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CORRESP
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    December
3, 2009

    Via
Edgar

    United
States Securities and Exchange Commission

    450 Fifth
Street N.W.

    Washington,
DC 20549

    Attention:  Jeffrey
Jaramillo, Accounting Branch Chief

           Mail
Stop 3030

              Re:

              Digital
      Power Corporation

    Form 10-K
for the Fiscal Year Ended December 31, 2008

    Filed March 30, 2009

    File No.
001-12711

    Dear Mr.
Jaramillo:

    Please
find below responses to additional comments raised by the Staff of the Division
of Corporation Finance of the United States Securities and Exchange Commission
(the “Staff”) in their letter dated November 12, 2009 regarding the Staff’s
review of the letter filed by Digital Power Corporation (the “Company”, “we”,
“us” or “our”) on October 29, 2009 in response to the Staff’s original comments
(the “Original Response Letter”).  Our responses follow your numbered
comments, and all capitalized terms used, but not defined, herein shall have the
meanings ascribed to them in the Original Response Letter.

    Form 10-K for the period
ending December 31, 2008

    Note 6: Commitments and
Contingent Liabilities, page F-18

              1.

              Comment.

              We
      note from your response to our prior comment 3 that your lease for the
      Gresham facility entitles the Landlord to compensation for any diminution
      of its interest that might have taken place during the course of the
      tenancy and that Anite claims that the work to be performed in the list of
      dilapidations should be undertaken by DPL as part of its liabilities under
      the Sublease.  Also, we note that you have not recorded a
      liability provision in accordance with SFAS No. 5.  In this
      regard, please tell us how you considered SFAS No. 143 and FIN 47 in
      determining whether you were required to recognize an asset retirement
      obligation in connection with the Gresham lease for all periods presented
      in your financial statements.

      Jeffrey
Jaramillo, Accounting Branch Chief

      United
States Securities and Exchange Commission

      December
3, 2009

      Page 2

                Response.

                We
      did consider SFAS No. 143 and FIN 47 in determining whether we were
      required to recognize an asset retirement obligation in connection with
      the DPL Sublease for the periods presented in our financial
      statements.  An asset retirement obligation is a legal
      obligation that is incurred as a result of the acquisition, construction,
      development and normal operation of a tangible long-lived
      asset.  For example, an obligation to return a leased asset to
      its original condition (if it has been modified by the lessee) should be
      accounted for pursuant to the requirements of SFAS No. 143; as such, if an
      improvement to leased property has been recognized as an asset on a
      lessee’s balance sheet (leasehold improvements), any obligation to remove
      said improvement should generally be accounted for as an asset retirement
      obligation.  In addition, FIN 47 defines a conditional asset
      retirement obligation as a legal obligation to perform an asset retirement
      activity in which the timing and/or method of settlement may be
      conditional on a future event.  The liability recognition of
      SFAS No. 143 and FIN 47 is based on fair value measurement, as opposed to
      SFAS No. 5, which requires an entity to consider uncertainty in its
      determination of whether to recognize a
  liability.

              With
      respect to the DPL Sublease, although the Landlord may be entitled to
      compensation, upon expiration of said Sublease and surrender of the
      building, for any diminution of its interest that may have taken place
      during the course of the tenancy, we believe that there was no material
      diminution of interest during the term of the DPL Sublease.  It
      should be emphasized that Anite received a list of dilapidations with
      respect to its Lease with the Landlord that dates back to
      1976.  Virtually all of said list refers to the requirement to
      restore the building to its original configuration in 1976, which was
      largely a warehouse, and to matters of repair that arise principally from
      the failure of Anite’s previous sublessees to meet their repairing
      obligations.  Furthermore, Anite and its previous sublessees
      made significant modifications (improvements) to the facility during the
      course of the previous subleases, whereby virtually all of the Landlord’s
      claims in respect of the costs of removal of fittings and equipment relate
      to those that were put in place by Anite’s previous
      sublessees.

