UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2017March 31, 2023 

☐¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from ________ to ________. 

Commission file number 1-12711

DIGITAL POWER CORPORATION

AULT ALLIANCE, INC.

(Exact name of registrant as specified in its charter)

CaliforniaDelaware94-1721931
(State or other jurisdiction of incorporation or
organization)
 (I.R.S. Employer Identification Number)
48430 Lakeview Blvd
Fremont, CA 94538-3158

11411 Southern Highlands Pkwy #240

Las Vegas, NV89141

(Address of principal executive offices)

(510) 657-2635
(Zip code)

(949)444-5464

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par valueAULTNYSE American
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per shareAULT PRDNYSE American

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 12 monthsyear (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☑xNo  ☐
¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataDate File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes☑xNo  ☐

¨

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,”filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer  ☐
¨
Accelerated filer  ☐
¨
Non-accelerated filer☐
x		 (Do not check if a smaller reporting company)
Smaller reporting company  ☑
x
Emerging growth company  ☐
¨ 

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 12(b)-212b-2 of the Exchange Act).  Yes  ☐¨No☑


x

At November 17, 2017May 19, 2023, the registrant had outstanding 15,817,3931,385,822 shares of common stock.

 

DIGITAL POWER CORPORATION

AULT ALLIANCE, INC.

TABLE OF CONTENTS

  Page
PART I – FINANCIAL INFORMATION 
    
Item 1.Financial Statements (Unaudited) 
    
  
Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited)March 31, 2023 and December
31, 2016 (Audited)
2022		1-2F-1
    
  
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and
nine months ended September 30, 2017March 31, 2023 and 2016 (Unaudited)
2022		3F-3
    
  
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity for the ninethree months ended September 30,
2017March 31, 2023 and 2016 (Unaudited)
2022		4-5F-4
    
  Notes to Interim Condensed Consolidated Financial Statements (Unaudited)of Cash Flows for the three months ended March 31, 2023 and 20226 - 42F-6
    
 Notes to Condensed Consolidated Financial StatementsF-8
Item 2.Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations431
    
Item 3. Quantitative and Qualitative Disclosures about Market Risk519
    
Item 4.Controls and Procedures519
    
PART II – OTHER INFORMATION 
    
Item 1.Legal Proceedings5211
Item 1A.Risk Factors5211
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds5311
Item 3.Defaults Upon Senior Securities5312
Item 4.Reserved54
Item 5.Other Information54
Item 6.Exhibits55
 Mine Safety Disclosures12
Item 5. Other Information12
Item 6.Exhibits12

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,"“anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” "should,"“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'smanagement’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, 2016,2022, particularly the "Risk Factors"“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 November 20, 2017.the date of filing of this Quarterly Report on Form 10-Q. 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 disclaimsdisclaim 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

Item 1. Financial Statements.

DIGITAL POWER CORPORATION

AULT ALLIANCE, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

         
  March 31,  December 31, 
  2023  2022 
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $9,170,000  $10,492,000 
Restricted cash  1,901,000   3,563,000 

Cash and marketable securities held in trust account

  

119,254,000

   

118,193,000

 
Marketable equity securities  1,367,000   6,590,000 
Accounts receivable  14,478,000   19,586,000 
Inventories  20,199,000   22,080,000 
Investment in promissory notes and other, related party  2,918,000   2,868,000 
Loans receivable, current  1,165,000   7,593,000 
Prepaid expenses and other current assets  16,177,000   14,744,000 
TOTAL CURRENT ASSETS  

186,629,000

   205,709,000 
         
Intangible assets, net  34,536,000   34,786,000 
Goodwill  27,813,000   27,902,000 
Property and equipment, net  235,138,000   229,914,000 
Right-of-use assets  7,902,000   8,419,000 
Investments in common stock, related parties  4,856,000   6,449,000 
Investments in other equity securities  23,702,000   42,494,000 
Other assets  6,331,000   5,841,000 
TOTAL ASSETS $526,907,000  $561,514,000 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Accounts payable and accrued expenses $64,070,000  $63,411,000 
Operating lease liability, current  2,994,000   2,975,000 
Notes payable, net  26,459,000   39,621,000 
Convertible notes payable, current  3,869,000   1,325,000 
Series E Convertible Preferred Liability: $100 stated value per share, $0.001 par value – 83,000 shares authorized; 83,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively  7,055,000   - 
Series F Convertible Preferred Liability: $100 stated value per share, $0.001 par value – 1,000 shares authorized; 1,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively  85,000   - 
Series G Convertible Preferred Liability: $100 stated value per share, $0.001 par value – 16,000 shares authorized; 16,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively  1,360,000   - 

Redeemable noncontrolling interests in equity of subsidiaries

  

118,672,000

   

117,993,000

 
TOTAL CURRENT LIABILITIES  224,564,000   225,325,000 

U.S. dollars in thousands, except shares and per share data
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  September 30,  December 31, 
  2017  2016 
  (Unaudited)    
ASSETS      
       
CURRENT ASSETS      
       
Cash and cash equivalents $314  $996 
Accounts receivable, net  2,892   1,439 
Inventories, net  1,858   1,122 
Prepaid expenses and other current assets  603   285 
TOTAL CURRENT ASSETS  5,667   3,842 
         
Intangible assets  420   — 
Goodwill  6,490   — 
Property and equipment, net  603   570 
Investments - related parties, net of original issue discount of $127        
  and $45, respectively, at September 30, 2017 and December 31, 2016  3,782   1,036 
Other investments  679   — 
Other investments, related parties  354   — 
Other assets  265   24 
TOTAL ASSETS $18,260  $5,472 
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
CURRENT LIABILITIES        
         
Accounts payable and accrued expenses $5,460  $1,231 
Accounts payable and accrued expenses, related party  104   — 
Advances on future receipts, net of discount of $671  1,475   — 
Revolving credit facility  310   — 
Notes payable  1,609   — 
Notes payable, related parties  274   250 
Convertible notes payable, net  465   — 
Other current liabilities  144   398 
TOTAL CURRENT LIABILITIES  9,841   1,879 
         
LONG TERM LIABILITIES        
Notes payable  659   — 
Notes payable, related parties  132   — 
Convertible notes payable, related party, net of discount of $364        
  and $496, respectively, at September 30, 2017 and December 31, 2016  166   34 
         
TOTAL LIABILITIES $10,798  $1,913 
F-1
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DIGITAL POWER CORPORATION

AULT ALLIANCE, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Unaudited)

  March 31,  December 31, 
  2023  2022 
LONG TERM LIABILITIES        
Operating lease liability, non-current  5,263,000   5,836,000 
Notes payable  91,873,000   91,464,000 
Convertible notes payable  11,414,000   11,451,000 
Deferred underwriting commissions of Ault Disruptive subsidiary  3,450,000   3,450,000 
         
TOTAL LIABILITIES  336,564,000   337,526,000 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ EQUITY        
Series A Convertible Preferred Stock, $25 stated value per share, $0.001 par value – 1,000,000 shares authorized; 7,040 shares issued and outstanding at March 31, 2023 and December 31, 2022 (liquidation preference of $176,000 as of March 31, 2023 and December 31, 2022)  -   - 
Series B Convertible Preferred Stock, $10 stated value per share, share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued and outstanding at March 31, 2023 and December 31, 2022 (liquidation preference of $1,190,000 as of March 31, 2023 and December 31, 2022)  -   - 
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated value per share, $0.001 par value – 2,000,000 shares authorized; shares authorized, 263,022 shares and 172,838 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively (liquidation preference of $6,576,000 and $4,321,000 as of March 31, 2023 and December 31, 2022)  -    -  
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized; 1,385,822 and 1,274,157 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively  1,000   1,000 
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022  -   - 
Additional paid-in capital  575,073,000   565,904,000 
Accumulated deficit  (378,633,000)  (329,078,000)
Accumulated other comprehensive loss  (931,000)  (1,100,000)
Treasury stock, at cost  (29,432,000)  (29,235,000)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY  166,078,000   206,492,000 
         
