Delaware
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94-1721931
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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48430 Lakeview Blvd
Fremont, CA
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94538-3158
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(510) 657-2635
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(Address of principal executive offices)
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(Zip Code)
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(Registrant’s telephone number, including area code)
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Title of Each Class
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Name of each exchange on which registered
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Common Stock, $0.001 par value per share
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NYSE American
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Large accelerated filer
☐
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Accelerated filer
☐
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Non-accelerated filer
☐
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Smaller reporting company
☑
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(Do not check if a smaller reporting company)
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Emerging growth company ☐
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Page
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PART I
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Item 1.
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Description of Business
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2
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Item 1A.
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Risk Factors
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11 |
Item 1B.
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Unresolved Staff Comments
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41 |
Item 2.
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Description of Properties
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42 |
Item 3.
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Legal Proceedings
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42 |
Item 4.
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Mine Safety Disclosures
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42 |
PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
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42 |
Item 6.
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Selected Financial Data
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46 | |
Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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46 |
Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk.
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59 | |
Item 8.
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Financial Statements and Supplementary Data.
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F-1 – F-64
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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59 | |
Item 9A.
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Controls and Procedures
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60 |
Item 9B.
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Other Information
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61 | |
PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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61 | |
Item 11.
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Executive Compensation
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66 |
Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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70 | |
Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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71 |
Item 14.
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Principal Accountant Fees and Services
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75 | |
PART IV
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Item 15.
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Exhibits and Financial Statement Schedules.
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76 | |
Signatures
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83 |
ITEM 1. |
BUSINESS
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·
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filters that sort and clarify microwave signals, including multiplexers that are a series of filters combined in a single package;
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·
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solid state amplifiers that amplify microwave signals;
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·
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detectors and limiters that are semiconductor devices for detection of radar signals and protection of receivers from damage from high power signals and jamming;
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·
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detector log video amplifiers that are fully integrated, ruggedized, “mil-spec” signal detection systems;
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·
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integrated assemblies that combine multiple functions from a range of components and devices, including transmitters, receivers, filters, amplifiers, detectors, and other functionality into single, efficient, high performance, multifunction assemblies;
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·
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electronic test and measurement probes;
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·
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universal test and measurement test platforms and fixtures; and
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·
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utility probes and antenna probes.
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ITEM 1A.
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RISK FACTORS
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·
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difficulty of integrating acquired products, services or operations;
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·
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potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;
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·
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difficulty of incorporating acquired rights or products into our existing business;
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·
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difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities;
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·
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difficulties in maintaining uniform standards, controls, procedures and policies;
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·
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potential impairment of relationships with employees and customers as a result of any integration of new management personnel;
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·
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potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers;
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·
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effect of any government regulations which relate to the business acquired;
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·
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potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition or modify the marketing and sales of acquired products or the defense of any litigation, whether or not successful, resulting from actions of the acquired company prior to our acquisition.
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1.
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We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness.
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2.
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We have inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management evaluated the impact of the lack of timely communication between non–financial and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.
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•
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The introduction and market acceptance of new technologies, products and services;
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•
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New competitors and new forms of competition;
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•
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The size and timing of customer orders (for retail distributed physical product);
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•
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The size and timing of capital expenditures by our customers;
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•
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Adverse changes in the credit quality of our customers and suppliers;
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•
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Changes in the pricing policies of, or the introduction of, new products and services by us or our competitors;
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•
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Changes in the terms of our contracts with our customers or suppliers;
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|||||||
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•
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The availability of products from our suppliers; and
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|||||||
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•
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Variations in product costs and the mix of products sold.
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·
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erroneously accounting for proceeds from crypto mining activities;
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·
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power, network or technology failures which prevent our miners from operating efficiently;
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·
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delays in processing payments at times when there are significant fluctuations in the price of the cryptocurrencies; and
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·
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hackers or other malicious groups or organizations targeting and attempting to interfere with our miners which could negatively affect the operations of such miners.
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·
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Continued worldwide growth in the adoption and use of Bitcoins, Ethereum, and Litecoins, and other cryptocurrency;
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·
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Government and quasi-government regulation of Bitcoin, Ethereum, and Litecoin, and other cryptocurrency and their use, or restrictions on or regulation of access to and operation of cryptocurrency networks and system;
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·
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The maintenance and development of the open-source software protocol of various cryptocurrency networks;
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·
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The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; and
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·
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General economic conditions and the regulatory environment relating to digital currencies.
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·
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A decline in the popularity or acceptance of the top cryptocurrencies or their networks could adversely affect an investment in us.
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·
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Total cryptocurrency in existence;
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·
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Global cryptocurrency demand, which is influenced by the growth of retail merchants’ and commercial businesses’ acceptance of cryptocurrency as payment for goods and services, the security of online cryptocurrency exchanges and digital wallets that hold cryptocurrency, the perception that the use and holding of cryptocurrency is safe and secure, the lack of regulatory restrictions on their use and the reputation of cryptocurrency for illicit use;
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·
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Global cryptocurrency supply, which is influenced by similar factors as global cryptocurrency demand, in addition to fiat currency needs by miners (for example, to invest in equipment or pay electricity bills) and taxpayers who may liquidate cryptocurrency holdings around tax deadlines to meet tax obligations;
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·
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Investors’ expectations with respect to the rate of inflation or deflation of fiat currencies or cryptocurrency;
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·
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Interest rates;
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·
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Currency exchange rates, including the rates at which cryptocurrency may be exchanged for fiat currencies;
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·
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Fiat currency withdrawal and deposit policies of cryptocurrency exchanges and liquidity of such cryptocurrency exchanges;
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·
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Interruptions in service from or failures of major cryptocurrency exchanges;
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·
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Cyber theft of cryptocurrency from online cryptocurrency wallet providers, or news of such theft from such providers, or from individuals’ cryptocurrency wallets;
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·
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Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in cryptocurrency;
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·
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Monetary policies of governments, trade restrictions, currency devaluations and revaluations;
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·
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Regulatory measures, if any, that restrict the use of cryptocurrency as a form of payment or the purchase of cryptocurrency on the cryptocurrency market;
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·
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The availability and popularity of businesses that provide cryptocurrency -related services;
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·
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The maintenance and development of the open source software protocol of certain cryptocurrency networks;
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·
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Increased competition from other forms of cryptocurrency or payments services;
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·
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Global or regional political, economic, or financial events and situations;
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·
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Expectations among cryptocurrency economy participants that the value of cryptocurrency will soon change; and
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·
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Fees associated with processing a cryptocurrency transaction.
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·
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changes in the demand for ITS products and services;
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·
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loss of key customers or contracts;
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·
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the introduction of competitive products;
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the failure to gain market acceptance of ITS new and existing products; and
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·
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the failure to successfully and cost effectively develop, introduce and market new products, services and product enhancements in a timely manner.
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terminate or modify existing contracts;
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·
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reduce the value of existing contracts through partial termination; and
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·
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delay the payment of Microphase’s invoices by government payment offices.
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·
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disrupt the proper functioning of these networks and systems and therefore its operations and/or those of certain of its customers;
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·
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result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of Microphase or its customers, including trade secrets, which others could use to compete against Microphase or for disruptive, destructive or otherwise harmful purposes and outcomes;
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·
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compromise national security and other sensitive government functions;
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·
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require significant management attention and resources to remedy the damages that result;
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·
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subject Microphase to claims for breach of contract, damages, credits, penalties or termination; and
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·
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damage Microphase’s reputation with its customers (particularly agencies of the U.S. Government) and the public generally.
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· |
the status of our growth strategy including the development of new products with any proceeds we may be able to raise in the future;
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· |
announcements of technological or competitive developments;
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· |
regulatory developments affecting us, our customers or our competitors;
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· |
announcements regarding patent or other intellectual property litigation or the issuance of patents to us or our competitors or updates with respect to the enforceability of patents or other intellectual property rights generally in the US or internationally;
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· |
actual or anticipated fluctuations in our quarterly operating results;
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· |
changes in financial estimates by securities research analysts;
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· |
changes in the economic performance or market valuations of our competitors;
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· |
additions or departures of our executive officers; and
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· |
sales or perceived sales of additional shares of our common stock.
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ITEM 2. |
PROPERTIES
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ITEM 3. |
LEGAL PROCEEDINGS
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ITEM 4. |
MINE SAFETY DISCLOSURES
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ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Fiscal Year Ended December 31, 2016
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||||||||
High
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Low
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|||||||
First Quarter
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$
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0.60
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$
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0.39
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||||
Second Quarter
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$
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0.62
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$
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0.35
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Third Quarter
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$
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1.40
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$
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0.39
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Fourth Quarter
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$
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0.85
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$
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0.52
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Number of Shares
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Number of Options
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|||||||||||
of Common Stock
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Weighted-
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Remaining Available for
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||||||||||
to be Issued
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Average
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Future Issuance Under
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||||||||||
upon Exercise
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Exercise Price
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Equity Compensation Plans
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||||||||||
of Outstanding
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of Outstanding
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(excluding securities
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||||||||||
Options
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Options
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reflected in column (a))
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Plan Category
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(a)
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(b)
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(c)
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|||||||||
Equity compensation plans approved
by stockholders
(1)
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3,059,960
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$
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0.69
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$
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2,538,832
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|||||||
Equity compensation plans not
approved by stockholders
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1,100,000
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$
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1.38
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$
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—
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|||||||
Total
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4,159,960
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$
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2,538,832
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(1) |
Includes warrants to purchase 317,460 of common stock at an exercise price of $0.01 per share of common stock that were issued to Mr. Kohn and approved the Company’s stockholders in December 2017.
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ITEM 6. |
SELECTED FINANCIAL DATA.
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ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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· |
Adverse economic conditions;
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· |
Our ability to effectively execute our business plan;
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· |
Inability to raise sufficient additional capital to operate our business;
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· |
Our ability to manage our expansion, growth and operating expenses;
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· |
Our ability to evaluate and measure our business, prospects and performance metrics;
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· |
Our ability to compete and succeed in highly competitive and evolving industries;
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· |
Our ability to respond and adapt to changes in technology and customer behavior;
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· |
Our ability to protect our intellectual property and to develop
, maintain and enhance a strong brand; and
|
· |
Other specific risks referred to in the section entitled “
Risk Factors
”.
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2017
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2016
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|||||||
Revenue
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$
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10,001
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$
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7,596
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||||
Revenue, related party
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174
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—
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||||||
Cost of revenue
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6,325
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4,890
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||||||
Gross profit
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3,850
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2,706
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||||||
Total operating expenses
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9,833
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3,925
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||||||
Loss from operations
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(5,983
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)
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(1,219
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)
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||||
Interest (expense) income, net
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(4,990
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)
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77
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|||||
Loss before income taxes
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(10,973
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)
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(1,142
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)
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||||
Income tax benefit
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78
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20
|
||||||
Net loss
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$
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(10,895
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)
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$
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(1,122
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)
|
||
Less: Net loss attributable to non-controlling interest
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279
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—
|
||||||
Net loss attributable to Digital Power Corp
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(10,616
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)
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(1,122
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)
|
||||
Preferred deemed dividends
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(584
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)
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—
|
|||||
Preferred dividends
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(54
|
)
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—
|
|||||
Loss available to common shareholders
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$
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(11,254
|
)
|
$
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(1,122
|
)
|
||
Basic and diluted net loss per common share
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$
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(0.88
|
)
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$
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(0.16
|
)
|
||
Basic and diluted weighted average common shares outstanding
|
12,789,130
|
6,916,568
|
||||||
Comprehensive Loss
|
||||||||
Loss available to common shareholders
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$
|
(11,254
|
)
|
$
|
(1,122
|
)
|
||
Other comprehensive income (loss)
|
||||||||
Change in net foreign currency translation adjustments
|
152
|
(362
|
)
|
|||||
Net unrealized loss on securities available-for-sale, net of income taxes
|
5,171
|
—
|
||||||
Other comprehensive income (loss)
|
5,323
|
(362
|
)
|
|||||
Total Comprehensive loss
|
$
|
(5,931
|
)
|
$
|
(1,484
|
)
|
· |
In aggregate, we incurred $1,831 of stock-based compensation during the year ended December 31, 2017. Of this amount, $1,598 was from issuances of equity-based awards pursuant to our Plans and $233 was from stock, options and warrants which were issued outside the Plans. It has been our policy to allocate the majority of stock-based compensation to general and administrative expense. During the year ended December 31, 2017 and 2016, and inclusive of equity-based awards issued outside the Plans, we recorded $1,682 and $516, respectively, of stock-based compensation in general and administrative expense.
|
· |
We experienced an aggregate increase of $1,088 in audit and legal fees due to an overall increase in the operations conducted and the level of complexity and significant number of the transactions entered into during the year ended December 31, 2017.
|
· |
Beginning during the quarter ended December 31, 2016, we spent significant effort on expanding our investor base and on hiring additional consultants to assist building an infrastructure to support our anticipated growth. As a result, we experienced an increase of $882 in costs attributed to investor relations and other consulting fees.
