NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
U.S. dollars in thousands (except share and per share data)
NOTE 1: GENERAL
Digital Power Corporation (
"
DPC"
) was incorporated in 1969, under the General Corporation Law of the State of California. DPC and Digital Power Limited (
"DPL"
), a wholly owned subsidiary, located in the United Kingdom (DPC and DPL collectively the “Company”), are currently engaged in the design, manufacture and sale of switching power supplies and converters. The Company has two reportable geographic segments - North America (sales through DPC) and Europe (sales through DPL).
NOTE 2: LIQUIDITY, FINANCIAL CONDITION AND MANAGEMENT’S PLANS
The Company incurred a net loss of $1,122 for the year ended December 31, 2016 and had an accumulated deficit of $12,158 at December 31, 2016 from having incurred losses since its inception. The Company had $1,963 of working capital at December 31, 2016 and used approximately $358 of cash in its operating activities during the year ended December 31, 2016. The Company has financed its operations principally through issuances of convertible debt, a promissory note and equity securities.
On September 5, 2016, the Company entered into a rescission agreement with Telkoor Telecom Ltd., a related party entity, pursuant to which the Company sold back its investment of 1,136,666 shares of common stock of Telkoor at its carrying value of $90. (See Note 7).
On October 21, 2016, the Company issued a 12% convertible secured note in the principal amount of $530 to an existing stockholder of the Company for a net proceeds of $488 (See Note 10).
On November 15, 2016, the Company sold 901,666 units for aggregate proceeds of $541, each unit consisted of a share of common stock and a warrant to purchase one share of common stock (See Note 10).
On December 29, 2016, the Company entered into an agreement with MCKEA Holdings, LLC (“MCKEA”), a related party, for a demand promissory note in the amount of $250 bearing interest at the rate of 6% per annum (See Note 9).
During the fourth quarter of 2016, the Company invested $950 in Avalanche International Corporation (“AVLP”), a related party entity, through convertible notes with an aggregate face value of $997, additionally, the Company acquired shares of common stock of AVLP for approximately $84 (see Note 7).
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 purchasing 666,667 shares of common stock of the Company at $0.60 per share (See Note 16).
On March 9, 2017, the Company entered into a preferred stock purchase agreement with Philou Ventures LLC (“Philou”), a related party entity, pursuant to which Philou agreed to invest up to $5,000,000 in the Company through the purchase of Series B Preferred Stock over a term of 36 months (See Note 13). 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.
On March 15, 2017, 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.
In March 2017, the Company was awarded a 3-year, $50 million purchase order by MTIX Ltd. (“MTIX") to manufacture, install and service the Multiplex Laser Surface Enhancement (‘MLSE) plasma-laser system (See Note 14).
On March 28, 2017, the Company issued $270 in demand promissory notes to several investors, then on April 5, 2017, the Company canceled these promissory notes by issuing 360,000 shares of common stock at $0.75 per share, in addition, the Company also issued warrants to purchase 180,000 shares of common stock at $0.90 per share to these investors (See Note 16).
The Company expects to continue to incur losses for the foreseeable future and needs raise additional capital to continue its business development initiatives and to support its working capital requirements. Management believes that the MLSE purchase order of $50 million will be a source of revenue and generating cash flows. Management believes that the Company has access to capital resources through potential public or private issuance of debt or equity securities. If the Company is unable to raise additional capital, it may be required to curtail operations and take additional measures to reduce costs
, including reducing its workforce, eliminating outside consultants and reducing legal fees
in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.
Based on the above, management believes that the Company has sufficient capital resources to sustain operations through at least April 10, 2018
.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (
“U.S. GAAP”
).
Principles of Consolidation
The consolidated financial statements include the accounts of DPC and its wholly-owned subsidiary, DPL. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, DPC and DPL share certain employees and various costs. Such expenses are principally paid by DPC. Due to the nature of the parent and subsidiary relationship, the individual financial position and operating results of DPC and DPL may be different from those that would have been obtained had they been autonomous
.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include fair value of certain financial instruments, reserve for trade receivables and inventories, carrying amounts of investments, accruals of certain liabilities, and deferred income taxes and related valuation allowance.
Foreign Currency Translation
A substantial portion of the Company’s revenues are generated in U.S. dollars (
"
U.S.
dollar"
). In addition, a substantial portion of the Company’s costs are incurred in U.S. dollars. Company management has determined that the U.S. dollar is the currency of the primary economic environment in which it operates.
Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are re
-measured into U.S. dollars in accordance with Financial Accounting Standards Board (
“FASB”
) issued Accounting Standards Codification (
“ASC”
) No. 830,
Foreign Currency Matters
(
"ASC No. 830"
). All transaction gains and losses from the re
-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses as appropriate.
The financial statements of the DPL, whose functional currency has been determined to be its local currency, British Pound (
“GBP”
), have been translated into U.S. dollars in accordance with ASC No. 830. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate in effect for the reporting period. The resulting translation adjustments are reported as other comprehensive income (loss) in the consolidated statement of comprehensive income (loss) and accumulated comprehensive income (loss) in statement of changes in stockholders' equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company’s cash is maintained in checking accounts, money market funds and certificates of deposits with reputable financial institutions. These balances may, at times, exceed the U.S. Federal Deposit Insurance Corporation insurance limits. The Company has cash and cash equivalents of $736 and $868 at December 31, 2016 and 2015, respectively, in the United Kingdom (
“
U.K
”
). The Company has not experienced any losses on deposits of cash and cash equivalents.
Marketable Securities
The Company classifies its investments in shares of common stock of Telkoor and AVLP in accordance with ASC No. 320,
Investment in Debt and Equity Securities
(
“ASC No. 320
”
) and ASC No. 325,
Investment – Other
(
“ASC No. 325
”
). Marketable securities classified as “available-for-sale securities” and carried at fair value, based on quoted market prices. Unrealized gains and losses are reported in a separate component of stockholder’s equity in “accumulated other comprehensive loss” in equity. When evaluating the investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recovery of the investment’s amortized cost basis.
Equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments), as described in ASC No. 325-20.
The Company classifies its investment in debt securities of AVLP in accordance with ASC No. 320 and ASC No. 825. Investment in convertible promissory notes in AVLP is classified as available-for-sale securities and is carried at fair value based on quoted market prices. Unrealized gains and losses are reported in a separate component of stockholder’s equity in “accumulated other comprehensive loss” in equity. When evaluating the investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recovery of the investment’s amortized cost basis. Additionally, the investment in debt securities of AVLP qualifies for application of fair value option in accordance with ASC No. 825.
