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BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2018

14. BUSINESS COMBINATIONS

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC No. 805, Business Combinations. Under the acquisition 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. Two acquisitions were completed during 2018: Enertec Systems 2001 Ltd. (“Enertec”) and I.AM. The final accounting for the acquisition of Enertec was completed during 2018 whereas the initial accounting for the acquisition of I.AM is not yet complete and the Company is still performing procedures to determine the appropriate accounting.

Acquisitions during 2018

Enertec Systems 2001 Ltd.

On December 31, 2017, CooliSys entered into a share purchase agreement with Micronet Enertec Technologies, Inc. (“MICT”), a Delaware corporation, Enertec Management Ltd., an Israeli corporation and wholly owned subsidiary of MICT (“EML” and, together with MICT, the “Seller Parties”), and Enertec Systems 2001 Ltd. (“Enertec”), an Israeli corporation, pursuant to which Coolisys acquired Enertec (the “Acquisition”). Enertec is a manufacturer of specialized electronic systems for the military market. On May 23, 2018, Coolisys acquired Enertec for an aggregate cash purchase price of $4,850,099.

I.AM, Inc.

On May 23, 2018, DP Lending entered into and closed a securities purchase agreement with I.AM, David J. Krause and Deborah J. Krause. Pursuant to the securities purchase agreement, I.AM sold to DPL, 981 shares of common stock for a purchase price of $981, representing, upon the closing, 98.1% of I.AM’s outstanding common stock.

I.AM owns and operates the Prep Kitchen brand restaurants located in the San Diego area. I.AM owed DP Lending $1,715,330 in outstanding principal, pursuant to a loan and security agreement, between I.AM and DP Lending, which I.AM used to acquire the restaurants. The purchase agreement provides that, as I.AM repays the outstanding loan to DP Lending in accordance with the loan agreement, DP Lending will on a pro rata basis transfer shares of common stock of I.AM to David J. Krause, up to an aggregate of 471 shares.

Components of the purchase price for acquisitions completed during the year ended December 31, 2018:

	Enertec			I.AM
Accounts receivable	$	3,184,227		$	29,319
Inventories		1,343,053			40,581
Property and equipment		648,649			700,291
Trade name and trademark		2,094,741			520,000
Domain name and other intangible assets		—			90,000
Other assets		29,056			1,492
Accounts payable and accrued expenses		(2,702,306	)		(103,961	)
Deferred tax liability		(160,311	)		—
Notes payable		(4,235,725	)		—
Accrued severance pay		(131,811	)		—
Net assets assumed		69,573			1,277,722
Goodwill		4,780,526			265,252
Non-controlling interest		—			(33,242	)
Purchase price	$	4,850,099		$	1,509,732

Acquisitions during 2017

Microphase Corporation

On April 28, 2017, the Company entered into a 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 share exchange agreement (collectively, the “Minority Stockholders” and with the Significant Stockholders, the “Stockholders”). Upon the terms and subject to the conditions set forth in the share exchange 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 for the issuance by the Company of 92,122 shares of DPW common stock (“Common Stock”) and 378,776 shares of DPW Series D Preferred Stock (collectively, the “Exchange Shares”), which shares of DPW Series D Preferred Stock are convertible into an aggregate of 757,552 shares of Common Stock and warrants to purchase an aggregate of 50,000 shares of Common Stock. 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, are included in the consolidated financial statements.

At closing, the purchase price of the Company’s 56.4% interest in Microphase was determined to be $1,451,040 comprised of the Exchange Shares, valued at $1,222,000 based on the closing price of the Company’s common stock on June 2, 2017 of $9.40 per share, and the warrants, valued at $229,040. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. The risk-free rate of 1.4% was derived from the U.S. Treasury yield curve, matching the warrant’s term, in effect at the measurement date. The volatility factor of 105.9% was determined based on the Company’s historical stock prices.

Power-Plus Technical Distributors

On August 3, 2017, Coolisys entered into a Securities Purchase Agreement to acquire all the outstanding membership Interests of Power-Plus. Power-Plus is an industrial distributor of value-added power supply solutions, UPS systems, fans, filters, line cords, and other power-related components. On September 1, 2017, Coolisys completed the acquisition.

Under the terms of the agreement, Coolisys Technologies acquired all the membership Interests of Power-Plus for a price of $850,000, which was reduced by certain debts of Power-Plus in the amount of $185,927. The purchase price of $664,073 was paid by (i) a two-year promissory note in the amount of $255,000 payable in 24 monthly installments; and (ii) cash at closing of $409,073 resulting in a net purchase price of $664,073.

Components of the purchase price for acquisitions completed during the year ended December 31, 2017:

	Microphase			Power-Plus
Cash and cash equivalents	$	10,982		$	31,411
Accounts receivable		438,456			235,358
Inventories		667,020			240,843
Prepaid expenses and other current assets		139,665			2,068
Restricted cash		100,000			—
Intangible assets		2,627,348			250,000
Property and equipment		406,432			22,925
Other investments		303,333			—
Deposits and loans		43,479			—
Accounts payable and accrued expenses		(1,577,281	)		(388,746	)
Deferred tax liability		(225,488	)		—
Revolving credit facility		(879,666	)		(210,739	)
Notes payable		(2,203,835	)		—
Notes payable, related parties		(406,194	)		—
Convertible notes payable		—			—
Other current liabilities		(219,685	)		—
Net (liabilities) assets assumed		(775,434	)		183,119
Goodwill		3,171,029			480,953
Non-controlling interest		(944,555	)		—
Purchase price	$	1,451,040		$	664,073

The following pro forma data for the years ended December 31, 2018 and 2017 summarizes the results of operations for the period indicated as if the Microphase, Power-Plus and Enertec acquisitions, which closed on June 2, 2017, September 1, 2017, and May 23, 2018, respectively, had been completed as of the beginning of each period presented. At the time of the acquisition, I. AM was not material to the Company’s operations and has not been included in the pro forma data. 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 Years Ended
	December 31,
	2018			2017
Total Revenue	$	28,691,641		$	20,807,590
Net loss	$	(35,627,242	)	$	(16,877,041	)
Less: Net loss attributable
to non-controlling interest		748,320			772,596
Net loss attributable to
common stockholders	$	(34,878,922	)	$	(16,104,445	)
Preferred deemed dividends		(108,049	)		(584,182	)
Preferred dividends		—			(54,059	)
Loss available to common shareholders	$	(34,986,971	)	$	(16,742,686	)

Basic and diluted net loss per common share	$	(12.06	)	$	(26.85	)

Basic and diluted weighted average
common shares outstanding		2,899,888			623,583

Comprehensive Loss
Loss available to common shareholders	$	(34,986,971	)	$	(16,742,686	)
Other comprehensive income (loss)
Change in net foreign currency
translation adjustments		(377,823	)		152,078
Net unrealized gain (loss) on
securities available-for-sale		(8,027,746	)		5,171,743
Other comprehensive income (loss)		(8,405,569	)		5,323,821
Total Comprehensive loss	$	(43,392,540	)	$	(11,418,865	)