|
· |
Finally, during the year ended December 31, 2016, our Chief Executive Officer’s salary was reflected in selling and marketing expenses. As discussed above, during the year ended December 31, 2017, we recorded the salary and benefits of our Chief Executive Officer to general and administrative expense.
|
For the Year Ended
|
||||||||
December 31,
|
||||||||
2017
|
2016
|
|||||||
Interest expense – debt discount
|
$
|
4,688
|
$
|
34
|
||||
Stock-based compensation
|
1,831
|
543
|
||||||
Depreciation and amortization
|
255
|
161
|
||||||
Interest income on conversion of promissory notes to common stock
|
13
|
—
|
||||||
Accretion of original issue discount on notes receivable – related party
|
(454
|
)
|
(2
|
)
|
||||
Non-cash items included in net loss
|
$
|
6,333
|
$
|
736
|
· |
In February 2017, the Company issued demand promissory notes and warrants to purchase 333,333 shares of common stock at $ 0.70 per share for aggregate proceeds of $400. Further in February 2017, the holders of $400 in demand promissory notes agreed to extinguish their $400 of debt by cancelling their notes to purchase 666,667 shares of common stock of the Company at $0.60 per share.
|
· |
On March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou Ventures LLC (“
Philou
”), a related party, pursuant to which Philou was granted the right to invest up to $5,000 in the Company through the purchase of Series B Preferred Stock over a term of 36 months. On March 24, 2017, Philou purchased 25,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement in consideration of cancellation of Company debt of $250 due to MCKEA, an affiliate of Philou. On May 5, 2017, Philou purchased an additional 50,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement for $500.
|
· |
On March 15, 2017, the Company entered into a subscription agreement with one investor for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300.
|
· |
On March 20, 2017, the Company issued $250 in demand promissory note to one of the Company's shareholders.
|
· |
On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. The Company received gross proceeds of $220 on March 31, 2017 and the remaining balance of $50 was received on April 3, 2017. On April 5, 2017, the Company canceled these promissory notes by issuing to the holders 360,000 shares of common stock at $0.75 per share and warrants to purchase 180,002 shares of common stock at $0.90 per share.
|
· |
On April 17, 2017, the Company entered into two 7% convertible notes (the “
7% Convertible Notes
”) in the aggregate principal amount of $250. The 7% Convertible Notes accrue interest at 7% simple interest on the principal amount and were due on June 2, 2017. The 7% Convertible Notes were not repaid on the maturity date and as such were in default at June 30, 2017. During July 2017, these two 7% Convertible Notes were repaid.
|
· |
On April 26, 2017, the Company entered into a 7% convertible note in the aggregate principal amount of $104. On June 28, 2017, the noteholder converted the outstanding balance into 189,091 shares of Digital Power’s common stock.
|
· |
Between May 5, 2017 and June 30, 2017, the Company received additional short-term loans of $140 from four accredited investors of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share.During June 2017, the holders of $55 of these short-term loans agreed to cancel their notes for the purchase of 100,001 shares of the Digital Power’s common stock at a price of $0.55 per share. An additional $52 in short-term loans from the related party was converted into one of the Series C Units
.
|
· |
Between May 24, 2017 and June 19, 2017, Digital Power entered into subscription agreements (the “
Series C Subscription Agreement
”) with approximately twenty accredited investors (the “
Series C Investors
”) in connection with the sale of twenty-one Units at a purchase price of $52 per Unit raising in the aggregate $1,092 with each Unit consisting of Series C Preferred Stock and Warrants.
|
· |
Between July 6, 2017 and September 13, 2017, the Company received funding as a result of entering into multiple Agreements for the Purchase and Sale of Future Receipts with TVT Capital LLC pursuant to which the Company sold in the aggregate $2,585 in Future Receipts of the Company for $1,772. Under the terms of the agreements, the Company will be obligated to pay the initial daily amount of $13 until the $2,585 has been paid in full. The term Future Receipts means cash, check, ACH, credit card, debit card, bank card, charged card or other form of monetary payment.
|
· |
On July 24, 2017, we entered into subscription agreements with six investors, and on July 25, 2017 we entered into securities purchase agreements (the “
Securities Purchase Agreement
”) with an institutional investor, under which we agreed to issue and sell in the aggregate 851,363 shares of common stock to the investors at $0.55 per share for an aggregate purchase price of $468. Of the aggregate purchase price of $468, $445 was paid in cash and $23 was in consideration for the cancellation of debt from a related party of the Company.
|
· |
On July 28, 2017, we entered into an exchange agreement with an institutional investor who was the owner of (i) a 7% Convertible Note in the principal amount of $125 and a warrant dated April 17, 2017 to purchase 83,334 shares of our common stock at $0.90. Under the terms of the exchange agreement, we agreed to exchange the 7% Convertible Note for three new promissory notes in the principal amounts of $110 due August 1, 2017; $35 due August 1, 2017; and $34 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes) and to exchange the prior warrant for a new warrant to purchase 83,334 shares of common stock at $0.55 per share. Concurrent with entering into this exchange agreement, the institutional investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. In addition, in a concurrent private placement, the institutional investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share.
|
· |
On August 3, 2017, the Company entered into a Securities Purchase Agreement to sell a 12% Convertible (“
12% Convertible Note
”)
and a warrant to purchase 666,666 shares of common stock to an accredited investor (the “
Investor
”). The principal of the Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share. The Convertible Note is in the principal amount of $400 and was sold for $360, bears interest at 12% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share. During January 2018, the outstanding balance on this 12% Convertible Note was converted into 666,666 shares of our common stock.
|
· |
On August 10, 2017, the Company, entered into Securities Purchase Agreements (“
Agreements
”) with five institutional investors (the “
Investors
”) to sell for an aggregate purchase price of $800, 10% Senior Convertible Promissory Notes (“
Convertible Notes
”) with an aggregate principal face amount of $880 and warrants to purchase an aggregate of 1,475,000 shares of common stock. The principal of the Convertible Notes and interest earned thereon may be converted into shares of common stock at $0.60 per share and under the terms of the Warrant, up to 1,475,000 shares of common stock may be purchased at an exercise price of $0.66 per share. The Convertible Notes are in the aggregate principal amount of $880 and were sold for $800 and bear simple interest at 10% on the principal amount, and principal and interest are due on February 10, 2018. Subject to certain beneficial ownership limitations, each Investor may convert the principal amount of the Convertible Note and accrued interest earned thereon at any time into shares of common stock at $0.60 per share. The conversion price of the Convertible Notes is subject to adjustment for customary stock splits, stock dividends, combinations or similar events.
|
· |
On October 18, 2017, the Company entered into subscription agreements with five investors, under which we agreed to issue and sell in the aggregate 452,239 shares of common stock to the investors at $0.67 per share for an aggregate purchase price of $303. $210 of the purchase price was paid in cash and $93 was paid through the cancellation of debt incurred by the Company.
|
· |
On November 2, 2017, in conjunction with the securities purchase agreement to sell the November 5% Convertible Note in the principal amount of $1,111, the Company issued 300,000 shares of restricted common stock to the institutional investor.
|
· |
On November 7, 2017, the Company entered into subscription agreements with investors under which the Company agreed to issue and sell in the aggregate 725,000 shares of common stock to the investors at $0.60 per share for an aggregate purchase price of $435. $280 of the aggregate purchase price was paid in cash and $155 was paid through the cancellation of debt incurred by the Company.
|
· |
Between November 27, 2017 and December 28, 2017, the Company issued a total of 1,871,864 shares of its common stock upon the cash and cashless exercise of warrants to purchase an aggregate of 2,113,465 shares of its common stock. These warrants were issued between November 2016 and August 2017 in conjunction with various common stock and debt financings. The Company received cash of $642 as a result of these warrant exercises.
|
· |
During the period from November 27, 2017 to December 6, 2017, the entire $530 of principal on the
Convertible Note
was satisfied through the issuance of 963,636 shares of the Company’s common stock.
|
· |
On December 4, 2017, in conjunction with the securities purchase agreement to sell the 5% Convertible Note in the principal amount of $550, the Company issued 150,000 shares of restricted common stock to the institutional investor.
|
· |
Between December 4, 2017 and December 22, 2017, the Company issued a total of 361,458 shares of its common stock upon the cash and cashless exercise of options to purchase an aggregate of 363,500 shares of its common stock. These options were issued pursuant to the Company’s Plans. The Company received cash of $557 as a result of these option exercises.
|
· |
On December 5, 2017, the Company entered into subscription agreements with investors for the sale of 640,000 shares of common stock at $1.25 per share for the aggregate purchase price of $800,000. The direct offering closed December 13, 2017.
|
· |
On December 5, 2017, the Company entered into an exchange agreement with several accredited investors for the cancellation of $690 in outstanding principal on the 10% Short-Term Notes.
In December 2016, Microphase issued $705 in 10% Short-Term Notes. The 10% Short-Term Notes were due one year from the date of issuance. The amount due pursuant to the 10% Short-Term Notes is equal to the entire original principal amount multiplied by 125% (the
“Loan Premium”
) plus accrued interest.
In exchange for the cancellation of $690 of outstanding principal and $250 of accrued loan premiums and interest owed to the investors by Microphase Corporation, the Company entered into the exchange agreement pursuant to which the Company issued an aggregate of 1,523,852 shares of common stock and warrants to purchase 380,466 shares of common stock with an exercise price of $1.10 per share of common stock.
|
· |
On December 5, 2017, the Company entered into an exchange agreement with WT Johnson, pursuant to which the Company issued to WT Johnson convertible promissory notes in the principal amount of $2,668.
During December 2017, the Company issued 600,000 shares of its common stock upon the conversion of the promissory notes
.
|
· |
On December 13, 2017 and December 14, 2017, the entire $1,111 of principal on the
November
5% Convertible Note
was satisfied through the issuance of 1,851,667 shares of the Company’s common stock.
|
· |
On December 28, 2017, principal and accrued interest of $198 and $5, respectively, on the
12% Convertible Note
was satisfied through the issuance of 368,760 shares of the Company’s common stock.
|
· |
During December 2017, the entire principal and accrued interest of $880 and $54, respectively, on the
10% Convertible Notes
was satisfied through the issuance of 1,557,417 shares of the Company’s common stock.
|
· |
On January 25, 2018, we issued two 5% promissory notes, each in the principal face amount of $2,500,000 for an aggregate debt of $5,000,000 to two institutional investors. The proceeds from the two
promissory notes was used to purchase
1,000 Antminer S9s manufactured by Bitmain Technologies, Inc. in connection with our mining operations. We received delivery of the Miners on February 1, 2018.
On March 27, 2018, we paid the principal and accrued interest on each of the 5% promissory notes.
|
· |
On February 27, 2018, we entered into a sales agreement with H.C. Wainwright & Co., LLC (
“
HCW
”
) to sell shares of our common stock, having an aggregate offering price of up to $50 million from time to time, through an “at the market offering” program (the
“
ATM Offering
”
) under which HCW acts as sales agent. As of April 13, 2018, we had received net proceeds of $7,121 through the sale of 6,648,538 shares of our common stock through the ATM Offering. The offer and sale of the shares through the ATM Offering will be made pursuant to our effective “shelf” registration statement on Form S-3 and an accompanying base prospectus contained therein (Registration Statement No. 333-222132) filed with the SEC on December 18, 2017, amended on January 8, 2018, and declared effective by the SEC on January 11, 2018, and a prospectus supplement related to the ATM Offering, dated February 27, 2018.
|
Fair Value Measurement at December 31, 2017
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Investments in common stock and warrants of
AVLP – a related party |
$
|
7,728
|
$
|
826
|
$
|
—
|
$
|
6,902
|
||||||||
Investments in marketable securities
|
$
|
1,835
|
$
|
1,835
|
$
|
—
|
$
|
—
|
||||||||
Total Investments
|
$
|
9,563
|
$
|
2,661
|
$
|
—
|
$
|
6,902
|
||||||||
Fair Value Measurement at December 31, 2016
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Investments in common stock and warrants of AVLP – a related party
|
$
|
84
|
$
|
84
|
$
|
—
|
$
|
—
|
· |
Level 1 – inputs include quoted prices for identical instruments and are the most observable.
|
· |
Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.
|
· |
Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing
the asset or liability.