Non-controlling interest  24,265,000   17,496,000 
         
TOTAL STOCKHOLDERS’ EQUITY  190,343,000   223,988,000 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $526,907,000  $561,514,000 

U.S. dollars in thousands, except shares and per share data
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  September 30,  December 31, 
  2017  2016 
  (Unaudited)    
       
COMMITMENTS AND CONTINGENCIES  —   — 
         
STOCKHOLDERS' EQUITY        
         
Series A Redeemable Convertible Preferred Stock, no par value –  —   — 
  500,000 shares authorized; nil shares issued and outstanding at        
  September 30, 2017 and December 31, 2016        
Series B Redeemable Convertible Preferred Stock, $10 stated value per  —   — 
  share, no par value – 500,000 shares authorized; 100,000 and nil        
  shares issued and outstanding at September 30, 2017 and December 31,        
  2016, respectively (liquidation preference of $1,000 and nil at        
  September 30, 2017 and December 31, 2016, respectively)        
Series C Redeemable Convertible Preferred Stock, $2.40 stated value  —   — 
  per share, no par value – 460,000 shares authorized; 455,002 and        
  nil shares issued and outstanding at September 30, 2017 and December        
  31, 2016, respectively (liquidation preference of $1,092 and nil at        
  September 30, 2017 and December 31, 2016, respectively)        
Series D Redeemable Convertible Preferred Stock, $0.01 stated value  —   — 
  per share, no par value – 378,776 shares authorized; 378,776 and        
  nil shares issued and outstanding at September 30, 2017 and December        
  31, 2016, respectively (liquidation preference of $0.01 per share)        
Series E Redeemable Convertible Preferred Stock, $45 stated value per  —   — 
  share, no par value – 10,000 shares authorized; 10,000 and nil shares        
  issued and outstanding at September 30, 2017 and December 31, 2016,        
  respectively (liquidation preference of $0.01 per share)        
Preferred Stock, no par value – 151,224 shares authorized; nil shares  —   — 
  issued and outstanding at September 30, 2017 and December 31, 2016        
Common Stock, no par value – 30,000,000 shares authorized; 14,150,154        
 and 7,677,637 shares issued and outstanding at September 30, 2017 and  —   — 
 December 31, 2016, respectively        
Additional paid-in capital  24,667   16,537 
Accumulated deficit  (17,212)  (12,158)
Accumulated other comprehensive loss  (722)  (820)
TOTAL DIGITAL POWER STOCKHOLDERS' EQUITY  6,733   3,559 
         
Non-controlling interest  729   — 
         
TOTAL EQUITY  7,462   3,559 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $18,260  $5,472 
F-2
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DIGITAL POWER CORPORATION

AULT ALLIANCE, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHNSIVECOMPREHENSIVE LOSS

(Unaudited)

         
  For the Three Months Ended 
  March 31, 
  2023  2022 
 Revenue, products $13,889,000  $8,659,000 
 Revenue, cryptocurrency mining  7,347,000   3,548,000 
 Revenue, hotel operations  2,243,000   2,698,000 
 Revenue, crane operations  12,646,000   - 
 Revenue, lending and trading activities  (4,939,000)  17,921,000 
 Total revenue  31,186,000   32,826,000 
 Cost of revenue, products  9,787,000   5,748,000 
 Cost of revenue, cryptocurrency mining  8,103,000   2,497,000 
 Cost of revenue, hotel operations  2,688,000   2,249,000 
 Cost of revenue, crane operations  7,388,000   - 

Cost of revenue, lending and trading activities

  

1,180,000

   

-

 
 Total cost of revenue  29,146,000   10,494,000 
 Gross profit  2,040,000   22,332,000 
         
 Operating expenses        
 Research and development  1,842,000   695,000 
 Selling and marketing  8,796,000   6,481,000 
 General and administrative  22,681,000   13,687,000 
 Impairment of mined cryptocurrency  139,000   439,000 
 Total operating expenses  33,458,000   21,302,000 
 (Loss) income from operations  (31,418,000)  1,030,000 
 Other income (expense):        
 Interest and other income  1,197,000   449,000 
 Interest expense  (13,730,000)  (29,824,000)
 Loss on extinguishment of debt  (63,000)  - 
 Realized (loss) gain on marketable securities  (38,000)  109,000 
 Loss from investment in unconsolidated entity  -   (533,000)
 Impairment of equity securities  (9,555,000)  - 
 Gain on the sale of fixed assets  4,515,000   - 
 Change in fair value of warrant liability  -   (18,000)
 Total other expense, net  (17,674,000)  (29,817,000)
 Loss before income taxes  (49,092,000)  (28,787,000)
 Income tax benefit  (263,000)  - 
 Net loss  (48,829,000)  (28,787,000)
 Net loss attributable to non-controlling interest  183,000   15,000 
 Net loss attributable to Ault Alliance, Inc.  (48,646,000)  (28,772,000)
 Preferred dividends  (229,000)  (5,000)
 Net loss available to common stockholders $(48,875,000) $(28,777,000)
         
 Basic net loss per common share $(41.24) $(94.97)
 Diluted net loss per common share $(41.24) $(94.97)
         
 Weighted average basic and diluted common shares outstanding  1,185,000   303,000 
         
 Comprehensive loss        
 Net loss available to common stockholders $(48,875,000) $(28,777,000)
 Other comprehensive income (loss)        
 Foreign currency translation adjustment  170,000   (287,000)
 Total comprehensive loss $(48,705,000) $(29,064,000)

(Unaudited)
U.S. dollars in thousands, except shares and per share data
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
             
Revenue $3,220  $1,826  $6,670  $5,603 
Cost of revenue  2,124   1,123   4,136   3,526 
Gross profit  1,096   703   2,534   2,077 
                 
Operating expenses                
Engineering and product development  306   147   798   511 
Selling and marketing  423   235   1,045   723 
General and administrative  1,685   404   4,240   1,115 
Total operating expenses  2,414   786   6,083   2,349 
                 
Loss from operations  (1,318)  (83)  (3,549)  (272)
                 
Interest (expense) income, net  (753)  23   (1,367)  85 
                 
Loss before income taxes  (2,071)  (60)  (4,916)  (187)
                 
Income tax benefit  —   22   —   22 
                 
Net loss $(2,071) $(38) $(4,916) $(165)
                 
Less: Net loss attributable to non-controlling interest  104   —   216   — 
                 
Net loss attributable to Digital Power Corp  (1,967)  (38)  (4,700)  (165)
                 
Preferred deemed dividends  —   —   (319)  — 
Preferred dividends  (27)  —   (35)  — 
                 
Loss available to common shareholders $(1,994) $(38) $(5,054) $(165)
                 
Basic and diluted net loss per common share $(0.15) $(0.01) $(0.46) $(0.02)
                 
Basic and diluted weighted average common shares outstanding  13,745,540   6,775,971   10,884,948   6,775,971 
                 
Comprehensive Loss                
Loss available to common shareholders $(1,994) $(38) $(5,054) $(165)
Other comprehensive income (loss)                
Change in net foreign currency translation adjustments  42   (55)  141   (265)
Net unrealized loss on securities available-for-sale, net of income taxes  (43)  —   (43)  — 
Other comprehensive income (loss)  (1)  (55)  98   (265)
Total Comprehensive loss $(1,995) $(93) $(4,956) $(430)
F-3

