10-Q/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2011

Or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 0-14843

DPAC TECHNOLOGIES CORP.

(Exact name of Registrant as specified in its charter)

California
(State or other jurisdiction of
incorporation or organization) 33-0033759
(I.R.S. Employer
Identification No.)

5675 HUDSON INDUSTRIAL PARKWAY, HUDSON, OHIO 44236

(Address of principal executive offices)

Registrant’s telephone number, including area code: (800) 553-1170

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The number of shares of the registrant’s common stock, no par value per share, outstanding at September 6, 2011 was 141,995,826.

TABLE OF CONTENTS

	Item 6. Exhibits
SIGNATURE
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

EXPLANATORY NOTE

This Form 10-Q/A amends the Quarterly Report on Form 10-Q of DPAC Technologies Corp. for the quarter ended June 30, 2011 filed on August 15, 2011 (the “Form 10-Q”) for the sole purpose of furnishing the Interactive Data File as Exhibit 101 in accordance with Rule 405(a)(2) of Regulation S-T. No other changes have been made to the Form 10-Q. This Form 10-Q/A does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-Q.

Users of this data are advised that pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

Item 6. Exhibits

Exhibit No.	Description
101.INS **	XBRL Instance Document
101.SCH **	XBRL Taxonomy Extension Schema Document
101.CAL **	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB **	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE **	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF **	XBRL Taxonomy Extension Definition Linkbase Document

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DPAC TECHNOLOGIES CORP. (Registrant)
Dated: September 14, 2011	By:	/s/ STEVEN D. RUNKEL
		Steven D. Runkel,
		Chief Executive Officer
Dated: September 14, 2011	By:	/s/ STEPHEN J. VUKADINOVICH
		Stephen J. Vukadinovich, Chief Financial Officer

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
STOCKHOLDERS' EQUITY:
Common stock, par value
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	141,995,826	109,414,896
Common stock, shares outstanding	141,995,826	109,414,896
Dividends distributable in common stock, preferred stock	4,492,469	32,580,930
Series A Preferred stock
STOCKHOLDERS' EQUITY:
Preferred stock, shares authorized	30,000	30,000
Preferred stock, shares issued	30,000	30,000
Preferred stock, shares outstanding	30,000	30,000
Preferred stock, par value	$ 100	$ 100

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Condensed Consolidated Statements of Operations [Abstract]
NET SALES	$ 2,239,264	$ 1,984,488	$ 4,251,683	$ 3,753,508
COST OF GOODS SOLD	1,296,615	1,134,526	2,469,660	2,061,553
GROSS PROFIT	942,649	849,962	1,782,023	1,691,955
OPERATING EXPENSES
Sales and marketing	249,260	189,511	486,367	364,942
Research and development	177,345	194,243	391,441	381,970
General and administrative	380,290	302,234	723,815	592,110
Amortization of intangible assets	12,582	132,087	106,828	264,174
Total operating expenses	819,477	818,075	1,708,451	1,603,196
INCOME FROM OPERATIONS	123,172	31,887	73,572	88,759
OTHER (INCOME) EXPENSE:
Interest expense	157,743	160,707	290,979	313,399
Fair value adjustment for put warrant liability		(35,800)	8,200	(35,800)
Total other expenses	157,743	124,907	299,179	277,599
LOSS BEFORE INCOME TAXES	(34,571)	(93,020)	(225,607)	(188,840)
INCOME TAX PROVISION
NET LOSS	(34,571)	(93,020)	(225,607)	(188,840)
PREFERRED STOCK DIVIDENDS	112,500	112,500	225,000	225,000
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$ (147,071)	$ (205,520)	$ (450,607)	$ (413,840)
NET LOSS PER SHARE:
Net Loss - Basic and diluted	$ 0	$ 0	$ 0	$ 0
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and Diluted	141,996,000	109,415,000	131,136,000	109,415,000

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Document and Entity Information (USD $)	6 Months Ended
	Jun. 30, 2011	Aug. 08, 2011	Mar. 18, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	DPAC TECHNOLOGIES CORP
Entity Central Index Key	0000784770
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 1,540,000
Entity Common Stock, Shares Outstanding		141,995,826

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Stock Options

6 Months Ended

Jun. 30, 2011

Stock Options [Abstract]

Stock Options

NOTE 7 — Stock Options

Stock-Based Compensation

The Company recognizes compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options and stock issued under our employee stock plans. The Company estimates the fair value of share-based payment awards on the date of grant using a Black-Scholes option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our consolidated statements of operations.

Under the terms of the Company’s 1996 Stock Option Plan, (the “Plan”), qualified and nonqualified options to purchase shares of the Company’s common stock are available for issuance to employees, officers, directors, and consultants. As amended on February 23, 2006, the Plan authorized 15,000,000 option shares with an annual increase to the total number of option shares available in the plan equal to 4% of the total number of common shares outstanding each year until the end of the option plan. On February 23, 2006, the termination date for the plan was extended to January 11, 2011. At June 30, 2011, no additional shares are authorized to be granted since the plan has terminated.

Options issued under this Plan are granted with exercise prices equal to the closing stock price on the date of grant and generally vest immediately for options granted to directors and at a rate of 25% per year for options granted to employees, and expire within 10 years from the date of grant or 90 days after termination of employment.

