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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM l0-K

Commission file number: 0-14843

DPAC TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Exchange Act:
None

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, without par value

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form l0-K or any amendment to this Form 10-K ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The aggregate market value of the registrant's Common Stock, no par value, held by non-affiliates of the registrant on February 28, 2005 the last business day of the registrant's most recently completed fourth fiscal quarter (based on closing price per share on that date as reported on NASDAQ), was $11,866,000.

        Number of shares of registrant's Common Stock outstanding at February 28, 2005: 23,744,931 shares

Documents Incorporated By Reference

        Portions of the registrant's Definitive Proxy Statement relating to the Registrant's 2005 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission are incorporated by reference into Part III of this Report.

DPAC TECHNOLOGIES CORP.
FORM 10-K
for the year ended February 28, 2005

INDEX

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CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS

        This Annual Report on Form 10-K includes forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, market conditions, demand and pricing trends, future expense levels, competition in our industry, trends in average selling prices and gross margins, product and infrastructure development, market demand and acceptance, the timing of and demand for next generation products, customer relationships, employee relations, and the level of expected future capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to DPAC Technologies Corp.'s ("DPAC" or the "Company") management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect that DPAC or management "estimates," "expects," "anticipates," "plans," "believes," "projects," "continues," "may," "will," "could," or "would" or statements concerning "potential" or "opportunity" or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The actual results of DPAC may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those discussed in "Additional Factors That May Affect Our Future Results" under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Because of these and other factors that may affect DPAC's operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that DPAC files from time to time with the Securities and Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

HOW TO OBTAIN DPAC TECHNOLOGIES SEC FILINGS

        All reports filed by DPAC Technologies with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SEC's public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. DPAC also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investors upon request and makes electronic copies of its most recently filed reports available through its website at www.dpactech.com as soon as reasonably practicable after filing such material with the SEC.

PART I

ITEM 1: BUSINESS

Subsequent Event—Agreement with QuaTech, Inc.

        On April 26, 2005, we announced that DPAC has entered into a definitive agreement with QuaTech, Inc. that sets forth the terms of a proposed acquisition by us of Quatech, Inc. through a triangular stock-for-stock merger. For accounting purposes, the transaction may be considered a reverse-acquisition of us by QuaTech, Inc. A copy of the agreement has been incorporated by reference as Exhibit 2.4 hereto. Following the transaction, QuaTech would be a wholly-owned subsidiary of DPAC. Under the definitive agreement, QuaTech's shareholders and stakeholders would receive DPAC shares in an amount equal to 150 percent of the amount of DPAC's partially diluted shares on a record date on the terms and subject to the conditions of the agreement. Also, we intend to issue and sell additional shares or securities for purposes of helping us to conserve working capital, to finance the QuaTech transaction, and to provide us added working capital.

        QuaTech, a privately-held company, is an industry leader in device networking and connectivity solutions. Through design, manufacturing and support, QuaTech maintains high standards of reliability and performance. Customers include OEM's, VAR's and System Integrators, as well as end-users in many industries, including banking, retail/POS, access control, building automation and security, and

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energy management. QuaTech is a leading supplier of data connectivity products to financial institutions, serving five of the top ten U.S. banks.

        Founded in 1983 and headquartered in Hudson, Ohio, QuaTech sells and supports its solutions both direct and through a global network of resellers and distributors.

        The consummation of the merger, as contemplated by the definitive agreement, is subject to various conditions, including the approval of DPAC shareholders and QuaTech shareholders, as well as satisfaction of certain other requirements and the absence of material adverse changes in conditions. Other factors that affect DPAC's business and its ability to conclude a merger transaction include, but are not limited to, that our Airborne(TM) products are new, that we sell to original equipment manufacturers for new product introductions by them, and that all of these are subject to risks and uncertainties regarding new product introductions such as uncertainty of market acceptance. Another major condition is that the parties need additional financing to complete the transactions as envisioned. Such financing may not be available on favorable terms. There are no assurances possible, and none is intended, that the transaction will be completed at all or on the terms described. The transaction is and shall continue to be subject to numerous conditions and contingencies until the transaction is completed. Also, there can be no assurance that such transaction, if completed, will succeed in achieving our goals.

        DPAC Technologies Corp. will provide further detailed information to its shareholders in a definitive proxy statement to solicit their vote for the transaction.

        The transaction's costs and diversion of management attention could negatively impact results.