              As
      discussed in the Original Response Letter, the building today has the same
      configuration that it had when DPL commenced the Sublease in
      1995.  In addition, DPL has made virtually no
      modifications/improvements to the building; the leasehold improvements
      that DPL has made to date are minor, such as interior decoration to
      include new carpets and the addition of a limited number of partitions to
      optimize office accommodation.  Furthermore, DPL has made
      ongoing repairs to the building that we believe materially comply with the
      covenants of the Lease to maintain the building in good repair during the
      Lease term.  As DPL’s obligations can only relate to the
      condition of the building that existed in 1995, we believe that Anite’s
      claim with respect to the dilapidations is substantially without
      foundation.

      Jeffrey
Jaramillo, Accounting Branch Chief

      United
States Securities and Exchange Commission

      December
3, 2009

      Page 3

    Although
there may be costs associated with the removal of the leasehold improvements
that DPL has made to the building to date, which, if the Sublease is terminated,
will have to be removed, we estimate such costs to be de minimis (less than
$30,000).  Assuming that DPL accepts the Landlords’ offer of a new
lease for fifteen years, DPL’s removal of any leasehold improvements made during
the term of the Sublease will be deferred until the expiration of the new lease,
and we estimate the fair value of the liability for such asset retirement
activities to be de minimis (less than $12,000).  Accordingly, we did
not record an asset retirement obligation in accordance with the provisions of
SFAS No. 143 and FIN 47.

    Note
7:  Shareholders’ Equity, page F-18

              2.

              Comment.

              We
      note your responses to our prior comments 5 and 6.  In this
      regard, please provide us with all of the terms associated with the 70,000
      and 100,000 options issued to Telkoor’s employees and other non-employees,
      respectively.  Also, please tell us how you estimated the
      service period used to recognize compensation expense separately for each
      issuance of options to Telkoor’s employees and other
      non-employees.  Additionally, if the measurement date of the
      options is the date that the counterparty’s performance is complete,
      please explain why you would issue such options to Telkoor’s employees and
      other non-employee consultants before the counterparty’s performance is
      complete.  Please provide us with a detail description of the
      types of services that will be or have been performed by Telkoor’s
      employees and the other non-employee consultants in consideration for the
      issuance of the abovementioned options.  Furthermore, please
      provide us with the adjustments made during the years associated with the
      re-measurements and forfeitures of the unvested options as further
      discussed in your responses to our prior comments 5 and 6, supported with
      the financial statement accounts used to record such adjustments, for each
      year since the grant date.  Finally, please provide us with the
      journal entries used to account for these options at the grant date,
      supported with your rationale used in this
  accounting.

      Jeffrey
Jaramillo, Accounting Branch Chief

      United
States Securities and Exchange Commission

      December
3, 2009

      Page 4

    Response.

              The
      Company granted stock options to Telkoor employees who were or are
      consultants to the Company (“Telkoor employees”) and to another
      non-employee consultant, as
follows:

                                Date
      of grant

                                Number  of
      options

                                Exercise
      price

                                Share
      price on

                                date
      of grant

                                Vesting
      terms (1)

                                Contractual
      life

                                Service
      period

                                Telkoor
      employees (2)

                                 February,
      2005

                                 70,000
      options

                                $1.19

                                $1.19

                                4
      years: 25% per year –

                                cliff vesting

                                 10
      years

                                 4
      years

                                Non-employee
      consultant (3)

                                 March,
      2006

                                 100,000
      options

                                $1.16

                                $1.16

                                4
      years:  25% per year –

                                  cliff
      vesting

                                 10
      years

                                 4
      years

              (1)

              There
      is no specific economic penalty for
  nonperformance.