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended March 31, 2023

                                         
                    Accumulated          
  Series A, B & D        Additional     Other  Non-     Total 
  Preferred Stock  Common Stock  Paid-In  Accumulated  Comprehensive  Controlling  Treasury  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Loss  Interest  Stock  Equity 
BALANCES, January 1, 2023  304,878  $-   1,274,157  $1,000  $565,904,000  $(329,078,000) $(1,100,000) $17,496,000  $(29,235,000) $223,988,000 
Issuance of common stock for restricted stock awards  -   -   4,974   -   -   -   -   -   -   - 
Preferred stock issued for cash  90,184   -   -   -   2,255,000   -   -   -   -   2,255,000 
Preferred stock offering costs  -   -   -   -   (1,079,000)  -   -   -   -   (1,079,000)
Stock-based compensation                  3,931,000   -   -   617,000   -   4,548,000 
Issuance of common stock for cash  -   -   106,691   -   4,158,000   -   -   -   -   4,157,000 
Financing cost in connection with sales of common stock  -   -   -   -   (105,000)  -   -   -   -   (105,000)
Remeasurement of Ault Disruptive subsidiary temporary equity  -   -   -   -   -   (679,000)  -   -   -   (679,000)
Increase in ownership interest of subsidiary  -   -   -   -   11,000   -   -   (22,000)  -   (11,000)
Non-controlling position at BMI subsidiary acquired  -   -   -   -   -   -   -   6,357,000   -   6,357,000 
Purchase of treasury stock - Ault Alpha  -   -   -   -   -   -   -   -   (197,000)  (197,000)
Net loss  -   -   -   -   -   (48,645,000)  -   -   -   (48,645,000)
Preferred dividends      -   -   -   -   (229,000)  -   -   -   (229,000)
Foreign currency translation adjustments  -   -   -   -   -   -   170,000   -   -   170,000 
Net loss attributable to non-controlling interest  -   -   -   -   -   -   -   (183,000)  -   (183,000)
Other  -   -   -   -   (2,000)  (2,000)  (1,000)  -       (4,000)
BALANCES, March 31, 2023  395,062  $-   1,385,822  $1,000  $575,073,000  $(378,633,000) $(931,000) $24,265,000  $(29,432,000) $190,343,000 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-4

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended March 31, 2022

                                         
                    Accumulated          
  Series A & B        Additional     Other        Total 
  Preferred Stock  Common Stock  Paid-In  Accumulated  Comprehensive  Non-Controlling  Treasury  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Loss  Interest  Stock  Equity 
BALANCES, January 1, 2022  132,040  $-   281,149  $-  $385,728,000  $(145,600,000) $(106,000) $1,613,000  $(13,180,000) $228,455,000 
Issuance of common stock for restricted stock awards  -   -   42   -   -   -   -   -   -   - 
Stock-based compensation  -   -   -   -   2,644,000   -   -   41,000   -   2,685,000 
Issuance of common stock for cash  -   -   468,860   -   110,147,000   -   -   -   -   110,147,000 
Financing cost in connection with sales of common stock  -   -   -   -   (2,758,000)  -   -   -   -   (2,758,000)
Purchase of treasury stock – Ault Alpha  -   -   -   -   -   -   -   -   (992,000)  (992,000)
Net loss  -   -   -   -   -   (28,772,000)  -   -   -   (28,772,000)
Preferred dividends      -   -   -   -   (5,000)  -   -   -   (5,000)
Foreign currency translation adjustments  -   -   -   -   -   -   (287,000)  -   -   (287,000)
Net loss attributable to non-controlling interest  -   -   -   -   -   -   -   (15,000)  -   (15,000)
Other  -   -   -   1,000   (1,000)  (1,000)  -   1,000   -   - 
BALANCES, March 31, 2022  132,040  $-   750,051  $1,000  $495,760,000  $(174,378,000) $(393,000) $1,640,000  $(14,172,000) $308,458,000 

3
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DIGITAL POWER CORPORATION
F-5

AULT ALLIANCE, INC. AND SUBSIDIARYSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

         
  For the Three Months Ended March 31, 
  2023  2022 
Cash flows from operating activities:        
Net loss $(48,829,000) $(28,787,000)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization  6,163,000   2,815,000 
Amortization of debt discount  10,400,000   26,461,000 
Amortization of right-of-use assets  877,000   339,000 
Loss on extinguishment of debt  63,000  - 
Stock-based compensation  4,548,000   2,685,000 
Gain on the sale of fixed assets  

(4,515,000

)  

-

 
Impairment of equity securities  11,555,000   - 
Impairment of cryptocurrencies  139,000   439,000 
Realized gain on the sale of cryptocurrencies  (250,000)  (261,000)
Revenue, cryptocurrency mining  (7,347,000)  (3,548,000)
Realized losses on sale of marketable securities  3,627,000   5,707,000 
Unrealized gains on marketable securities  (1,908,000)  (13,515,000)
Unrealized losses on investments in common stock, related parties  1,598,000   4,694,000 
Unrealized gains on equity securities  -   (13,461,000)
Loss from investment in unconsolidated entity  -   533,000 
Provision for loan losses  

1,180,000

   

-

 
Other  (83,000)   (312,000)
Changes in operating assets and liabilities:        
Proceeds from the sale of cryptocurrencies  7,780,000   4,377,000 
Marketable equity securities  21,986,000   32,649,000 
Accounts receivable  5,144,000   (621,000)
Inventories  1,924,000   (1,723,000)
Prepaid expenses and other current assets  (719,000)  6,947,000 
Other assets  (490,000)  (704,000)
Accounts payable and accrued expenses  (4,230,000)  4,961,000 
Lease liabilities  (910,000)  (270,000)
Net cash provided by operating activities  7,703,000   29,405,000 
Cash flows from investing activities:        
Purchase of property and equipment  (7,021,000)  (35,359,000)
Investment in promissory notes and other, related parties  -   (700,000)
Sales of marketable equity securities  -   10,210,000 
Investments in loans receivable  (181,000)  (246,000)
Principal payments on loans receivable  -   1,500,000 
Investments in equity securities  (102,000)  (3,820,000)
Proceeds from the sale of fixed assets  

4,515,000

   

-

 
Other  22,000   (352,000)
Net cash used in investing activities  (2,767,000)  (28,767,000)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-6

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

  For the Three Months Ended March 31, 
  2023  2022 
Cash flows from financing activities:        
Gross proceeds from sales of common stock $4,158,000  $110,147,000 
Financing cost in connection with sales of common stock  (105,000)  (2,758,000)
Proceeds from sales of preferred stock  2,255,000   - 
Financing cost in connection with sales of preferred stock  (1,079,000)  - 
Proceeds from notes payable  4,998,000   295,000 
Repayment of margin accounts  (767,000)  (18,488,000)
Payments on notes payable  (19,651,000)  (65,986,000)
Payments of preferred dividends  (229,000)  (5,000)
Purchase of treasury stock  (197,000)  (992,000)
Proceeds from convertible notes  2,680,000   - 
Payments on convertible notes  (160,000)  - 
Net cash (used in) provided by financing activities  (8,097,000)  22,213,000 
         
Effect of exchange rate changes on cash and cash equivalents  177,000   57,000 
         
Net (decrease) increase in cash and cash equivalents and restricted cash  (2,984,000)  22,908,000 
         
Cash and cash equivalents and restricted cash at beginning of period  14,055,000   21,233,000 
         