The transaction would involve a change of control, in that it is likely that voting control of DPAC may be given to former shareholders of QuaTech. If the principal former shareholders of QuaTech were to act in concert, they might be able to elect a majority of DPAC's Board of Directors

Description of Business

        DPAC Technologies Corp. (formerly Dense-Pac Microsystems, Inc.) ("DPAC" or the "Company" or "we" or "our") is a provider of wireless connectivity products for industrial, transportation, medical and other commercial applications. The AirborneTM wireless Local Area Network (LAN) Node Module was introduced in September 2003 after an initial year of research and development. The product is designed to enable OEM equipment designers to incorporate 802.11 wireless LAN connectivity into their device, instrument or equipment through the inclusion of the Company's Wireless LAN Node Module in their system design. The Company also sells AirborneDirect plug-and-play wireless products that add 802.11 wireless connectivity to legacy instruments and equipment that have a pre-existing serial or Ethernet data port.

        Our products are used in medical monitoring and diagnostic equipment, heavy construction vehicles, forklifts, printers, point of sale devices, machine tools and other instruments and devices that seek to communicate data wirelessly with a local area network. We sell products to both original equipment manufacturers (OEM's), who incorporate our products into their proprietary systems, and directly to individual operators for deployment into their existing networks.

        DPAC Technologies Corp. ("DPAC" or the "Company" or "we" or "our") was incorporated in California in September 1983, originally under the name Dense-Pac Microsystems, Inc., and changed its name to DPAC Technologies Corp. in August 2001. Our web site is at www.DPACtech.com. The information on our web site is not part of this report.

        During fiscal year 2005, the Company sold its Industrial, Defense and Aerospace ("IDA") product line and ceased the sale and production of memory stacking services to providers of high-density memory boards for the personal computer, server and telecommunications markets. These product lines had comprised the majority of the Company's historical revenues. We now treat the results of operations and any remaining assets for these product lines as discontinued operations in our financial statements.

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        Except where otherwise noted, the financial information contained herein represents our continuing operations and excludes the discontinued IDA and memory stacking products.

        We believe that our future success depends upon many factors, including a continued growth in demand for wireless products, as well as our ability to develop or offer new products and broaden our customer base. For the fiscal year ended February 28, 2005, our largest customer accounted for approximately 14% of our net sales. As our wireless product line evolves and continues to be developed, we will need to increase the customer base and increase the number of products that are offered. This may include acquisitions in order to quickly increase the product offerings to the expanding customer base.

Changes in the Mode of the Conduct of our Business

        Historically, the Company provided products in the areas of high-density memory boards for the personal computer, server and telecommunications markets as well as products for the Industrial, Defense and Aerospace ("IDA") industry. These product lines comprised the majority of the Company's historical revenues. During fiscal 2005, the Company sold its IDA product line and ceased the sale and production of memory stacking services. The results of operations and any remaining assets for these product lines are treated as discontinued operations in the Company's financial statements.

Memory Stacking Technology Discontinued Product Line

        During the fiscal year ended February 29, 2004, DPAC began to experience significant reductions in demand from our memory stacking customers as a result of a change in the configurations of memory modules used in the computer server market. The memory market transitioned to a low-profile memory module, which required the customer to expend more labor in order to incorporate our memory stacking technology. Additionally, we experienced a significant increase in competition as several semiconductor companies increased their market penetration through licensing competing memory stacking technologies and offering customers the ability to purchase high-density memory stacks directly from the memory supplier.

        In response to these changes, in late 2002, DPAC initiated development of a new type of memory stacking using welded interfaces (DuraStackTM) and contracted with an automated equipment manufacturer to produce the equipment necessary to manufacture production quantities of memory stacks using this new technology. During the fourth quarter of fiscal year 2004, the Company was notified by the equipment vendor that the DuraStack™ automated production equipment would not meet the requirements of the volume through-put and yield. On March 5, 2004, the Company announced that it had ceased development of the DuraStack™ product for stacking TSOP memory. The Company concluded that the cost and time required to attain the yield and throughput targets made the continued development effort uneconomical. In addition, we also accelerated our efforts to expedite the introduction of our newly developed AirborneTM wireless connectivity module.

        As a result of the above, the Company recorded approximately $3.99 million of restructuring and impairment charges during fiscal year ended February 29, 2004. These charges included cash restructuring charges of approximately $1.4 million, of which $1.1 million related to severance costs and $320,000 for termination of a building lease. The remaining non-cash impairment charges of approximately $2.5 million primarily related to $1.2 million in write downs of production related assets (included in cost of sales), $960,000 write-down of DuraStack™ related equipment, and approximately $290,000 in non-cash compensation expense for accelerated vesting of stock options for severed employees. The impairment charges were calculated based on fair value versus current value of the various assets. The difference of the value was recorded as the restructuring and impairment charges. The Company implemented a number of restructuring initiatives to focus future endeavors of the Company on the Airborne™ wireless product line and to transition to an outsourced manufacturing model.