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A. |
CONTROLS AND PROCEDURES
|
1. |
We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness
|
2. |
We have inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management evaluated the impact of the lack of timely communication between non–financial and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.
|
· |
assists with documentation and implementation of policies and procedures and monitoring of controls,
|
· |
reviews all anticipated transactions that are not considered in the ordinary course of business to assist in the early identification of accounting issues and ensure that appropriate disclosures are made in the Company’s financial statements.
|
ITEM 9B. |
OTHER INFORMATION.
|
Served as a
|
|||
Position and Offices
|
Director and
|
||
Name
|
Age
|
Held with the Company
|
Officer Since
|
Milton C. Ault, III
(1)
|
48
|
Chief Executive Officer, Chairman of the Board and Director
|
2017
|
William B. Horne
(2)
|
49
|
Chief Financial Officer and Director
|
2016
|
Amos Kohn
|
58
|
President and Director
|
2003
|
Robert O. Smith
(3) (5)
|
74
|
Director
|
2016
|
Moti Rosenberg
(5)
|
69
|
Director
|
2015
|
Jeffrey A. Bentz
(4) (5)
|
58
|
Director
|
2018
|
(1) |
Effective March 16, 2017, Mr. Ault was appointed to the Board.
|
(2) |
On October 13, 2016, William B. Horne was appointed to the Board. Pursuant to a securities purchase agreement
dated September 5, 2016 by and among the Company, Philou Ventures, and Telkoor. Philou Ventures has the right
to appoint four members to the Board of Directors.
|
(3) |
On September 22, 2016, Mr. Robert O. Smith was appointed to the board.
|
(4) |
On January 24, 2018, Mr. Jeffrey A. Bentz was appointed to the board.
|
(5) |
Independent Director and Member of the Audit, Compensation and Nominating and Governance Committees.
|
· |
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
· |
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
|
· |
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
|
· |
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
· |
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity;
|
· |
or been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
1. |
Mr. Ault held series 7, 24, and 63 licenses and managed four domestic hedge funds and one bond fund from 1998 through 2008. On April 26, 2012, as a result from an investigation by FINRA involving activities during 2008, Mr. Ault agreed to a settlement with FINRA in which he did not admit to any liability or violation of any laws or regulatory rules and that included restitution and a suspension from association with a FINRA member firm for a period of 2 years. As part of that settlement, Mr. Ault agreed that before he would reapply for association with FINRA, if at all, he would make restitution to certain investors. Mr. Ault was able to speak with and pay restitution to one of the investors, but no others. As a result, Mr. Ault is neither eligible, nor does he intend, to apply for association with FINRA.
|
2. |
Mr. Ault was CEO, President and Chairman of Zealous Holdings, Inc. that filed for bankruptcy protection under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) on February 20, 2009, in the U.S. Bankruptcy Court, Central District of California. This Chapter 11 filing was subsequently converted to a Chapter 7 filing by order of the Bankruptcy Court. Zealous Holdings, Inc. was not an entity that was entitled to a discharge under the bankruptcy code. As such Zealous Holdings, Inc. did not receive a discharge. Ultimately, Zealous Holdings, Inc. ceased doing business and was permanently closed.
|
3. |
Mr. Ault filed for bankruptcy protection under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) on December 8, 2009, in the U.S. Bankruptcy Court, Central District of California. This Chapter 13 filing was subsequently converted to a Chapter 7 filing by order of the Bankruptcy Court and months later, the petition being withdrawn and dismissed without prejudice.
|
ITEM 11. |
EXECUTIVE COMPENSATION
.
|
SUMMARY COMPENSATION TABLE
|
|||||||
Name and principal position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
(1)
|
Option
Awards ($)
(1)
|
All Other Compensation ($) |
Total ($)
|
Amos Kohn
|
2017
|
300,000
|
0
|
0
|
92,250
|
33,000
(2)
|
425,250
|
President
(3)
|
2016
|
234,866
|
0
|
0
|
366,409
|
36,269
(2)
|
637,544
|
Milton C. Ault, III
|
2017
|
0
|
0
|
0
|
461,250
|
207,500
|
668,750
|
Chief Executive Officer
(4)
|
2016
|
0
|
0
|
0
|
0
|
30,000
|
30,000
|
(1)
|
The values reported in the “Stock Awards” and “Option Awards” columns represent the aggregate grant date fair value, computed in accordance with Accounting Standards Codification (“
ASC
”) 718
Share Based Payments
, of grants of stock options and stock awards to our named executive officer in the years shown.
|
(2)
|
The amounts in “All Other Compensation” consist of health insurance benefits, long-term and short-term disability insurance benefits, and 401K matching amounts.
|
(3)
|
Mr. Kohn also served as our Chief Executive Officer until December 28, 2017.
|
(4)
|
Mr. Ault was appointed as our Chief Executive Officer on December 28, 2017. Amounts included in “All Other Compensation” consist of cash fees earned as an independent contractor.
|
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2017
|
|||||
OPTION AWARDS
|
|||||
Name
|
Number of
Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan
Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Amos Kohn
|
1,000,000
(1)
|
—
|
—
|
$0.65
|
11/3/2026
|
|
238,092
(2)
|
79,368
|
—
|
$0.01
|
11/3/2026
|
|
12,500
(3)
|
87,500
|
—
|
$1.38
|
11/28/2027
|
Milton C. Ault III
|
62,500
(4)
|
437,500
|
—
|
$1.38
|
11/28/2027
|
(1) |
On November 3, 2016, Mr. Kohn was granted options to 1,000,000 shares of Common Stock at $0.65 per share. The options to purchase 1,000,000 shares of Common Stock are subject to the following vesting schedule: (1) options to purchase 500,000 shares of Common Stock shall vest upon the effective date; (2) options to purchase 250,000 shares of Common Stock shall vest ratably over six months beginning with the first month after the effective date; and (3) options to purchase 250,000 shares of common stock shall vest ratably over twelve months beginning with the first month after the effective date. In connection with the grant of options to purchase 1,000,000 shares of Common Stock, Mr. Kohn forfeited options to purchase 535,000 shares of common stock previously granted to him under the Company’s 2012 Plan.
|
(2) |
Represents warrants to purchase 317,460 shares of the Company's Common Stock at an exercise price of $0.01 per share subject to vesting quarterly over two years beginning January 1, 2017 granted to Mr. Kohn in connection with his employment agreement.
|
(3) |
Represents options to purchase 100,000 shares of the Company's Common Stock at an exercise price of $1.38 per share subject to vesting monthly over four years beginning November 28, 2017 granted to Mr. Kohn.
|
(4) |
Represents options to purchase 500,000 shares of the Company's Common Stock at an exercise price of $1.38 per share subject to vesting monthly over four years beginning November 28, 2017 granted to Mr. Ault.
|
Fees earned or
|
Stock
|
Option
|
All other
|
|||||||||||||||||
Name
|
paid in cash ($)
|
awards ($)
|
awards ($)
|
compensation ($)
|
Total ($)
|
|||||||||||||||
Robert O. Smith
|
30,000
|
—
|
184,500
|
(2)
|
—
|
214,500
|
||||||||||||||
Kristine Ault
(1)
|
20,000
|
—
|
92,250
|
(3)
|
—
|
112,250
|
||||||||||||||
William B Horne
|
80,000
|
—
|
92,250
|
(3)
|
—
|
172,250
|
||||||||||||||
Mordechai Rosenberg
|
20,000
|
—
|
92,250
|
(3)
|
—
|
112,250
|
(1) |
Ms. Ault resigned from the Board on January 25, 2018.
|
(2) |
On November 28, 2017, Mr. Smith was granted options to purchase 200,000 shares of Common Stock at $1.38 per share. The options shall vest ratably over forty-eight (48) months beginning with the first month after the effective date.
|
(3) |
On November 28, 2017, Ms. Ault and Messrs. Horne and Rosenberg were granted options to purchase 100,000 shares of Common Stock at $1.38 per share. The options shall vest ratably over forty-eight (48) months beginning with the first month after the effective date.
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
Name and address of beneficial owner
|
Number of
|
||||
shares
|
Approximate
|
||||
beneficially
|
percent
|
||||
owned
|
|
|
of class
|
||
Greater than 5% Beneficial Owners:
|
|
|
|
|
|
Philou Ventures, LLC
|
|
5,583,003
|
(2)
|
|
12.03%
|
P.O. Box 3587 Tustin, CA 92705
|
|||||
Kristine Ault
|
5,885,153
|
(3)
|
12.60%
|
||
Directors and Officers:
(1)
|
|
|
|
|
|
Milton Ault, III
|
5,666,503
|
(4)
|
12.19%
|
||
Amos Kohn
|
|
1,405,156
|
(5)
|
|
3.14%
|
Robert Smith
|
244,997
|
(6)
|
*
|
||
William Horne
|
|
179,166
|
(7)
|
|
*
|
Moti Rosenberg
|
145,833
|
(7)
|
*
|
||
Jeffrey A. Bentz
|
|
30,556
|
(7)
|
|
*
|
All directors and executive officers as a group (six persons)
|
7,672,211
|
15.90%
|
(1)
|
Unless otherwise indicated, the business address of each of the individuals is c/o DPW Holdings, Inc., 48430 Lakeview Blvd, Fremont, California 94538.
|
(2)
|
Includes 100,000 shares of Series B Preferred Stock that are convertible in 1,428,571 shares of common stock and warrants to purchase 1,428,572 shares of common stock that are exercisable within 60 days of April 13, 2018.
|
(3)
|
Includes shares owned by Philou Ventures of which Ms. Ault is the Manager. Also includes options to purchase 300,000 shares of common stock that are exercisable within 60 days of April 13, 2018.
|
(4)
|
Mr. Ault is the spouse of Kristine Ault. Includes 5,583,003 shares owned by Philou Ventures which may be deemed beneficially owned by Mr. Ault. Also includes options to purchase 62,500 shares of common stock that are exercisable within 60 days of April 13, 2018.
|
(5)
|
Includes options to purchase 1,012,500 shares and warrants to purchase 238,092 exercisable within 60 days of April 13, 2018.
|
(6)
|
Includes options to purchase 158,333 shares of common stock that are exercisable within 60 days of April 13, 2018.
|
(7)
|
Represents options to purchase shares of common stock that are exercisable within 60 days of April 13, 2018.
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|
2017
|
2016
|
|||||||
Audit Services
|
$
|
313,986
|
$
|
81,545
|
||||
Audit Related Services
|
$
|
—
|
$
|
—
|
||||
Tax Services
|
$
|
—
|
$
|
—
|
||||
All Other Services
|
$
|
—
|
$
|
—
|
||||
Total
|
$
|
313,986
|
$
|
81,545
|
ITEM 15. |
EXHIBITS
|
Exhibit
Number |
|
Description
|
2.1
|
||
2.2
|
||
2.3
|
||
2.4
|
||
3.1
|
||
3.2
|
||
3.3
|
||
3.4
|
||
3.5
|
||
3.6
|
||
3.7
|
||
3.8
|
||
3.9
|
Exhibit
Number |
|
Description
|
4.1
|
||
4.2
|
||
4.3
|
||
4.4
|
||
4.5
|
||
4.6
|
||
4.7
|
||
4.8
|
||
4.9
|
||
4.1
|
||
4.11
|
||
4.12
|
||
4.13
|
||
4.14
|
||
4.15
|
||
4.16
|
||
4.17
|
||
4.18
|
Exhibit
Number |
|
Description
|
4.19
|
||
4.2
|
||
4.21
|
||
4.22
|
||
4.23
|
||
4.24
|
||
4.25
|
||
4.26
|
||
10.1
|
||
10.2
|
||
10.3
|
||
10.4
|
||
10.5
|
||
10.6
|
||
10.7*
|
Exhibit
Number |
|
Description
|
10.8
|
||
10.9
|
||
10.10*
|
||
10.11
|
||
10.12
|
||
10.13
|
||
10.14
|
||
10.15
|
||
10.16
|
||
10.17
|
||
10.18
|
||
10.19
|
||
10.2
|
||
10.21
|
||
10.22
|
||
10.23
|
||
10.24
|
||
10.25
|
Exhibit
Number |
|
Description
|
10.26
|
||
10.27*
|
||
10.28
|
||
10.29
|
||
10.3
|
||
10.31
|
||
10.32
|
||
10.33
|
||
10.34
|
||
10.35
|
||
10.36
|
||
10.37
|
||
10.38
|
||
10.39
|
||
10.4
|
||
10.41
|
||
10.42
|
Exhibit
Number |
|
Description
|
10.43
|
||
10.44
|
||
10.45
|
||
10.46*
|
||
10.47
|
||
10.48
|
||
10.49
|
||
10.5
|
||
10.51**
|
||
10.52
|
||
10.53
|
||
10.54
|
||
14***
|
||
21***
|
||
23***
|
||
31.1***
|
||
32.1****
|
Exhibit
Number |
|
Description
|
101.INS***
|
XBRL Instance Document
|
|
101.SCH***
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL***
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF***
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB***
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE***
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Indicates management contract or compensatory plan or arrangement.
|
**
|
Confidential treatment is being sought for this agreement, which has been filed separately with the SEC. The confidential portions of this Exhibit have been omitted and are marked by asterisks.
|
***
|
Filed herewith.
|
****
|
Furnished herewith.
|
DPW HOLDINGS, INC.
