GPUS 10-Q Quarter ended March 31, 2018

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number 1-12711

DPW HOLDINGS, INC.

( Exact name of registrant as specified in its charter )

201 Shipyard Way, Suite E

Newport Beach, CA 92663

(Address of principal executive offices)

(510) 657-2635

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding year (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding year (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☑

At May 18, 2018 the registrant had outstanding 59,256,783 shares of common stock.

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DPW HOLDINGS, INC.

TABLE OF CONTENTS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," “would,” "should," “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended December 31, 2017, particularly the "Risk Factors" sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of May 21, 2018. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

PART I – FINANCIAL INFORMATION

		March 31,				December 31,
		2018				2017
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	630			$	1,478
Marketable securities			1,938				1,835
Digital currencies			166				—
Accounts receivable			1,565				1,898
Accounts and other receivable, related party			1,967				174
Inventories, net			2,237				1,993
Prepaid expenses and other current assets			2,702				1,407
TOTAL CURRENT ASSETS			11,205				8,785
Intangible assets, net			2,868				2,898
Goodwill			3,652				3,652
Property and equipment, net			8,590				1,217
Investments - related party, net of original issue discount of $3,082
and $2,115, respectively			2,970				2,333
Investments in warrants and common stock - related party			4,624				7,728
Investments in preferred stock of private company			1,000				1,000
Other investments			2,011				1,637
Other investments, related parties			893				917
Other assets			680				343
TOTAL ASSETS		$	38,493			$	30,510
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	4,680			$	4,273
Accounts payable and accrued expenses, related party			81				70
Advances on future receipts			3,775				1,963
Short term advances			2,776				2,439
Short term advances, related party			295				245
Revolving credit facility			339				388
Notes payable, net			3,160				402
Notes payable, related party			162				134
Convertible notes payable			—				398
Other current liabilities			727				708
TOTAL CURRENT LIABILITIES			15,995				11,020
LONG TERM LIABILITIES
Notes payable			520				525
Notes payable, related parties			146				175
TOTAL LIABILITIES		$	16,661			$	11,720

		March 31,				December 31,
		2018				2017
		(Unaudited)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value, designated in the following classes;		$	—			$	—
25,000,000 shares authorized; 224,776 and 478,776 shares issued and
outstanding at March 31, 2018 and December 31, 2017, respectively
Series A Convertible Preferred Stock, $0.001 par value –			—				—
500,000 shares authorized; nil shares issued and outstanding at
March 31, 2018 and December 31, 2017
Series B Convertible Preferred Stock, $10 stated value per share,			—				—
share, $0.001 par value – 500,000 shares authorized; 100,000 shares issued
and outstanding at March 31, 2018 and December 31, 2017, respectively
(liquidation preference of $1,000 at March 31, 2018 and December 31, 2017)
Series C Convertible Preferred Stock, $2.40 stated value per share,			—				—
$0.001 par value – 460,000 shares authorized; nil shares issued and outstanding
at March 31, 2018 and December 31, 2017
Series D Convertible Preferred Stock, $0.01 stated value per			—				—
share, $0.001 par value – 378,776 shares authorized; 124,276 and 378,776
shares issued and outstanding at March 31, 2018 and December 31, 2017,
respectively (liquidation preference of $1 and $4 at March 31, 2018, and
and December 31, 2017, respectively)
Series E Convertible Preferred Stock, $45 stated value per share,			—				—
$0.001 par value – 10,000 shares authorized; nil shares issued and outstanding
at March 31, 2018 and December 31, 2017
Preferred Stock, $0.001 par value – 23,151,224 shares authorized; nil shares			—				—
issued and outstanding at March 31, 2018 and December 31, 2017
Class A Common Stock, $0.001 par value – 200,000,000 shares authorized;			42				30
42,035,134 and 30,222,299 shares issued and outstanding at March 31, 2018
and December 31, 2017, respectively
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized;			—				—
nil shares issued and outstanding at March 31, 2018 and December 31, 2017
Additional paid-in capital			50,728				36,888
Accumulated deficit			(29,471	)			(23,412	)
Accumulated other comprehensive loss			(212	)			4,503
TOTAL DPW HOLDINGS STOCKHOLDERS' EQUITY			21,087				18,009
Non-controlling interest			745				781
TOTAL STOCKHOLDERS' EQUITY			21,832				18,790
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	38,493			$	30,510