In January 2011, the Company granted stock options under the standard plan provisions of 1,000,000 shares to directors and 8,100,000 shares to employees for a total of 9,100,000 shares granted.

During the six-month periods ended June 30, 2011 and 2010, the Company recognized compensation expense for stock options of $60,872 and $39,354 respectively. The expense is included in the consolidated statement of operations as general and administrative expense. Total unamortized compensation expense related to non-vested stock option awards at June 30, 2011 was $144,000, which is expected to be recognized over a weighted-average period of 1.9 years. The Company’s calculations were made using the Black-Scholes option-pricing model, with the following weighted average assumptions:

	For the Six Months
	Ended June 30,
	2011			2010 (1)
Expected life	6.5 Years				N/A
Volatility		369	%		N/A
Interest rate		2.5	%		N/A
Dividend yield	None				N/A

(1) No options were granted during the six months ended June 30, 2010.

Expected volatilities are based on historical volatility of the Company’s stock. The Company used historical experience with exercise and post employment termination behavior to determine the options’ expected lives. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.

The following table summarizes stock option activity under DPAC’s 1996 Stock Option Plans for the six months ended June 30, 2011:

				Weighted-
				Average		Weighted-Average	Aggregate
	Number of			Exercise		Remaining	Intrinsic
	Shares			Price		Contractual Life	Value
Outstanding — December 31, 2010		12,784,699		$	0.21
Granted		9,100,000		$	0.02
Exercised		—			—
Canceled		(1,158,256	)	$	0.47
Outstanding — June 30, 2011		20,726,443		$	0.11	7.0 Years	$	495,254
Exercisable —June 30, 2011		11,951,443		$	0.18	5.4 Years	$	159,104

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Property

6 Months Ended

Jun. 30, 2011

Property [Abstract]

Property

NOTE 3 — Property

Property consists of the following:

	June 30,			December 31,
	2011			2010
Leasehold improvements	$	103,714		$	103,714
Machinery and equipment		384,773			380,773
Computer software and equipment		629,769			628,683
Office funiture and equipment		79,602			79,602
Internally developed software		191,657			191,657
Developed embedded software		390,000			390,000
		1,779,515			1,774,429
Less: accumulated depreciation and amortization		(1,235,415	)		(1,142,660	)
Net property	$	544,100		$	631,769

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

NOTE 9 — Income Taxes

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. The Company exercises significant judgment relating to the projection of future taxable income to determine the recoverability of any tax assets recorded on the balance sheet. DPAC regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. To the extent that recovery is not believed to be more likely than not, a valuation allowance is established. The Company has established a valuation allowance associated with its net deferred tax assets.

As of June 30, 2011, the Company’s prior three income tax years remain subject to examination by the Internal Revenue Service, as well as various state and local taxing authorities.

The valuation allowance was calculated by using an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Evidence evaluated by management included operating results during the most recent three-year period and future projections, with more weight given to historical results than expectations of future profitability, which are inherently uncertain. The Company’s net losses in recent periods represented sufficient negative evidence to require a full valuation allowance against its net deferred tax assets. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of deferred tax assets.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

NOTE 11 — Commitments and Contingencies

Legal Proceedings

We are subject to various legal proceedings and threatened legal proceedings from time to time as part of our business. We are not currently party to any legal proceedings nor are we aware of any threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe would have a material adverse effect on our business, financial condition and results of operations. However, any potential litigation, regardless of its merits, could result in substantial costs to us and divert management’s attention from our operations. Such diversions could have an adverse impact on our business, results of operations and financial condition.

Other Contingent Contractual Obligations

Over time, the Company has made and continues to make certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include: indemnities to past, present and future directors, officers, employees and other agents pursuant to the Company’s Articles, Bylaws, resolutions, agreements or otherwise; indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease; indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company; and indemnities pursuant to contracts involving protection of selling security holders against claims by third parties arising from any alleged inaccuracy of information in registration statements filed by the Company with the SEC or involving indemnification of the other parties to contracts from any damages arising from misrepresentations made by the Company. The Company may also issue a guarantee in the form of a standby letter of credit as security for contingent liabilities under certain customer contracts. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees may not provide for any limitation of the future payments that the Company could potentially be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying balance sheets.

The Company’s severance agreements with the current CEO and CFO provide for compensation equivalent to one year of compensation and six months of compensation, respectively, should either individual be terminated for any reason other than cause.

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Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information [Abstract]

Segment Information

NOTE 8 — Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer reviews financial information and makes operational decisions based upon the Company as a whole. Therefore, the Company reports as a single segment.

The Company had export sales of 16% and 18% of net sales for the three and six months ended June 30, 2011 and 21% and 26% of net sales for the three and six months ended June 30, 2010, respectively. Export sales were primarily to Canada, Brazil, and Western European countries. Foreign sales are made in U.S. dollars. All long-lived assets are located in the United States.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 1 — Summary of Significant Accounting Policies

Nature of Operations

DPAC Technologies Corp., (“DPAC”) through its wholly owned subsidiary, Quatech Inc., (“Quatech”) designs and sells device connectivity and device networking solutions for a broad market. Quatech sells its products through a global network of distributors, system integrators, value added resellers, and original equipment manufacturers (“OEM”). Quatech designs communication and data acquisition products for personal computer based systems. The Company sells to customers in both domestic and foreign markets.

