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SHORT
SHORT, target: < $0.50 Crypto Pump & Dump; Management Fraud History
Digital
Digital Power
PowerHoldings,
Holdings,LLC
LLC
NYSE: DPW Akin to the newly listed companies touting “.com” in their name in the late
NYSE: DPW 1990’s, “crypto” companies are given extraordinary valuations, even where little
P: $2.30 Avg Volume: value exists. In the last few months, several companies in entirely unrelated
Price: $2.85 industries (beverages, textiles, advertising) have announced “pivots” and seen
9.6m
Market Cap:
MC: $46.1m $85.8m their valuations appreciate enormously (RIOT 6x, LBCC 4x, CNET 9x, DPW 11x).
Average Volume: 9.08m
XXXXXXXXXXXXX There is a current thematic decline in these valuations which underlay this short
thesis on Digital Power. The only sell-side research is optimistici
Figures as of 5 Jan 2018
.
By Michael Rousselss
Digital Power Holdings LLC, incorporated in 1969, is a
historically marginal/failing power supplies-turned-
holding company, with core revenues in terminal
decline amid a lack of technological improvements,
which underwent a management shakeup in late 2016.
Philou Ventures purchased a $1.5m, 40.06%, stake from
Telkoor Telecom Ltd. in late 2016. Philou Ventures is
effectively owned and managed by Kristine Ault (she
retains beneficial ownership over the Philou shares),
wife of the new CEO and Executive Chairman Milton
“Todd” Ault, a VP of Philou Ventures. Digital Power is
in dire financial duress and engages in frequent equity
dilution as they struggle to meet NYSE listing minimum
requirements. Digital Power exists in a web-like nexus
of other companies owned and/or run by Mr. and Mrs. Ault and their associates; these tiny companies appear to do
business almost exclusively among themselves or with other virtually non-existent companies and are often run by the
same management. At least two of Mr. Ault’s prior companies highly suggest pump-and-dump schemes (Angel
Acquisitions [AGEL] - delisted by the SEC after a pump and dump scheme1 and Cross Click Media [XCLK] – covered in
Appendix IV). Mr. Ault was banned by FINRA2 in 2012 for breach of fiduciary duty, sued by a group of hedge funds he
allegedly defrauded after using funds for a pornography venture3, and sued in 2014 for breach of fiduciary duty and
fraud4. Former Philou manager Guillermo Jalil sells Wyoming shell companies5,6 - includes Philou7.
Owner/Manager
the Board
William Horne
VP
MCKEA
CFO / Head of Audit
Committee
Director /
Sole member
CFO-to-be
Financing
Philou Avalanche Owns 74%
Ventures 80+% voting power
Holdings
Owns 100%
$50m order
MTIX
Digital Power
Owns 16% Holdings
Director
Michael Roussel | Page 3
(2b). Oversight Impossible with Overwhelming Ault Control; $50m MTIX Deal Likely Impossible. In 2014 Philou
Ventures purchased 1.9m shares of Avalanche International (OTC: AVLP), a glass tile distributor, for 150k, owning 74%
of the company26. That same day the company created its single subsidiary - an e-vapor liquid company Smith & Ramsay.
MCKEA Holdings’ subsidiary Vape Nation, an online e-juice and vape retailer, accounted for 70 and 88% of AVLP’s
Smith and Ramsay 2014 and 2015 revenue27, yet does not appear to have done any major non-Ault business dealings.
Cross Click Media, consistently provided non-interest bearing financing (much of which was forgiven) and received 59%
of 2014 revenue from Smith & Ramsay. In July 2015 a $200,000 Vape Nation order was announced by Avalanche. 3
days before the deal was announced, Vape Nation made a posting inquiring how to become unbanned by Amazon28.
The order never occurred and the company went dark. Further information on Cross Click and management history is
available in the appendix.
