ACQUISITION

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

ACQUISITION

5. ACQUISITION 

Microphase Corporation

On April 28, 2017, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Microphase; Microphase Holding Company LLC, a limited liability company organized under the laws of Connecticut (“MHC”), Ergul Family Limited Partnership, a partnership organized under the laws of Connecticut (“EFLP”) RCKJ Trust, a trust organized under the laws of New Jersey (“RCKJ” and with MHC and EFLP, the “Significant Stockholders”) and those additional persons who have executed the Agreement (collectively, the “Minority Stockholders” and with the Significant Stockholders, the “Stockholders”).  Upon the terms and subject to the conditions set forth in the Agreement, the Company acquired 1,603,434 shares (the “Subject Shares”) of the issued and outstanding common stock of Microphase (the “MPC Common Stock”), from the Stockholders in exchange (the “Exchange”) for the issuance by the Company of 1,842,448 shares of Digital Power common stock (“Common Stock”) and 378,776 shares of Digital Power Series D Preferred Stock (collectively, the “Exchange Shares”), which shares of Digital Power Series D Preferred Stock are, subject to shareholder approval, convertible into an aggregate of 757,552 shares of Common Stock and warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of Common Stock (the “Warrant Shares”).  The Exchange Shares and the Exchange Warrants are at times collectively referred to herein as the “Exchange Securities.” At the time of the closing of the acquisition the Exchange Shares constituted 56.4% of the outstanding equity interests of Microphase Corporation. The operating results of Microphase from the closing date of the acquisition, June 2, 2017, through June 30, 2017, are included in the consolidated financial statements.

At closing, the purchase price of Digital Power’s 56.4% interest in Microphase was determined to be $1,451, comprised of the Exchange Shares, valued at $1,222, and the Exchange warrants, valued at $229. The value assigned to the Exchange Shares was based on the closing price of the Common Stock on June 2, 2017. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. 

The acquisition of Microphase is being accounted for under the purchase method of accounting in accordance with ASC No. 805, Business Combinations. Under the purchase method, assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill is recorded to the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired less liabilities assumed at the date of acquisition. 

Upon initial measurement, components of the purchase price are as follows: 

Cash and cash equivalents	$	11
Accounts receivable, net		439
Inventories, net		667
Prepaid expenses and other current assets		139
Restricted cash		100
Intangible assets		95
Property and equipment, net		93
Other investments		303
Deposits and loans		44
Accounts payable and accrued expenses		(1,680	)
Revolving credit facility		(880	)
Notes payable		(2,204	)
Notes payable, related parties		(406	)
Convertible notes payable		0
Other current liabilities		(327	)
Net liabilities assumed		(3,606	)
Goodwill		6,002
Minority interest		(945	)
Purchase price	$	1,451

The following pro forma data summarizes the results of operations for the periods indicated as if the Microphase acquisition had been completed as of the beginning of each period presented. The pro forma data gives effect to actual operating results prior to the acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of each period presented or that may be obtained in future periods: 

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Revenue	$	2,714		$	4,017		$	5,408		$	7,848
Net loss	$	(1,924	)	$	(651	)	$	(4,076	)	$	(1,099	)
Less: Net loss attributable to non-controlling interest		127			313			632			424
Net loss attributable to Digital Power Corp	$	(1,797	)	$	(338	)	$	(3,444	)	$	(675	)
Preferred deemed dividends		(319	)		—			(319	)		—
Preferred dividends		(8	)		—			(8	)		—
Loss available to common shareholders	$	(2,124	)	$	(338	)	$	(3,771	)	$	(675	)
Basic and diluted net loss per common share	$	(0.17	)	$	(0.04	)	$	(0.33	)	$	(0.08	)
Basic and diluted weighted average common shares outstanding		12,310,106			8,618,419			11,273,393			8,618,419
Comprehensive Loss
Loss available to common shareholders	$	(2,124	)	$	(338	)	$	(3,771	)	$	(675	)
Other comprehensive income (loss)
Change in net foreign currency translation adjustments		78			(152	)		99			(210	)
Net unrealized gain (loss) on securities available-for-sale, net of income taxes		0			—			130			18
Other comprehensive income (loss)		78			(152	)		229			(192	)
Total Comprehensive loss	$	(2,046	)	$	(490	)	$	(3,542	)	$	(867	)