Cash and cash equivalents and restricted cash at end of period $11,071,000  $44,141,000 
         
Supplemental disclosures of cash flow information:        
Cash paid during the period for interest $4,658,000  $2,572,000 
         
Non-cash investing and financing activities:        
Settlement of accounts payable with digital currency $-  $413,000 
Conversion of convertible notes payable, related party into shares of common stock $400,000  $400,000 
Conversion of investments in other equity securities to marketable securities $13,340,000  $- 
Conversion of loans receivable to marketable securities $5,430,000  $- 
Recognition of new operating lease right-of-use assets and lease liabilities $-  $2,188,000 
Remeasurement of Ault Disruptive temporary equity $679,000  $- 
Notes payable exchanged for series E, F and G convertible preferred stock liabilities $8,500,000  $- 

U.S. dollars in thousands, except shares and per share data
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  For the Nine Months Ended September 30, 
  2017  2016 
       
Cash flows from operating activities:      
Net loss $(4,916) $(165)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation  128   123 
Amortization  6   — 
Interest expense – debt discount  1,239   — 
Accretion of original issue discount on notes receivable – related party  (36)  — 
Interest expense on conversion of demand notes to common stock  13   — 
Stock-based compensation  1,269   129 
Changes in operating assets and liabilities:        
Accounts receivable  (737)  82 
Inventories  228   243 
Prepaid expenses and other current assets  (166)  (60)
Other assets  (197)  — 
Accounts payable and accrued expenses  2,083   (101)
Accounts payable, related parties  104   — 
Other current liabilities  (595)  (113)
         
Net cash (used in) provided by operating activities  (1,577)  138 
         
Cash flows from investing activities:        
Purchase of property and equipment  (22)  (78)
Purchase of intangible asset  (50)  — 
Purchase of Power-Plus  (409)  — 
Sale of investment  —   90 
Investments – related party  (2,710)  — 
Investment in real property  (300)  — 
Investments – others  (25)  — 
Loans to related parties  (54)  — 
Loans to third parties  (814)  — 
         
Net cash (used in) provided by investing activities  (4,384)  12 
         
Cash flows from financing activities:        
Gross proceeds from sales of common stock and warrants  745   — 
Proceeds from issuance of preferred stock  1,540   — 
Financing cost in connection with sales of equity securities  (275)  — 
Proceeds from convertible notes payable  1,514   — 
Payments on convertible notes payable  (157)  — 
Proceeds from notes payable – related party  350   — 
Proceeds from notes payable  785   — 
Payments on notes payable  (30)  — 
Proceeds from advances on future receipts  1,772   — 
Payments on advances on future receipts  (439)  — 
Payments of preferred dividends  (8)  — 
Financing cost in connection with sales of debt securities  (122)  — 
Payments on revolving credit facilities, net  (481)  — 
         
Net cash provided by financing activities  5,194   — 
         
Effect of exchange rate changes on cash and cash equivalents  85   (99)
         
Net (decrease) increase in cash and cash equivalents  (682)  51 
         
Cash and cash equivalents at beginning of period  996   1,241 
         
Cash and cash equivalents at end of period $314  $1,292 
F-7
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
DIGITAL POWER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)
U.S. dollars in thousands
  For the Nine Months Ended September 30, 
  2017  2016 
       
Supplemental disclosures of cash flow information:      
Cash paid during the period for interest $69  $- 
         
Non-cash investing and financing activities:        
Cancellation of notes payable – related party into shares of common stock $100  $- 
Cancellation of notes payable into shares of common stock $648  $- 
Cancellation of note payable – related party into series B convertible preferred stock $500  $- 
Cancellation of convertible note payable into shares of common stock $145  $- 
         
In connection with the Company's acquisition of Microphase Corporation, equity instruments were issued and liabilities assumed during 2017 as follows: 
         
Fair value of assets acquired $7,893     
Equity instruments issued  (1,451)    
Minority interest  (945)    
Liabilities assumed $5,497     

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

1. DESCRIPTION OF BUSINESS

Digital Power Corporation ("Digital Power"

Ault Alliance, Inc., a Delaware corporation (“Ault Alliance” or the “Company”) is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary.

Ault Alliance was incorporatedfounded by Milton “Todd” Ault, III, its Executive Chairman and is led by Milton “Todd” Ault, III, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Counsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the Company. All major investment and capital allocation decisions are made for the Company by the Executive Committee. The Company has the following nine reportable segments:

·Energy and Infrastructure (“Energy”) – crane operations, advanced textiles processing and oil exploration;

·Technology and Finance (“Fintech”) –commercial lending, activist investing, media, and digital learning;

·The Singing Machine Company, Inc. (“SMC”) – consumer electronics;

·BitNile, Inc. (“BNI”) – cryptocurrency mining operations;

·Giga-tronics Incorporated (“GIGA”) – defense industry;

·Imperalis Holding Corp., d/b/a TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions;

·BitNile Metaverse, Inc. (“BMI”) – immersive metaverse platform;

·Ault Global Real Estate Equities, Inc. (“AGREE”) – hotel operations and other commercial real estate holdings; and

·Ault Disruptive Technologies Corporation (“Ault Disruptive”) – a special purpose acquisition company (“SPAC”).

On January 3, 2023, the Company (then known as BitNile Holdings, Inc.) merged its wholly owned subsidiary, Ault Alliance, Inc. with and into itself. In connection with this upstream merger, Ault Alliance, Inc. was merged out of existence and the business of the Company continued as it was being conducted. Further, on January 3, 2023, the effective date of the merger, the Company changed its name to Ault Alliance, Inc. and its ticker was changed to “AULT.” The name change did not affect the rights of security holders of the Company.

Reverse Stock Split

On May 15, 2023, pursuant to the authorization provided by the Company’s stockholders at a special meeting of stockholders, the Company’s board of directors approved an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the of the Company’s issued and outstanding common stock by a ratio of one-for-three hundred (the “Reverse Split”). The Reverse Split did not affect the number of authorized shares of common stock or preferred stock or their par value per share. As a result of the Reverse Split, each three hundred shares of common stock issued and outstanding prior to the Reverse Split were converted into one share of common stock. The Reverse Split became effective in 1969, under the General Corporation Law of the State of California. Digital Power and Digital Power Limited ("DP Limited"), a wholly owned subsidiary, locatedDelaware on May 17, 2023. All share amounts in these financial statements have been updated to reflect the United Kingdom, are currently engaged in the design, manufacture and sale of switching power supplies and converters. On November 30, 2016, Digital Power formed Digital Power Lending, LLC (“DP Lending”), and on April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”). Both DP Lending and Coolisys are wholly-owned subsidiaries. DP Lending is engaged in providing commercial loans to companies throughout the United States to provide them with operating capital to finance the growth of their businesses. The loans will primarily be short-term, ranging from six to twelve months. The Company intends to operate its existing businesses in the customized and flexible power system solutions for the medical, military, telecom and industrial markets, other than the European markets which are primarily served by DP Limited, in Coolisys. On June 2, 2017, Digital Power purchased 56.4% of the outstanding equity interests of Microphase Corporation, a Delaware corporation (the “Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) delivering radio frequency (“RF”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector logarithmic video amplifiers (“DLVA”) to the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut. Further, on September 1, 2017, Coolisys acquired all of the outstanding membership interests in Power-Plus Technical Distributors, LLC, a California limited liability company (“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. The Company’s results of operations include the results of Microphase and Power-Plus from their respective acquisition dates forward. Digital Power, DP Limited, Microphase, Coolisys, Power-Plus and DP Lending (collectively, the “Company”) has two reportable geographic segments - North America (sales through Digital Power, Microphase, Coolisys, Power-Plus and DP Lending) and Europe (sales through DP Limited).