Going Concern

The Company’s financial statements have been prepared on a going concern basis. Certain conditions exist that raise substantial doubt about the Company’s ability to continue as a going concern. These conditions include recent operating losses, deficit working capital balances and the inherent risk in extending or refinancing our bank line of credit, which matures on September 5, 2011. Our ability to continue as a going concern is dependent upon our ability to maintain positive cash flows from operations and to raise additional financing. Management believes that it has taken the necessary steps to achieve and maintain positive cash flows from operations, including the acquisition of a product line and reduction and management of the Company’s operating costs. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As such, they do not include adjustments relating to the recoverability of recorded asset amounts and classification of recorded assets and liabilities that might result from the outcome of this uncertainty.

Liquidity

At June 30, 2011, the Company had a cash balance of $19,000 and a deficit in working capital of $1,467,000. At December 31, 2010, the Company had a cash balance of $48,000 and a deficit in working capital of $1,428,000. Although the Company has reported net losses in recent periods, a significant portion of our operating expenses are non-cash. During the first six months of 2011, the Company reported a net loss of $226,000, which included the following non-cash operating expenses: depreciation and amortization of $180,000, non-cash compensation expense for stock options of $61,000, and a charge of $8,200 for the put warrant adjustment. For 2010, the Company reported a net loss of $665,000, which included the following non-cash operating expenses: depreciation and amortization of $684,000, provision for excess inventory of $166,000, non-cash compensation expense for stock options of $68,000, and non-cash interest expense of $95,000.

The Company has taken the following actions to reduce expenses and increase capital: During the first quarter of 2009, the Company entered into an agreement with one of its contract manufacturers to sell certain equipment and inventory, lease a portion of its facility to the manufacturer, and further engage the manufacturer to produce more of the Company’s products. This transaction provided $150,000 in cash and has improved the operating efficiency of the Company. In the third quarter of 2009, the Company implemented additional cost reduction measures by reducing headcount and implementing a salary reduction program for all employees resulting in annual operating costs reductions of approximately $400,000. On September 30, 2009, the Company acquired the SocketSerial product line in a non cash transaction for the Company. In June 2011, the Company entered into a Fifth Amendment to Credit Agreement extending the maturity date of its Bank revolving credit facility to September 5, 2011. Management believes that the actions it has taken will help enable the Company to generate positive cash flows from operations. However, a downturn in our revenue levels can severely impact the availability under our line of credit and limit our ability to meet our obligations on a timely basis and finance our operations as needed.

On August 3, 2011, DPAC and Quatech entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with B&B Electronics Manufacturing Company (“B&B”) and its wholly owned subsidiary, Q-Tech Acquisition, LLC (the “Buyer”), that provides for the sale of substantially all of the assets of Quatech (which indirectly constitute substantially all of the assets of DPAC) to the Buyer for an aggregate amount of $10.5 million in cash, subject to a working capital adjustment at the closing. The Company will use the proceeds from the sale of assets to pay-off of its debt obligations, with the Buyer assuming certain other current liabilities, including accounts payable. In connection with the execution of the Asset Purchase Agreement, on July 27, 2011, the DPAC Board of Directors unanimously approved a Plan of Complete Liquidation and Dissolution (the “Plan of Dissolution”). Related to the Plan of Dissolution, DPAC and Quatech, as well as Development Capital Ventures, L.P., the majority shareholder of DPAC, and members of the DPAC Board of Directors who are shareholders, as well as Canal Mezzanine Partners, L.P. and The Hillstreet Fund, L.P. (“Hill Street”) and certain members of management who hold shares of common stock, agreed pursuant to an Allocation Agreement (the “Allocation Agreement”) that will become effective at the closing under the Asset Purchase Agreement, to a distribution to each holder of common stock (i) who is not as of, and has not been within 90 days prior to, the record date established with respect to such distributions, an officer or director or employee of DPAC or Quatech or (ii) who is not a party to the Allocation Agreement Immediately after the closing of the Asset Purchase Agreement, DPAC intends to begin a liquidation and winding process and DPAC will be completely dissolved at a date to be determined by the DPAC Board of Directors. See Note 12 — Subsequent Event for additional information.

Interim financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

All intercompany transactions and balances have been eliminated in consolidation.

For further information, refer to the audited financial statements and footnotes thereto of DPAC for the year ended December 31, 2010 which were filed on Form 10-K on April 15, 2011.

Use of Estimates

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectibility of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Fair Value Measurements

In September 2006, the FASB issued ASC No. 820, Fair Value Measurements (“ASC 820,” and previously referred to as Statement No. 157). The accounting pronouncement establishes a three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations in which there is little, if any, market activity for the asset or liability.

