise include operations, technology innovation, manufacturing, strategic analysis and planning and M&A. Mr. Kohn was Vice President of Business Development at Scopus Video Networks, Inc., a Princeton, New Jersey company that develops and markets digital video networking products (2006-2007); Vice President of Solutions Engineering at ICTV Inc., a leading provider of network-based streaming media technology solutions for digital video and web-driven programming, located in Los Gatos, California (2003-2006); Chief Architect at Liberate Technologies, a leading company in the development of a full range of digital media processing for telecom and cable TV industries, located in San Carlos, California (2000-2003); and Executive Vice President of Engineering and Technology at Golden Channel & Co., the largest cable television multiple-systems operator (MSO) in Israel, where he had executive responsibility for developing and implementing the entire nationwide cable TV system (1989-2000).

Mr. Kohn holds a degree in electrical and electronics engineering and is named as an inventor on several United States and international patents.

Managing Director – Digital Power Limited (Gresham Power Electronics)

Jake Moir has been serving as Managing Director of Gresham Power since 2001. Before assuming this position, he was responsible for the Gresham defense business. Mr. Moir joined NM Rothschild in 1969 and worked in both the foreign exchange and investment departments. In 1971 he moved to Hong Kong and served as Investment Manager of Hutchison GT. From 1974 through 1976, he was deputy general manager at Tai Cheung Properties, where he oversaw the company’s investment activities and was involved in various property developments in Hong Kong and Southeast Asia.

Mr. Moir holds a MA degree in history from St. John’s College, Cambridge, UK. He has extensive training in merchant banking and a working knowledge of and experience in UK law.


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Digital Power Corporation

Profile

Headquartered in Fremont, CA, Digital Power Corporation designs, manufactures and sells high-grade customized and off-the-shelf power system solutions. Our products are used in the most demanding communications, industrial, medical and military applications where customers demand high density, high efficiency and ruggedized power solutions. The Company’s wholly owned subsidiary, Digital Power Limited which does business as Gresham Power Electronics, is based in Salisbury, UK. Digital Power's headquarters is located at 48430 Lakeview Blvd., Fremont, California, 94538; Sales and Product Information: 1-877-634-0982. Website: www.digipwr.com. Investor Inquires and Corporate Information: IR@digipwr.com or 1-888-753-2235.

Contact Information

Website: www.digipwr.com
Email: IR@digipwr.com
Main Phone: 1-888-753-2235
Address: 48430 Lakeview Boulevard
State: CA
City / Town: Fremont
Country: USA
Postal Code: 94538-3158

Issuer Information

Exchange: NYSE MKT
CEO: Amos Kohn
Employees: 26
Issuer Type: CS - Common Stock
Sector/Industry: Cyclical
NAICS: Other Electronic
$ 0.48 $ -0.02 (-4.00%)
Last Price 0.48 Change $ -0.02 Change % -4.00 Tick N/A
Bid N/A Bid Size 0.00 Ask N/A Ask Size 0.00
Open 0.53 High 0.53 Low 0.46 Prev Close 0.50
Last Trade Volume 171,784 52 Wk Hi 1.75 52 Wk Low 0.39
Market Cap 5.5 mi Ex-Div Date N/A Div Rate N/A Yield N/A
Shares 11,500,454.00 EPS (TTM) -0.26 PE Ratio N/A Exchange NYSE American