Reverse Split.

2. LIQUIDITY GOING CONCERN AND MANAGEMENT’S PLANS


FINANCIAL CONDITION

As of September 30, 2017,March 31, 2023, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212$9.2 million and a negative working capital of $4,174.$37.9 million. The Company has incurred recurring losses and reported losses for the three and nine months ended September 30, 2017, totaled $1,967 and $4,700, respectively.  In the past, the Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below, the Company continues to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:


·In February 2017, the Company issued demand promissory notes and warrants to purchase 333,333 shares of common stock at $ 0.70 per share for aggregate proceeds of $400. Further in February 2017, the holders of $400 in demand promissory notes agreed to extinguish their $400 of debt by cancelling their notes to purchase 666,667 shares of common stock of the Company at $0.60 per share (See Note 10).

·
On March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou Ventures LLC (“Philou”), a related party, pursuant to which Philou was granted the right to invest up to $5,000 in the Company through the purchase of Series B Preferred Stock over a term of 36 months.   On March 24, 2017, Philou purchased 25,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement in consideration of cancellation of Company debt of $250 due to MCKEA, an affiliate of Philou. On May 5, 2017, Philou purchased an additional 50,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement for $500 (See Note 14).

·On March 15, 2017, the Company entered into a subscription agreement with one investor for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300 (See Note 14).
6
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
·On March 20, 2017, the Company issued $250 in demand promissory note to one of the Company's shareholders (See Note 14). This $250 demand promissory note was converted in shares of the Series B Preferred Stock for the benefit of Philou.

·On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. The Company received gross proceeds of $220 on March 31, 2017 and the remaining balance of $50 was received on April 3, 2017. On April 5, 2017, the Company canceled these promissory notes by issuing to the holders 360,000 shares of common stock at $0.75 per share and warrants to purchase 180,000 shares of common stock at $0.90 per share (See Note 10).

·
On April 17, 2017, the Company entered into two 7% convertible notes (the “7% Convertible Notes”) in the aggregate principal amount of $250. The 7% Convertible Notes accrue interest at 7% simple interest on the principal amount and were due on June 2, 2017. The 7% Convertible Notes were not repaid on the maturity date and as such were in default at June 30, 2017. During July 2017 these two 7% Convertible Notes were repaid (See Note 12).

·On April 26, 2017, the Company entered into a 7% convertible note in the aggregate principal amount of $104. On June 28, 2017, the noteholder converted the outstanding balance into 189,091 shares of the Company’s common stock at a price of $0.55 per share (See Note 12).

·
Between May 5, 2017 and June 30, 2017, the Company received additional short-term loans of $140 from four accredited investors of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share.On June 28, 2017, the holders of $55 of these short-term loans cancelled their notes for the purchase of 100,001 shares of the Company’s common stock at a price of $0.55 per share. An additional $52 in short-term loans that was received from the related party was also converted on June 28, 2017, into one of the Series C Units (See Note 10).

·
Between May 24, 2017 and June 19, 2017, the Company entered into subscription agreements (the “Series C Subscription Agreement”) with approximately twenty accredited investors (the “Series C Investors”) in connection with the sale of twenty-one Units at a purchase price of $52 per Unit raising in the aggregate $1,092 with each Unit consisting of Series C Preferred Stock and Warrants (See Note 14).

·Between July 6, 2017 and September 13, 2017, the Company received funding as a result of entering into multiple Agreements for the Purchase and Sale of Future Receipts with TVT Capital, LLC pursuant to which the Company sold in the aggregate $2,585 in Future Receipts of the Company for $1,772. Under the terms of the agreements, the Company will be obligated to pay the initial daily amount of $13 until the $2,585 has been paid in full. The term Future Receipts means cash, check, ACH, credit card, debit card, bank card, charged card or other form of monetary payment (See Note 8).

·
On July 24, 2017, we entered into subscription agreements with six investors, and on July 25, 2017 we entered into securities purchase agreements (the “Securities Purchase Agreement”) with an institutional investor, under which we agreed to issue and sell in the aggregate 851,363 shares of common stock to the investors at $0.55 per share for an aggregate purchase price of $468. Of the aggregate purchase price of $468, $445 was paid in cash and $23 was in consideration for the cancellation of debt from a related party of the Company (See Note 14).
7
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
·On July 28, 2017, we entered into an exchange agreement with an institutional investor who was the owner of (i) a 7% Convertible Note in the principal amount of $125 and a warrant dated April 17, 2017 to purchase 83,334 shares of our common stock at $0.90. Under the terms of the exchange agreement, we agreed to exchange the 7% Convertible Note for three new promissory notes in the principal amounts of $110 due August 1, 2017; $35 due August 1, 2017; and $34 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes) and to exchange the prior warrant for a new warrant to purchase 83,334 shares of common stock at $0.55 per share. Concurrent with entering into this exchange agreement, the institutional investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. In addition, in a concurrent private placement, the institutional investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share (See Note 14).

·On August 3, 2017, the Company entered into a Securities Purchase Agreement to sell a 12% Convertible (“12% Convertible Note”) and a warrant to purchase 666,666 shares of common stock to an accredited investor (the “Investor”). The principal of the Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share. The Convertible Note is in the principal amount of $400 and was sold for $360, bears interest at 12% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share (See Note 12).  

·On August 10, 2017, the Company, entered into Securities Purchase Agreements (“Agreements”) with five institutional investors (the “Investors”) to sell for an aggregate purchase price of $800, 10% Senior Convertible Promissory Notes (“Convertible Notes”) with an aggregate principal face amount of $880 and warrants to purchase an aggregate of 1,475,000 shares of common stock. The principal of the Convertible Notes and interest earned thereon may be converted into shares of common stock at $0.60 per share and under the terms of the Warrant, up to 1,475,000 shares of common stock may be purchased at an exercise price of $0.66 per share. The Convertible Notes are in the aggregate principal amount of $880 and were sold for $800 and bear simple interest at 10% on the principal amount, and principal and interest are due on February 10, 2018. Subject to certain beneficial ownership limitations, each Investor may convert the principal amount of the Convertible Note and accrued interest earned thereon at any time into shares of common stock at $0.60 per share. The conversion price of the Convertible Notes is subject to adjustment for customary stock splits, stock dividends, combinations or similar events (See Note 12).

The Company expects to continue to incur losses for the foreseeable future and needs to raise additional capital to continue its business development initiatives and to support its working capital requirements. In March 2017, the Company was awarded a 3-year, $50 million purchase order by MTIX Ltd. (“MTIX") to manufacture, install and service the Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser system. Management believes that the MLSE purchase order will be a source of revenue and generate significant cash flows for the Company. Management believes that the Company has access to capital resources through potential public or private issuance of debt or equity securities. However, if the Company is unable to raise additional capital, it may be required to curtail operations and take additional measures to reduce costs, including reducing its workforce, eliminating outside consultants and reducing legal fees to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These matters raisefactors create substantial doubt about the Company’s ability to continue as a going concern. concern for at least one year after the date that these condensed consolidated financial statements are issued.

F-8

The accompanyingcondensed consolidated financial statements do not include any adjustments that might becomebe necessary shouldif the Company beis unable to continue as a going concern.

8
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in thousands, except sharethe ordinary course of business.

In making this assessment management performed a comprehensive analysis of the Company’s current circumstances including: its financial position, cash flow and per share data

cash usage forecasts, and obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next 12 months.