The following table represents our financial assets and liabilities measured at fair value on a recurring basis and the basis for that measurement:

			Fair Value Measurement Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets		Observable		Unobservable
	Fair Value		for Identical Assets		Inputs		Inputs
	Measurement		(Level 1)		(Level 2)		(Level 3)
Put Warrant Liability
June 30, 2011	$	119,100		—	$	119,100		—
December 31, 2010	$	110,900		—	$	110,900		—
Success Fee
June 30, 2011	$	—		—	$	—		—
December 31, 2010	$	18,319		—	$	18,319		—

The Company values the put warrant liability at the end of each reporting period by calculating the difference between the put price per share as defined in the Warrant Agreement and the exercise price per share multiplied by the number of warrants granted. The Company has classified the fair value of the warrants as a liability and changes in the fair value of the warrants are recognized in the earnings of the Company. The Company recognized no gain or loss for the current year second quarter and a loss of $8,200 for the six months ended June 30, 2011, and recognized a gain of $35,800 for both the three and six month periods ended June 30, 2010, related to the change in value of the put warrant liability. In the current year, the Company calculated the put price per share by using the Company’s stock book value as defined in the Warrant Agreement, resulting in a per share value of $0.019. In prior periods, the Company has used the closing stock price to value the put warrant liability as it has approximated the per share book value. In addition, the actual settlement amount of the put warrant liability could differ materially from the value determined.

The Subordinated Debt Agreement, which funded on January 31, 2008, provides for a formula driven success fee equal to 7.0 times the trailing twelve months EBITDA minus indebtedness plus cash, times 6.0%, to be paid at maturity or a triggering event. The success fee is being accounted for as a separate contingent component of the note and will be revalued at each reporting period. The success fee is calculated at the end of each reporting period based on the trailing twelve months EBITDA, with the resultant amount multiplied times the percentage of the loan period remaining at each measurement date. As such, the liability is trued up at each reporting period based on the time elapsed, with the remaining unamortized portion of the success fee accreted monthly as additional interest expense over the remaining term of the loan. Based on the results of the above calculation, the Company recorded no liability for the success fee as of June 30, 2011, resulting in no gain or loss and a gain of $18,319 for the three and six months ended June 30, 2011, respectively. There was no change in the valuation technique used by the Company since the last reporting period.

New Accounting Pronouncements

In January 2009, the Securities and Exchange Commission (“SEC”) issued Release No. 33-9002, “Interactive Data to Improve Financial Reporting.” The final rule requires companies to provide their financial statements and financial statement schedules to the SEC and on their corporate websites in interactive data format using the eXtensible Business Reporting Language (“XBRL”). The rule was adopted by the SEC to improve the ability of financial statement users to access and analyze financial data. The SEC adopted a phase-in schedule indicating when registrants must furnish interactive data. Under this schedule, the Company is required to submit filings with financial statement information using XBRL commencing with its June 30, 2011 quarterly report on Form 10-Q, and is permitted to file such financial statement information under an amendment to such form 10-Q if the amendment is filed no more than 30 days after the earlier of the due date or the filing date of such form.

In October 2009, the FASB amended revenue recognition guidance for arrangements with multiple deliverables. The guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (“VSOE”), vendor objective evidence (“VOE”) or third-party evidence (“TPE”) is unavailable. This guidance should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Full retrospective application of the guidance is optional. The provision was adopted and did not have a material effect on the financial position, results of operations or cash flows of the Company.

In April 2010, the FASB issued Accounting Standards Update 2010-13 (ASU 2010-13), “Compensation—Stock Compensation (Topic 718).” ASU 2010-13 provides amendments to ASC Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of the provisions of ASU 2010-13 did not have a material effect on the financial position, results of operations or cash flows of the Company.

In December 2010, the FASB issued an Accounting Standards Update 2010-28(“ASU 2010-28”), “Intangibles—Goodwill and Other (Topic 350)”. ASU 2010-28 amends ASC Topic 350. ASU 2010-28 clarifies the requirement to test for impairment of goodwill. ASC Topic 350 requires that goodwill be tested for impairment if the carrying amount of a reporting unit exceeds its fair value. Under ASU 2010-28, when the carrying amount of a reporting unit is zero or negative an entity must assume that it is more likely than not that a goodwill impairment exists, perform an additional test to determine whether goodwill has been impaired and calculate the amount of that impairment. The modifications to ASC Topic 350 resulting from the issuance of ASU 2010-28 are effective for fiscal years beginning after December 15, 2010 and interim periods within those years. Early adoption is not permitted. The adoption of the provisions of ASU 2010-28 did not have a material effect on the financial position, results of operations or cash flows of the Company.

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Debt

6 Months Ended

Jun. 30, 2011

Debt [Abstract]

Debt

NOTE 4 — Debt

At June 30, 2011 and December 31, 2010, outstanding debt is comprised of the following:

	June 30,			December 31,
	2011			2010
Revolving credit facility	$	1,500,000		$	1,500,000
Long term debt:
Ohio Development Loan:
Principal balance	$	1,843,768		$	1,906,268
Accrued participation fee		199,334			190,704
		2,043,102			2,096,972
Less: current portion		(125,000	)		(125,000	)
Net long-term portion		1,918,102			1,971,972
Subordinated debt:
Principal balance	$	1,395,000		$	1,395,000
Accrued success fee		—			18,319
Less: Unamortized discount for stock warrants		(20,217	)		(26,595	)
		1,374,783			1,386,724
Less: current portion		(195,000	)		(195,000	)
Net long-term portion	$	1,179,783		$	1,191,724
Total Current Portion of Long-term Debt	$	320,000		$	320,000
Total Net Long-term Debt	$	3,097,885		$	3,163,696