Accounts Receivable and Allowance for Doubtful Accounts
The Company’s receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying amount of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company individually reviews all accounts receivable balances and based upon an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected
. The Company estimates the allowance for doubtful accounts based on historical collection trends, age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. A customer’s receivable balance is considered past-due based on its contractual terms. Past-due receivable balances are written-off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due. Based on an assessment as of December 31, 2016 and 2015, of the collectability of invoices, accounts receivable are presented net of an allowance for doubtful accounts of $32 and nil, respectively
Inventories
Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence.
Cost of inventories is determined as follows:
Raw materials, parts and supplies - using the "first-in, first-out" method.
Work-in-progress and finished products - on the basis of direct manufacturing costs with the addition of indirect manufacturing costs.
The Company periodically assesses its inventories valuation in respect of obsolete and slow moving items by reviewing revenue forecasts and technological obsolescence. When inventories on hand exceed the foreseeable demand or become obsolete, the value of excess inventory, which at the time of the review was not expected to be sold, is written off.
During the years ended December 31, 2016 and 2015, the Company recorded inventory write-offs of $84 and $9, respectively, within the cost of revenue.
Property and Equipment, Net
Property and equipment as well as an intangible asset are stated at cost, net of accumulated depreciation and amortization. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
|
|
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 of the life of the asset, whichever is shorter
|
|
Long-Lived Assets
The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360,
Property, Plant, and Equipment
, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2016 and 2015, no impairment charges were necessary.
Revenue Recognition
The Company generates revenues from the sale of its products through a direct and indirect sales force.
Revenues from products are recognized in accordance with ASC No. 605,
Revenue Recognition
, when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller's price to the buyer is fixed or determinable, no further obligation exists and collectability is reasonably assured.
Generally, the Company does not grant a right of return. However, certain distributors are allowed, in the six months after the initial stock purchase, to rotate stock that has not been sold for other products. Revenues subject to stock rotation rights are deferred until the products are sold to the end customer or until the rotation rights expire.
Service revenues are deferred and recognized on a straight-line basis over the term of the service agreement. Service revenues are immaterial in proportion to the Company's revenues.
Warranty
The Company offers a warranty period for all of its products. Warranty periods range from one to two years depending on the product. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of units sold, historical rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
As of December 31, 2016 and 2015, the Company has accrued warranty liability of $86 and $94, respectively.
Income
Taxes
The Company determines its income taxes under the asset and liability method in accordance with FASB ASC No. 740,
Income Taxes
, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25
.
ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25
also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of December 31, 2016 and 2015, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements
.
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company classifies Common Stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that certain freestanding derivatives, which principally consist of issuance of warrants to purchase shares of common in connection with convertible notes, units and to employers of the Company, satisfy the criteria for classification as equity instruments as these warrants do not contain cash settlement features or variable settlement provision that cause them to not be indexed to the Company’s own stock.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718 "Compensation – Stock Compensation" ("ASC 718").
ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.
The Company estimates the fair value of stock options granted under ASC 718 using the Black-Scholes option-pricing model that uses the following assumptions.
Expected volatility is based on historical volatility that is representative of future volatility over the expected term of the options. The expected term of options granted was determined based on the simplified method, which is calculated as the midpoint between the vesting date and the end of the contractual term of the option. The Company uses the simplified method as it has determined that sufficient data is not available to develop an estimate of the expected option term based upon historical participant behavior. The risk free interest rate is based on the yield of U.S. Treasury bonds with equivalent terms. The dividend yield is based on the Company's historical and future expectation of dividends payouts. The Company has not paid cash dividends historically and has no plans to pay cash dividends in the foreseeable future.
The Company recognizes share-based compensation expenses for the value of its awards based on the straight line method over the requisite service period of each of the awards
.
During the years 2016 and 2015, the Company estimated the fair value of stock options granted using the Black-Scholes option pricing model with the following weighted average assumptions
|
|
2016
|
|
|
2015
|
|
Weighted average fair value
|
|
|
|
$0.46
|
|
|
|
|
|
$0.44
|
|
|
Dividend yield
|
|
|
|
0%
|
|
|
|
|
|
0%
|
|
|
Expected volatility
|
|
|
97.7%
|
-
|
98.2%
|
|
|
|
87.6%
|
-
|
88.3%
|
|
Risk-free interest rate
|
|
|
1.26%
|
-
|
1.77%
|
|
|
|
1.60%
|
-
|
1.91%
|
|
Expected life (years)
|
|
|
|
5
|
|
|
|
|
5.5
|
-
|
7
|
|
Convertible Instruments
The Company accounts for hybrid contracts that feature conversion options in accordance with applicable GAAP. ASC No. 815
Derivatives and Hedging Activities
, (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.
The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 “Debt with Conversion and Other Options” (“ASC 470-20”). Under ASC 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, long term deposits and trade receivables.
Cash and cash equivalents are invested in banks in the U.S. and in the UK. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions.
Trade receivables of the Company and its subsidiary are mainly derived from sales to customers located primarily in the U.S. and in Europe. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that the Company and its subsidiary have determined to be doubtful of collection
Comprehensive Loss
The Company reports comprehensive loss in accordance with ASC 220, "Comprehensive Income". This Statement establishes standards for the reporting and presentation of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss generally represents all changes in equity during the period except those resulting from investments by, or distributions to, stockholders. The Company determined that its items of other comprehensive loss relates to changes in foreign currency translation adjustments.
Fair value of Financial Instruments
In accordance with ASC 820, “Fair Value Measurements and Disclosures”, fair value is defined as the exit price, or the amount that would be received for the sale of an as set or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.
The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
|
Level 1:
|
Quoted market prices in active markets for identical assets or liabilities.
|
|
Level 2:
|
Other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
Level 3:
|
Unobservable inputs reflecting the reporting entity’s own assumptions.
|
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, trade receivables and trade receivable – related party, investments, notes receivable, trade payables and trade payables – related party approximate their fair value due to the short-term maturities of such instruments.
As of
December 31, 2016, the fair value of the Company's investments was
$1,036
($90
as of
December 31, 2015).
I
nvestments as of
December 31, 2016
were concentrated in AVLP. The Company's investment in AVLP is comprised of convertible promissory notes of $952, net of unamortized discount and marketable equity securities of $84 which are classified as available-for-sale investments. For investments in marketable equity securities, the Company took into consideration general market conditions, the duration and extent to which the fair value is below cost, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. As a result of this analysis, the Company has determined that its cost basis in Avalanche equitable securities approximates the current fair value
Consistent with the guidance at ASC 835, the Company’s presumption is that the fair value of its convertible promissory notes in Avalanche have a present value equivalent to the cash proceeds exchanged. Further, the discount shall be reported in the balance sheet as a direct deduction from the face amount of the convertible promissory notes. Thus, the Company has determined that the amortized cost of its convertible promissory notes approximates fair value and are subject to a periodic impairment review. The interest income, including amortization of the discount arising at acquisition, for the convertible promissory notes are included in earnings. In the future, if the Company does not expect to recover the entire amortized cost basis, the Company shall recognize other-than-temporary impairments in other comprehensive income (loss).