Management expects that the Company’s existing cash and cash equivalents, accounts receivable and marketable securities as of March 31, 2023, will not be sufficient to enable the Company to fund its anticipated level of operations through one year from the date these financial statements are issued. Management anticipates raising additional capital through the private and public sales of the Company’s equity or debt securities and selling its marketable securities and digital currencies, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurances that financing will be available to the Company when needed in order to allow the Company to continue its operations, or if available, on terms acceptable to the Company. If the Company does not raise sufficient capital in a timely manner, among other things, the Company may be forced to scale back its operations or cease operations altogether.

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“(“GAAP”). The Company has made estimates and judgments affecting the amounts reported in ourthe Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from ourthe Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2022 (the “2022 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on April 10, 2017.17, 2023. The condensed consolidated balance sheet as of December 31, 20162022 was derived from the Company’s audited 20162022 financial statements contained in the above referenced Form 10-K.2022 Annual Report. Results of the three and nine months ended September 30, 2017,March 31, 2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Digital Power, its wholly-owned subsidiaries, DP Limited, Coolisys, Power-Plus and DP Lending and its majority-owned subsidiary, Microphase. All significant intercompany accounts and transactions2023.

Significant Accounting Policies

Other than as noted below, there have been eliminatedno material changes to the Company’s significant accounting policies previously disclosed in consolidation.


Accounting Estimates
the 2022 Annual Report.

Preferred Stock Liabilities

The preparation of financial statements,Company follows ASC 480-10, “Distinguishing Liabilities from Equity” in conformity with GAAP, requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the datesits evaluation of the financial statements, andaccounting for the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include acquisitionPreferred Shares. ASC 480-10-25-14 requires liability accounting fair value offor certain financial instruments, reserve for trade receivables and inventories, carrying amounts of investments, accruals of certain liabilities including product warranties, and deferred income taxes and related valuation allowance.

Investments in Debt and Equity Securities

The Company classifies its investments in Avalanche International, Corp (“AVLP”), consistingshares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of common stock and debt securities, in accordance with ASC No. 320, Investment in Debt and Equity Securities (“ASC No. 320”) and ASC No. 325, Investment – Other (“ASC No. 325”). the obligation is based solely or predominantly on one of the following three characteristics:

·A fixed monetary amount known at inception;

·Variations in something other than the fair value of the issuer’s equity shares; or

·Variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves in the opposite direction as the value of the issuer’s shares.

The investment in marketable securities and convertible promissory notes are both classified as “available-for-sale securities” and are carried at fair value, basednumber of shares delivered is determined on quoted market prices. Unrealized gains and losses are reported as a separate componentthe basis of stockholder’s equity, accumulated other comprehensive loss. When evaluating(1) the Company’s debt and equity investments for other-than-temporary impairment, the Company reviews factors suchfixed monetary amount determined as the length of timestated value and extent to which fair value has been below cost basis,(2) the financial condition ofcurrent stock price at settlement, so that the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recovery of the investment’s amortized cost basis. Equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments), as described in ASC No. 325-20. Additionally, the investment in debt securities of AVLP qualifies for application of the fair value option in accordance with ASC No. 825.

Revenue Recognition

The Company generates revenues from the sale of its products through a direct and indirect sales force. Revenues from products are recognized in accordance with ASC No. 605, Revenue Recognition, when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller's price to the buyer is fixed or determinable, no further obligation exists and collectability is reasonably assured. Generally, the Company does not grant a right of return. However, certain distributors are allowed, in the six months after the initial stock purchase, to rotate stock that has not been sold for other products. Revenues subject to stock rotation rights are deferred until the products are sold to the end customer or until the rotation rights expire. Service revenues are deferred and recognized on a straight-line basis over the term of the service agreement. Service revenues are immaterial in proportion to the Company's revenues. 
9
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Warranty
The Company offers a warranty period for all its products. Warranty periods range from one to two years depending on the product. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of units sold, historical rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. As of September 30, 2017 and December 31, 2016, the Company’s accrued warranty liability was $86.
Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that certain freestanding derivatives, which principally consist of issuance of warrants to purchase shares of common in connection with convertible notes, units and to employees of the Company, satisfy the criteria for classification as equity instruments as these warrants do not contain cash settlement features or variable settlement provision that cause them to not be indexed to the Company’s own stock.
Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation ("ASC No. 718"). Under ASC No. 718, compensation expense related to stock-based payments is recorded over the requisite service period based on the grant dateaggregate fair value of the awards.  Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture.  The Company usesshares delivered equals the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards.  The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC No. 505-50, Equity Based Payments to Non-Employees.  Accordingly, the measurement date for the fairmonetary value of the equity instruments issuedobligation, which is determined atfixed or predominantly fixed. Accordingly, the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Convertible Instruments

The Company accounts for hybrid contracts that feature conversion options in accordance with ASC No. 815, Derivatives and Hedging Activities (“ASC No. 815”). ASC No. 815 requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contractholder is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occursignificantly exposed to gains and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
10

DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.
The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC No. 470-20, Debt with Conversion and Other Options (“ASC No. 470-20”). Under ASC No. 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC No. 815.
Comprehensive Loss

The Company reports comprehensive loss in accordance with ASC No. 220, Comprehensive Income. This statement establishes standards for the reporting and presentation of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss generally represents all changes in equity during the period except those resulting from investments by, or distributions to, stockholders. The Company determined that its items of other comprehensive loss relatelosses attributable to changes in foreign currency translation adjustments.

Fair value of Financial Instruments

In accordance with ASC No. 820, Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.
The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2:Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations.  All significant inputs used in our valuations are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include quoted prices that were adjusted for security-specific restrictions which are compared to output from internally developed models such as a discounted cash flow models.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

11

DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, trade receivables and trade receivable – related party, investments, notes receivable, trade payables and trade payables – related party approximate their fair value due to the short-term maturities of such instruments.
As of September 30, 2017 and December 31, 2016, the fair value of the Company’s investments were $3,782equity shares. Instead, the Company is using its own equity shares as currency to settle a monetary obligation.

F-9

Reclassifications

Certain prior period amounts have been reclassified for comparative purposes to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses,” (“ASU No. 2016-13”) to improve information on credit losses for financial assets and $1,036, respectively, and were concentrated in debt and equity securities of AVLP, a related party (See Note 4), which are classified as available-for-sale investments.  At September 30, 2017, the Company'snet investment in AVLP is comprised of convertible promissory notes of $3,670,leases that are not accounted for at fair value through net of unamortized discount, and marketable equity securities of $112. At December 31, 2016,income. ASU 2016-13 replaces the Company's investment in AVLP is comprised of convertible promissory notes of $952, net of unamortized discount, and marketable equity securities of $84. For investments in marketable equity securities,current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance was effective for the Company took into consideration general market conditions, the duration and extent to which the fair value is below cost, andbeginning on January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s abilitycondensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and intentContract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to holdbe recognized and measured by the investment for a sufficient period of time to allow for recovery of valueacquirer on the acquisition date in the foreseeable future. As a result of this analysis, the Company has determined that its cost basis in AVLP equitable securities approximates the current fair value.

Consistent with the guidance at ASC No. 835, the Company’s presumption is that the fair value of its convertible promissory notes in AVLP have a present value equivalent to the cash proceeds exchanged. Further, the discount shall be reported in the balance sheet as a direct deduction from the face amount of the convertible promissory notes. Thus, the Company has determined that the amortized cost of its convertible promissory notes approximates fair value and are subject to a periodic impairment review. The interest income, including amortization of the discount arising at acquisition, for the convertible promissory notes are included in earnings. In the future, if the Company does not expect to recover the entire amortized cost basis, the Company shall recognize other-than-temporary impairments in other comprehensive income (loss).
During 2017, the Company purchased at the market shares of common stock of three companies for a total cost of $25. In accordance with ASC No. 320-10, these investments606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

4. REVENUE DISAGGREGATION

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three months ended March 31, 2023 and 2022. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are accountednot considered to be revenues from contracts with customers under GAAP.