Revolving Credit Facility

On June 30, 2011, the Company had a revolving line of credit with a Bank providing for a maximum facility of $1,500,000 working capital line of credit with a maturity date of September 5, 2011. At June 30, 2011, the facility had a floating interest rate at the 30 day LIBOR (.19% at June 30, 2011) plus 8.5%. Interest is payable monthly on the last day of each month, until maturity. The Company is obligated to pay to the Bank an extension fee of $32,500 per the terms of the Fifth Amendment, which extended the line from May 31, 2011 to September 5, 2011, with $7,500 paid with the signing of the agreement in June 2011, and $25,000 due at maturity. All other terms and conditions of the Credit Agreement remain unchanged by the Amendment. Availability under the line of credit is formula driven based on applicable balances of the Company’s accounts receivable and inventories. Based on the formula, at June 30, 2011 the Company had availability to draw up to the maximum line amount of $1,500,000. The Credit Facility is secured by substantially all of the assets of the Company.

As of June 30, 2011, we were not in compliance with certain of our bank financial covenants, which included purchasing assets in excess of $100,000.00 from Socket Mobile, Inc. through the assistance of Development Capital Venture, L.P. without the express written consent of the bank. These defaults were waived by Fifth Third Bank by agreement (entered into in June, 2011), but any other events of default were not waived. Each of the loan agreements with Canal Mezzanine Partners and the State of Ohio provide for cross-default of such loans in the event the Company defaults on a material agreement (such as the Bank credit facility) under certain terms. Further, each of the loan agreements provide for restrictive covenants, including the incurrence of additional indebtedness and certain equity financings, which restrict the Company’s ability to access other sources of liquidity, absent refinancing all of the existing indebtedness. The Bank line currently is set to mature on September 5, 2011. Additionally, the Canal Mezzanine and State of Ohio loan agreements contain provisions that accelerate the maturity and repayment of outstanding borrowings upon the acceleration of the Bank debt. Further, in connection with the Asset Purchase Agreement, the Bank, as a lender to the Company, entered into a forbearance agreement with the Company, pursuant to which the Bank consented to the Company entering into the Asset Purchase Agreement and agreed to forbear from exercising certain rights under the Bank’s loan agreement with the Company through October 31, 2011.

Short Term Note

The short term note is with a financial institution and was funded for $39,474 to finance insurance premiums. The note bears interest at 7.0% per annum and calls for 9 monthly payments of $4,514, beginning in March 2011.

Ohio Development Loan

On January 27, 2006 Quatech entered into a Loan Agreement with the Director of Development of the State of Ohio pursuant to which Quatech borrowed $2,267,000 for certain eligible project financing. The State of Ohio debt accrues interest at the rate of 9.0% per year. Payments of interest only were due and payable monthly from March 2006 through February 2007. Thereafter, Quatech was obligated to make 48 consecutive monthly principal payments of $10,417 plus interest with the then balance due on February 1, 2011. During the second quarter of 2010, the repayments terms of the note were modified by means of an Allonge to the original instrument and provided a new debt amortization table. The modification deferred all monthly principal payments for a period of 11 months from October 2009 through September 2010 and extended the maturity date of the note. Per the modified agreement, the Company was obligated to make only monthly interest payments from November 2009 through September 2010. Thereafter, Quatech is obligated to make monthly principal payments of $10,417 plus interest through January 2013, with the remaining balance due in January 2013. The Company is current on all payments through June 30, 2011. At maturity, Quatech is obligated to pay the State of Ohio a participation fee equal to the lesser of 10% of the maximum principal amount borrowed or $250,000. The State of Ohio debt is secured by all the assets of Quatech which security interest is subordinated to the interest of the Bank. The participation fee is being accrued as additional interest each month over the term of the loan. Further, in connection with the Asset Purchase Agreement, the State of Ohio, as a lender to the Company, entered into a forbearance agreement with the Company, pursuant to which the State of Ohio consented to the Company entering into the Asset Purchase Agreement and agreed to forbear from exercising certain rights under their respective loan agreement with DPAC and Quatech through October 31, 2011.

Subordinated Debt

On January 31, 2008, the Company entered into a Senior Subordinated Note and Warrant Purchase Agreement (“Agreement”) with Canal Mezzanine Partners, L.P. (“Canal”), for $1,200,000. The subordinated note has a stated annual interest rate of 13% and a five year maturity date. Interest only payments are payable monthly during the first five years of the note with all principal due and payable on the fifth anniversary of the note. Effective March 1, 2011, the interest rate was increased to 16%. The Agreement also provides for a formula driven success fee based on a multiple of the trailing twelve months EBITDA, to be paid at maturity or a triggering event, and for issuance of warrants entitling Canal to purchase 3% of the Company’s fully diluted shares at time of exercise at a nominal purchase price.