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
|
|
Fair V
alue Measurement at December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investments – AVLP – a related party controlled by Philou, a majority shareholder of the Company
|
|
$
|
1,036
|
|
|
$
|
84
|
|
|
$
|
952
|
|
|
$
|
-
|
|
|
|
Fair V
alue Measurement at December 31, 201
5
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment – Telkoor – a related party, the Company's majority shareholder until September 22, 2016
|
|
$
|
90
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
90
|
|
As of December 31, 2015, the Company valued the investment in Telkoor for $90.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments for the years ended December 31, 2016 and 2015, which are treated as investments, as follows:
|
|
2016
|
|
|
2015
|
|
Balance at the beginning of year
|
|
$
|
90
|
|
|
$
|
207
|
|
Impairment
|
|
|
-
|
|
|
|
(110
|
)
|
Effect of exchange rate
|
|
|
-
|
|
|
|
(7
|
)
|
Disposition of investments
|
|
|
(90
|
)
|
|
|
-
|
|
Balance at the end of year
|
|
$
|
-
|
|
|
$
|
90
|
|
Debt Discounts
The Company accounts for debt discount according to ASC No. 470-20,
Debt with Conversion and Other Options
. Debt discounts are amortized through periodic charges to interest expense over the term of the related financial instrument using the effective interest method. During the years ended December 31, 2016 and 2015, the Company recorded amortization of debt discounts of $2 and nil, respectively
Net Loss per Share
Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. The Company has included 317,460 warrants, with an exercise price of $.01, in its earnings per share calculation for the year ended December 31, 2016. Anti-dilutive securities consisted of the following at December 31:
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
2,256,000
|
|
|
|
1,146,000
|
|
Warrants
|
|
|
1,431,666
|
|
|
|
-
|
|
Convertible notes
|
|
|
963,636
|
|
|
|
-
|
|
Total
|
|
|
4,651,302
|
|
|
|
1,146,000
|
|
Recently Issued and Adopted Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.
In October 2016, the FASB issued updated guidance related to the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. This guidance will be effective for the first quarter of tax year 2018; however, early adoption is permitted. The Company is evaluating the impact that this guidance will have its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230)”
(“ASU 2016-15”), which seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, Update 2016-15 becomes effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the provisions of Update 2016-15 and assessing the impact, if any, it may have on its consolidated financial position, results of operations, cash flows or financial statement disclosures.
In March 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718)”
(“ASU 2016-09”), which seeks to simplify accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. For public entities, Update 2016-09 becomes effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company has not yet determined the effect that ASU 2016-09 will have on its consolidated financial position, results of operations or financial statement disclosures.
In March 2016, the FASB issued guidance that involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance will be effective for the first quarter of tax year 2017; however, early adoption is permitted. The Company is evaluating the impact that this guidance will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
“
Leases
”
. The new standard provides guidance intended to improve financial reporting about leasing transaction. The ASU affects all companies that lease assets such as real estate, airplanes and manufacturing
equipment. The ASU will require companies that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company has not determined the potential effects of this ASU on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
"Recognition and Measurement of Financial Assets and Liabilities"
(“ASU 2016-01”). ASU 2016-01 requires equity investments (excluding equity method investments and investments that are consolidated) to be measured at fair value with changes in fair value recognized in net income. Equity investments that do not have a readily determinable fair value may be measured at cost, adjusted for impairment and observable price changes. The ASU also simplifies the impairment assessment of equity investments, eliminates the disclosure of the assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at cost on the balance sheet and requires the exit price to be used when measuring fair value of financial instruments for disclosure purposes. Under ASU 2016-01, changes in fair value (resulting from instrument-specific credit risk) will be presented separately in other comprehensive income for liabilities measured using the fair value option and financial assets and liabilities will be presented separately by measurement category and type either on the balance sheet or in the financial statement disclosures. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has not yet determined the effect that ASU 2016-01 will have on its consolidated financial position, results of operations, or financial statement disclosures.
In August 2014, the FASB issued ASU 2014-15,
"Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern."
The amendments is this ASU are intended to provide guidance on the responsibility of reporting entity management. Specifically, this ASU provides guidance to management related to evaluating whether there is substantial doubt about the reporting entity’s ability to continue as a going concern and about related financial statement note disclosures. Although the presumption that a reporting entity will continue to operate as a going concern is fundamental to the preparation of financial statements, prior to the issuance of this ASU, there was no guidance in U.S. generally accepted accounting principles (U.S. GAAP) related to the concept. Due to the lack of guidance in U.S. GAAP, practitioners and their clients often faced challenges in determining whether, when, and how a reporting entity should disclose the relevant information in its financial statements. As a result, the FASB issued this guidance to require management evaluation and potential financial statement disclosures. This ASU will be effective for financial statements with periods ending after December 15, 2016. The Company adopted the ASU during the fiscal year and corrected in this report.
In May 2014, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers (Topic 606)”
(“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605,
“Revenue Recognition”
and some cost guidance included in ASC Subtopic 605-35,
"Revenue Recognition - Construction-Type and Production-Type Contracts.”
The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readers of the Company’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2019 as a result of ASU 2015-14,
"Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,"
which was issued by the FASB in August 2015 and extended the original effective date by one year. The Company is currently evaluating the impact of adopting the available methodologies of ASU 2014-09 and 2015-14 upon its financial statements in future reporting periods. The Company has not yet selected a transition method. The Company is in the process of evaluating the new standard against its existing accounting policies, including the timing of revenue recognition, and its contracts with customers to determine the effect the guidance will have on its financial statements and what changes to systems and controls may be warranted.
There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08,
"Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),"
was issued in March, 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10,
"Identifying Performance Obligations and Licensing,"
issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12,
"Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients"
provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20,
“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,”
was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also
makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs.
The Company has considered all other recently issued accounting standards and does not believe the adoption of such standards will have a material impact on its consolidated financial statements.
N
OTE
4: INVENTORIES
At December 31, 2016 and 2015, inventories consist of:
|
|
2016
|
|
|
2015
|
|
Raw materials, parts and supplies
|
|
$
|
271
|
|
|
$
|
336
|
|
Work-in-progress
|
|
|
238
|
|
|
|
191
|
|
Finished products
|
|
|
613
|
|
|
|
1,015
|
|
Total inventories
|
|
$
|
1,122
|
|
|
$
|
1,542
|
|
N
OTE
5
:
PROPERTY AND EQUIPMENT, NET
At December 31, 2016 and 2015, property and equipment consist of:
|
|
2016
|
|
|
2015
|
|
Computer, software and related equipment
|
|
$
|
1,652
|
|
|
$
|
1,726
|
|
Office furniture and equipment
|
|
|
240
|
|
|
|
257
|
|
Leasehold improvements
|
|
|
699
|
|
|
|
771
|
|
|
|
|
2,591
|
|
|
|
2,754
|
|
Accumulated depreciation and amortization
|
|
|
(2,021
|
)
|
|
|
(2,045
|
)
|
Property and equipment, net
|
|
$
|
570
|
|
|
$
|
709
|
|
For the years ended December 31, 2016 and 2015, depreciation and amortization expense amounted to $161 and $214, respectively.