		For the Three Months Ended
		March 31,
		2018				2017
Revenue		$	3,166			$	1,628
Revenue, cryptocurrency mining			237				—
Revenue, related party			1,793				—
Total revenue			5,196				1,628
Cost of revenue			3,803				920
Gross profit			1,393				708
Operating expenses
Engineering and product development			343				227
Selling and marketing			725				295
General and administrative			3,222				973
Change in fair value of digital currency			70				—
Total operating expenses			4,360				1,495
Loss from operations			(2,967	)			(787	)
Interest expense			(3,132	)			(207	)
Loss before income taxes			(6,099	)			(994	)
Income tax benefit			4				—
Net loss			(6,095	)			(994	)
Less: Net loss attributable to non-controlling interest			36				—
Net loss available to common stockholders		$	(6,059	)		$	(994	)
Basic and diluted net loss per common share		$	(0.17	)		$	(0.12	)
Basic and diluted weighted average common shares outstanding			36,709,506				8,382,713
Comprehensive Loss
Loss available to common stockholders		$	(6,059	)		$	(994	)
Other comprehensive income (loss)
Foreign currency translation adjustment			26				21
Net unrealized loss on securities available-for-sale			(4,741	)			—
Other comprehensive income (loss)			(4,715	)			21
Total Comprehensive loss		$	(10,774	)		$	(973	)

		For the Three Months Ended March 31,
		2018				2017
Cash flows from operating activities:
Net loss		$	(6,095	)		$	(994	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			115				33
Amortization			33				—
Interest expense – debt discount			3,051				195
Accretion of original issue discount on notes receivable – related party			(485	)			(7	)
Interest expense on conversion of promissory notes to common stock			—				13
Stock-based compensation			1,438				157
Revaluation of digital currencies			71				—
Realized losses on sale of marketable securities			42				—
Changes in operating assets and liabilities:
Accounts receivable			344				413
Accounts receivable, related party			(1,793	)			28
Digital currencies			(237	)			—
Inventories			(215	)			193
Prepaid expenses and other current assets			604				15
Other assets			(381	)			(29	)
Accounts payable and accrued expenses			527				(338	)
Accounts payable, related parties			11				—
Other current liabilities			11				49
Net cash used in operating activities			(2,959	)			(272	)
Cash flows from investing activities:
Purchase of property and equipment			(7,478	)			(3	)
Purchase of intangible asset			(3	)			—
Investments – related party			(147	)			(610	)
Investments in warrants and common stock - related party			(1,555	)			—
Investments in marketable securities			(657	)			—
Sales of marketable securities			430				—
Loans to related parties			—				(59	)
Proceeds from loans to related parties			16				—
Investments in debt and equity securities			(371	)			(20	)
Net cash used in investing activities			(9,765	)			(692	)

		For the Three Months Ended March 31,
		2018				2017
Cash flows from financing activities:
Gross proceeds from sales of common stock and warrants		$	6,243			$	300
Financing cost in connection with sales of equity securities			(858	)			(73	)
Proceeds from stock option exercises			98				—
Proceeds from warrant exercises			867				—
Proceeds from convertible notes payable			1,000				—
Proceeds from notes payable – related party			—				350
Proceeds from notes payable			8,550				520
Proceeds from short-term advances – related party			50				—
Proceeds from short-term advances			762				—
Payments on short-term advances			(425	)			—
Payments on notes payable			(5,247	)			—
Proceeds from advances on future receipts			2,990				—
Payments on advances on future receipts			(1,917	)			—
Payments on revolving credit facilities, net			(221	)			—
Net cash provided by financing activities			11,892				1,097
Effect of exchange rate changes on cash and cash equivalents			(16	)			9
Net increase (decrease) in cash and cash equivalents			(848	)			142
Cash and cash equivalents at beginning of period			1,478				996
Cash and cash equivalents at end of period		$	630			$	1,138
Supplemental disclosures of cash flow information:
Cash paid during the period for interest		$	226			$	12
Non-cash investing and financing activities:
Cancellation of convertible note payable into shares of common stock		$	2,168			$	—
Issuance of common stock for prepaid services		$	1,924			$	—
Cancellation of notes payable – related party into shares of
common stock		$	—			$	100
Cancellation of notes payable into shares of common stock		$	—			$	300
Cancellation of note payable – related party into series B
convertible preferred stock		$	—			$	250