|
||
By:
|
/s/ Milton C. Ault, III
|
|
Milton C. Ault, III
|
||
Chief Executive Officer
|
||
(Principal Executive Officer)
|
||
By:
|
/s/ William B. Horne
|
|
William B. Horne
|
||
Chief Financial Officer
|
||
(Principal Accounting Officer)
|
April 17, 2018
|
/s/ Milton C. Ault, III
|
Milton C. Ault, III, Chief
Executive Officer and Executive Chairman of the Board |
|
April 17, 2018
|
/s/ William B. Horne
|
William B. Horne, Chief
Financial Officer and Director |
|
April 17, 2018
|
/s/ Amos Kohn
|
Amos Kohn, President and
Director |
|
April 17, 2018
|
/s/ Robert O. Smith
|
Robert O. Smith, Director
|
|
April 17, 2018
|
/s/ Mordechai Rosenberg
|
Mordechai Rosenberg,
Director |
|
April 17, 2018
|
/s/ Jeffrey A. Bentz
|
Jeffrey A. Bentz, Director
|
ITEM 8. |
FINANCIAL STATEMENTS
|
Reports of Independent Registered Public Accounting Firm – Marcum LLP
|
F-2
|
|
|
Consolidated Balance Sheets as of December 31, 2017 and 2016
|
F-3 - F-4
|
|
|
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended
December 31, 2017 and 2016 |
F-5
|
|
|
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 2017 and 2016 |
F-6 - F-8
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and
2016 |
F-9 - F-10
|
|
|
Notes to Consolidated Financial Statements
|
F-11 - F-64
|
December 31,
|
||||||||
2017
|
2016
|
|||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
STOCKHOLDERS' EQUITY
|
||||||||
Preferred Stock, $0.01 par value, designated in the following classes
|
$
|
—
|
$
|
—
|
||||
25,000,000 shares authorized; 478,776 and nil shares issued and outstanding
|
||||||||
at December 31, 2017 and December 31, 2016, respectively
|
||||||||
Series A Convertible Preferred Stock, $0.001 par value –
|
—
|
—
|
||||||
500,000 shares authorized; nil shares issued and outstanding at
|
||||||||
December 31, 2017 and December 31, 2016
|
||||||||
Series B Convertible Preferred Stock, $10 stated value per
|
—
|
—
|
||||||
share, $0.001 par value – 500,000 shares authorized; 100,000 and nil
|
||||||||
shares issued and outstanding at December 31, 2017 and December 31,
|
||||||||
2016, respectively (liquidation preference of $1,000 and nil at
|
||||||||
December 31, 2017 and December 31, 2016, respectively)
|
||||||||
Series C Convertible Preferred Stock, $2.40 stated value
|
—
|
—
|
||||||
per share, $0.001 par value – 460,000 shares authorized; nil shares
|
||||||||
issued and outstanding at December 31, 2017 and December 31, 2016
|
||||||||
Series D Convertible Preferred Stock, $0.01 stated value
|
—
|
—
|
||||||
per share, $0.001 par value – 378,776 shares authorized; 378,776 and
|
||||||||
nil shares issued and outstanding at December 31, 2017 and December
|
||||||||
31, 2016, respectively (liquidation preference of $4)
|
||||||||
Series E Convertible Preferred Stock, $45 stated value per
|
—
|
—
|
||||||
share, $0.001 par value – 10,000 shares authorized; nil shares issued and
|
||||||||
outstanding at December 31, 2017 and December 31, 2016
|
||||||||
Preferred Stock, $0.001 par value – 23,151,224 shares authorized; nil shares
|
—
|
—
|
||||||
issued and outstanding at December 31, 2017 and December 31, 2016
|
||||||||
Class A Common Stock, $0.001 par value – 200,000,000 shares authorized;
|
||||||||
30,222,299 and 7,677,637 shares issued and outstanding at December 31, 2017
|
30
|
8
|
||||||
and 2016, respectively
|
||||||||
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; nil
|
—
|
—
|
||||||
shares issued and outstanding at December 31, 2017 and December 31, 2016
|
||||||||
Additional paid-in capital
|
36,888
|
16,529
|
||||||
Accumulated deficit
|
(23,412
|
)
|
(12,158
|
)
|
||||
Accumulated other comprehensive loss
|
4,503
|
(820
|
)
|
|||||
TOTAL DIGITAL POWER STOCKHOLDERS' EQUITY
|
18,009
|
3,559
|
||||||
Non-controlling interest
|
781
|
—
|
||||||
TOTAL STOCKHOLDERS' EQUITY
|
18,790
|
3,559
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
30,510
|
$
|
5,472
|
For the Year Ended
|
||||||||
December 31,
|
||||||||
2017
|
2016
|
|||||||
Revenue
|
$
|
10,001
|
$
|
7,596
|
||||
Revenue, related party
|
174
|
—
|
||||||
Cost of revenue
|
6,325
|
4,890
|
||||||
Gross profit
|
3,850
|
2,706
|
||||||
Operating expenses
|
||||||||
Engineering and product development
|
1,120
|
709
|
||||||
Selling and marketing
|
1,721
|
916
|
||||||
General and administrative
|
6,992
|
2,300
|
||||||
Total operating expenses
|
9,833
|
3,925
|
||||||
Loss from operations
|
(5,983
|
)
|
(1,219
|
)
|
||||
Interest (expense) income, net
|
(4,990
|
)
|
77
|
|||||
Loss before income taxes
|
(10,973
|
)
|
(1,142
|
)
|
||||
Income tax benefit
|
78
|
20
|
||||||
Net loss
|
$
|
(10,895
|
)
|
$
|
(1,122
|
)
|
||
Less: Net loss attributable to non-controlling interest
|
279
|
—
|
||||||
Net loss attributable to Digital Power Corp
|
(10,616
|
)
|
(1,122
|
)
|
||||
Preferred deemed dividends on Series B and Series C Preferred Stock
|
(584
|
)
|
—
|
|||||
Preferred dividends on Series C Preferred Stock
|
(54
|
)
|
—
|
|||||
Net loss available to common stockholders
|
$
|
(11,254
|
)
|
$
|
(1,122
|
)
|
||
Basic and diluted net loss per common share
|
$
|
(0.88
|
)
|
$
|
(0.16
|
)
|
||
Basic and diluted weighted average common shares outstanding
|
12,789,130
|
6,916,568
|
||||||
Comprehensive Loss
|
||||||||
Loss available to common stockholders
|
$
|
(11,254
|
)
|
$
|
(1,122
|
)
|
||
Other comprehensive income (loss)
|
||||||||
Foreign currency translation adjustment
|
152
|
(362
|
)
|
|||||
Net unrealized gain on securities available-for-sale (Disclose warrant in footnote)
|
5,171
|
—
|
||||||
Other comprehensive income (loss)
|
5,323
|
(362
|
)
|
|||||
Total Comprehensive loss
|
$
|
(5,931
|
)
|
$
|
(1,484
|
)
|
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
Comprehensive
|
Non-Controlling
|
Stockholders’
|
||||||||||||||||||||||||||
Shares
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income (Loss)
|
Interest
|
Total
|
|||||||||||||||||||||||||
BALANCES, January 1, 2016
|
—
|
6,775,971
|
$
|
7
|
$
|
14,958
|
$
|
(11,036
|
)
|
$
|
(458
|
)
|
$
|
—
|
$
|
3,471
|
||||||||||||||||
Compensation expense due to stock option issuances
|
—
|
—
|
—
|
520
|
—
|
—
|
—
|
520
|
||||||||||||||||||||||||
Compensation expense due to warrant issuances
|
—
|
—
|
—
|
23
|
—
|
—
|
—
|
23
|
||||||||||||||||||||||||
Issuance of common stock and warrants for cash
|
—
|
901,666
|
1
|
540
|
—
|
—
|
—
|
541
|
||||||||||||||||||||||||
Beneficial conversion feature in connection with
convertible notes |
—
|
—
|
—
|
329
|
—
|
—
|
—
|
329
|
||||||||||||||||||||||||
Fair value of warrants issued in connection with
convertible notes |
—
|
—
|
—
|
159
|
—
|
—
|
—
|
159
|
||||||||||||||||||||||||
Comprehensive loss:
|
||||||||||||||||||||||||||||||||
Net loss
|
—
|
—
|
—
|
—
|
(1,122
|
)
|
—
|
—
|
(1,122
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustments
|
—
|
—
|
—
|
—
|
—
|
(362
|
)
|
—
|
(362
|
)
|
||||||||||||||||||||||
BALANCES, December 31, 2016
|
—
|
7,677,637
|
$
|
8
|
$
|
16,529
|
$
|
(12,158
|
)
|
$
|
(820
|
)
|
$
|
—
|
$
|
3,559
|
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
Comprehensive
|
Non-Controlling
|
Stockholders'
|
||||||||||||||||||||||||||
Shares
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income (Loss)
|
Interest
|
Equity
|
|||||||||||||||||||||||||
BALANCES, December 31, 2016
|
—
|
7,677,637
|
$
|
8
|
$
|
16,529
|
$
|
(12,158
|
)
|
$
|
(820
|
)
|
$
|
—
|
$
|
3,559
|
||||||||||||||||
Compensation expense due to stock option issuances
|
—
|
—
|
—
|
485
|
—
|
—
|
—
|
485
|
||||||||||||||||||||||||
Compensation expense due to warrant issuances
|
—
|
—
|
—
|
93
|
—
|
—
|
—
|
93
|
||||||||||||||||||||||||
Issuance of common stock and warrants for cash
|
—
|
2,729,645
|
3
|
1,959
|
—
|
—
|
—
|
1,962
|
||||||||||||||||||||||||
Issuance of common stock for services
|
—
|
2,161,345
|
2
|
1,661
|
—
|
—
|
—
|
1,663
|
||||||||||||||||||||||||
Issuance of common stock for conversion of debt
|
—
|
6,759,798
|
7
|
4,029
|
—
|
—
|
—
|
4,036
|
||||||||||||||||||||||||
Issuance of common stock upon exercise of stock
options |
—
|
361,458
|
—
|
557
|
—
|
—
|
—
|
557
|
||||||||||||||||||||||||
Issuance of common stock upon exercise of warrants
|
—
|
3,546,108
|
3
|
2,242
|
—
|
—
|
—
|
2,245
|
||||||||||||||||||||||||
Issuance of Series B preferred stock for cash and
warrants |
50,000
|
—
|
—
|
500
|
—
|
—
|
—
|
500
|
||||||||||||||||||||||||
Issuance of Series B preferred stock for conversion of
debt |
50,000
|
—
|
—
|
500
|
—
|
—
|
—
|
500
|
||||||||||||||||||||||||
Issuance of Series C preferred stock for cash and
warrants |
433,335
|
—
|
—
|
898
|
—
|
—
|
—
|
898
|
||||||||||||||||||||||||
Issuance of Series C preferred stock for conversion of
debt |
21,667
|
—
|
—
|
52
|
—
|
—
|
—
|
52
|
||||||||||||||||||||||||
Issuance of common stock for conversion of Series C
preferred stock |
(455,002
|
)
|
1,820,008
|
2
|
(2
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||
Issuance of Series D preferred stock and common stock
in acquisition of Microphase |
378,776
|
1,842,448
|
2
|
1,449
|
—
|
—
|
945
|
2,396
|
||||||||||||||||||||||||
Issuance of Series E preferred stock and common stock
in acquisition of Microphase |
10,000
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
Issuance of common stock for conversion of Series E
preferred stock |
(10,000
|
)
|
600,000
|
1
|
470
|
—
|
—
|
—
|
471
|
|||||||||||||||||||||||
Issuance of common stock in connection with
convertible notes |
—
|
450,000
|
—
|
399
|
—
|
—
|
—
|
399
|
||||||||||||||||||||||||
Issuance of common stock for domain name
|
—
|
50,000
|
—
|
31
|
—
|
—
|
—
|
31
|
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
Comprehensive
|
Non-Controlling
|
Stockholders'
|
||||||||||||||||||||||||||
Shares
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income (Loss)
|
Interest
|
Equity
|
|||||||||||||||||||||||||
Issuance of common stock and warrants in
satisfaction of subsidiary debt |
—
|
1,523,852
|
1
|
939
|
—
|
—
|
—
|
940
|
||||||||||||||||||||||||
Issuance of common stock for acquisition of debt due
from related party |
—
|
600,000
|
1
|
599
|
—
|
—
|
—
|
600
|
||||||||||||||||||||||||
Beneficial conversion feature in connection with
convertible notes |
—
|
—
|
—
|
787
|
—
|
—
|
—
|
787
|
||||||||||||||||||||||||
Fair value of warrants issued in connection with
convertible notes |
—
|
—
|
—
|
2,134
|
—
|
—
|
—
|
2,134
|
||||||||||||||||||||||||
Fair value of personal guarantees in connection with
debt financings |
—
|
—
|
—
|
75
|
—
|
—
|
—
|
75
|
||||||||||||||||||||||||
Issuance of common stock for conversion of debt
owed by subsidiary to former stakeholder |
—
|
—
|
—
|
—
|
—
|
—
|
115
|
115
|
||||||||||||||||||||||||
Issuance of common stock and cash for exchange fees
and other financing costs |
—
|
100,000
|
—
|
(82
|
)
|
—
|
—
|
—
|
(82
|
)
|
||||||||||||||||||||||
Comprehensive loss:
|
||||||||||||||||||||||||||||||||
Net loss
|
—
|
—
|
—
|
—
|
(10,616
|
)
|
—
|
—
|
(10,616
|
)
|
||||||||||||||||||||||