        On June 14, 2004, (fiscal year 2005) the Company reached an agreement to sell its intellectual property related to memory stacking services and related excess inventory for $670,000 in cash and

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agreed to cease to provide memory stacking services in August 2004. As a result of this action, the Company recorded additional restructuring charges of $395,000 related to the discontinuance of memory stacking services, including $100,000 for severance charges, and $295,000 related to the excess manufacturing space which was no longer being utilized. See "Restructuring and Impairment Charges" under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Industrial, Defense & Aerospace Discontinued Product Line

        The IDA product line was the original product introduced by the Company in 1983. As the Company moved towards commercial products over the last several fiscal years, the investment into the IDA product line did not continue and a majority of the customer base transformed their products to a commercial base, not needing the IDA type product. The IDA product used the same manufacturing personnel as the memory stacking as well as some of the same equipment. As the memory stacking business decreased, the efficiency in producing the IDA product line decreased and the overhead associated with the IDA product line did not make economic sense to continue production of this product line.

        On May 6, 2004, (fiscal year 2005) DPAC Technologies reached an agreement with Twilight Technologies Corp., a California Corporation, to sell DPAC's industrial, defense and aerospace ("IDA") memory product line. The agreement transferred all of our licensed rights to the technology, the product line, inventory and certain assets for $333,000 in cash and contingent future consideration based on the revenues of the product line for the next two years. This product line accounted for $1.2 million, $3.0 million and $6.97 million of net sales during fiscal years 2005, 2004 and 2003, respectively. During fiscal 2005 and 2004, the Company earned $518,000 and $164,000, respectively, in additional consideration from this agreement. The amount, if any, of any additional consideration to be received in fiscal 2006 is likely to be less than that received in 2005, but the amount cannot yet be determined.

        During the quarter ended August 31, 2004, the Company recorded additional net restructuring charges affecting continuing operations of $490,000, which was comprised of severance charges as the result of a reduction in workforce of three individuals, including the Company's prior CFO. The accrued severance charges are payable over the period ending December 31, 2006. Additionally, $92,000 of restructuring charges was recorded during the quarter ended February 28, 2005, which were comprised of severances as of a result of a reduction of seven individuals.

        The cessation of manufacturing and sales activities related to the memory stacking and IDA product lines resulted in the treatment of those products as "discontinued operations" for financial recording purposes. Accordingly, the Company's historical results of operations and statements of financial condition have been re-formatted to present these product lines as discontinued operations. In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", the assets and liabilities related to these operations have been segregated from those related to the on-going products related to the sale of the Airborne wireless product line, and the results of operations related to the discontinued product lines are presented as a single line item reflecting the net results of those discontinued operations.

        The memory stacking and IDA product lines accounted for 79.6%, 99.5% and 100% of the Company's total revenues in fiscal years 2005, 2004 and 2003, respectively. These revenues and their related expenses now represent "discontinued operations." The Airborne wireless product line was not under development until September 2002, and was not introduced for sale until September of 2003. Thus, there were no revenues related to the "continuing operations" until until fiscal 2004. Our historical results for fiscal year 2003 reflect no revenues from continuing operations and the only expenses for continuing operations were research and development costs and recurring sales and general and administrative expenses. In fiscal 2004, revenues from the sale of Airborne products totaled $96,000.

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Industry Segments and Geographic Information

        DPAC currently operates in one industry segment: the design, manufacture and marketing of data communications devices for use in commercial applications. This means that we have one reporting unit. We currently market our products through our own internal sales force as well as independent sales representatives. During fiscal years 2005, 2004 and 2003, respectively 15%, 12% and none of the Company's revenues were derived from foreign countries. See Note 9 of the "Notes to Consolidated Financial Statements" under Part II, Item 8, "Financial Statements and Supplementary Data" for a summary of segment and geographic information.

Business Strategy

        Our principal business objective is to be a recognized leader in providing wireless and other data connectivity solutions for machine-to machine ("M2M") applications. We intend to focus our business development efforts on vertical OEM markets by supplying high value products and services using unique technologies, processes and expertise to address the data communications requirements within our customers' vertical markets. These vertical markets may include transportation, logistics and materials management, medical equipment, and others. We are market-directed to leverage our core competencies in wireless connectivity, high-density electronic component packaging and engineering design by providing exceptional customer service.

        Our strategy is to continue building the high-density wireless product line based on a technology roadmap and to expand the product offerings to address the developing standards in 802.11 connectivity, as well as other radio protocols.

        We also intend to provide custom designed solutions for vertical market OEM's.