In October 2008, the Company entered into an Amendment to the Agreement providing for a second tranche of Senior Subordinated Debt financing from Canal of $250,000, which was due and payable on February 15, 2009. In March 2010, the Company and Canal came to agreement, effective November 1, 2009, that established a modified payment schedule and increased the interest rate from 13% to 16% per annum. The Company repaid $55,000 of the principal balance. In April 2011, the Company and Canal came to agreement extending the maturity date to July 31, 2011, and on August 3, 2011, in conjunction with the Asset Purchase Agreement, Canal signed a consent form confirming their subordination position with Fifth Third Bank and effectively extending the maturity date to October 31, 2011.

The warrants associated with the Canal debt have a 10 year life and are exercisable at any time. The subordinated note has been discounted by the fair value of the detachable warrants, with a corresponding contribution to capital. The discount, calculated to be $63,800 at time of issuance, is being amortized as additional interest expense and accretes the note to face value at maturity. The Company determined the fair value of the warrant by using the Black-Scholes pricing model and calculating 3% of fully diluted shares at time of issuance, including a potential 50 million common shares for the conversion of the outstanding Series A preferred stock, which equated to approximately 4.9 million shares and using the closing stock price on the date of the transaction of $0.014 per share.

The success fee is defined as equal to 7.0 times the trailing twelve months EBITDA minus indebtedness plus cash, times 6.0%, to be paid at maturity or a triggering event. The success fee is being accounted for as a separate contingent component of the note and will be revalued at each reporting period. The success fee is calculated at the end of each reporting period based on the trailing twelve months EBITDA, with the resultant amount multiplied times the percentage of the loan period remaining at each measurement date. As such, the liability is trued up at each reporting period based on the time elapsed, with the remaining unamortized portion of the success fee accreted monthly as additional interest expense over the remaining term of the loan. Based on the formula calculation, there was no success fee accrued at June 30, 2011 and $18,319 was accrued at December 31, 2010.

Put Warrant Liability

In connection with the Subordinated Loan Agreement between the Company and the HillStreet Fund, entered into on February 28, 2006 and which was paid in full on January 31, 2008, the Company issued 5,443,457, and per certain default provisions could be obligated to issue 1,006,000 additional, 10-year warrants (“Put Warrants”) at an exercise price of $0.00001 per share. The warrants expire on February 28, 2016. The Put Warrants continue to remain outstanding and can be “put” to the Company at any time based on criteria set forth in the warrant agreement at a price equal to the greatest of (i) the fair market value as established by a capital transaction or public offering; (ii) six times the Company’s EBITDA for the trailing 12 month period; and (iii) an appraised value. The Company has determined to value the put warrant liability by calculating the difference between the put price as defined in the Warrant Agreement at the end of a reporting period and the exercise price per share multiplied by the number of warrants granted. The Company has classified the fair value of the warrants as a liability and changes in the fair value of the warrants are recognized in the earnings of the Company. The Company recognized no gain or loss for the current year second quarter and a loss of $8,200 for the six months ended June 30, 2011, and recognized a gain of $35,800 for both the three and six month periods ended June 30, 2010, for changes in the fair value of the put warrant liability. The actual settlement amount of the put warrant liability could differ materially from the value determined based on the Company’s determination.

The aggregate amounts of combined long term debt, exclusive of the put warrant liability and the unamortized discount for stock warrants, maturing as of June 30th in future years is $320,000 in 2012 and $3,097,885 in 2013.

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Concentration of Customers

6 Months Ended

Jun. 30, 2011

Concentration of Customers [Abstract]

Concentration of Customers

NOTE 5 — Concentration of Customers

No single customer accounted for more than 10% of net sales in any period for the three or six months ended June 30, 2011 and 2010. One customer accounted for 10% of accounts receivable at June 30, 2011 and no single customer accounted for more than 10% of net accounts receivable at June 30, 2010. The Company has and will have customers ranging from large OEM’s to startup operations. Any inability to collect receivables from any such customers could have a material adverse effect on the Company’s financial position and liquidity.

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Net Income (Loss) Per Share

6 Months Ended

Jun. 30, 2011

Net Income (Loss) Per Share [Abstract]

Net Income (Loss) Per Share

NOTE 6 — Net Income (Loss) Per Share

The Company computes net income (loss) per share by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities by including other common stock equivalents, such as stock options and warrants, in the weighted-average number of shares outstanding for a period. Common stock equivalents are excluded from the calculation in loss periods, as the effect is anti-dilutive.

The tables below set forth the reconciliation of the denominator of the income (loss) per share calculations:

	Three-months ended
	June 30,
	2011		2010
Shares used in computing basic net income per share		141,996,000		109,415,000
Dilutive effect of stock options and warrants(1)(3)		—		—
Shares used in computing diluted net income per share		141,996,000		109,415,000

	Six-months ended
	June 30,
	2011		2010
Shares used in computing basic net income per share		131,136,000		109,415,000
Dilutive effect of stock options and warrants(2)(3)		—		—
Shares used in computing diluted net income per share		131,136,000		109,415,000

(1) Potential common shares of 13,902,000 and 8,425,000 for the exercise of stock options and warrants have been excluded from diluted weighted average common shares for the three month periods ended June 30, 2011 and 2010, respectively, as the effect would be anti-dilutive.