NOTE 6: INTANGIBLE ASSET, NET
On August 25, 2010, the Company entered into an agreement with Telkoor Power Supplies Ltd. ("TPS"), a subsidiary of Telkoor, pursuant to which, (i) TPS sold, assigned and conveyed to the Company all of its rights, title and interest in and to the intellectual property associated with the Compact Peripheral Component Interface 600 W AC/DC power supply series (the “Assets” or “IP”) and (ii) the Company granted to TPS an irrevocable license to sell the Assets in Israel on an exclusive basis. The IP was purchased in order to decrease lead time and costs of the production process. In consideration for the purchase of the IP, the Company paid TPS an amount of $480. The consideration for the right to sell the Assets in Israel will be paid to the Company as a yearly royalty fee of 15% of TPS's direct production costs of sales.
TPS will provide the Company training and technical support, if necessary, for a period of 60 months in order to enable the Company to properly and effectively use the IP to manufacture the Assets. In accordance with the agreement, the consideration for the IP may be reduced over a four-year period in the event that annual sales for each year between 2011 and 2014 are less than a fixed threshold of units on an annual basis based on an offset value per unit as described in the agreement. If there is a shortfall in sale of units in one annual period and in the subsequent period the Company sells more than the fixed unit threshold, this difference will be offset from any reduced consideration in any annual periods between 2011 and 2014. As a result of lower than anticipated sales by the Company
of the Compact Peripheral Component Interface 600 W AC/DC power supply series (CPCI 600W) through 2013, the Company amended its agreement with Telkoor (effective January 1, 2014 for the duration of the original agreement or until the shortfall of CPCI 600W product sales will be offset) to include additional products in addition to the original CPCI 600W product. The Company will not be required to make any royalty payments to Telkoor under the manufacturing agreement with Telkoor until the shortfall of CPCI 600W product sales will be offset. As of December 31 2015 the remaining shortfall balance was $86
. During the year 2016
, the Company paid royalties to Advice, Telkoor refunded $40 from this amount by services to the Company and the balance cancelled with the recession agreement. (See Note 7)
The useful life of the IP has been determined to be five years and the amortization method is the straight-line method, as management considers this method as the most appropriate.
|
|
December 31,
|
|
|
|
201
6
|
|
|
201
5
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of IP
|
|
$
|
480
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(480
|
)
|
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance of IP
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization expense was $0 and $66 for the years ended December 31, 2016 and December 31, 2015, respectively.
N
OTE
7
:
INVESTMENTS – RELATED PARTIES
Avalanche International Corporation (AVLP)
Investments in AVLP at December 31, 2016 consist of:
Balance at January 1, 2016
|
|
$
|
-
|
|
Investment in convertible promissory notes of AVLP - Gross
|
|
|
997
|
|
Original issue discount
|
|
|
(47
|
)
|
Accretion of discount
|
|
|
2
|
|
Investment in convertible promissory note of AVLP - Net
|
|
|
952
|
|
Investment in common stock of AVLP
|
|
|
84
|
|
Balance at December 31, 2016
|
|
$
|
1,036
|
|
During the last quarter of 2016
, the Company made certain strategic investments in AVLP, a related party controlled by Philou, an existing majority stockholder. The Company’s investments in AVLP consist of convertible promissory notes bearing interest of 12% per annum purchased at a 5% discount and shares of common stock of AVLP
.
On October 5, 2016 and November 30, 2016, the Company entered into two 12% Convertible Promissory Note agreements ("Notes Receivable") in the principal amount of $525 each, net of a 5% original issue discount ($25 each) with interest payable at 12% per annum. All principal and accrued interest shall be due for payment on or before two years from the origination dates of each note. At any time after six months, the Company has 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 $0.74536 per share, subject to adjustment. The principal amount of each note is convertible into 704,357 shares common stock of AVLP.
During the last quarter of 2016, the Company invested $950 pursuant to Notes Receivable and remaining balance of $50 was invested on February 17, 2017
.
.
The original issue discount of $50 on the Notes Receivable is being amortized as interest income through the maturity date using the interest rate method. The original issue discount on the Note Receivable is amortized as interest income through the maturity date using the interest method, the Company recorded $2 interest income for the discount accretion.
As of December 31, 2016 the Company recorded contractual interest receivables of $13.
On February 22, 2017, subsequent to year-end, AVLP issued the Company a third $525 12% Convertible Promissory Note (the “Third Note”) with original issue discount of 5%. During the period from February 22, 2017 to April 5, 2017, the Company funded $457 pursuant to this Third Note.
The Company has classified the all the above noted Notes
, it holds in AVLP
, as Available-for-Sale securities, subject to the guidance in ASC 320. The Convertible Promissory Notes qualify for application of the Fair Value Option Subsections of Subtopic 320-10 and 825-10.
At December 31, 2016, the closing market price of AVLP’s common Stock was $0.45. Subsequent to year-end, the closing market price of AVLP’s common stock was in the range of $0.25 and $0.45 and due to the illiquidity and significant volatility of AVLP’s common stock, the Company has determined that its cost basis in AVLP common stock approximates the current fair value.
The Company has concluded that indicators of impairment, including those described in ASC 320-10-35-27, do not currently exist for the Company’s investment in AVLP’s Notes.
In addition the Company purchased at the market 250
,900 shares of Avalanche at total cost of $84
. The investment is accounted under the fair value -method in accordance with ASC 32
0-1
0.
Based upon the closing market price at December 31, 2016, and most recently at March 30, 2017 ($0.30), the Company has concluded that its investment in shares of AVLP common stock is not impaired.
Telkoor Telecom Ltd. (Telkoor)
Investment in Telkoor at December 31, 2016 and 2015 consists of:
|
|
2016
|
|
|
2015
|
|
Balance at January 1, 2016
|
|
$
|
90
|
|
|
$
|
207
|
|
Impaired
|
|
|
-
|
|
|
|
(110
|
)
|
Exchange rate
|
|
|
-
|
|
|
|
(7
|
)
|
Disposed/(sold)
|
|
|
(90
|
)
|
|
|
-
|
|
Balance at December 31, 2016
|
|
$
|
-
|
|
|
$
|
90
|
|
On June 16, 2011, the Company acquired 1,136,666 shares of Telkoor, the Company's major shareholder at the time, and an Israeli company listed in the Tel Aviv stock exchange (at such time) for $1,000, which represented 8.8% of the outstanding shares of Telkoor. As a result of this transaction, an existing manufacturing agreement between the Company and Telkoor was updated and extended.