Marketing and Distribution, International Sales

        We market our products throughout the world directly through our own sales staff and through independent manufacturers' sales representatives. Sales representatives obtain orders on an agency basis and shipments are made by us directly to the customer. The sales representatives receive a commission on sales of our products within their territories. Our international distributors will order wireless products based on their needs and do not have a right of return.

        In fiscal year 2005, approximately 15% of our sales were export sales, as compared to 12% in fiscal year 2004 and no foreign sales in fiscal year 2003. Foreign sales are made in U.S. dollars. Our foreign sales were made primarily to Canada and Western Europe.

        Specific demand shifts by customers could result in significant changes in our export sales from year to year.

Service and Warranty

        We offer warranties of various lengths, which differ by customer and product type and typically cover defects in materials and workmanship. We, along with our contract manufacturer, perform warranty obligations and other maintenance services for our products in Southern California and at our contract manufacturer overseas.

Products

        The Company's Airborne wireless products now represent the continuing operations of the company.

        Airborne™ wireless product line—During September 2003, the Company announced that it had developed a high-density package addressing needs in the industrial wireless marketplace with a product known as the Airborne ™ Wireless LAN Node module. The wireless product utilizes the 802.11b standard communications protocol (also known as "WiFi") and targets the identified growth opportunities in embedded and plug-and-play applications, where we believe Original Equipment Manufacturer (OEM) customers as well as end-user customers have a need for an integrated local area network wireless connectivity solution. The wireless module includes a radio, base-band processor, an application processor and software for a "drop-in" web-enabled WiFi solution for connecting

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equipment, instrumentation and other devices to a local area network. An additional plug-and-play version of the product was developed and named AirborneDirect™. This product provides a web-enabled wireless connectivity solution for industrial equipment already in field use. Since, for the customer, there is no need to develop the software, or develop the radio frequency and communications expertise in-house, customers can realize reduced product development costs and a quick time-to-market. The AirborneDirect™ modules provide instant local area network and Internet connectivity, and connect through standard serial or Ethernet interfaces to a wide variety of applications.

        The Airborne™ modules were designed to provide wireless local area network and Internet connectivity in transportation, logistics, point of sale devices, medical equipment, and other industrial products and applications. The product was designed to address the needs of small to medium volume applications where time to market, industrial temperature compatibility and ease of implementation are key factors in the decision to implement a wireless connectivity solution. Equipment with an Airborne™ module, either embedded or attached, can be monitored and controlled by an handheld device, by a personal computer in a central location or over the Internet. This eliminates cabling, allows the equipment to be portable and provides an effective mode of supplying the non-PC device to a local area network and the Internet. For example, the module can be a solution for communicating remote sensing and data collection activities through the Internet to a user's PC or network database software.

        The product line was introduced in September 2003, with evaluation units and production units available for sale. Sales of wireless products amounted to $1.4 million in fiscal 2005 and $96,000 in fiscal year 2004. The Company will continue to invest in this product line and may identify other potential opportunities to expand its product offering.

Discontinued Products

        Prior to September 2004, the Company's primary product for sale in the marketplace was the LPTM Stack. This product line permitted the stacking of memory chips for a higher density memory solution utilizing the same space on a printed circuit board. The Company also produced a custom product line of ceramic and plastic memory custom modules with a variety of capabilities targeted to meet market requirements in the industrial, defense and aerospace (IDA) industries. The Company no longer produces either the LP Stack or the IDA products. The historical revenues and results of operations from these products are treated as discontinued operations in the Company's financial statements.

Competition

        The competition that we face contributes to our challenges in achieving targeted sales growth and market acceptance of our products. Without rapid sales growth, we will not be able to generate revenues sufficient to establish or maintain a profitable business for our products. The wireless communications industry is extremely competitive and marked by rapid technology changes, new product developments, rapid product obsolescence, evolving industry standards and price erosion over the life a product. Our products compete on the basis of customer service, performance, functionality, pricing, quality and reliability, time-to-market delivery capabilities, and compliance with industry standards. While we believe that we compete favorably with respect to the foregoing characteristics, there can be no assurance that we shall succeed in being competitive with existing or future products.

        We have competition from other wireless products using 802.11 technology. There are also other companies that offer similar products with the same or other configurations and radio communication protocols, including cellular, Bluetooth and proprietary radio solutions that will compete with our Airborne wireless module. The primary competitors in providing embedded 802.11 wireless solutions to OEM customers are Lantronix Inc. and Digi International Inc. Other competitors may provide alternative radio protocols such as cellular or other proprietary technologies for sale to OEM's. These competitors include Wavecom SA, Maxstream, and Skybility. Other companies such as Symbol Technologies Inc. and Cisco Systems Inc. make wireless solutions that are not primarily aimed at OEM customers, but may be used in those applications and have been in certain circumstances. Many of

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these companies in the wireless market have greater financial, manufacturing and marketing capabilities than we have.