Preferred dividends
|
—
|
—
|
—
|
—
|
(54
|
)
|
—
|
—
|
(54
|
)
|
||||||||||||||||||||||
Preferred deemed dividends
|
—
|
—
|
—
|
584
|
(584
|
)
|
—
|
—
|
—
|
|||||||||||||||||||||||
Net unrealized gain on securities available-for-sale,
net of income taxes |
—
|
—
|
—
|
—
|
—
|
5,171
|
—
|
5,171
|
||||||||||||||||||||||||
Foreign currency translation adjustments
|
—
|
—
|
—
|
—
|
—
|
152
|
—
|
152
|
||||||||||||||||||||||||
Net loss attributable to non-controlling interest
|
—
|
—
|
—
|
—
|
—
|
—
|
(279
|
)
|
(279
|
)
|
||||||||||||||||||||||
BALANCES, December 31, 2017
|
478,776
|
30,222,299
|
$
|
30
|
$
|
36,888
|
$
|
(23,412
|
)
|
$
|
4,503
|
$
|
781
|
$
|
18,790
|
For the Year Ended December 31,
|
||||||||
2017
|
2016
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$
|
(10,895
|
)
|
$
|
(1,122
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation
|
194
|
161
|
||||||
Amortization
|
61
|
—
|
||||||
Interest expense – debt discount
|
4,688
|
34
|
||||||
Accretion of original issue discount on notes receivable – related party
|
(454
|
)
|
(2
|
)
|
||||
Interest income on conversion of promissory notes to common stock
|
13
|
—
|
||||||
Deferred taxes
|
(226
|
)
|
—
|
|||||
Provision for bad debts
|
(32
|
)
|
32
|
|||||
Reserve for inventory
|
—
|
68
|
||||||
Stock-based compensation
|
1,831
|
543
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
285
|
(311
|
)
|
|||||
Accounts receivable, related party
|
(174
|
)
|
77
|
|||||
Inventories
|
100
|
209
|
||||||
Prepaid expenses and other current assets
|
(764
|
)
|
(119
|
)
|
||||
Other investments, related party
|
(335
|
)
|
—
|
|||||
Other assets
|
(70
|
)
|
(11
|
)
|
||||
Accounts payable and accrued expenses
|
1,517
|
322
|
||||||
Accounts payable, related parties
|
70
|
—
|
||||||
Other current liabilities
|
74
|
(239
|
)
|
|||||
Net cash used in operating activities
|
(4,117
|
)
|
(358
|
)
|
||||
Cash flows from investing activities:
|
||||||||
Purchase of property and equipment
|
(403
|
)
|
(85
|
)
|
||||
Proceeds from sale of property and equipment
|
17
|
—
|
||||||
Purchase of intangible asset
|
(50
|
)
|
—
|
|||||
Purchase of Power-Plus
|
(378
|
)
|
—
|
|||||
Cash received on acquisiton of Microphase
|
111
|
—
|
||||||
Sale of investment – related party
|
—
|
90
|
||||||
Investments – related party
|
(3,201
|
)
|
(1,034
|
)
|
||||
Investment in real property – related party
|
(300
|
)
|
—
|
|||||
Investments in marketable securities
|
(1,486
|
)
|
—
|
|||||
Sales of marketable securities
|
64
|
—
|
||||||
Loans to related parties
|
(44
|
)
|
—
|
|||||
Proceeds from loans to related parties
|
35
|
—
|
||||||
Investments in debt and equity securities
|
(3,039
|
)
|
—
|
|||||
Net cash used in investing activities
|
(8,674
|
)
|
(1,029
|
)
|
Fair value of assets acquired
|
$
|
8,275
|
||||||
Equity instruments issued
|
(1,451
|
)
|
||||||
Non-controlling interest
|
(945
|
)
|
||||||
Liabilities assumed
|
$
|
5,879
|
Useful lives (in years)
|
||
Computer, software and related equipment
|
|
3 - 5
|
Office furniture and equipment
|
|
5 - 10
|
Leasehold improvements
|
|
Over the term of the lease or the life
of the asset, whichever is shorter.
|
Useful lives (in years)
|
||
Customer list
|
|
5 - 14
|
Non-competition agreements
|
3
|
|
Domain name
|
|
3
|
Fair Value Measurement at December 31, 2017
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Investments in common stock and warrants of
AVLP – a related party |
$
|
7,728
|
$
|
826
|
$
|
—
|
$
|
6,902
|
||||||||
Investments in marketable securities
|
$
|
1,835
|
$
|
1,835
|
$
|
—
|
$
|
—
|
||||||||
Total Investments
|
$
|
9,563
|
$
|
2,661
|
$
|
—
|
$
|
6,902
|
Fair Value Measurement at December 31, 2016
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Investments in common stock and warrants of
AVLP – a related party |
$
|
84
|
$
|
84
|
$
|
—
|
$
|
—
|
· |
Level 1 – inputs include quoted prices for identical instruments and are the most observable.
|
· |
Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.
|
· |
Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing
the asset or liability.
|
2017
|
2016
|
|||||||
Stock options
|
3,842,500
|
2,256,000
|
||||||
Warrants
(1)
|
4,071,408
|
1,431,666
|
||||||
Convertible notes
|
1,283,940
|
963,636
|
||||||
Conversion of preferred stock
|
2,186,123
|
—
|
||||||
Total
|
11,383,971
|
4,651,302
|
(1)
|
The Company has excluded the 317,460 warrants with an exercise price of $0.01 per share in its anti-dilutive securities.
|
Available-for-sale securities
|
||||||||||||||||
Gross unrealized
|
Gross realized
|
|||||||||||||||
Cost
|
gains (losses)
|
gains (losses)
|
Fair value
|
|||||||||||||
Common shares
|
$
|
1,702
|
$
|
133
|
$
|
—
|
$
|
1,835
|
2017
|
2016
|
|||||||
Raw materials, parts and supplies
|
542
|
271
|
||||||
Work-in-progress
|
685
|
238
|
||||||
Finished products
|
766
|
613
|
||||||
Total inventories
|
1,993
|
1,122
|
2017
|
2016
|
|||||||
Computer, software and related equipment
|
2,432
|
1,652
|
||||||
Office furniture and equipment
|
289
|
240
|
||||||
Leasehold improvements
|
788
|
699
|
||||||
|
3,509
|
2,591
|
||||||
Accumulated depreciation and amortization
|
(2,292
|
)
|
(2,021
|
)
|
||||
Property and equipment, net
|
1,217
|
570
|
Intangible Assets
|
||||
Balance as of December 31, 2016
|
$
|
—
|
||
Trade name and trademark
|
1,740
|
|||
Customer list
|
988
|
|||
Non-competition agreements
|
150
|
|||
Domain name
|
81
|
|||
Accumulated amortization
|
(61
|
)
|
||
Balance as of December 31 2017
|
$
|
2,898
|
2018
|
$
|
133
|
||
2019
|
133
|
|||
2020
|
117
|
|||
2021
|
83
|
|||
2022
|
77
|
|||
Thereafter
|
534
|
|||
|
$
|
1,077
|
2017
|
2016
|
|||||||
Investment in convertible promissory note of AVLP
|
$
|
4,124
|
$
|
997
|
||||
Investment in warrants of AVLP
|
6,902
|
—
|
||||||
Investment in common stock of AVLP
|
826
|
84
|
||||||
Accrued interest in convertible promissory note of AVLP
|
324
|
9
|
||||||
Total investment in AVLP – Gross
|
12,176
|
1,090
|
||||||
Less: original issue discount
|
(2,115
|
)
|
(45
|
)
|
||||
Total investment in AVLP – Net
|
$
|
10,061
|
$
|
1,045
|
||||
Investment in warrants and common stock of AVLP
|
$
|
7,728
|
$
|
84
|
||||
Investment in convertible promissory note of AVLP
|
2,333
|
961
|
||||||
Total investment in AVLP – Net
|
$
|
10,061
|
$
|
1,045
|
Microphase
|
Power-Plus
|
|||||||
Cash and cash equivalents
|
$
|
11
|
$
|
31
|
||||
Accounts receivable
|
439
|
235
|
||||||
Inventories
|
667
|
241
|
||||||
Prepaid expenses and other current assets
|
139
|
2
|
||||||
Restricted cash
|
100
|
—
|
||||||
Intangible assets
|
2,628
|
250
|
||||||
Property and equipment
|
406
|
23
|
||||||
Other investments
|
303
|
—
|
||||||
Deposits and loans
|
44
|
—
|
||||||
Accounts payable and accrued expenses
|
(1,576
|
)
|
(389
|
)
|
||||
Deferred tax liability
|
(226
|
)
|
—
|
|||||
Revolving credit facility
|
(880
|
)
|
(210
|
)
|
||||
Notes payable
|
(2,204
|
)
|
—
|
|||||
Notes payable, related parties
|
(406
|
)
|
—
|
|||||
Convertible notes payable
|
—
|
—
|
||||||
Other current liabilities
|
(220
|
)
|
—
|
|||||
Net liabilities, assets assumed
|
(775
|
)
|
183
|
|||||
Goodwill
|
3,171
|
481
|
||||||
Non-controlling interest
|
(945
|
)
|
—
|
|||||
Purchase price
|
$
|
1,451
|
$
|
664
|
2017
|
2016
|
|||||||
Total Revenue
|
$
|
13,878
|
$
|
16,409
|
||||
Net loss
|
$
|
(12,347
|
)
|
$
|
(4,183
|
)
|
||
Less: Net loss attributable to non-controlling interest
|
773
|
1,365
|
||||||
Net loss attributable to Digital Power Corp
|
$
|
(11,574
|
)
|
$
|
(2,818
|
)
|
||
Preferred deemed dividends
|
(584
|
)
|
—
|
|||||
Preferred dividends
|
(54
|
)
|
—
|
|||||
Loss available to common shareholders
|
$
|
(12,212
|
)
|
$
|
(2,818
|
)
|
||
Basic and diluted net loss per common share
|
$
|
(0.83
|
)
|
$
|
(0.32
|
)
|
||
Basic and diluted weighted average common shares outstanding
|
14,631,578
|
8,759,016
|
||||||
Comprehensive Loss
|
||||||||
Loss available to common shareholders
|
$
|
(12,212
|
)
|
$
|
(2,818
|
)
|
||
Other comprehensive income (loss)
|
||||||||
Change in net foreign currency translation adjustments
|
152
|
(362
|
)
|
|||||
Net unrealized gain on securities available-for-sale, net of income taxes
|
5,171
|
364
|
||||||
Other comprehensive income
|
5,323
|
2
|
||||||
Total Comprehensive loss
|
$
|
(6,889
|
)
|
$
|
(2,816
|
)
|
2017
|
2016
|
|||||||
Weighted average risk free interest rate
|
1.73% — 2.14
|
%
|
1.26% — 1.77
|
%
|
||||
Weighted average life (in years)
|
5.0
|
5.0
|
||||||
Volatility
|
98.4% — 115.8
|
%
|
97.7% — 98.2
|
%
|
||||
Expected dividend yield
|
0
|
%
|
0
|
%
|
||||
Weighted average grant-date fair value per share of
options granted |
$
|
0.60
|
$
|
0.46
|
Outstanding
|
Exercisable
|
|||||||||
|
|
Weighted
|
|
|
||||||
Average
|
Weighted
|
Weighted
|
||||||||
Remaining
|
Average
|
Average
|
||||||||
Exercise
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|||||
Price
|
Outstanding
|
Life (Years)
|
Price
|
Exercisable
|
Price
|
|||||
$0.57 - $0.79
|
|
2,350,000
|
|
8.89
|
|
$0.66
|
|
1,568,332
|
|
$0.67
|
$1.10 - $1.38
|
270,000
|
9.67
|
$1.38
|
35,833
|
$1.35
|
|||||
$1.51 - $1.69
|
|
122,500
|
|
5.06
|
|
$1.63
|
|
92,500
|
|
$1.62
|
$0.57 - 1.69
|
2,742,500
|
8.80
|
$0.77
|
1,696,665
|
$0.73
|
|
2017
|
2016
|
||||||
Cost of revenues
|
$
|
8
|
$
|
6
|
||||
Engineering and product development
|
21
|
17
|
||||||
Selling and marketing
|
46
|
5
|
||||||
General and administrative
|
1,503
|
492
|
||||||
Stock-based compensation from Plans
|
$
|
1,578
|
$
|
520
|
||||
Stock-based compensation from issuances outside of Plans
|
253
|
—
|
||||||
Total Stock-based compensation
|
$
|
1,831
|
$
|
520
|
Outstanding Options
|
|||||||||
Weighted
|
|||||||||
Weighted
|
Average
|
||||||||
Shares
|
Average
|
Remaining
|
Aggregate
|
||||||
Available
|
Number
|
Exercise
|
Contractual
|
Intrinsic
|
|||||
for Grant
|
of Shares
|
Price
|
Life (years)
|
Value
|
|||||
January 1, 2016
|
337,630
|
|
1,256,000
|
|
$1.52
|
|
6.74
|
|
$0
|
Adoption of 2016 SIP
|
4,000,000
|
—
|
|||||||
Granted
|
(1,800,000)
|
|
1,800,000
|
|
0.67
|
|
|
|
|
Forfeited
|
650,000
|
(650,000)
|
1.59
|
||||||
Expired
|
40,000
|
|
(40,000)
|
|
1.16
|
|
|
|
|
December 31, 2016
|
3,227,630
|
2,366,000
|
$0.83
|
9.08
|
$0
|
||||
Adoption of 2017 SIP
|
2,000,000
|
|
—
|
|
|
|
|
|
|
Stock awards
|
(1,948,798)
|
—
|
|||||||
Granted
|
(810,000)
|
|
810,000
|
|
$0.84
|
|
|
|
|
Forfeited
|
70,000
|
(70,000)
|
$0.63
|
||||||
Exercised
|
—
|
|
(363,500)
|
|
$1.56
|
|
|
|
|
December 31, 2017
|
2,538,832
|
2,742,500
|
$0.77
|
8.80
|
$6,688
|
(i) |
On October 31, 2016, the Company issued a
three-year warrant to purchase 265,000 shares of common stock at a per share exercise price of $0.80 and a three-year warrant to purchase 265,000 shares of common stock at a per share exercise price of $0.90
in connection with
a 12% Convertible Secured Note in the principal amount of $530 that was sold to an existing stockholder of the Company for $500
.