With new Philou control, in September 2017, DPW issued a $3.5m Avalanche BS Q415 Q116
Convertible Promissory Note (convertible at $0.50/share) to AVLP and Cash 405 58
received warrants to purchase 6,948,800 shares at $0.50/share. In A/R 17,222 17,222
addition to 314,231 shares acquired on the open market, Digital Notes/R 123,975
Power owns 14m shares, or 74% of the company31. Other current 705 15,615
Total Assets 18,332 156,870
It is very unlikely that Avalanche is capable of financing such a
relatively massive transaction. Avalanche is a holdings company, A/P 177,004 260,207
though immediately prior to the MTIX acquisition in 2017, Avalanche
A/P, related 63,699 197,159
controlled a single operational subsidiary with a single investment.
Derivative liability 1,313,012 1,084,408
Restaurant Capital Group LLC 32 (which lists Milton Ault as the
Convertible N/P 416,975 498,352
manager) financed Giuliu, a restaurant in DTLA, possible only through
N/P 135,031 246,260
a 100k loan from MCKEA Holdings. Opened April 8, 2017, Giuliu
Total Current 2,105,721 2,286,386
appeared to be a significant focus of CEO Mr. & Mrs. Ault through
LT Convertible N/P 844
2017, per their social media accounts.
Total Liabilities 2,105,721 2,287,230
for manufacturing, installation, and servicing of six machines whose “The total cost of a fully installed solution, including
training, shipping, etc, … will be in the region of $2.5m euro”33?
Digital Power’s financial health is enormously overstated. DPW Common-sized BS Q316 Q416 Q117 Q217 Q317
Facing pressure to meet $6m in shareholder equity to remain
C/CE 29% 18% 20% 3% 2%
listed, management copes by inflating assets. As of Q317,
goodwill from the Microphase acquisition (mostly equity- A/R 25% 26% 18% 9% 16%
financed, also note Microphase CEO Amos Kohn Inventories 27% 21% 16% 12% 10%
temporarily became DPW CEO) accounted for 34% of total Prepaids and other 5% 5% 5% 5% 3%
assets. According to DPW, ~2m DPW common shares at Restricted 0% 0% 0% 1% 0%
$0.50/share = Microphase operations + $6m, where $6m is Intangibles 0% 0% 0% 1% 2%
equal to the value of Microphase’s brand and relationships. Goodwill 0% 0% 0% 43% 36%
While goodwill is a somewhat subjective measurement, PP&E 14% 10% 10% 4% 3%
management’s near-delusional assessment may even be Related party Invest 0% 19% 29% 18% 21%
considered fraudulent. Meanwhile, investments in related Other investments 0% 0% 0% 3% 4%
parties composed 21% (almost entirely a promissory note for OI - related 0% 0% 0% 0% 2%
Avalanche, with a doubtful ability to repay) and unverifiable Deposits and loans 0% 0% 2% 2% 1%
100%
accounts receivable (mostly related to MTIX deal) made up Total Assets
17%. Together, these account for 70% of total assets. Less
the laughably bloated goodwill as well as investments in and accounts receivable from related parties under severe
financial duress, liabilities would exceed assets by a significant margin. These remaining 30% of assets, worth 5.4m,
represent all DPW Holdings subsidiaries: Digital Power, DP Limited, Microphase, Coolisys, Power-Plus, and DP Lending.
Additionally, there is no disclosure regarding DPW’s massively expanded accounts payable, which amounts to ½ total
liabilities.