(2)

Potential common shares of 13,810,000 and 8,481,000 for the exercise of stock options and warrants have been excluded from diluted weighted average common shares for the six month periods ended June 30, 2011 and 2010, respectively, as the effect would be anti-dilutive.

(3)

Also excluded from both the June 30, 2011 and 2010 computations are the potential of approximately 71 million common share that would be issued upon the conversion of the total number of shares of Preferred Stock outstanding, at the option of the preferred shareholders. Additionally excluded from both the June 30, 2011 and 2010 computations are 4.5 million and 21.5 million , respectively, common shares issuable in payment of accrued stock dividends

The number of shares of common stock, no par value, outstanding at August 8, 2011 was 141,995,826.

At June, 2011 the Company had outstanding 30,000 shares of convertible, voting, cumulative, Series A preferred stock. Through December 31, 2009, dividends accrued and were payable quarterly in arrears at the annual rate of 9% of the Original Issue Price of $100 per share, either in cash or common stock, at the decision of the Company. Effective January 1, 2010, dividends accrue and are payable quarterly in arrears at the annual rate of 15% given that the Company is not listed for trading on the American Stock Exchange, a NASDAQ Stock Market or the New York Stock Exchange. For purposes of valuing the common stock payable to holders of Series A Preferred in lieu of cash with respect to such quarterly dividends, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 10 day period ending the day prior to the dividend payment date. At June 30, 2011, the Company has accrued dividends distributable in common stock of $225,000, which equates to approximately 4,492,000 common shares issuable, and $17,500 of accrued dividends payable in cash. In March 2011, the Company issued 32,580,930 shares of common stock in payment of accrued preferred stock dividends payable in common stock of $465,000, which were accrued as of December 31, 2010.

Series A preferred stock can, at the option of the holder, be converted into fully paid shares of common stock. The number of shares of common stock into which shares of Series A preferred may be converted shall be obtained by multiplying the number of shares of Series A preferred to be converted by the Original Issue Price of $100 and dividing the result by the product of $0.034 (the “Reference Price”) times 1.25, which equates to approximately 71 million common shares should the total number of outstanding preferred shares be converted. After December 31, 2009, the Company can redeem the Series A preferred shares at a price per share equal to the Original Issue Price. The holders of preferred stock have preference in the event of liquidation or dissolution of the Company over the holders of common stock.

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (225,607)	$ (188,840)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	180,419	338,824
Provision for obsolete inventory	24,000	24,000
Accretion of discount and success fees on debt	(3,311)	15,008
Amortization of deferred financing costs	16,390	22,961
Fair value adjustment for put warrant liability	8,200	(35,800)
Non-cash compensation expense	60,872	39,354
Changes in operating assets and liabilities:
Accounts receivable	(320,097)	(26,260)
Inventories	(186,641)	139,875
Prepaid expenses and other assets	(45,146)	(6,073)
Accounts payable	466,513	(423,067)
Other accrued liabilities	41,336	200,494
Net cash provided by operating activities	16,928	100,476
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions	(5,086)	(40,084)
Net cash used in investing activities:	(5,086)	(40,084)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under revolving credit facility		74,757
Net borrowing under short term notes	21,930	22,040
Repayments on Ohio Development loan	(62,500)
Repayment of Subordinated Debt		(35,000)
Financing costs incurred		(7,500)
Preferred stock dividends paid in cash		(17,500)
Net cash (used in) provided by financing activities	(40,570)	36,797
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(28,728)	97,189
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD	47,870	17,532
CASH & CASH EQUIVALENTS, END OF PERIOD	19,142	114,721
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	272,000	230,983
Accrued preferred stock dividends distributable in common stock	225,000	190,000
Common stock issued in payment of preferred stock dividends	$ 465,000

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Inventories

6 Months Ended

Jun. 30, 2011

Inventories [Abstract]

Inventories

NOTE 2 — Inventories

Inventories consist of the following:

	June 30,		December 31,
	2011		2010
Finished goods	$	828,002	$	613,009
Raw materials and sub-assemblies		233,057		285,409
	$	1,061,059	$	898,418

Purchases of finished assemblies and components from three major vendors represented 40%, 26% and 24% of the total inventory purchased in the six months ended June 30, 2011, and two vendors accounted for 37% and 33% for the six months ended June 30, 2010. The Company has arrangements with these vendors to purchase product based on purchase orders periodically issued by the Company.

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Subsequent Event

6 Months Ended

Jun. 30, 2011

Subsequent Event [Abstract]

Subsequent Event

NOTE 12 — Subsequent Event

On August 3, 2011 DPAC and Quatech entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with B&B Electronics Manufacturing Company (“B&B”) and its wholly owned subsidiary, Q-Tech Acquisition, LLC (the “Buyer”), which was previously reported on Forms 8-K filed by DPAC with the Securities and Exchange Commission on August 3, 2011 and August 9, 2011,.