        We expect to face competition from existing competitors and new and emerging companies that may enter our existing or future markets with similar or alternative products, which may be less costly or provide additional features and rapidly acquire significant market share. We expect our competitors will continue to improve the performance of their current products, reduce their prices, or introduce new products that may achieve superior performance or improved pricing. In addition, some of our significant suppliers could also become our competitors, many of whom have the ability to manufacture competitive products at lower costs because of their higher levels of integration. We also face competition from current and prospective customers that evaluate our capabilities against the merits of manufacturing products internally. These OEM system producers could choose to do their wireless development themselves. A host of new start-ups could focus on specific applications segments and integrators could use their engineering and manufacturing to provide solutions. Competition also may arise due to the development of cooperative relationships among our current and potential competitors or third parties to increase the ability of their products to address the needs of our prospective customers. Accordingly, it is possible that new competitors or alliances among competitors will emerge. Any of these events could render our technology or products obsolete or uncompetitive.

Backlog

        Our order backlog on February 28, 2005 was estimated at $884,000 as compared to $71,000 on February 28, 2004. We include in our reported backlog only the accepted product purchase orders with respect to which a delivery schedule has been specified for product shipment within one year.

        Product orders in our backlog are frequently subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. While we regularly review our backlog of orders to ensure that it adequately reflects product orders expected to ship within the one year period, we cannot make any guarantee that such orders will not actually be shipped or that such orders will not be delayed or cancelled in the future. We make regular adjustments to our backlog as customer delivery schedules change and in response to changes in our production schedule. Accordingly, we stress that backlog as of any particular date should not be considered a reliable indicator of sales for any future period and our revenues in any given period may depend substantially on orders placed in that period.

Manufacturing and Suppliers

        The manufacturing for the wireless product is being done offshore and some final assembly is being done at a contract manufacturer in the United States. We are reliant on the offshore manufacturer to provide a quality product and meet our production requirements. We currently have a six to eight week lead-time on various products and schedule the manufacturing requirements based on our sales forecasts. Changes to the sales forecast could affect the inventory level of the wireless product. There is currently no second source for the production of the wireless module, but DPAC does have the right to transfer production to another manufacturer if there are problems with the manufacturer. If DPAC were required to change its primary offshore manufacturer, it would require significant time. This may lead to not having sufficient inventory to meet pending sales requirements. We believe that the offshore manufacturing is of sufficient size and resources to meet any production requirements that DPAC may have, including any foreseeable increased volume needs for the wireless products. Also, we believe that the production facilities owned by our contract manufacture are in good condition and well maintained and are not currently in need of any major investments.

        As a result of outsourcing our production to a contract manufacturer, the cost, quality, performance and availability of our offshore contract manufacturer are, and will continue to be, essential to the successful production and sale of our products. Any delays in the ramp-ups of our contract manufacturer for new products, or any delays in the qualification by our OEM customers of our contract manufacturer facilities and our products produced there, could cause us to miss customer agreed product delivery dates or potentially lose revenues. Similarly, if there were an inability of our

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contract manufacturers to meet production schedules or produce products in accordance with the quality and performance standards established by us or our customers, we could miss customer agreed product delivery dates or otherwise forgo revenues.

        Furthermore, our reliance on certain single-source and limited-source components exposes us to quality control issues if these suppliers experience a failure in their production process or otherwise fail to meet our quality requirements. A failure in single-source or limited-source components or products could force us to repair or replace a product utilizing replacement components. If we cannot obtain comparable replacements or effectively retune or redesign our products, we could lose customer orders or incur additional costs, which could have a material adverse effect on our gross margins and results of operations.

Research and Development; Patents and Technology Rights

        Our future success will depend in major part on our ability to develop new products or product enhancements to keep up with technological advances and to meet customer needs. Our research and development efforts for fiscal year 2006 will focus on developing new wireless and related products and expanding our product offerings.

        We are currently involved in research and development for new software and hardware approaches for utilization in our wireless product line, as well as the development of package level products that may incorporate our wireless products as part of the overall system design. Our product development activities are solution driven, and our goal is to create technological advancements by working with each customer to develop advanced cost-effective products that solve each customer's specific requirements. However, we for the most part develop products within the 802.11 standard and infrequently might develop patentable inventions. The 802.11 standards on which our products are based are defined by IEEE and designed to insure interoperability of all products purporting to meet the standard.