The Company recorded an impairment of its investment in Telkoor of $0 and $110 for the years ended December 31 2016 and 2015, respectively. On September 5, 2016, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Philou
, and Telkoor pursuant to which the Philou purchased all of the Telkoor 2,714,610 shares of the common stock invested in the Company, constituting approximately 40.06% of the Company’s then outstanding shares of common stock for a consideration of $1.5 million to Telkoor
.
Pursuant to the Agreement, the Company entered into a Rescission Agreement with the Telkoor in order to resolve all financial issues between the parties, including the repurchase by the Seller of 1,136,666 shares of common stock in Seller beneficially owned by the Company for their book value.
The closing of the transactions under the Agreement and the Rescission Agreement occurred on September 22, 2016.
Equity securities that do not have readily determinable fair values (i.e. non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments), as described in ASC 325-20. The Company carried its investment in Telkoor's shares at historical cost, net of impairment charges in accordance with ASC 325-20 "Investments in Other".
N
OTE
8
:
OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 2016 and 2015 consist of:
|
|
2016
|
|
|
2015
|
|
Accrued payroll and payroll taxes
|
|
$
|
128
|
|
|
$
|
105
|
|
Warranty liability
|
|
|
86
|
|
|
|
95
|
|
Other accrued expenses
|
|
|
184
|
|
|
|
280
|
|
Total
|
|
$
|
398
|
|
|
$
|
480
|
|
N
OTE
9
:
DEMAND NOTE PAYABLE – RELATED PARTY
On December 29, 2016
, the Company entered into an agreement with MCKEA, an entity of which a Board member is the managing member and of which it is the member of the Company's largest shareholder, for a demand promissory note (“Note”) in the amount of $250 bearing interest at the rate of 6% per annum on unpaid principal and shall be due and payable upon demand of payment by 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 Note.
Subsequent to December 31, 2016, Note was converted in the Company’s preferred stock
(See Note 16).
N
OTE
10
:
CONVERTIBLE NOTE – RELATED PARTY
Balance at January 1, 2016
|
|
$
|
-
|
|
Proceeds from convertible note
|
|
|
530
|
|
Unamortized debt discounts
|
|
|
(484
|
)
|
Unamortized financing cost
|
|
|
(12
|
)
|
Balance at December 31, 2016
|
|
$
|
34
|
|
On October 21, 2016, the Company, entered into a 12% Convertible Secured Note (“Convertible Note) in the principal amount of $530 and was sold to an existing stockholder of the Company for $500, bearing interest at 12% simple interest on the principal amount, is secured by all the assets of the Company, and is due on October 20, 2019. Interest only payments are due on a quarterly basis and the principal may be converted into shares of the Company’s common stock at $0.55 per share. Subject to certain beneficial ownership limitations, the noteholder may convert the principal amount of the Convertible Note at any time into common stock. The conversion price of the Convertible Note is subject to adjustment for customary stock splits, stock dividends, combinations or other standard anti-dilution events.
The Convertible Note contains standard and customary events of default including, but not limited to failure to make payments when due under the Convertible Note agreement and bankruptcy or insolvency of the Company.
Upon 30 days’ notice, the Company has the right to prepay the Convertible Note. In addition, provided that the closing price for a share of the Company’s common stock exceeds $3.00 per share for 30 consecutive trading days, the Company has the right to compel the noteholder to convert the principal amount into shares of common stock at the contractual conversion price.
As additional consideration, the investor received a three-year warrant to purchase 265,000 shares of common stock each at an exercise price of $0.80 and a three-year warrant to purchase 265,000 shares of common stock each at an exercise price of $0.90 (collectively “Warrants”). Warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of the 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. The Warrants has a call feature that permits the Company to force redemption at $0.001 per share in the event the closing price for a share of the Company’s common stock exceeds $3.00 for 30 consecutive trading days.
The Company computed the fair value of these warrants using the Black-Scholes option pricing model and allocated $159 of the proceeds to additional paid-in capital.
The beneficiary conversion feature (BCF) embedded in the Debenture is accounted for under ASC Topic
470 – De
bt. At issuance, the estimated fair value of the BCF totaled $332. The BCF was allocated from the net proceeds of the Debenture after allocating relative fair value of warrants and limited to remaining net proceeds available for BCF. The BCF is recorded as additional debt discount is being amortized to interest expense over the term of the Debenture using the effective interest method. The valuation of the BCF was calculated based on effective conversion price compared with the market price of common stock on the date of issuance of Convertible Note.
The Company recorded total debt discount in the amount of $518 based on the relative fair values of the Warrants of $159, BCF of $329 and original issue discount (OID) of $30. The debt discount is being amortized as non-cash interest expense over the term of the debt. In addition, the Company incurred $13 of debt issuance costs which is also being amortized as non-cash interest expense over the term of the debt. During the year ended December 31, 2016, non-cash interest expense of $34 was recorded as amortization of debt discount and debt financing cost.
As of December 31, 2016, the Company has recorded accrued interest of $12 on Convertible Note obligation.
N
OTE
11
:
COMMITMENTS
Lease commitments
In November 2012, the Company signed an operating lease agreement for the US headquarters for a period of 7 years with an option to extend for additional 5 years. In September 2009, the Company's subsidiary signed a new agreement for a lease in respect of the UK facility for a period of 15 years with an option to cancel the lease after 10 years on September 2019.
Future non-cancellable rental commitments under operating leases are as follows:
Year Ended December 31,
|
|
|
|
|
2017
|
|
$
|
291
|
|
2018
|
|
|
295
|
|
2019
|
|
|
219
|
|
2020
|
|
|
139
|
|
2021
|
|
|
139
|
|
2022 to 2024
|
|
|
383
|
|
Total
|
|
$
|
1,466
|
|
Total rent expense for the years ended December 31, 2016 and 2015 was approximately $294 and $299, respectively.
N
OTE
12
:
STOCKHOLDERS’ EQUITY
Preferred Stock
There are authorized Preferred stock in the amount of 500,000 shares of Series A cumulative Redeemable Convertible Preferred shares ("Series A"), and an additional 1,500,000 Preferred shares that have been authorized, but the rights, preferences, privileges and restrictions on these shares have not been determined. The Company’s Board of Directors is authorized to create a new series of preferred shares and determine the number of shares, as well as the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred shares. As of December 31, 2016, there were no preferred shares issued or outstanding.