With shared ownership and management, the relationship between Digital Power and Avalanche is difficult to analyze
and fraught with incentive conflicts. Indeed, William Horne is both the CFO and Audit Committee Chairman of
Avalanche Holdings as well as a director and CFO-to-be of Digital Power. The Aults effectively control Avalanche
International through indirect holdings. This is a ripe situation for fraudulent activity and the impossibility of the
announced deal certainly suggests some degree of purposeful misrepresentation. Notably, Cross Click’s (former Ault
venture) auditor was charged by the SEC in 2016 related to violating accounting standards while performing audits of
microcaps34 and the Aults changed auditors from an EY global partner as soon as they assumed ownership of DPW (the
new auditor was 30+% more expensive, cost couldn’t have been the factor) – management’s prior history of fraudulent
activity further covered in Appendix IV. In the past, The Ault cabal acquires companies in dire financial duress,
aggressively inspires hype from announced deals with other Ault-owned businesses, issues themselves options and/or
warrants at an attractive price, and then engages in massive equity dilution – often funneling the funds into their other
businesses while likely something far smaller, if anything, is ever delivered.
In this case, we have seen massive dilution across the last few months as Digital Power is hyped on announcements of
the bogus $50m contract and crypto “involvement”. Furthermore, after reaching their authorized share cap of 32m in
late December, the company reorganized as a Delaware entity and now has an authorized capital stock of 250m35.
Michael Roussel | Page 5
(3a) Microphase was previously headed by Amos Kohn, current director of DPW. Microphase has not turned a
profitable quarter since 2014. The company’s income statement is available in appendix II. Though Mr. Kanaval’s reports
celebrate revenue accretions, the acquisition will produce even more deeply negative cash flow and ensure further
dilution. Zacks Research also takes a favorable perspective36. (3b) Enertec Additionally, in early 2018 Digital Power
purchased Areospace and Defense subsidiary Enertec Systems 2001 Ltd. from Micronet Enertec Technologies, a tiny
Israeli microcap. The deal consists of a cash payment of $5.25m and assumption of $4m of Enertec liabilities. The
subsidiary, an Areospace and Defense contractor, has also had negative cash flows over the last two years.
As Digital Power Holdings acquires yet another portfolio company in which management has no experience, this case
presents a distressed, capex heavy, international company. The only other business dealings by DPW in Israeli appear to
be when CEO Amos Kohn used $300k of shareholder funds, classified under “other investments”37, to finance a property
purchase for his daughter38(Mr. Kohn’s daughter will be vested with the optionality to purchase DPW’s 28% stake for
$120.00 over the next few months39).
Valuation Less 80% of the inflated goodwill and investments in other Ault shell companies, DPW has < $7.3m in assets.
This will conservatively (and simplistically) act as a base assumption of real value, yielding $0.24/share. Even if
management achieves guidance revenue of $35-40m, I believe a properly informed market would enforce the required
low fractional P/S multiple for a clear value trap.
Conclusion:
In summation, we have a unique equity play which offers an opportunity to short crypto-mania as well as a phony cartel
of shell companies run by sketchy and dishonest management. We therefore have a $70m company with smoke and
mirrors of related, virtually non-existent parties for business prospects. There is not $70m of value here and over a near-
term timeline there will be no value at all as the Aults and their associates move onto another venture.
Catalysts: Release of next major filing
End of ‘crypto-mania’
Continued dilution
Management could very well be charged with market manipulation or misrepresentation
Risks: Continuation of the ‘crypto-premium’
Other hype-based announcements rile up retail
Michael Roussel | Page 6
Restricted 100
Intangibles 93 420
2
Goodwill 6,002 6,490
OI - related 354
1
Over ½ related to MTIX acquisition
2
Goodwill related to Microphase Acquisition
3
Avalanche promissory note
4
75% financing of an Israeli house for Romi Kohn, daughter of former CEO and current President Amos Kohn
Michael Roussel | Page 7
Income
Q116 Q216 Q316 Q416 Q117 Q217 Q317
Statement
Revenue 1,628 2,064 1,826 2,078 1,628 1,822 3,220
COGS 920 1,310 1,123 1,537 920 1,092 2,124
Gross Profit 708 754 703 541 708 730 1,096
R&D 227 170 147 165 227 265 306
S&M 295 233 235 153 295 327 423
G&A 973 340 404 583 973 1,582 1,685
Operating Income -787 11 -83 -360 -787 -1,444 -1,318
Interest income -207 55 23 206 -207 -407 -753
Pretax -994 66 -60 -154 -994 -1,851 -2,071
Tax 22 -2
5
Microphase Acquisition, 12% annual interest
6
From Avalanche
Michael Roussel | Page 8
Interestingly, the Republican wife of a broker who had been charged by the SEC for involvement in a pump-and-
dump scheme which used Microphase Corporation as an exit outlet54, loaned 200k and paid $150k by FFAGA.