        We have applied for one patent for the Airborne wireless products. It is unknown if the patent will be granted. The wireless products also contain software that has international copyright protection; although copyrights offer only certain limited protections and only in certain jurisdictions. We intend to continue to try to protect our technology and process technologies. However, the patent application, and any resultant patent, may not afford our products any competitive advantage. Any patent that may be granted will provide only certain protections and only in certain jurisdictions. To the extent patent protection may exist, third parties may potentially challenge and attempt to invalidate any patents. Any patents also may be infringed or circumvented by third parties. Competitors could manufacture and sell similar products, with or without an infringement of our patent, if any.

        Research and development expenses were approximately $1.4 million, $1.6 million, and $870,000 in fiscal years 2005, 2004, and 2003, respectively. We will continue to invest into new products and software and expect that research and development will continue to be an important element of the ongoing plans of the Company. Our initial wireless product was released in September 2003 after an initial year of research and development.

Environmental Matters

        We are not aware of any claims or investigations related to environmental matters that have materially affected or are expected to materially affect our business. We are not aware of any material effects that compliance with environmental regulations may have upon our capital expenditures, earnings or competitive position. Our compliance-related costs have been immaterial in amount and comprised mostly of administrative costs and expenses.

Employees

        At April 15, 2005, we had 22 full-time employees, of which 7 were engaged in engineering, 2 in manufacturing, production and testing, 1 in quality assurance, 7 in marketing/sales and 5 in management and administration. None of our employees is represented by a labor union, and we consider our employee relations to be good.

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ITEM 2: PROPERTIES

        On February 1, 2004 we renewed our lease of executive offices and manufacturing facilities in an industrial park in Garden Grove, California. We had reduced our required square footage in the facility to 27,857 square feet from the 37,060 that we had previously leased. The lease term ends on April 30, 2007 and provides for an effective straight-line monthly rental rate of $22,093 plus additional variable costs for common area maintenance costs.

        On March 25, 2005, we sub-leased to an unrelated sublessee approximately 10,400 square feet of executive and manufacturing facilities at the Garden Grove facility. The sub-lease provides for monthly cash payments of approximately $7,200 per month, which includes the costs for common area maintenance, and its term ends on April 30, 2007.

ITEM 3: 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 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.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of security holders during the fourth quarter of fiscal year 2005.

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PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our Common Stock trades on the Nasdaq SmallCap Stock Market under the symbol "DPAC." The following table sets forth the high and low closing sale prices on the Nasdaq SmallCap Market as reported by The Nasdaq Stock Market.

Holders

        There were approximately 250 shareholders of record as of April 30, 2005. We believe there are approximately 6,500 beneficial shareholders of DPAC Common Stock held in street name.

Dividends

        We have not paid any dividends and do not expect to pay any dividends in the foreseeable future. There are currently contractual arrangements in our loan agreements and other restrictions that preclude our ability to pay dividends.

Nasdaq SmallCap Listing

        In August 2004, DPAC (ticker: DPAC) elected to apply and was approved for listing of its common stock on the Nasdaq SmallCap Market, transferring from the Nasdaq National Market listing after its shareholders' equity balance decreased to less than the $10 million level required for continued listing on the National Market.

        During June 2004, DPAC received a letter from the Nasdaq Stock market indicating that our common stock had failed to meet one of the Nasdaq SmallCap Market's continuing listing requirements—that the closing bid price be at least $1.00 per share. The reported bid price had been below $1.00 per share for the preceding 30 consecutive trading days before the date of the letter indicating our deficiency. The Nasdaq letter allowed us 180 days to regain compliance, or until December 20, 2004. On December 21, 2004, we received a letter from the Nasdaq Stock market granting us an additional 180 days to regain compliance, or until June 20, 2005. To regain compliance, the closing bid price for shares of our common stock would need to exceed $1.00 in any 10 consecutive trading days ending on or prior to June 20, 2005.

        If the merger with Quatech (see Item 1) is approved and is completed, DPAC will request to maintain its listing on the Nasdaq SmallCap Market. The Staff of the Nasdaq Stock Market has notified us that they have determined that, if our transaction with QuaTech, Inc., is completed, the

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Nasdaq Listing Qualifications department would judge us as if we were an initial listing applicant. The standards for initial listing are higher than for continued listing. For instance, the minimum bid price requirement is $4.00 for initial listing.

        We gave written notice to Nasdaq on May 20, 2005 that requested a hearing on the Nasdaq Staff's determination described in the preceding paragraph. In addition, we notified Nasdaq that we presently fail to continue to meet the $2.5 million minimum shareholders' equity requirement for continued listing, and requested that the hearing address such issues, as well.