Common Stock
Common stock confer upon the holders the rights to receive notice to participate and vote in the general meeting of shareholders of the Company, to receive dividends, if and when declared, and to participate in a distribution of surplus of assets upon liquidation of the Company.
On November 15, 2016, the Company entered into subscription agreements (the “Subscription Agreements”) with nine accredited investors. Pursuant to the terms of the Subscription Agreements, the Company sold 901,666 units (“Units”) at $0.60 for an aggregate purchase price of approximately $541,000. Each unit consists of one share of common stock and one warrant to purchase one share of common stock (the “Warrant Shares”) at an exercise price of $0.80.
According to the agreement, the Company registered all of the shares of common stock then issued as part of the Units and Warrant Shares then issued and issuable upon exercise of the Warrant Shares. The Subscription Agreement provides that, until November 15, 2017, Investors who purchased at least $100,000 have the right to participate in the purchase of up to 50% of the securities offered by the Company in any future financing transactions, with limited exceptions.
The Warrants entitle the holders to purchase, in the aggregate, up to 901,666 shares of Common Stock at an exercise price of $0.80 per share for a period of three years. The Warrant Shares are exercisable upon the six month anniversary of the issuance date. The exercise price of the Warrant Shares is subject to adjustment for stock splits, stock dividends, combinations and other standard anti-dilution events. The Warrant Shares may be exercised for cash or, upon the failure to maintain an effective registration statement, on a cashless basis.
The Warrant Shares do not require a net cash-settlement or provide the holder with a choice of net-cash settlement. The Warrant Shares also do not contain a variable settlement provision. Accordingly, the Company classified the Warrant Shares as equity instruments.
Stock Option Plans
Under the Company's Digital Power 2016 and 2012 (As Amended) ("Incentive Share Option Plan"), options may be granted to employees, officers, consultants, service providers and directors of the Company.
As of December 31, 2016, the Company authorized according to the Incentive Share Option Plan the grant of options to officers, management, other key employees and others of up to 5,372,630 options for the Company's common stock. The maximum term of the options is ten years from the date of grant. As of December 31, 2016, an aggregate of 3,322,630 of the Company's options are still available for future grant.
The options granted generally become fully vested after four years. Any options that are forfeited or cancelled before expiration become available for future grants.
The options outstanding as of December 31, 2016 have been classified by exercise price, as follows:
Exercise
Price
|
|
Options
Outstanding as
of December 31,
2016
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Option
Exercisable as
of December
31, 2016
|
|
|
Weighted
Average
Exercise Price
of Options
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.65
|
-
|
$0.70
|
|
|
1,865,000
|
|
|
|
9.76
|
|
|
$
|
0.67
|
|
|
|
996,667
|
|
|
$
|
0.66
|
|
$1.10
|
-
|
$1.32
|
|
|
25,000
|
|
|
|
6.84
|
|
|
$
|
1.28
|
|
|
|
15,000
|
|
|
$
|
1.25
|
|
$1.51
|
-
|
$1.69
|
|
|
366,000
|
|
|
|
5.57
|
|
|
$
|
1.60
|
|
|
|
316,000
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,256,000
|
|
|
|
9.05
|
|
|
$
|
0.83
|
|
|
|
1,327,667
|
|
|
$
|
0.89
|
|
The total stock-based compensation expense related to all of the Company’s equity based awards, including non-employee options recognized for the years ended December 31, 2016 and 2015 is comprised as follows:
|
|
2016
|
|
|
2015
|
|
Cost of revenues
|
|
$
|
6
|
|
|
$
|
7
|
|
Engineering and product development
|
|
|
17
|
|
|
|
20
|
|
Selling and marketing
|
|
|
5
|
|
|
|
6
|
|
General and administrative
|
|
|
492
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
520
|
|
|
$
|
226
|
|
A summary of option activity under the Company's stock option plans as of December 31, 2016 and 2015 and changes during the years then ended are as follows:
|
|
Amount of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at January 1, 2015
|
|
|
1,262,763
|
|
|
$
|
1.57
|
|
|
|
7.65
|
|
|
|
|
|
Granted
|
|
|
155,000
|
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(261,000
|
)
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(10,763
|
)
|
|
|
0.70
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1,146,000
|
|
|
|
1.52
|
|
|
|
6.74
|
|
|
|
|
|
Granted
|
|
|
1,800,000
|
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(650,000
|
)
|
|
|
1.59
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(40,000
|
)
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2016
|
|
|
2,256,000
|
|
|
$
|
0.83
|
|
|
|
9.08
|
|
|
$
|
-
|
|
Exercisable at December 31, 2016
|
|
|
1,327,667
|
|
|
$
|
0.89
|
|
|
|
8.64
|
|
|
$
|
-
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on December 31, 2016, $0.65 and the exercise price, multiplied by the number of in-the-money-options).
As of December 31, 2016, there was $492 of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Company's stock option plans. That cost is expected to be recognized over a weighted average period of 1.81 years.
Options Issued to Non-Employees
As of December 31, 2015, the Company's had options outstanding to purchase 142,500 shares of common stock to non-employees. During the year ended December 31, 2016, options to purchase 102,500 shares of common stock were forfeited and 40,000 options were expired.
Warrants
Warrants Issued to Executive Officer
In connection with 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 (the "Warrant "), at an exercise price of $0.01 per share subject to vesting. The Warrant shall be 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. The fair value of the Warrant using the Black-Scholes option pricing model was $188, which was amortized ratably over a period of two years out of which $23 was recorded as stock-based compensation in general and administrative expenses during the year ended December 31, 2016
.
|
|
Amount of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at January 1, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
317,460
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2016
|
|
|
317,460
|
|
|
$
|
0.01
|
|
|
|
9.8
|
|
|
$
|
203
|
|
Exercisable at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on December 31, 2016, $0.65 and the exercise price, multiplied by the number of in-the-money warrants).
NOTE 1
3
: INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax assets are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
2,206
|
|
|
$
|
2,233
|
|
Reserves and allowances
|
|
|
295
|
|
|
|
225
|
|
Tax Credit carryforward
|
|
|
153
|
|
|
|
153
|
|
Property and equipment
|
|
|
194
|
|
|
|
142
|
|
Total deferred tax asset
|
|
|
2,848
|
|
|
|
2,753
|
|
Valuation allowance
|
|
|
(2,848
|
)
|
|
|
(2,753
|
)
|
Deferred tax asset, net
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company had Federal and state net operating loss carryforwards of approximately $5,334 and $3,622, respectively, available to offset future taxable income, expiring at various times from December 31through December 31, 2036. In accordance with Section 382 of the Internal Revenue Code, the future utilization of the Company’s net operating loss to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. The Company has not yet determined whether such an ownership change has occurred; however
, the Company will be completing a Section 382 analysis regarding the limitation of the net operating loss.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available and due to the last five years significant losses there is substantial doubt related to the Company’s ability to utilize its deferred tax assets, the Company recorded a full valuation allowance of the deferred tax asset. For the year ended December 31, 2016, the valuation allowance has increased by $95
.