(See Note 21).
|
(ii) |
In connection with an executive employment agreement, on November 3, 2016, the Company issued to its Chief Executive Officer a ten-year warrant to purchase 317,460 shares of the Company's common stock, at an exercise price of $0.01 per share. The Warrant is subject to vesting of which warrants to purchase 39,682 shares shall vest beginning on January 1, 2017, and on the first date of each quarter thereafter through July 1, 2018, with warrants to purchase 39,686 shares to vest on October 1, 2018.
|
(iii) |
On
November 15, 2016
, the Company issued
three-year warrants to purchase 901,666 shares of common stock each at a per share exercise price of $0.80
in connection with
subscription agreements entered into with nine accredited investors. Pursuant to the terms of the subscription agreements, the Company sold 901,666 units at $0.60 for an aggregate purchase price of approximately $541. Each unit consists of one share of common stock and one warrant to purchase one share of common stock
(See Note 23).
|
(i) |
In February 2017, the Company issued five-year warrants to purchase 333,333 shares of common stock at a per share exercise price of $0.70 in connection with $400 of
6% demand promissory notes
entered into by the Company (See Note 18i).
|
(ii) |
Between March 24, 2017 and June 2, 2017, the Company issued warrants to purchase 1,428,572 shares of common stock, at an exercise price of $0.70 per share of common stock, in connection with preferred stock purchase agreements to purchase 100,000 shares of Series B Preferred Stock by Philou
(See Note 23).
|
(iii) |
On April 5, 2017, the Company issued warrants to purchase 180,002 shares of common stock, at an exercise price of $0.90 per share of common stock, in connection with the cancellation of $270 in demand promissory notes (See Note 18j).
|
(iv) |
On April 17, 2017, the Company issued warrants to purchase 166,668 shares of common stock
, at an exercise price of $0.90 per share of common stock,
in connection with the issuance of two 7% convertible notes in the aggregate principal amount of $250. On July 25, 2017, the Company agreed to
reduce the exercise price of warrants to purchase 83,334 shares of common stock from $0.90 per share to $0.55 per share and on July 28, 2017, the Company
issued a new warrant to purchase 83,334 shares of common stock at $0.55 per share and cancelled the prior warrant to purchase 83,334 shares of common stock at $0.90 per share (See Note 20e).
|
(v) |
On April 26, 2017, the Company issued warrants to purchase 160,000 shares of common stock
, at an exercise price of $0.80 per share of common stock,
in connection with the issuance of a 7% convertible note in the aggregate principal amount of $104 (See Note 20f).
|
(vi) |
Between May 5, 2017 and June 30, 2017,
the Company issued warrants to purchase 224,371
shares of common stock in connection with the
issuance of short-term loans of $140 that the Company entered into with four accredited investors (See Note 18h) of which $75 was from the Company’s corporate counsel, a related party. The exercise price was $0.75 per share of common stock for 135,909 warrants and $0.80 per share of common stock for the remaining 88,462 warrants.
|
(vii) |
Between May 24, 2017 and June 19, 2017, the Company issued
warrants to purchase 1,820,002 shares of common stock issued in connection with the
sale of twenty-one units (the
“Units”
) at a purchase price of $52 per Unit raising in the aggregate $1,092. Each Unit consisted of 21,667 shares of Series C Preferred Stock and Warrants to purchase 86,667 shares of common stock,
at an exercise price of $1.00 per share of common stock (See Note 23).
|
(viii) |
The Company engaged Divine Capital Markets, LLC (
“Divine”
) to act as Placement Agent (the
“Placement Agent”
) for the private placement of the Series C Preferred Stock and Warrants. For its services, the Placement Agent received, in addition to a 10.0% commission on the sale of each Unit and a 3.0% non-refundable expense allowance, warrants to purchase 10% of the Units sold at 120% of the Unit purchase price. The warrants to purchase 2.1 Units equates to a warrant to purchase 182,003 shares of the Company’s common stock at $0.72 per share and a second warrant to purchase 182,003 shares of the Company’s common stock at $1.00 per share (See Note 23).
|
(ix) |
On June 2, 2017, the Company issued warrants to purchase 1,000,000 shares of common stock, at an exercise price of $1.10 per share of common stock, pursuant to the terms of a share exchange agreement (See Note 12).
|
(x) |
On July 25, 2017, the Company issued warrants to purchase an aggregate of 163,636 shares of common stock at an exercise price equal to $0.55 per share of common stock in connection with a private placement agreement under which we issued and sold 272,727 shares of common stock to the investor at $0.55 per share for an aggregate purchase price of $150. (See Note 23).
|
(xi) |
On July 28, 2017, the Company entered into an exchange agreement related to a 7% Convertible Note in the principal amount of $125 in which the Company exchanged the 7% Convertible Note for three new promissory notes in the principal amounts of $110 due August 1, 2017; $35 due August 1, 2017; and $34 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes). Concurrent with entering into the exchange agreement, the investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. Further, the Company issued a warrant to purchase 120,000 shares of common stock at $0.55 per share (See Note 20e)
.
|
(xii) |
On August 3, 2017,
the Company issued warrants to purchase an aggregate of 666,666 shares of common stock at an exercise price equal to $0.70 per share of common stock in connection with the issuance of a 12% Convertible Promissory Note in the aggregate principal amount of $400 (See Note 20b).
|
(xiii) |
On August 10, 2017, the Company issued warrants to purchase an aggregate of 1,475,000 shares of the common stock at an exercise price equal to $0.66 per share of common stock in connection with the issuance of 10% Convertible Promissory Notes in the aggregate principal amount of $880 (See Note 20d).
|
(xiv) |
On November 2, 2017, the Company paid to Aegis Capital Corp. (
“Aegis”
), its financial advisor, a cash fee of $81 and issued to Aegis a warrant to purchase 148,133 shares of common stock with an exercise price of $0.66 per share of common stock in connection with the issuance of 10% Convertible Promissory Notes in the aggregate principal amount of $1,111 (See Note 20c).
|
(xv) |
On December 5, 2017, the Company entered into an exchange agreement (the
“Exchange Agreement”
) with several accredited investors, pursuant to which the Company issued an aggregate of 1,523,852 shares of common stock and warrants to purchase 380,466 shares of common stock with an exercise price of $1.10 per share of common stock, in exchange for cancellation of $690 of outstanding debt owed to the investors by Microphase Corporation (See Note 18f).
|
Outstanding
|
|
|
Exercisable
|
|||||||
|
|
Weighted
|
|
|
||||||
Average
|
Weighted
|
Weighted
|
||||||||
Remaining
|
Average
|
Average
|
||||||||
Exercise
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|||||
Price
|
Outstanding
|
Life (Years)
|
Price
|
Exercisable
|
Price
|
|||||
$0.01
|
|
317,460
|
|
8.84
|
|
$0.01
|
|
158,728
|
|
$0.01
|
$0.55
|
283,636
|
0.48
|
$0.55
|
—
|
—
|
|||||
$0.66
|
|
148,133
|
|
4.84
|
|
$0.66
|
|
—
|
|
—
|
$0.70
|
1,768,572
|
4.78
|
$0.70
|
1,768,572
|
$0.70
|
|||||
$0.72
|
|
182,003
|
|
4.47
|
|
$0.72
|
|
182,003
|
|
$0.72
|
$0.75
|
135,909
|
4.37
|
$0.75
|
135,909
|
$0.75
|
|||||
$0.80
|
|
481,666
|
|
2.69
|
|
$0.80
|
|
481,666
|
|
$0.80
|
$1.00
|
312,003
|
4.46
|
$1.00
|
312,003
|
$1.00
|
|||||
$1.10
|
|
759,486
|
|
3.68
|
|
$1.10
|
|
379,020
|
|
$1.10
|
$0.01 - 1.10
|
4,388,868
|
4.61
|
$0.74
|
3,417,901
|
$0.76
|
2017
|
2016
|
|||
Weighted average risk-free interest rate
|
|
1.42% — 2.01%
|
|
0.98% — 1.28%
|
Weighted average life (in years)
|
4.8
|
4.3
|
||
Volatility
|
|
98.5% — 128.7%
|
|
97.7% — 110.0%
|
Expected dividend yield
|
0%
|
0%
|
||
Weighted average grant-date fair value per
share of warrants granted |
|
$ 0.54
|
|
$ 0.49
|
2017
|
2016
|
|||||||
Accrued payroll and payroll taxes
|
$
|
359
|
$
|
128
|
||||
Warranty liability
|
86
|
86
|
||||||
Other accrued expenses
|
263
|
184
|
||||||
$
|
708
|
$
|
398
|
2017
|
||||
Notes payable to Wells Fargo
(a)
|
$
|
300
|
||
Note payable to Department of Economic and Community Development
(b)
|
292
|
|||
Power-Plus Credit Facilities
(c)
|
171
|
|||
Note payable to Power-Plus Member
(d)
|
130
|
|||
Note payable to People's United Bank
(e)
|
19
|
|||
10% short-term promissory notes
(f)
|
15
|
|||
Total notes payable
|
927
|
|||
Less: current portion
|
(402
|
)
|
||
Notes payable – long-term portion
|
$
|
525
|
(a) |
At December 31, 2017, Microphase had guaranteed the repayment of two equity lines of credit in the aggregate amount of $300 with Wells Fargo Bank, NA (
“Wells Fargo”
) (collectively, the
“Wells Fargo Notes”
). These loans originated prior to the Company’s acquisition of Microphase and Microphase was the recipient of the actual proceeds from the loans. Microphase had previously guaranteed the payment under the first Wells Fargo equity line during 2008, the proceeds of which Microphase had received from a concurrent loan from Edson Realty Inc., a related party owned real estate holding company. As of December 31, 2017, the first line of credit, which is secured by residential real estate owned by a former officer, had an outstanding balance of $212, with an annual interest rate of 4.00%. Microphase had guaranteed the payment under the second Wells Fargo equity line in 2014. Microphase had received working capital loans from the former CEO from funds that were drawn against the second Wells Fargo equity line. As of December 31, 2017, the second line of credit, secured by the former CEO’s principal residence, had an outstanding balance of $88, with an annual interest rate of 3.00%. During the period June 3, 2017 to December 31, 2017, Microphase incurred $8 of interest on the Wells Fargo Notes.
|
(b) |
In August 2016, Microphase received a $300 loan, of which $8 has been repaid, pursuant to the State of Connecticut Small Business Express Job Creation Incentive Program which is administered through the Department of Economic and Community Development (
“DECD”
) (the
“DECD Note”
). The DECD Note bears interest at a rate of 3% per annum and is due in August 2026. Payment of principal and interest was deferred during the initial year and commencing in September 2017, payable in equal monthly installments over the remaining term. During the period June 3, 2017 to December 31, 2017, Microphase incurred $5 of interest on the DECD Note. In conjunction with the DECD Note, Microphase was awarded and received a Small Business Express Matching Grant of $100 by the State of Connecticut. State grant funding requires Microphase to spend an equal amount of cash on eligible expense. The Company has utilized $18 of the grant and the balance of $82 is reported within deferred revenue and classified in accounts payable and accrued in the accompanying consolidated balance sheet at December 31, 2017.
|
(c) |
At December 31, 2017, Power-Plus had guaranteed the repayment of two lines of credit in the aggregate amount of $169 with Bank of America NA (
“B of A”
) and Wells Fargo (collectively, the
“Power-Plus Lines”
). As of December 31, 2017, the B of A line of credit had an outstanding balance of $97, with an annual interest rate of 6.25%. As of December 31, 2017, the Wells Fargo line of credit had an outstanding balance of $74, with an annual interest rate of 10.00%. During the period September 2 to December 31, 2017, Power-Plus incurred $4 of interest on the Power-Plus Lines.
|
(d) |
Pursuant to the terms of the Purchase Agreement with Power-Plus, the Company entered into a two-year promissory note in the amount of $255 payable to the former owner as part of the purchase consideration. The $255 note is payable in 24 equal monthly installments.