        DPAC will request approval from the stockholders during the fiscal year 2005 annual meeting for the QuaTech, Inc. transaction and for our board to authorize a reverse stock split. If approved, and our board of directors effects a reverse stock split, the resultant stock price could be above the minimum bid price compliance level; and we believe that the transaction will result in a shareholders' equity in excess of its minimum; provided, however, the Nasdaq is not required to grant us a continued listing, and listing privileges can be denied either based on specific rules or in the discretion of Nasdaq. We are also not assured of an initial listing (if treated as such) because of the same reasons and also that it may be impractical for us to meet one or more of the higher requirements of initial listing. If any requirement for listing is not met, the securities of the company would then be trade on the over-the-counter bulletin board.

Equity Compensation Plan Information

        Our shareholders have approved all compensation plans under which DPAC's Common Stock currently is reserved for issuance. The following table provides summary information as of February 28, 2005 for all equity compensation plans of DPAC.

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ITEM 6: SELECTED FINANCIAL DATA

        You should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto appearing elsewhere in this Report. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," both the IDA and memory stacking product lines were classified as discontinued operations in the second quarter of fiscal year 2005, and the related financial results are reported separately as discontinued operations for all periods presented. Certain financial information regarding these product lines included in discontinued operations is set forth below. The following selected statement of operations data for the years ended February 28, 2005, February 29, 2004, and February 28, 2003, and the consolidated balance sheet data at February 28, 2005 and February 29, 2004 have been derived from audited financial statements included elsewhere in this Report. The data presented below for the years ended February 28, 2002 and 2001 and as of February 28, 2003, 2002 and 2001 are derived from audited financial statements that are not included in this Report, after restatement for discontinued operations.

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(1)

Fiscal year 2004 ended on February 29, 2004

(2)

312,869, 443,467, 222,600, 346,739 and 1,036,899 potential common shares have been excluded from diluted weighted average common shares for fiscal years 2005, 2004, 2003, 2002, 2001 respectively, as the effect would be anti-dilutive to the losses incurred from continuing operations.

(3)

See discussion of restructuring and impairments charges in ITEM 1. Significant Business Developments in Fiscal 2005- Discontinued Operations of Historical Product Lines

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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

        The following discussion and analysis of our financial condition and results of continuing operations should be read in conjunction with the financial statements and notes to those statements included elsewhere in this Report. This discussion contains certain forward-looking statements that involve risks and uncertainties, such as statement of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed here. The cautionary statements made in this Report should be read as being applicable to all forward-looking statements wherever they appear. Numerous important factors, risks and uncertainties affect our operations and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf. Factors that could cause or contribute to such differences include those discussed in "Risk Factors," as well as those discussed elsewhere herein. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be required to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Operating Losses

        The Company has experienced losses from operations for the past twelve quarters. Even if our expectations for net sales for future periods are met, we continue to expect losses from operations for several future quarters. Our longer-term potential for profitability depends upon successful product introductions by our present and future customers. Their products incorporate our Airborne products into the final OEM products for sale to the end-user customers. We must secure a sufficient number of OEM customers whose products generate a sufficient sales volume for our product before we can reach the revenues necessary for profitability. This is due to the level of selling, general and administrative expenses and research and development expenses we are incurring to introduce the product to the market and other expenses.

        Period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as indications of future performance. It is likely that from time to time our operating results will be below the expectations of some investors and not above the expectations of enough investors. In such events, the market price of our Common Stock would be adversely affected, in some proportion, and perhaps disproportionately. We ourselves have difficulties forecasting, and there are numerous risks and uncertainties concerning, the timing of our customers' initiating their production orders and the amounts of such orders, fluctuating market demand for and declines in the selling prices of similar products, decreases or increases in the costs of the components, uncertain market acceptance, our competitors, delays, or other problems with new products, software, manufacturing, inefficiencies, cost overruns, fixed overhead costs, competition from new wireless products using 802.11 with newer technology, and challenges managing production from overseas suppliers, among other factors, each of which will make it more difficult for us to meet expectations.

        Successful implementation of the Airborne wireless products and new product lines will require, among other things, best-in-class designs, exceptional customer service and patience. Also timing of revenue may be affected by the length of time it may take our customers in designing our Airborne product into their product lines and introducing their products. In addition, our revenues are ultimately limited by the success of our customers' products in relation to their competition.

        Other primary factors that may in the future affect our results of operations include our efforts to reduce our operating expenses and our fixed overhead. Our costs in any particular period could include higher costs associated with stock-based compensation.

        Accordingly, for these reasons among many others, there can be no assurance that we will become profitable in any future period.

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        Our operating results were materially reduced from historic levels by our sale on May 6, 2004 of the industrial, defense and aerospace product line as well as the sale on June 6, 2004 of the LP memory stacking business. These two legacy product lines accounted for approximately $19.5 million (99%) of the fiscal year 2004 net sales, prior to restatement for discontinued operations. After we sold these product lines in fiscal year 2004, we began reporting operating results from these product lines as discontinued operations. These discontinued operations are excluded from our operating results.