		Three Months ended March 31, 2018
		DPC				DPL				SC Mining				Total
Primary Geographical Markets
North America		$	4,505			$	5			$	237			$	4,747
Europe			—				267				—				267
Other			128				54				—				182
		$	4,633			$	326			$	237			$	5,196
Major Goods
RF/Microwave Filters		$	1,232			$	—			$	—			$	1,232
Detector logarithmic video amplifiers			58				—				—				58
Power Supply Units			1,550				—				—				1,550
Power Supply Systems			—				326				—				326
Digital Currency Mining			—				—				237				237
MLSE Systems			1,793				—				—				1,793
		$	4,633			$	326			$	237			$	5,196
Timing of Revenue Recognition
Goods transferred at a point in time		$	2,840			$	326			$	237			$	3,403
Services transferred over time			1,793				—				—				1,793
		$	4,633			$	326			$	237			$	5,196

		Useful lives (in years)
Cryptocurrency machines and related equipment		3 - 5
Computer, software and related equipment		3 - 5
Office furniture and equipment		5 - 10
Leasehold improvements		Over the term of the lease or the life of the asset, whichever is shorter.

		Fair Value Measurement at March 31, 2018
		Total				Level 1				Level 2				Level 3
Investments in common stock and warrants of AVLP – a related party		$	4,624			$	539			$	—			$	4,085
Investments in digital currencies		$	166			$	166			$	—			$	—
Investments in marketable securities		$	1,938			$	1,938			$	—			$	—
Total Investments		$	6,728			$	2,643			$	—			$	4,085

		Fair Value Measurement at December 31, 2017
		Total				Level 1				Level 2				Level 3
Investments in common stock and warrants of AVLP – a related party		$	7,728			$	826			$	—			$	6,902
Investments in marketable securities		$	1,835			$	1,835			$	—			$	—
Total Investments		$	9,563			$	2,661			$	—			$	6,902

		2018				2017
Stock options			4,457,500				2,766,000
Warrants 1			6,157,402				2,122,142
Convertible notes			—				963,636
Conversion of preferred stock			1,677,123				357,143
Total			12,292,025				6,208,921

		Digital Currencies
Balance at January 1, 2018		$	—
Additions of digital currencies			237
Change in fair value of digital currencies			(71	)
Balance at March 31, 2018		$	166

		Available-for-sale securities at March 31, 2018
						Gross unrealized				Gross realized
		Cost				gains (losses)				gains (losses)				Fair value
Common shares		$	1,912			$	26			$	—			$	1,938

		Available-for-sale securities at December 31, 2017
						Gross unrealized				Gross realized
		Cost				gains (losses)				gains (losses)				Fair value
Common shares		$	1,702			$	133			$	—			$	1,835

Balance at January 1, 2018		$	1,835
Purchases of marketable securities			657
Sales of marketable securities			(430	)
Realized losses on marketable securities			(42	)
Unrealized gains on marketable securities			(82	)
Balance at March 31, 2018		$	1,938

		March 31,				December 31,
		2018				2017
Cryptocurrency machines and related equipment		$	7,443			$	—
Computer, software and related equipment			2,165				2,432
Office furniture and equipment			312				289
Buildings and improvements			305				—
Leasehold improvements			815				788
			11,040				3,509
Accumulated depreciation and amortization			(2,450	)			(2,292	)
Property and equipment, net		$	8,590			$	1,217

		Intangible Assets
Balance as of December 31, 2016		$	—
Trade name and trademark			1,740
Customer list			988
Non-competition agreements			150
Domain name			81
Accumulated amortization			(61	)
Balance as of December 31, 2017		$	2,898
Trade name and trademark			3
Accumulated amortization			(33	)
Balance as of March 31, 2018		$	2,868

		March 31,				December 31,
		2018				2017
Investment in convertible promissory note of AVLP		$	5,583			$	4,124
Investment in warrants of AVLP			4,085				6,902
Investment in common stock of AVLP			539				826
Accrued interest in convertible promissory note of AVLP			468				324
Total investment in AVLP – Gross			10,675				12,176
Less: original issue discount			(3,081	)			(2,115	)
Total investment in AVLP – Net		$	7,594			$	10,061