On October 18, 2017, for cancellation of debt, the Company entered into a subscription agreement with the former owner under which the Company sold 138,806 shares of common stock at $0.67 per share for an aggregate purchase price of $93 (See Note 23).
|
(e) |
In December 2016, Microphase utilized a $20 overdraft credit line at People’s United Bank with an annual interest rate of 15%. As of December 31, 2017, the balance of that overdraft credit line was $19.
|
(f) |
In December 2016, Microphase issued $705 in 10% short-term promissory notes to nineteen accredited investors which, after deducting $71 of placement fees to its selling agent, Spartan Capital Securities, LLC (
“Spartan”
), resulted in $634 in net proceeds to Microphase (the
“10% Short-Term Notes”
). The 10% Short-Term Notes were due one year from the date of issuance. The amount due pursuant to the 10% Short-Term Notes is equal to the entire original principal amount multiplied by 125% (the
“Loan Premium”
) plus accrued interest. During the period June 3, 2017 to December 31, 2017, Microphase incurred $44 of interest on these 10% short-term promissory notes.
On December 5, 2017, in exchange for the cancellation of $690 of outstanding principal and $250 of accrued interest owed to the investors by Microphase Corporation, the Company entered into an Exchange Agreement pursuant to which the Company issued an aggregate of 1,523,852 shares of common stock and warrants to purchase 380,466 shares of common stock with an exercise price of $1.10 per share of common stock, (See Note 23).
|
(g) |
On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450 8% promissory note with a maturity date of November 25, 2017 to Lucosky Brookman, LLP (the
“Lucosky Note”
). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of redeemable convertible Series E preferred stock (the
“Series E Preferred Stock”
) with a stated value of $45 per share as an alternative to providing a guarantee for the amount of the Lucosky Note.
The Company, at its option, had the right to redeem for cash the outstanding shares of Series E Preferred Stock, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company would have resulted in a credit against the Lucosky Note.
During the period June 3, 2017 to December 29, 2017, Microphase incurred $21 of interest on
the Lucosky Note.
On December 29, 2017, the Lucosky Note was satisfied through the conversion of the 10,000 shares of Series E Preferred Stock into 600,000 shares of the Company’s common stock (See Note 23).
|
(h) |
Between May 5, 2017 and December 31, 2017, the Company received additional short-term loans of $297 from five accredited investors, of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share. The warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of these warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. During the quarter ended June 30, 2017, the Company recorded debt discount in the amount of $95 based on the estimated fair value of these warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the short-term feature of these loans and advances, the debt discount was amortized as non-cash interest expense upon issuance of the warrants using the effective interest method.
|
(i) |
In February 2017, the Company issued to
eight accredited investors
$400 in demand promissory notes bearing interest at a rate of 6% per annum. Of the eight accredited investors, one investor was deemed a related party. As additional consideration, the investors received five-year warrants to purchase 333,333 shares of common stock at an exercise price of $0.70 per share (the
“Feb. 2017 Warrants”
). The Feb. 2017 Warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of the Feb. 2017 Warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The Feb. 2017 Warrants may be exercised for cash or on a cashless basis. During the quarter ended March 31, 2017, the Company recorded debt discount in the amount of $151 based on the estimated fair value of the Feb. 2017 Warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the due on demand feature of the promissory notes, the debt discount was amortized as non-cash interest expense upon issuance of the Feb. 2017 Warrants using the effective interest method.
|
(j) |
On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. These demand promissory notes accrued interest at the rate of 6% per annum. The Company received gross proceeds of $220 on March 31, 2017. The remaining balance of $50 was received on April 3, 2017. On April 5, 2017, the Company canceled these promissory notes by issuing to the investors 360,000 shares of common stock, at $0.75 per share, and warrants to purchase 180,002 shares of common stock at $0.90 per share. During the quarter ended June 30, 2017, the Company recorded additional interest expense of $109 as a result of the extinguishment of the $270 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and
the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of
extinguishment
.
|
2017
|
2016
|
|||||||
Notes payable to MCKEA Holdings, LLC
(a)
|
$
|
—
|
$
|
250
|
||||
Notes payable to former officer and employee
(b)
|
309
|
—
|
||||||
Total notes payable
|
309
|
250
|
||||||
Less: current portion
|
(134
|
)
|
—
|
|||||
Notes payable – long-term portion
|
$
|
175
|
$
|
250
|
(a) |
On
December 29, 2016, the Company entered into an agreement with
MCKEA Holdings, LLC
(“MCKEA”
). MCKEA is the majority member of Philou Ventures, LLC, which is the Company’s controlling shareholder. Kristine L. Ault
, a director and the wife of Milton C. Ault III, Executive
Chairman of the Company’s Board of Directors
, is the manager and owner of MCKEA, for a demand promissory note (The
“MCKEA Note”
) in the amount of $250 bearing interest at the rate of 6% per annum on unpaid principal. The MCKEA Note may be prepaid, in whole or in part, without penalty, at the option of the Company and without the consent of MCKEA. As of December 31, 2016, no interest was accrued on the MCKEA Note.
On March 24, 2017
, the MCKEA Note was cancelled to purchase the Company’s
Series B Preferred Stock pursuant to the terms of the Preferred Stock Purchase Agreement entered into on March 9, 2017 (See Note 23). Since there was no difference between the reacquisition price and the net carrying value of the cancelled debt, no gain or loss was recognized as a result of this transaction.
|
(b) |
Microphase is a party to several notes payable agreements with seven of its past officers, employees and their family members. As of December 31, 2017, the aggregate outstanding balance pursuant to these notes payable agreements, inclusive of $47 of accrued interest, was $356, with annual interest rates ranging between 3.00% and 6.00%. During the period June 3, 2017 to September 30, 2017, Microphase incurred $10 of interest on these notes payable agreements. In July 2016, one of these noteholders initiated litigation to collect the balance owed under the terms of his respective agreement and in October 2017, Microphase and the noteholder entered into a settlement agreement whereby Microphase agreed to pay the outstanding principal and interest of $122 and $43, respectively, by issuing to the noteholder 95,834 shares of Microphase common stock valued at $115 and paying $25 in cash. The value of the Microphase common stock was derived from the Company’s recent acquisition of a majority interest in Microphase. Further, the parties agreed the final $25 would be paid within 18 months of the settlement agreement or Microphase would be required to pay the noteholder an additional $25.
|
2017
|
||||
5% Convertible Note
(a)
|
$
|
550
|
||
12% Convertible Note
(b)
|
202
|
|||
Total convertible notes payable
|
752
|
|||
Less:
|
||||
Unamortized debt discounts
|
(351
|
)
|
||
Unamortized financing cost
|
(3
|
)
|
||
Total convertible notes payable, net of financing cost
|
$
|
398
|
(a) |
On December 4, 2017, the Company entered into a securities purchase agreement to sell a 5% Convertible Note (the
“5% Convertible Note”
) and 150,000 shares of restricted common stock to an institutional investor. The principal of the 5% Convertible Note and interest thereon may be converted into shares of common stock at $0.60 per share of common stock, subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. The 5% Convertible Note is in the principal amount of $550,
included an original issue discount (
“OID”
) of $50 resulting in net proceeds to the Company of
$500, bears interest at 5% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on June 3, 2018.
|
(b) |
On August 3, 2017, the Company entered into a securities purchase agreement to sell a 12% Convertible Note (the
“12% Convertible Note”
) and a warrant to purchase 666,666 shares of common stock to an accredited investor. The principal of the 12% Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share.
|
(c) |
On November 2, 2017, the Company entered into a securities purchase agreement to sell a 5% Convertible Note (the
“November 5% Convertible Note”
) and 300,000 shares of restricted common stock to an institutional investor. The principal of the November 5% Convertible Note and interest thereon was convertible into shares of common stock at $0.60 per share of common stock, subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. The November 5% Convertible Note was in the principal amount of $1,111 and
included an original issue discount (
“OID”
) of $101 and debt issuance costs of $106, resulting in net proceeds to the Company of
$904. The November 5% Convertible Note provided for 5% simple interest on the principal amount.
|
(d) |
On August 10, 2017, the Company, entered into securities purchase agreements with five institutional investors to sell for an aggregate purchase price of $800, 10% Senior Convertible Promissory Notes (the
“10% Convertible Notes”
) with an aggregate principal face amount of $880 and warrants to purchase an aggregate of 1,475,000 shares of common stock. The principal of the 10% Convertible Notes and interest earned thereon may be converted into shares of common stock at $0.60 per share and under the terms of the Warrant, up to 1,475,000 shares of common stock may be purchased at an exercise price of $0.66 per share.
|
(e) |
On April 17, 2017, the Company entered into two 7% convertible notes (the
“7% Convertible Notes”
) each in the aggregate principal amount of $125 for a total of $250. The 7% Convertible Notes accrued interest at 7% simple interest on the principal amount and were due on June 2, 2017. The principal was convertible into shares of the Company’s common stock at $0.75 per share. The noteholder could convert the principal amount of the 7% Convertible Notes at any time into common stock. The 7% Convertible Notes contained standard and customary events of default including, but not limited to, failure to make payments when due under the 7% Convertible Note agreements and bankruptcy or insolvency of the Company. The Company had the right to prepay the 7% Convertible Notes. The 7% Convertible Notes were repaid during July 2017.
|
(f) |
On April 26, 2017, the Company entered into a 7% convertible note in the aggregate principal amount of $104. On June 28, 2017, the noteholder converted the outstanding balance into 189,091 shares of the Company’s common stock
. The Company did not record any additional interest expense as a result of the extinguishment since the carrying amount of the convertible notes was equivalent to
the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of
extinguishment
.
|
2016
|
||||
12% Convertible secured note
|
$
|
530
|
||
Less:
|
||||
Unamortized debt discounts
|
(484
|
)
|
||
Unamortized financing cost
|
(12
|
)
|
||
Convertible note – related party
|
$
|
34
|
2018
|
$
|
762
|
||
2019
|
682
|
|||
2020
|
576
|
|||
2021
|
359
|
|||
2022
|
348
|
|||
Thereafter
|
1,268
|
|||
|
$
|
3,995
|
2017
|
2016
|
|||||||
Deferred tax asset:
|
||||||||
Net operating loss
|
$
|
3,543
|
$
|
2,206
|
||||
Reserves and allowances
|
725
|
295
|
||||||
Tax credit carryforward
|
163
|
153
|
||||||
Property and equipment
|
231
|
194
|
||||||
Total deferred tax asset
|
4,662
|
2,848
|
||||||
Deferred tax liability:
|
||||||||
Intangible assets, net
|
(653
|
)
|
—
|
|||||
Total deferred tax liability
|
(653
|
)
|
—
|
|||||
Valuation allowance
|
(4,009
|
)
|
(2,848
|
)
|
||||
Deferred tax asset, net
|
$
|
—
|
$
|
—
|
2017
|
2016
|
|||||||
Current
|
||||||||
Foreign
|
$
|
—
|
$
|
20
|
|
|||
Federal
|
78
|
—
|
||||||
State
|
—
|
—
|
||||||
Income tax (benefit)
|
$
|
78
|
$
|
20
|
|
2017
|
2016
|
|||||||
Tax benefit at U.S. Federal statutory tax rate
|
(34.0
|
%)
|
(34.0
|
%)
|
||||
Increase (decrease) in tax rate resulting from:
|
||||||||
Effect of change in tax rates
|
12.0
|
%
|
—
|
|||||
Stock compensation expense
|
1.9
|
%
|
12.1
|
%
|
||||
Taxes in respect of prior years
|
—
|
9.1
|
%
|
|||||
Increase in valuation allowance
|
17.0
|
%
|
8.3
|
%
|
||||
Nondeductible meals & entertainment expense and other
|
6.1
|
%
|
4.4
|
%
|
||||
State taxes, net of federal benefit
|
(4.5
|
%)
|
0.3
|
%
|
||||
Foreign rate differential
|
0.7
|
%
|
(0.2
|
%)
|
||||
Foreign R&D credit
|
—
|
(1.7
|
%)
|
|||||
Effective tax rate
|
0.8
|
%
|
(1.7
|
%)
|
a. |
In anticipation of the acquisition of MTIX Ltd., an advanced materials and processing technology company located in Huddersfield, West Yorkshire, UK (
“MTIX”
) by AVLP and the expectation of future business generated by the Company from a strategic investment into AVLP, on October 5, 2016, November 30, 2016, and February 22, 2017, the Company entered into three 12% Convertible Promissory Notes with AVLP (the
“AVLP Notes”
) in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in net loans to AVLP of $1,500 and an original issue discount of $75. The AVLP notes accrued interest at 12% per annum and were due on or before two years from the origination dates of each note. The Company had the right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at approximately $0.74536 per share.