The 2013 through 2016 tax years remain open to examination by the Internal Revenue Service (
“IRS”
) and the 2012 through 2016 tax years remain open to examination by the California Franchise Tax Board (
“FTB”
). The IRS and FTB have the authority to examine those tax years until the applicable statute of limitations expires
.
As of December 31, 2016, the Company’s foreign subsidiary had accumulated losses for income tax purposes in the amount of approximately $906.
All of the Company’s international accumulated losses were generated in the United Kingdom, which has a statutory tax rate of 20%.
These net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.
The Company has not recognized a U.S. deferred income tax asset on non-U.S. losses because the Company plans to indefinitely reinvest such earnings outside the U.S. Remittances of non-U.S. earnings, if any, are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of the Company’s non-U.S. and U.S. operations. Material changes in the Company’s estimates of cash, working capital, and investment needs could require repatriation of indefinitely reinvested non-U.S. earnings, which would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
The net income tax benefit consists of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current
|
|
|
|
|
|
|
|
|
Foreign
|
|
$
|
(20
|
)
|
|
$
|
(1
|
)
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Income tax (benefit)
|
|
$
|
(20
|
)
|
|
$
|
(1
|
)
|
The Company’s effective tax rates were (1.7%) and (0.1%) for the years ended December 31, 2016 and 2015, respectively. During the year ended December 31, 2016, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and the issuance of incentive stock options to the Company’s employees. The reconciliation of income tax attributable to operations computed at the U.S. Federal statutory income tax rate of 34% to income tax expense is as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Tax benefit at U.S. Federal statutory tax rate
|
|
|
(34.0%
|
)
|
|
|
(34.0%
|
)
|
Increase (decrease) in tax rate resulting from:
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
12.1
|
%
|
|
|
—
|
|
Taxes in respect of prior years
|
|
|
9.1
|
%
|
|
|
0.2
|
%
|
Increase in valuation allowance
|
|
|
8.3
|
%
|
|
|
28.0
|
%
|
Nondeductible meals & entertainment expense and other
|
|
|
4.4
|
%
|
|
|
7.2
|
%
|
State taxes, net of federal benefit
|
|
|
0.3
|
%
|
|
|
—
|
|
Foreign rate differential
|
|
|
(0.2%
|
)
|
|
|
(1.5%
|
)
|
Foreign R&D credit
|
|
|
(1.7%
|
)
|
|
|
—
|
|
Effective tax rate
|
|
|
(1.7%
|
)
|
|
|
(0.1%
|
)
|
The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of December 31, 2016 and 2015, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.
NOTE 14: RELATED PARTY TRANSACTIONS
|
a.
|
On September 5, 2016, the Company entered into a Securities Purchase Agreement with Philou, and Telkoor pursuant to which the Philou purchased all of the Telkoor’s 2,714,610 shares of the common stock in the Company, constituting approximately 40.06% of the Company’s then outstanding shares of common stock. In consideration for such shares, the Philou paid Telkoor $1.5 million.
|
Pursuant to the Securities Purchase Agreement, the Company entered into a Rescission Agreement with the Telkoor in order to resolve all financial issues between the parties, including the repurchase by the Telkoor of 1,136,666 shares of common stock in Telkoor owned by the Company for $90, which was equal to the carrying amount of the investment.
The closing of the transactions under the Securities Purchase Agreement and the Rescission Agreement occurred on September 22, 2016.
Philou is the Company’s largest stockholder. Kristine Ault, a director of the Company, is managing member of MCKEA, which in turn, is the member of Philou. Kristine Ault’s spouse is Milton Ault who is Executive Chairman of the Board of the Directors of the Company.
In addition, 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 a specified term
.
|
b.
|
In anticipation of the acquisition of MTIX by AVLP and the expectation of future business generated by the Company from a strategic investment into AVLP, the Company entered into three 12% Convertible Promissory Note agreements with AVLP in the principal amount of $525 each, including a 5% original issue discount. After six months, the Company has a right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at $0.74536 per share
|
During the last quarter of 2016, the Company invested $950 pursuant to 12% Convertible Promissory Notes and another $507 was invested on the first quarter of 2017. (The remaining balance to invest is $43).
Further, the Company has acquired 250,900 shares of AVLP Common Stock in the open market for $85
.
AVLP, a Nevada corporation, is a holding company currently engaged in acquiring and/or developing businesses in which AVLP maintains a controlling interest. AVLP anticipates that its subsidiaries will be engaged in a number of diverse business activities. AVLP currently has two subsidiaries, Smith and Ramsay Brands, LLC (“SRB”) and Restaurant Capital Group, LLC (“RCG”). SRB was formed on May 19, 2014, and RCG was formed on October 22, 2015. AVLP is quoted under the symbol “AVLP” on the OTC Pink sheets operated by OTC Markets Group, Inc.
Philou is AVLP’s controlling shareholder. Mr. Ault is Chairman of AVLP’s Board of Directors and Mr. William B. Horne is the Chief Financial Officer of AVLP. Mr. Horne is also the audit committee chairman of the Company.
On October 24, 2016, AVLP entered into a letter of intent to acquire MTIX, an advanced materials and processing Technology Company located in Huddersfield, West Yorkshire, UK. On October 26, 2016, pursuant to the term of the letter of intent, AVLP made an initial payment of $50 towards the purchase of MTIX.
On March 3, 2017, AVLP entered into a Share Exchange Agreement with MTIX and the three current shareholders of MTIX
. Upon the terms and subject to the conditions set forth in the Share Exchange Agreement, AVLP will acquire MTIX from the MTIX shareholders through the transfer of all issued and outstanding ordinary shares of MTIX (the “MTIX Shares”) by the MTIX shareholders to AVLP in exchange for the issuance by AVLP of: (a) 7% secured convertible promissory notes in the aggregate principal face amount of $9,500 to the MTIX shareholders in pro rata amounts commensurate with their current respective ownership percentages of MTIX’s ordinary shares, (b) (i) $500 in cash, $50 of which was paid on October 26, 2016, and (ii) 100,000 shares of AVLP’s newly designated shares of Class B Convertible Preferred Stock to the principal shareholder of MTIX.
On the closing date, the fully-diluted AVLP shares shall be 52,128,325 shares of common stock, assuming that (i) the MTIX promissory notes are convertible into shares of AVLP Common Stock at a conversion price of $0.50 per share, (ii) the shares of AVLP Class B Convertible Preferred Stock are convertible into shares of AVLP Common Stock at a conversion rate of $0.50 per share and (iii) the issuance of stock options to purchase an aggregate of 531,919 shares of AVLP Common Stock to the members of the MTIX management group
.