		Investment in				Investment in
		warrants and				convertible				Total
		common stock				promissory				investment
		of AVLP				note of AVLP				in AVLP – Net
Balance at January 1, 2018		$	7,728			$	2,333			$	10,061
Investment in convertible promissory notes of AVLP			—				3				3
Investment in common stock of AVLP			99				—				99
Fair value of warrants issued by AVLP			1,456				—				1,456
Unrealized gain in warrants of AVLP			(4,273	)			—				(4,273	)
Unrealized gain in common stock of AVLP			(386	)			—				(386	)
Accretion of discount			—				490				490
Accrued Interest			—				144				144
Balance at March 31, 2018		$	4,624			$	2,970			$	7,594

		For the Three
		Months Ended
		March 31, 2017
Total Revenue		$	3,329
Net loss		$	(2,118	)
Less: Net loss attributable to non-controlling interest			505
Net loss attributable to common stockholders		$	(1,613	)
Basic and diluted net loss per common share		$	(0.16	)
Basic and diluted weighted average common shares outstanding			10,225,161
Comprehensive Loss
Loss available to common shareholders		$	(1,613	)
Other comprehensive income (loss)
Change in net foreign currency translation adjustments			21
Net unrealized gain (loss) on securities available-for-sale,
net of income taxes			130
Other comprehensive income (loss)			151
Total Comprehensive loss		$	(1,462	)

		Three Months Ended
		March 31, 2018				March 31, 2017
Weighted average risk-free interest rate			2.41% — 2.43	%			1.89% — 2.14	%
Weighted average life (in years)			5.0				5.0
Volatility			124.7	%			98.4% — 98.5	%
Expected dividend yield			0	%			0	%
Weighted average grant-date fair value per share of options granted		$	1.91			$	0.45

Outstanding														Exercisable
						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
Exercise		Number				Contractual				Exercise				Number				Exercise
Price		Outstanding				Life (Years)				Price				Exercisable				Price
$0.57 - $0.79			2,350,000				8.64			$	0.66				1,749,999			$	0.67
$1.32 - $1.38			170,000				9.28			$	1.37				65,000			$	1.37
$1.51 - $1.69			62,500				4.46			$	1.64				55,000			$	1.63
$0.57 - 1.69			2,582,500				8.58			$	0.73				1,869,999			$	0.72
Issuances outside of Plans
$1.38 - $2.32			1,875,000				9.73			$	1.77				252,084			$	1.56
Total Options
$0.57 - 2.32			4,457,500				9.07			$	1.17				2,122,083			$	0.82

		Three Months Ended
		March 31, 2018				March 31, 2017
Cost of revenues		$	5			$	1
Engineering and product development			14				7
Selling and marketing			12				5
General and administrative			664				111
Stock-based compensation from Plans		$	695			$	124
Stock-based compensation from issuances outside of Plans			743				—
Total Stock-based compensation		$	1,438			$	124

						Outstanding Options
														Weighted
										Weighted				Average
		Shares								Average				Remaining				Aggregate
		Available				Number				Exercise				Contractual				Intrinsic
		for Grant				of Shares				Price				Life (years)				Value
January 1, 2018			2,538,832				2,742,500			$	0.77				8.80			$	6,688
Restricted stock awards			(1,283,059	)			—
Forfeited			100,000				(100,000	)		$	1.38
Exercised			—				(60,000	)		$	1.63
March 31, 2018			1,355,773				2,582,500			$	0.73				8.58			$	336

Outstanding														Exercisable
						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
Exercise		Number				Contractual				Exercise				Number				Exercise
Price		Outstanding				Life (Years)				Price				Exercisable				Price
$0.01			317,460				8.59			$	0.01				238,092			$	0.01
$0.55			283,636				4.61			$	0.55				283,636			$	0.55
$0.66			148,133				4.59			$	0.66				0			$	0.66
$0.70			1,768,572				4.53			$	0.70				1,768,572			$	0.70
$0.75			135,909				4.13			$	0.75				135,909			$	0.75
$0.80			481,666				2.45			$	0.80				481,666			$	0.80
$1.00			130,000				4.20			$	1.00				130,000			$	1.00
$1.10			759,486				3.43			$	1.10				759,486			$	1.10
$1.15			1,550,000				4.98			$	1.15				1,550,000			$	1.15
$2.20			625,000				4.82			$	2.20				625,000			$	2.20
$2.25			112,500				4.82			$	2.25				112,500			$	2.25
$2.50			162,500				4.82			$	2.50				162,500			$	2.50
$0.01 - 2.50			6,474,862				4.58			$	1.04				6,247,361			$	1.07