The largest donator/lender, Judson Church, is also a registered republican. The Super PAC also made several
1,000+% interest rate loans to Cross Click Media.
My hypothesis: Finiks Capital financed an Ault venture, likely Cross Click, with the loaned money from the super PAC.
Cross Click was hyped on exaggerations about operating a call center on behalf of FFAGA and the share price rose.
Cross Click issued massive amounts of shares for “services” in the months prior55. Management/Finiks Capital was able
to dump at an attractive price while FFAGA instead retained a shell company for the call centers – thus funneling the
money into a proverbial black hole. It appears to be both a leveraged pump-and-dump and bait-and-switch.
In the meantime, related Ault ventures provided the appearance of legitimacy: 81% of Cross Click 2014 revenue and
96% of accounts receivable were from either Avalanche or FFAGA.
Additionally, Cross Click Media, formerly co-signer.com, had engaged in minimum retainer contracts with IMG
Networks parent Imagine Media Group LLC – the very same company with which Digital Power is purportedly creating
its network of 10,000 mining machines – since 201356. As hype ramped up, the company announced a 3-year
$1,000,000 contract57. The company engaged in massive equity dilution, settled a default suit by major creditor and
shareholder KBM Worldwide58, and then went dark, filing for the last time only months later.
Michael Roussel | Page 10
Citations
i
Zack’s Coverage: http://s1.q4cdn.com/460208960/files/News/2018/January-3-2018_DPW_Thompson.pdf
1
https://www.sec.gov/litigation/admin/2014/34-72875.pdf
2
https://www.securitieslawyer.com/milton-ault-fined-and-suspended-by-finra/
3
https://www.courthousenews.com/the-old-switcheroo-2/
4
https://www.leagle.com/decision/incaco20140812014
5
http://www.wyomingvirtualoffice.com/
6
https://www.assetprofile.com/index1.htm
7
https://www.bizapedia.com/wy/philou-ventures-llc.html
8
http://powdigitalmining.com/
9
https://www.ripoffreport.com/reports/kanaval-mark-and-steve/las-vegas-nevada-89139/kanaval-mark-and-steve-voiceamerica-finance-conman-and-pervert-las-vegas-
nevada-433668
10
https://www.ripoffreport.com/reports/tomahawk-internet-cafe-steve-kanaval/tomahawk-wisconsin-54487/tomahawk-internet-cafe-steve-kanaval-steve-kanaval-steve-
kanaval-from-the-tomahawk-inter-1202035
11
https://www.institutionalinvestor.com/article/b151369qn20wlx/redemption
12
https://www.linkedin.com/in/steve-kanaval-14877212/, https://www.equities.com/user/steve-kanaval/profile?id=8760&limitstart=0
13
https://supercryptopower.com/
14
https://www.similarweb.com/website/supercryptopower.com#display
15
https://wa-com.com/supercryptopower.com
16
http://imaginemediagroup.com/
17
https://www.instagram.com/imaginemediagroup/
18
http://dnamotoring.com/web/event/extreme-autofest-2015/
19
https://www.linkedin.com/in/ale-santos-18758617/
20
https://www.linkedin.com/search/results/people/?facetCurrentCompany=%5B%221098139%22%5D
21