Subject to adjustment,
the
AVLP
Notes, inclusive of the original issue discount, were convertible into 2,113,086 shares of the Company’s common stock
.
During the period from March 29, 2017 to August 16, 2017, the Company funded $1,809 in excess of the $1,500 net loan amount required pursuant to the terms of the AVLP Notes
|
b. |
On December 5, 2017, the Company entered into an exchange agreement with WT Johnson pursuant to which the Company issued to WT Johnson two convertible promissory notes in the principal amount of $600 (
“Note A”
) and $1,668 (
“Note B”
), in exchange for cancellation of amounts due to WT Johnson by MTIX Ltd., a related party of the Company.
|
c. |
On September 22, 2016, the Company entered into consulting agreement with Mr. Ault to assist the Company in developing a business strategy, identifying new business opportunities, developing a capital raising program and implementing of a capital deployment program. For his services, Mr. Ault was paid $208 during the year ended December 31
,
2017 and $30 for the year ended December 31,2016
.
|
d. |
On October 21, 2016, the Company entered into a 12% convertible secured note in the principal amount of $530 and warrants with the Barry Blank Living Trust, an existing stockholder of the Company, for $500 due on October 20, 2019. The principal amount of the 12% convertible secured note may be convertible into shares of the Company’s common stock at $0.55 per share. Subject to certain beneficial ownership limitations, the Barry Blank Living Trust may convert the principal amount of the convertible note at any time into common stock.
During the year ended December 31, 2017 and 2016, the Company recorded interest expenses of $59 and $12, respectively, on the convertible note obligation.
During the period from November 27, 2017 to December 6, 2017, the entire $530 of principal was satisfied through the issuance of 963,636 shares of the Company’s common.
|
e. |
On December 29, 2016, the Company received a $250 short term loan from MCKEA. Kristine Ault, a director of the Company and the wife of Mr. Ault, is the managing member of MCKEA which, in turn, is the Manager of Philou, the majority stockholder of the Company. On March 24, 2017, the $250 loan was cancelled in consideration for the issuance of 25,000 shares of Series B preferred stock of the Company to Philou.
During the year ended December 31, 2017 the Company recorded interest expenses of $3 on the
short-term loan from MCKEA.
|
f. |
In February 2017, the Company issued to
eight accredited investors
$400 in demand promissory notes bearing interest at a rate of 6% per annum. Of the eight accredited investors, one investor was deemed a related party.
|
g. |
On March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou. Pursuant to the terms of the Preferred Stock Purchase Agreement, Philou may invest up to $5,000 in the Company through the purchase of Series B Preferred Stock over 36 months. Between April 1, 2017 and June 2, 2017, Philou purchased 75,000 shares of Series B Preferred Stock pursuant to the terms of the Preferred Stock Purchase Agreement. Further, at December 31, 2017, Philou had made a $200 payment in the form of a short-term advance which will be converted into Series B Preferred Stock during the second quarter of 2018.
|
h. |
On March 15, 2017, Company entered into a subscription agreement with a related party for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300.
|
i. |
On March 20, 2017, the Company received a $250 short term loan from JLA Realty, an entity which owns 666,667 shares of the Company’s common stock, on behalf of Philou. The proceeds from this short-term loan comprised a portion of Philou’s purchase of Series B Preferred Stock.
|
j. |
Between May 5, 2017 and June 30, 2017, the Company received additional short-term loans of $140 from four accredited investors of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share.On June 28, 2017, $52 in short-term loans that was received from the related party was converted into one of the Series C Units (See Note 18h) and on July 24, 2017, the remaining $23 in short-term loans was converted in 41,818 shares of the Company’s common stock
in conjunction with the subscription agreements that the Company entered into with six investors (See Note 23).
|
k. |
Between July 6, 2017 and December 31, 2017, Milton C. Ault, III, the Company’s Executive Chairman, personally guaranteed the repayment of (i) $2,585 to TVT Capital (ii) and $1,280 from the sale of the convertible promissory notes.
These personal guarantees were necessary to
facilitate the consummation of these financing transactions. Mr. Ault’s payment obligations would be triggered if the Company failed to perform under these financing obligations. Our board of directors has agreed to compensate Mr. Ault for his personal guarantees. The amount of annual compensation for each of these guarantees, which will be in the form of non-cash compensation, is approximately 2% of the amount of the obligation.
|
l. |
During the year ended December 31, 2017, our President, Amos Kohn, purchased certain real property that will serve as a facility for the Company’s business operations in Israel. The Company made $300 of payments to the seller of the property and received a
28% undivided interest in the real property (“Property’). The Company’s subsidiary, Coolisys, entered into a Trust Agreement and Tenancy In Common Agreement with Roni Kohn, who owns a 72% interest in the Property, is the daughter of Mr. Kohn and is an Israeli citizen. The Property was purchased to serve as a residence/office facility for the Company in order to oversee its European operations and to expand its business in the hi-tech industry located in Israel. Pursuant to the Trust Agreement, the Ms. Kohn will hold and manage Coolisys’ undivided 28% interest in the Property. The trust will be in effect until it is terminated by mutual agreement of the parties. During the term of the trust, the Ms. Kohn will not sell, lease, sublease, transfer, grant, encumber, change or effect any other disposition with respect to the Property or the Coolisys’ interest without the Company’s approval.
|
Year ended December 31, 2017
|
||||||||||||||||
DPC
|
DPL
|
Eliminations
|
Total
|
|||||||||||||
Revenues
|
$
|
7,890
|
$
|
2,111
|
$
|
—
|
$
|
10,001
|
||||||||
Revenue, related party
|
$
|
174
|
$
|
—
|
$
|
—
|
$
|
174
|
||||||||
Inter-segment revenues
|
$
|
53
|
$
|
—
|
$
|
(53
|
)
|
$
|
—
|
|||||||
Total revenues
|
$
|
8,117
|
$
|
2,111
|
$
|
(53
|
)
|
$
|
10,175
|
|||||||
Depreciation and amortization expense
|
$
|
184
|
$
|
71
|
$
|
—
|
$
|
255
|
||||||||
Loss from operations
|
$
|
(5,558
|
)
|
$
|
(425
|
)
|
$
|
—
|
$
|
(5,983
|
)
|
|||||
Interest expense, net
|
$
|
(4,990
|
)
|
|||||||||||||
Income tax benefit
|
$
|
78
|
||||||||||||||
Net loss attributable to non-controlling interest
|
$
|
279
|
||||||||||||||
Net loss attributable to Digital Power Corp
|
$
|
(10,616
|
)
|
|||||||||||||
Capital expenditures for segment assets, as of
December 31, 2017 |
$
|
382
|
$
|
21
|
$
|
—
|
$
|
403
|
||||||||
Identifiable assets as of December 31, 2017
|
$
|
28,781
|
$
|
1,729
|
$
|
—
|
$
|
30,510
|
Year ended December 31, 2016
|
||||||||||||||||
DPC
|
DPL
|
Eliminations
|
Total
|
|||||||||||||
Revenues
|
$
|
4,552
|
$
|
3,044
|
$
|
—
|
$
|
7,596
|
||||||||
Inter-segment revenues
|
$
|
145
|
$
|
—
|
$
|
(145
|
)
|
$
|
—
|
|||||||
Total revenues
|
$
|
4,697
|
$
|
3,044
|
$
|
(145
|
)
|
$
|
7,596
|
|||||||
Depreciation and amortization expense
|
$
|
75
|
$
|
86
|
$
|
—
|
$
|
161
|
||||||||
Loss from operations
|
$
|
(1,110
|
)
|
$
|
(109
|
)
|
$
|
—
|
$
|
(1,219
|
)
|
|||||
Interest income, net
|
$
|
77
|
||||||||||||||
Income tax benefit
|
$
|
20
|
||||||||||||||
Net loss
|
$
|
(1,122
|
)
|
|||||||||||||
Capital expenditures for segment assets, as of
December 31, 2016 |
$
|
32
|
$
|
53
|
$
|
—
|
$
|
85
|
||||||||
Identifiable assets as of December 31, 2016
|
$
|
3,152
|
$
|
2,320
|
$
|
—
|
$
|
5,472
|
For the year ended December 31, 2017
|
||||||||
Total Revenues
|
||||||||
by Major
|
Percentage of
|
|||||||
Customers
|
Total Company
|
|||||||
(in thousands)
|
Revenues
|
|||||||
Customer A
|
$
|
1,341
|
13
|
%
|
For the year ended December 31, 2016
|
||||||||
Total Revenues
|
||||||||
by Major
|
Percentage of
|
|||||||
Customers
|
Total Company
|
|||||||
(in thousands)
|
Revenues
|
|||||||
Customer A
|
$
|
1,328
|
17
|
%
|
||||
Customer B
|
$
|
750
|
10
|
%
|
2017
|
2016
|
|||||||
Revenues:
|
||||||||
Commercial products
|
$
|
5,489
|
$
|
5,307
|
||||
Defense products
|
4,686
|
2,289
|
||||||
Total revenues
|
$
|
10,175
|
$
|
7,596
|
2017
|
2016
|
|||||||
Revenues:
|
||||||||
North America
|
$
|
6,638
|
$
|
4,541
|
||||
Europe
|
2,634
|
1,845
|
||||||
South Korea
|
231
|
751
|
||||||
Other
|
672
|
459
|
||||||
Total revenues
|
$
|
10,175
|
$
|
7,596
|
Unit Range
|
Price per kW/Mo
|
|
1,001
|
2,000
|
[***]
|
2,001
|
3,000
|
[***]
|
3,001
|
4,000
|
[***]
|
4,001
|
9,999
|
[***]
|
10,000+
|
***
|
[***]
|
CUSTOMER:
|
VENDOR:
|
|||
Signature:
|
______________________________________
|
Signature:
|
______________________________________
|
|
Print Name:
|
______________________________________
|
Print Name:
|
______________________________________
|
|
Title:
|
______________________________________
|
Title:
|
______________________________________
|
|
Date:
|
______________________________________
|
Date:
|
______________________________________
|
Signature:
|
______________________________________
|
Print Name:
|
______________________________________
|
Title:
|
______________________________________
|
Date:
|
______________________________________
|
· |
Order Forms
|
· |
Statements of Work
|
· |
Schedules
|
· |
Colocation Addendum
|
· |
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;
|
· |
Avoidance of conflicts of interest, including disclosure to an appropriate Company representative of any material transaction or relationship that reasonably could be expected to give rise to such a conflict;
|
· |
Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with the Securities and Exchange Commission (“
SEC
”) and in other public communications made by the Company;
|
· |
Compliance with applicable governmental laws, rules and regulations;
|
· |
protection of Company assets, including corporate opportunities and confidential information;
|
· |
Prompt internal reporting of violations of this Code to an appropriate person; and
|
· |
Accountability for adherence to this Code.
|
· |
be familiar with and comply with the Company's disclosure controls and procedures and its internal control over financial reporting; and
|
· |
take all necessary steps to ensure that all filings with the SEC and all other public communications about the financial and business condition of the Company provide full, fair, accurate, timely and understandable disclosure.
|
|
|
|
|
||
Employee Name:
|
|
Signature:
|
|
||
|
|
||||
Date:
|
|
|
|
By:
|
/s/ Milton C. Ault III
|
|
Name: Milton C. Ault III
|
||
Title: Chief Executive Officer
|
||
(Principal Executive Officer)
|
By:
|
/s/ William B. Horne
|
|
Name: Milton C. Ault III
|
||
Title: Chief Executive Officer
|
||
(Principal Executive Officer)
|
Date: April 17, 2018
|
|
|
|
|
By: /s/ Milton C. Ault III
|
|
Name: Milton C. Ault III
|
|
Title: Chief Executive Officer and
|
|
(Principal Executive Officer)
|
Date: April 17, 2018
|
|
|
|
|
By: /s/
William B. Horne
|
|
Name:
William B. Horne
|
|
Title: Chief Financial Officer and
|
|
(Principal Financial Officer)
|