OTE

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.

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

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

2017,

and on the

first

date of each quarter thereafter through

July

2018,

with warrants to purchase

39,686

shares to vest on

October

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).