The Asset Purchase Agreement provides for the sale of substantially all of the assets of Quatech (which indirectly constitute substantially all of the assets of DPAC), other than certain excluded assets set forth therein, to the Buyer for an aggregate amount of $10.5 million in cash. The total purchase price for the assets is subject to increase or decrease based on a working capital adjustment, based on a target working capital amount of $710,000 at the closing, to the extent that the working capital at closing is at least $70,000 more or less than the working capital target. At the closing under the Asset Purchase Agreement, $900,000 of the purchase price, less the amount of any negative working capital adjustment estimated at the closing, will be deposited with an escrow agent and will be available to the Buyer and B&B for any further downward adjustment to the purchase price resulting from a closing working capital amount that is at least $70,000 less than the target amount as ultimately determined after the closing, and to satisfy DPAC’s and Quatech’s indemnification obligations under the Asset Purchase Agreement.

Until the closing date, DPAC and Quatech have agreed to observe customary covenants in the pre-closing period, including, among others, to use all available cash to pay off account payables that have been otherwise included in the calculation of the working capital adjustment; and to carry on its business in the ordinary course in substantially the same manner as it has been conducted historically. Additionally, the Asset Purchase Agreement grants to the Buyer and B&B certain exclusivity rights until the closing or the termination of the Asset Purchase Agreement.

Additionally, the Asset Purchase Agreement requires that DPAC and Quatech each change its legal (corporate) name to a name that does not use “DPAC” or “Quatech” or certain other terms specified in the agreement after the closing thereunder. Further, DPAC agreed that in connection with the closing of the Asset Purchase Agreement and to the extent permitted by applicable law, DPAC will make liquidating distributions to the “Nonaffiliated Shareholders” of $0.05 per share of common stock of DPAC. In addition, DPAC agreed not make any payment or distribution to its affiliated shareholders who are parties to the “Allocation Agreement” until DPAC has paid or made provision for the payment of the liquidating distributions to the Nonaffiliated Shareholders.

Further, in connection with the Asset Purchase Agreement, each of Fifth Third Bank, N.A. (“Fifth Third”) and the State of Ohio, as lenders to DPAC and Quatech, entered into forbearance agreements with DPAC and Quatech, pursuant to which each consented to DPAC and Quatech entering into the Asset Purchase Agreement and agreed to forbear from exercising certain rights under their respective loan agreement with DPAC and Quatech until the closing has occurred or the Asset Purchase Agreement has terminated. In the case of the forbearance agreement with Fifth Third, DPAC and Quatech were to pay a forbearance fee of $20,000 at the time of Fifth Third’s execution of that forbearance agreement.

The Asset Purchase Agreement and the transactions contemplated thereby were unanimously approved by DPAC’s Board of Directors and by a special independent committee of DPAC’s directors.

In connection with the execution of the Asset Purchase Agreement, the DPAC Board of Directors unanimously approved a Plan of Complete Liquidation and Dissolution (the “Plan of Dissolution”), which will only become effective if the Asset Purchase Agreement closes. Pursuant to the Plan of Dissolution, DPAC intends to begin the liquidation and winding up immediately after the closing under the Asset Purchase Agreement and DPAC will be completely dissolved at a date to be determined by the DPAC Board of Directors. In connection with the dissolution, and, subject to paying or providing for the payment of all debts and liabilities and expenses, DPAC intends to make liquidating distributions to the Nonaffiliated Shareholders equal to $0.05 per share of common stock held thereby as of a record date that is to be determined by the DPAC Board of Directors for shareholders entitled to receive such distributions. That record date is subject to determination after the closing of the Asset Purchase Agreement occurs.

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Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2011	Dec. 31, 2010
CURRENT ASSETS:
Cash and cash equivalents	$ 19,142	$ 47,870
Accounts receivable, net	1,479,219	1,159,122
Inventories	1,061,059	898,418
Prepaid expenses and other current assets	82,504	37,358
Total current assets	2,641,924	2,142,768
PROPERTY, net	544,100	631,769
DEFERRED FINANCING COSTS, net	51,901	68,291
TRADEMARKS	2,583,000	2,583,000
GOODWILL	3,822,503	3,822,503
AMORTIZABLE INTANGIBLE ASSETS, net	34,000	121,664
OTHER ASSETS	16,133	16,133
TOTAL	9,693,561	9,386,128
CURRENT LIABILITIES:
Revolving credit facility	1,500,000	1,500,000
Short term note	21,930	0
Current portion of long-term debt	320,000	320,000
Accounts payable	1,594,025	1,127,512
Put warrant liability	119,100	110,900
Other accrued liabilities	553,746	512,410
Total current liabilities	4,108,801	3,570,822
LONG-TERM LIABILITIES:
Ohio Development loan, less current portion	1,918,102	1,971,972
Subordinated debt, less current portion	1,179,783	1,191,724
Total long-term liabilities	3,097,885	3,163,696
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 500,000,000 shares authorized; 141,995,826 and 109,414,896 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively	6,281,600	5,755,728
Preferred stock dividends distributable in common stock; 4,492,469 and 32,580,930 common shares at June 30, 2011 and December 31, 2010, respectively	225,000	465,000
Accumulated deficit	(6,518,928)	(6,068,321)
Total stockholders' equity	2,486,875	2,651,610
TOTAL	9,693,561	9,386,128
Series A Preferred stock
STOCKHOLDERS' EQUITY:
Preferred stock	$ 2,499,203	$ 2,499,203