		2018				2017
Weighted average risk-free interest rate			2.41% — 2.61	%			1.86% — 2.01	%
Weighted average life (in years)			4.0				5.3
Volatility			124.8% — 138.4	%			98.5% — 104.6	%
Expected dividend yield			0	%			0	%
Weighted average grant-date fair value per share of warrants granted		$	1.16			$	0.55

		March 31,				December 31,
		2018				2017
Plankton Note (a)		$	2,100			$	—
12% short-term promissory note (b)			1,000				—
Other short-term notes payable (c)			920				—
Notes payable to Wells Fargo (d)			303				300
Note payable to Dept. of Economic and Community Development (e)			285				292
Power-Plus Credit Facilities (f)			—				171
Note payable to Power-Plus Member (g)			98				130
Note payable to People's United Bank (h)			20				19
10% short-term promissory notes (i)			—				15
Total notes payable			4,726				927
Less:
Unamortized debt discounts			(1,014	)			—
Unamortized financing cost			(32	)			—
Total notes payable, net of financing cost		$	3,680			$	927
Less: current portion			3,160				402
Notes payable – long-term portion		$	520			$	525

		March 31,				December 31,
		2018				2017
Notes payable to former officer and employee		$	308			$	309
Total notes payable			308				309
Less: current portion			(162	)			(134	)
Notes payable – long-term portion		$	146			$	175

		2017
5% Convertible Note (a)		$	550
12% Convertible Note (b)			202
Total convertible notes payable			752
Less:
Unamortized debt discounts			(351	)
Unamortized financing cost			(3	)
Total convertible notes payable, net of financing cost		$	398

		Three Months ended March 31, 2018
		DPC				DPL				SC Mining				Eliminations				Total
Revenues		$	2,840			$	326			$	237			$	—			$	3,403
Revenue, related party		$	1,793			$	—			$	—			$	—			$	1,793
Inter-segment revenues		$	5			$	—			$	—			$	(5	)		$	—
Total revenues		$	4,638			$	326			$	237			$	(5	)		$	5,196
Depreciation and amortization expense		$	43			$	17			$	55			$	—			$	115
Loss from operations		$	(1,851	)		$	(253	)		$	(863	)		$	—			$	(2,967	)
Interest expense, net																		$	(3,132	)
Income tax benefit																		$	4
Net loss attributable to non-controlling interest																		$	36
Net loss attributable to DPW Holdings																		$	(6,059	)
Capital expenditures for segment assets, as of December 31, 2017		$	311			$	1			$	7,166			$	—			$	7,478
Identifiable assets as of March 31, 2018		$	29,104			$	1,488			$	7,901			$	—			$	38,493

		Three Months ended March 31, 2017
		DPC				DPL				Eliminations				Total
Revenues		$	1,013			$	615			$	—			$	1,628
Inter-segment revenues		$	25			$	—			$	(25	)		$	—
Total revenues		$	1,038			$	615			$	(25	)		$	1,628
Depreciation and amortization expense		$	16			$	17			$	—			$	33
Loss from operations		$	(744	)		$	(43	)		$	—			$	(787	)
Interest income, net														$	(207	)
Income tax benefit														$	—
Net loss														$	(994	)
Capital expenditures for segment assets, as of December 31, 2016		$	—			$	2			$	—			$	2
Identifiable assets as of March 31, 2017		$	3,528			$	2,177			$	—			$	5,705

		For the three months ended March 31, 2018
		Total Revenues
		by Major				Percentage of
		Customers				Total Company
		(in thousands)				Revenues
Customer A		$	1,793				35	%

		For the Three Months Ended March 31, 2017
		Total Revenues
		by Major				Percentage of
		Customers				Total Company
		(in thousands)				Revenues
Customer A		$	309				19	%
Customer B		$	224				14	%

		2018				2017
Revenues:
Commercial products		$	3,665			$	1,078
Defense products			1,531				550
Total revenues		$	5,196			$	1,628

		2018				2017
Revenues:
North America		$	4,747			$	1,002
Europe			267				514
Other			182				112
Total revenues		$	5,196			$	1,628