During March 2017
, the Company was awarded a 3-year, $50 million purchase order by MTIX to manufacture, install and service the MLSE plasma-laser system
.
|
c.
|
On December 29, 2016, the Company received a $250 short term loan from MCKEA, the member of Philou. Ms. Ault, a director of the Company, is the managing member of MCKEA
. 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.
|
|
d.
|
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 will be paid a monthly fee of $15 from November 1, 2016 through June 30, 2017 and may be renewed
.
|
|
e.
|
On October 21, 2016, the Company entered into a 12% convertible secured note in the principal amount of $530 with Mr. Barry Blank, an existing stockholder of the Company, for $500 due on October 20, 2019. The principal amount of 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 Mr. Blank may convert the principal amount of the convertible note at any time into common stock
.
|
Mr. Blank owns 419,900 shares of the common stock of the Company, constituting approximately 5.02% of the Company’s outstanding shares of common stock. The 12% convertible secured note will convert into 963,636 shares of common stock which represent 20.5% of the Company’s outstanding shares of common stock without regard to an beneficial ownership limitation.
As additional consideration, Mr. Blank received a three-year warrant to purchase 265,000 shares of common stock each at an exercise price of $0.80 and a three-year warrant to purchase 265,000 shares of common stock each at an exercise price of $0.90.
|
f.
|
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 $5,000,000 in the Company through the purchase of Series B Preferred Stock over the 36 months
.
|
|
g.
|
On March 24, 2017, Philou purchased 25,000 shares of Series B Preferred Stock (Note 16).
|
NOTE 15: SEGMENT CUSTOMERS AND GEOGRAPHICAL INFORMATION
The Company has two reportable geographic segments; see Note 1 for a brief description of the Company’s business.
The following data presents the revenues, expenditures and other operating data of the Company’s geographic operating segments and presented in accordance with ASC 280.
|
|
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 expenses
|
|
$
|
75
|
|
|
$
|
86
|
|
|
$
|
-
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(1,110
|
)
|
|
$
|
(109
|
)
|
|
$
|
-
|
|
|
$
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for segment assets for the year ended December 31, 2016
|
|
$
|
32
|
|
|
$
|
53
|
|
|
$
|
-
|
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets as of December 31, 2016
|
|
$
|
3,152
|
|
|
$
|
2,320
|
|
|
$
|
-
|
|
|
$
|
5,472
|
|
|
|
Year Ended December 31, 201
5
|
|
|
|
DPC
|
|
|
DPL
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,833
|
|
|
$
|
3,933
|
|
|
$
|
-
|
|
|
$
|
7,766
|
|
Inter-segment revenues
|
|
|
371
|
|
|
|
-
|
|
|
|
(371
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,204
|
|
|
$
|
3,933
|
|
|
$
|
(371
|
)
|
|
$
|
7,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
$
|
74
|
|
|
$
|
139
|
|
|
$
|
-
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(1,086
|
)
|
|
$
|
83
|
|
|
$
|
-
|
|
|
$
|
(1,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
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1
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Net loss
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$
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(1,096
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)
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Capital expenditures for segment assets for the year ended December 31, 2015
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$
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58
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$
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248
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$
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-
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$
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306
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Identifiable assets as of December 31, 2015
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$
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2,384
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$
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2,715
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$
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-
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$
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5,099
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The following table provides the percentage of total revenues attributable to a single customer from which 10% or more of total revenues are derived:
For the year ended December 31,2016
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Total Revenues
by Major
Customers
(in thousands)
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Percentage of
Total
Company
Revenues
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Customer A
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$
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1,328
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17
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%
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Customer B
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$
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750
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10
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%
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For the year ended December 31,2015
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Total Revenues
by Major
Customers
(in thousands)
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Percentage of
Total
Company
Revenues
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Customer A
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$
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853
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11
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%
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Customer B
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$
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1,809
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23
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%
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Revenue from customer A was attributable to DPC and revenue from Customer B attributable to DPL.
For the years ended December 31, 2016 and 2015, total revenues from external customers divided on the basis of the Company’s product lines are as follows:
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2016
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2015
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Revenues:
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Commercial products
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$
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5,307
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$
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4,802
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Defense products
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2,289
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2,964
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Total revenues
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$
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7,596
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$
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7,766
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Financial data relating to geographic areas:
The Company’s total revenues are attributed to geographic areas based on the location.
The following table presents total revenues for the years ended December 31, 2016 and 2015. Other than as shown, no foreign country contributed materially to revenues or long-lived assets for these periods:
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2016
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2015
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North America
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$
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4,541
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$
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3,435
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Europe (including UK)
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1,845
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1,704
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Asia
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255
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768
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Australia
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123
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42
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South America
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81
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3
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South Korea
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751
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1,814
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Total revenues
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$
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7,596
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$
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7,766
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NOTE 16: SUBSEQUENT EVENTS
In February 2017, the Company issued $400 in demand promissory notes and five year warrants to purchase 333,333 shares of common stock at $ 0.70, per share.
In February 16, 2017
, the holder of the $100 in demand promissory notes agreed to cancel its demand promissory note for the purchase of 166,667 shares of Common Stock at $0.60 per share
.
In February 23, 2017, the holders of the $300 in demand promissory notes agreed to cancel their demand promissory notes to purchase of 500,000 shares of Common Stock at $0.60 per share
.
On March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou, the majority stockholder of the Company and of which Kristine Ault, a director of the Company, is the managing member of MCKEA which, in turn, is the Manager of Philou. Pursuant to the terms of the Preferred Stock Purchase Agreement, Philou may invest up to $5,000,000 in the Company through the purchase of Series B Preferred Stock over the term of 36 months.
In addition, for each share of Series B Preferred Stock purchased, Philou will receive warrants to purchase shares of common stock in a number equal to the stated value of each share of Series B Preferred Stock of $10.00 purchased divided by $0.70 at an exercise price equal to $0.70 per share of common stock
Further, Philou shall have the right to participate in the Company’s future financings under substantially the same terms and conditions as other investors in those respective financings in order to maintain its then percentage ownership interest in the Company. Philou’s right to participate in such financings shall accrue and accumulate provided that it still owns at least 100,000 shares of Series B Preferred Stock.
On March 15, 2017, Company entered into a subscription agreement with an 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 24, 2017, Philou purchased 25,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement in consideration of the cancellation of the Company debt due to an affiliate of Philou in the amount of $250
.
On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. These demand promissory notes bear interest at the rate of 6% per annum. On April 5, 2017, the Company canceled these promissory notes by issuing 360,000 shares of common stock at $0.75 per share. In addition, the Company also issued warrants to purchase 180,000 shares of common stock at $0.90 per share to these investors.
F-33
.