The Company’s disaggregated revenues consisted of the following for pursuant to the fair value method based uponthree months ended March 31, 2023 (excludes segments with no revenue):

Schedule of disaggregated revenues                                
  GIGA  

TurnOn

Green

  Fintech  BNI  AGREE  SMC  Energy  Total 
Primary Geographical Markets                                
North America $2,334,000  $785,000  $-  $7,805,000  $2,243,000  $3,383,000  $13,085,000  $29,635,000 
Europe  2,441,000   4,000   -   -   -   -   25,000   2,470,000 
Middle East and other  3,933,000   87,000   -   -   -   -   -   4,020,000 
Revenue from contracts with customers  8,708,000   876,000   -   7,805,000   2,243,000   3,383,000   13,110,000   36,125,000 
Revenue, lending and trading activities (North America)  -   -   (4,939,000)  -   -   -   -   (4,939,000)
Total revenue $8,708,000  $876,000  $(4,939,000) $7,805,000  $2,243,000  $3,383,000  $13,110,000  $31,186,000 
                                 
Major Goods or Services                                
RF/microwave filters $1,247,000  $-  $-  $-  $-  $-  $-  $1,247,000 
Detector logarithmic video amplifiers  545,000   -   -   -   -   -   -   545,000 
Power supply units & systems  3,114,000   825,000   -   -   -   -   -   3,939,000 
Healthcare diagnostic systems  1,137,000   -   -   -   -   -   -   1,137,000 
Electric vehicle chargers  -   51,000   -   -   -   -   -   51,000 
Defense systems  2,665,000   -   -   -   -   -   -   2,665,000 
Digital currency mining  -   -   -   7,347,000   -   -   -   7,347,000 
Hotel operations  -   -   -   -   2,243,000   -   -   2,243,000 
Karaoke machines and related  -   -   -   -   -   3,383,000   -   3,383,000 
Crane rental  -   -   -   -   -   -   12,646,000   12,646,000 
Other  -   -   -   458,000   -   -   464,000   922,000 
Revenue from contracts with customers  8,708,000   876,000   -   7,805,000   2,243,000   3,383,000   13,110,000   36,125,000 
Revenue, lending and trading activities  -   -   (4,939,000)  -   -   -   -   (4,939,000)
Total revenue $8,708,000  $876,000  $(4,939,000) $7,805,000  $2,243,000  $3,383,000  $13,110,000  $31,186,000 
                                 
Timing of Revenue Recognition                                
Goods transferred at a point in time $5,406,000  $873,000  $-  $7,805,000  $2,243,000  $3,383,000  $464,000  $20,174,000 
Services transferred over time  3,302,000   3,000   -   -   -   -   12,646,000   15,951,000 
Revenue from contracts with customers $8,708,000  $876,000  $-  $7,805,000  $2,243,000  $3,383,000  $13,110,000  $36,125,000 

F-10

The Company’s disaggregated revenues consisted of the closing market prices of common stockfollowing for thesethe three companies at September 30, 2017.months ended March 31, 2022:

  GIGA  

TurnOn

Green

  Fintech  BNI  AGREE  Total 
Primary Geographical Markets                        
North America $1,511,000  $1,012,000  $-  $3,833,000  $2,698,000  $9,054,000 
Europe  2,179,000   19,000   -   -   -   2,198,000 
Middle East and other  3,555,000   98,000   -   -   -   3,653,000 
Revenue from contracts with customers  7,245,000   1,129,000   -   3,833,000   2,698,000   14,905,000 
Revenue, lending and trading activities (North America)  -   -   17,921,000   -   -   17,921,000 
Total revenue $7,245,000  $1,129,000  $17,921,000  $3,833,000  $2,698,000  $32,826,000 
                         
Major Goods or Services                        
RF/microwave filters $1,511,000  $-  $-  $-  $-  $1,511,000 
Detector logarithmic video amplifiers  -   1,096,000   -   -   -   1,096,000 
Power supply units & systems  2,479,000   -   -   -   -   2,479,000 
Electric vehicle chargers  -   33,000   -   -   -   33,000 
Defense systems  3,255,000   -   -   -   -   3,255,000 
Digital currency mining  -   -   -   3,548,000   -   3,548,000 
Hotel operations  -   -   -   -   2,698,000   2,698,000 
Other  -   -   -   285,000   -   285,000 
Revenue from contracts with customers  7,245,000   1,129,000   -   3,833,000   2,698,000   14,905,000 
Revenue, lending and trading activities  -   -   17,921,000   -   -   17,921,000 
Total revenue $7,245,000  $1,129,000  $17,921,000  $3,833,000  $2,698,000  $32,826,000 
                         
Timing of Revenue Recognition                        
Goods transferred at a point in time $3,512,000  $1,129,000  $-  $3,833,000  $2,698,000  $11,172,000 
Services transferred over time  3,733,000   -   -   -   -   3,733,000 
Revenue from contracts with customers $7,245,000  $1,129,000  $-  $3,833,000  $2,698,000  $14,905,000 

F-11
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:

  Fair Value Measurement at September 30, 2017 
  Total  Level 1  Level 2  Level 3 
Investments – AVLP – a related party $3,782  $112  $3,670  $— 
                 
Investments in other companies $25  $25  $—  $— 
    
  Fair Value Measurement at December 31, 2016 
  Total  Level 1  Level 2  Level 3 
Investments – AVLP – a related party $1,036  $84  $952  $— 
We assess

Fair value, assets measured on recurring basis                
  Fair Value Measurement at March 31, 2023 
  Total  Level 1  Level 2  Level 3 
Assets:            
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party $4,856,000  $4,856,000  $-  $- 
Investments in marketable equity securities  1,367,000   1,367,000   -   - 
Cash and marketable securities held in trust account  119,254,000   119,254,000   -   - 
Total assets measured at fair value $125,477,000  $125,477,000  $-  $- 
                 
Liabilities:                
Series E, F and G preferred stock liabilities $8,500,000  $-  $-  $8,500,000 
Convertible promissory notes  15,283,000   -   -   15,283,000 
Total liabilities measured at fair value $23,783,000  $-  $-  $23,783,000 

  Fair Value Measurement at December 31, 2022 
   Total   Level 1   Level 2   Level 3 
Assets:                
Investment in common stock of Alzamend – a related party $6,449,000  $6,449,000  $-  $- 
Investments in marketable equity securities  6,590,000   6,590,000   -   - 
Cash and marketable securities held in trust account  118,193,000   118,193,000   -   - 
Investments in other equity securities  13,340,000   -   -   13,340,000 
Total assets measured at fair value $144,572,000  $131,232,000  $-  $13,340,000 
                 
Liabilities:                
Convertible promissory notes $12,776,000  $-  $-  $12,776,000 

The Company assesses the inputs used to measure fair value using athe three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

market. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks.

 The following table summarizes the changes in investments in other equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three months ended March 31, 2023:

Schedule of investments   
  Investments in
other equity
securities
 Balance at January 1, 2023 $13,340,000
 Conversion to Level 1 marketable securities  (13,340,000)
 Balance at March 31, 2023 $-

Equity Investments for Which Measurement Alternative Has Been Selected

As of March 31, 2023 and December 31, 2022, the Company held equity investments in other securities, consisting of investments in preferred stock, valued at $23.7 million and $29.2 million, respectively, that were valued using a measurement alternative. These investments are included in other equity securities in the accompanying condensed consolidated balance sheets.