Fluctuations in Operating Results

        The primary factors that may in the future create material fluctuations in our results of operations include the following: timing and amount of shipments, changes in the mix of products sold, any inability to procure required components, whether new customer orders are for immediate or deferred delivery, the sizes and timing of investments in new technologies or product lines, a partial or complete loss of any principal customer, any addition of a significant new customer, a reduction in orders or delays in orders from a customer, excess product inventory accumulation by a customer, and other factors.

        During the prior two years, DPAC divested itself of its historical product lines and primary sources of revenues and committed its future and resources to developing and selling wireless technology. During fiscal year 2005, we focused on restructuring DPAC to lower our operating cost structure while ensuring that we maintained our operating flexibility to support future growth in the industry.

        The need for continued significant operating expenditures for research and development, software and firmware enhancements, ongoing customer service and support, and administration, among other factors, will make it difficult for us to reduce our operating expenses in any particular period, even if our expectations for net sales for that period are not met. Therefore, our fixed overhead may negatively impact our operating results.

        There can be no assurance that we will be able to be profitable in any future period. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as indications of future performance.

        Due to the foregoing factors, it is likely that in some future period our operating results and financial condition will be below the expectations of public market or investors generally. In such event, the market price of our Common Stock or other securities could be materially and adversely affected.

Critical Accounting Policies and Estimates

        We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. In order to aid you in fully understanding and evaluating our reported financial results, the significant accounting policies which we believe to be the most subjective and critical include the following:

Revenue Recognition

        The majority of our revenue is derived from the sales of products. DPAC recognizes revenue from product sales at the time of shipment and passage of title. We only offer our customers the right to return products that do not function properly within a limited time after delivery. While such returns have historically been insignificant and within our expectations, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Any significant increase in product failure rates, including our newly introduced wireless products, and the resulting credit returns

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could have a material adverse impact on our operating results for the period or periods in which such returns materialize.

Accounts Receivable

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The amount of our reserves is based on historical experience and our analysis of the accounts receivable balances outstanding. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would result in an additional general and administrative expense in the period such determination was made. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past, which could adversely affect our operating results.

Inventories

        We value our inventory at the lower of the actual cost to purchase and/or manufacture or the current estimated market value of the inventory. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next twelve months. We additionally consider additional facts and circumstances in order to determine whether any condition exists that would confirm or deny the need for recording a write-off. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if our inventory is determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if our inventory is determined to be undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize such additional operating income at the time of sale of the related inventory. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results.

Property, Plant and Equipment

        The Company periodically reviews the recoverability of its long-lived assets using the methodology prescribed in SFAS No. 144. The Company also reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted future net cash flows from the operations to which the assets relate, based on management's best estimates using appropriate assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the asset. Significant changes in the Company's operations, such as those occurring in the LP Stacking market in fiscal year 2004, result in changes to our estimated future cash flows. Such changes necessitated no asset write-downs in fiscal year 2005 and asset write-downs of $1.2 million in fiscal year 2004.

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Goodwill

        We review the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to indicate that an impairment of goodwill has possibly occurred. Since we operate in a single business segment as a single business unit, the determination of whether any potential impairment of goodwill exists is based on a comparison of the fair value of the entire Company to the carrying value of our net assets. In estimating the fair value of the entire Company, we review the market prices for our Common Stock, as well as other factors. If the fair value of the entire Company is determined to be less than the carrying value of our net assets, we could be required to take the second step of the goodwill impairment test to measure the amount of impairment loss, if any, and to record such impairment loss.

        As prescribed by SFAS 142, the Company performed its annual valuation to determine if an impairment of goodwill had occurred as of February 28, 2005. We reviewed the market value of the Company's outstanding common stock, as well as subjective valuations based on our projections of revenues, costs of goods sold, operating margins and cash flows. Based on our current financial projections, we have concluded that cash flows to be generated from operations, as well as cash that might be available from our bank line of credit, in all probability will not be sufficient to maintain liquidity for the Company through the next twelve months. Based on this condition, the Company concluded that the entire amount of goodwill on its balance sheet had been impaired and, therefore, recorded $4.5 million non-cash impairment charge to its operating statement during the fourth quarter of fiscal year 2005.

Deferred Taxes

        We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. 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. During the third quarter of fiscal year 2004, we experienced a significant decrease on our operating results, which continued throughout the remainder of the year. During the third quarter of fiscal year 2004, we determined it was more likely than not that we would not be able to recover such net deferred tax assets and we recorded a valuation allowanc