https://www.usaopps.com/government_contractors/contractor-5076660-IMAGINE-MEDIA-GROUP-.htm
22
http://government-contracts.insidegov.com/d/d/Imagine-Media-Group%2C-L.L.C-..-
23
http://supercryptomining.com/
24
https://www.equities.com/user/steve-kanaval
25
https://www.sec.gov/litigation/litreleases/lr19465.htm
26
Avalanche International Corp 8-k, filed May 14 2017
27
https://ir.avalancheinternationalcorp.com/annual-reports/xbrl_doc_only/2732
28
https://sellercentral.amazon.com/forums/thread.jspa?messageID=3264936&tstart=0
29
https://www.marketwatch.com/investing/stock/avlp/secfilings
30
https://www.bamsec.com/filing/121465917004811/1?cik=1537169&hl=71036:71154&hl_id=ekn4xsvnv
31
13D filed September 6 2017
32
http://www.restaurantcapitalgroup.net/
33
https://www.switchmed.eu/en/documents/big-business-corner/29-solutions/mlse.pdf
34
https://www.sec.gov/litigation/admin/2016/34-77997-s.pdf
35
Agreement and Plan of Merger of DPW Holdings Inc and Digital Power Corporation
36
http://s1.q4cdn.com/460208960/files/News/2018/January-3-2018_DPW_Thompson.pdf
37
DPW November 7 20178-K
38
https://www.sec.gov/Archives/edgar/data/896493/000143774917019763/dpw20171118_8k.htm
39
https://www.sec.gov/Archives/edgar/data/896493/000143774917019763/ex_100792.htm
40
https://www.linkedin.com/in/miltontoddault/
41
https://www.bamsec.com/filing/125529414001270/2
42
https://www.sec.gov/litigation/admin/2016/34-77997-s.pdf
43
https://www.complaintslist.com/2015/arash-shirdel-lawyer-maybe-not-really-go-law-school/
44
http://www.marketwired.com/press-release/crossclick-media-to-lead-national-call-center-effort-for-voters-for-hillary-otc-pink-xclk-1973220.htm
45
https://www.google.com/search?rlz=1C1GCEB_enUS780US780&ei=J0RmWs-
kGdGI_Qam6qbQBA&q=P.O.+BOX+3587+TUSTIN+CA+92781&oq=P.O.+BOX+3587+TUSTIN+CA+92781&gs_l=psy-
ab.3...2717.3561.0.3806.6.6.0.0.0.0.76.314.6.6.0....0...1c.1.64.psy-ab..0.0.0....0.yIKKApGA8Nc
46
https://www.propublica.org/article/how-a-dubious-super-pac-boosted-a-questionable-penny-stock
47
Ex-10.1, Cross Click Media Inc. December 2 2014 8-K
48
http://nvsos.gov/SOSEntitySearch/CorpDetails.aspx?lx8nvq=Qj%252fg22DWMkVI4RSBiL5J2Q%253d%253d&nt7=0
49
https://brokercheck.finra.org/individual/summary/1849030
50
https://www.hrw.org/sites/default/files/brule/37.FINRADonald_HortonHunter_August162012.pdf
51
Ex-10.1, Cross Click May 20 2014 10-Q
52
https://web.archive.org/web/20140808204405/http://you-funding.com/investments/
53
2 April 2014 Form of Posting Agreement between YouFunding Inc and Co-Signer Inc
54
https://www.google.com/search?ei=bj9iWuzRFMuj_QbW0bzIBQ&q=microphase+packetport&oq=microphase+packetport&gs_l=psy-
ab.3...58197.59018.0.59098.10.6.0.0.0.0.0.0..0.0....0...1c.1.64.psy-ab..10.0.0....0.pN3nH9Hd5LA
55
https://www.sec.gov/cgi-bin/viewer?action=view&cik=1487659&accession_number=0001262463-15-000678&xbrl_type=v#
56
Ex-10.3 of August 12, 2013 Co-Signer, Inc 8-K
57
Ex-10.1 of June 1, 2015 Cross Click Media 8-K
58
https://www.pacermonitor.com/public/case/8308014/KBM_Worldwide,_Inc_v_Cross_Click_Media,_Inc_et_al