              (2)

              Telkoor,
      the Company’s largest shareholder, is engaged in developing, marketing and
      selling power supplies and power systems for the commercial and military
      markets.  The Company is a key distributor of Telkoor’s
      products, and Telkoor is a subcontractor and a strategic supplier of power
      supplies to the Company.  In 2005, the Company granted 70,000
      options to a few senior Telkoor employees who are responsible for (1)
      providing timely product delivery to the Company, as a major customer
      account of Telkoor, and (2) providing sales and marketing, as well as
      technical product support to the Company on an ongoing
      basis.  The Company granted the foregoing options to these
      senior employees in consideration of consulting services to be provided to
      the Company in connection with the Company’s relationship with
      Telkoor.

              (3)

              The
      Company hired a consultant, a former Chief Executive Officer of the
      Company with vast experience in the power supplies industry, to provide
      advisory services with respect to business development and other strategic
      issues to the Company’s Chief Executive Officer over a four-year period,
      in consideration for  annual fees and 100,000 options that vest
      over a four-year period.  The advisory services include, among
      other things, the review of material contracts, the evaluation of
      potential business opportunities and attendance at meetings with potential
      customers.

        Jeffrey
Jaramillo, Accounting Branch Chief

        United
States Securities and Exchange Commission

        December
3, 2009

        Page
5

    The table
below provides (1) a breakdown of compensation expense recorded, due to
re-measurement and forfeitures, with respect to Telkoor employees and the other
non-employee consultant and (2) the number of forfeited and expired options for
the years ended December 31, 2005, 2006, 2007 and 2008:

              2005

              2006

              2007

              2008

              Total

              Number
      of forfeited and expired unexercised options

              -

              -

                         10,000
      (1)

              40,000
      (2)

              Telkoor
      employees

              Compensation
      expense

              $8,000

              $25,000

              $27,000

              $1,000

              Compensation
      expense with respect to forfeited
      options

              -

              -

              -$5,000

              -$8,000

              Total

              $8,000

              $25,000

              $22,000

              -$7,000

              $48,000

              Number
      of forfeited options

              -

              -

               -

               -

              Non-
      employee consultant

              Compensation
      expense

              -

              $27,000

              $32,000

              -$5,000

              Compensation
      expense with respect to forfeited
      options

              -

              -

               -

               -

              Total

              -

              $27,000

              $32,000

              -$5,000

              $54,000

              Total

              $8,000

              $52,000

              $54,000

              -$12,000

              $102,000

                (1)

                5,000
      of the 10,000 options were forfeited options that were unvested as of the
      termination date.

                (2)

                10,000
      of the 40,000 options were forfeited options that were unvested as of the
      termination date.

              EITF
      96-18 requires that the fair value of unvested equity instruments issued
      to nonemployees be measured at the earlier of (1) the date at which a
      commitment for performance by the counterparty to earn the equity
      instruments is reached (a “performance commitment”) and (2) the date at
      which the counterparty’s performance is complete.  No
      performance commitment exists for the foregoing options because there is
      no large disincentive or economic penalty for nonperformance by the
      counterparty.  Therefore, the measurement date of the foregoing
      options is the date on which the counterparty’s performance is complete,
      and the counterparty is deemed to have completed performance once it
      renders the services required of it under the arrangement such that it is
      able to keep or exercise the award.

      Jeffrey
Jaramillo, Accounting Branch Chief

      United
States Securities and Exchange Commission

      December
3, 2009

      Page 6

    The
foregoing options vest ratably over a four-year service term (on a cliff-basis
per year); thus, the counterparty’s performance is completed over four years,
with four measurement dates, as follows: 25% of the options vest following
completion of the first year of service, as the counterparty is not entitled to
said options until the end of the first year (cliff award), after which the
remaining 75% of the unvested options are re-measured at their then current fair
values at each interim financial reporting date and compensation cost is
adjusted for the changes in those fair values over the remaining service period;
another 25% of the options vest following completion of the second year of
service (cliff award), as the counterparty is not entitled to said options until
the end of the second year, after which the remaining 50% of the unvested
options are re-measured at their then current fair values at each interim
financial reporting date and compensation cost is adjusted for the changes in
those fair values over the remaining service period; and so forth.