·F-12Level 1 – inputs include quoted prices for identical instruments and are the most observable.

6. Marketable EQUITY Securities

Marketable equity securities with readily determinable market prices consisted of the following as of March 31, 2023 and December 31, 2022:

Schedule of marketable securities            
  Marketable equity securities at March 31, 2023 
      Gross unrealized  Gross unrealized     
  Cost  gains  losses  Fair value 
 Common shares $7,086,000  $55,000  $(5,773,000) $1,368,000 

  Marketable equity securities at December 31, 2022 
      Gross unrealized  Gross unrealized     
  Cost  gains  losses  Fair value 
 Common shares $10,271,000  $383,000  $(4,064,000) $6,590,000 

The Company’s investment in marketable equity securities is revalued on each balance sheet date.

·F-13Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

7. DIGITAL CURRENCIES

The following table presents the activities of the digital currencies (included in prepaid expenses and other current assets) for the three months ended March 31, 2023 and 2022:

Schedule of activities of the digital currencies    
  Digital
Currencies		 
Balance at January 1, 2023 $554,000 
Additions of mined digital currencies  7,347,000 
Impairment of mined cryptocurrency  (139,000)
Sale of digital currencies  (7,780,000)
Realized gain on sale of digital currencies  250,000 
Balance at March 31, 2023 $232,000 

  Digital
Currencies		 
Balance at January 1, 2022 $2,165,000 
Additions of mined digital currencies  3,548,000 
Payments to vendors  (412,000)
Impairment of mined cryptocurrency  (439,000)
Sale of digital currencies  (4,377,000)
Realized gain on sale of digital currencies  260,000 
Balance at March 31, 2022 $745,000 

8. PROPERTY AND EQUIPMENT, NET

At March 31, 2023 and December 31, 2022, property and equipment consisted of:

Schedule of property and equipment        
  March 31, 2023  December 31, 2022 
Building and improvements $84,647,000  $81,102,000 
Bitcoin mining equipment  42,550,000   42,438,000 
Crane rental equipment  32,644,000   32,453,000 
Land  25,646,000   25,646,000 
Computer, software and related equipment  27,528,000   23,168,000 
Aircraft  15,983,000   15,983,000 
Vehicles  3,393,000   3,314,000 
Office furniture and equipment  2,954,000   2,854,000 
Oil and natural gas properties, unproved properties  3,564,000   972,000 
   238,909,000   227,930,000 
Accumulated depreciation and amortization  (15,099,000)  (9,344,000)
Property and equipment placed in service, net  223,810,000   218,586,000 
Deposits on cryptocurrency machines  11,328,000   11,328,000 
Property and equipment, net $235,138,000  $229,914,000 

Summary of depreciation expense:

Schedule of depreciation      
  For the Three Months Ended 
  March 31, 
  2023  2022 
Depreciation expense $5,910,000  $2,562,000 

·F-14
Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

9. INTANGIBLE ASSETS, NET

At March 31, 2023 and December 31, 2022, intangible assets consisted of:

Schedule of intangible asset          
  Useful Life 

March 31,

2023

  December 31,
2022		 
Trade name and trademark Indefinite life $1,503,000  $1,493,000 
Trade names 5-10 years  4,316,000   4,316,000 
Customer list 8-10 years  5,843,000   5,865,000 
Developed technology 3-8 years  24,584,000   24,584,000 
Domain name and other intangible assets 5 years  614,000   630,000 
     36,860,000   36,888,000 
Accumulated amortization    (2,324,000)  (2,102,000)
Intangible assets, net   $34,536,000  $34,786,000 

The Company’s trade names and trademarks were determined to have an indefinite life. The remaining definite lived intangible assets are primarily being amortized on a straight-line basis over their estimated useful lives. Amortization expense was $0.3 million and $0.1 million, respectively, for the three months ended March 31, 2023 and 2022.

The customer relationships, developed technology and certain trade names are subject to amortization over their estimated useful lives, which range between 5 and 10 years with an average remaining useful life of 8.2 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.

Schedule of estimated amortization expense    
2023 $4,188,000 
2024  4,442,000 
2025  4,342,000 
2026  4,242,000 
2027  4,242,000 
Thereafter  11,577,000 
  $33,033,000 

10. GOODWILL

The following table summarizes the changes in the Company’s goodwill for the three months ended March 31, 2023:

Schedule of goodwill    
  Goodwill 
Balance as of January 1, 2023 $27,902,000 
Acquisition of BMI  17,000 
Effect of exchange rate changes  (106,000)
Balance as of March 31, 2023 $27,813,000 

11. BUSINESS COMBINATION

BMI Acquisition

On March 6, 2023, the Company closed into a Share Exchange Agreement (the “Agreement”) with BMI and sold to BMI all of the outstanding shares of capital stock of the Company’s subsidiary, BitNile.com, Inc. (“BitNile.com”) as well as the securities of Earnity, Inc. (“Earnity”) beneficially owned by BitNile.com as of the date of the Agreement (the “Transaction”). As consideration for the acquisition, BMI issued shares of preferred stock convertible into common stock of BMI representing approximately 73.2% of BMI’s outstanding common stock. Pending approval of the transaction by BMI’s shareholders, the preferred stock combined are subject to a 19.9% beneficial ownership limitation. The Transaction benefits the Company as BMI is a publicly traded company and provides BitNile.com access to capital markets as the primary focus for BMI to fund the expected growth of the BMI metaverse platform. In addition, there are certain synergies between the Company’s Bitcoin mining operations and BMI’s Agora Digital mining business.

The holders of preferred stock will be entitled to receive dividends at a rate of 5% of the stated value of the preferred stock.

F-15

The Company is entitled to appoint three members to the board of directors of BMI and, following shareholder approval, a majority of the board.

The Company consolidates BMI as a variable interest entity (a “VIE”) due to its significant level of influence and control of BMI, the size of its investment, and its ability to participate in policy making decisions. The Company is considered the primary beneficiary of the VIE.

Schedule of variable interest entities   
Ault Alliance investment in BMI Amount 
Common stock $287,000 

The total purchase price to acquire BMI has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The goodwill resulting from this acquisition is not tax deductible. The fair value of the acquired assets and assumed liabilities as of the date of acquisition are based on preliminary estimates provided, in part, by a third-party valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences would alter the understanding of the impact of this transaction on the consolidated financial position and results of operations of the Company.

The preliminary purchase price allocation is as follows:

 Schedule of recognized identified assets acquired and liabilities assumed    
  Preliminary
Allocation		 

Fair value of Company interest

 $287,000 
Fair value of non-controlling interest  6,357,000 
Total consideration $6,644,000 
     
Identifiable net assets acquired:    
Cash $39,000 

Investment in equity securities

  

6,000,000

 
Prepaid expenses and other current assets  1,032,000 
Property and equipment, net  4,113,000 
Right-of-use assets  350,000 
Accounts payable and accrued expenses  (4,551,000)
Lease liabilities  (356,000)
Net assets acquired  6,627,000 
Goodwill $17,000 

12. INVESTMENTS – RELATED PARTIES

Investments in Alzamend and Ault & Company, Inc. (“Ault & Company”) at March 31, 2023 and December 31, 2022, were comprised of the following:

Investment in Promissory Notes, Related Parties

Schedule of investment            
  Interest   March 31,  December 31, 
  rate Due Date 2023  2022 
Investment in promissory note of Ault & Company 8% December 31, 2023 $2,500,000  $2,500,000 
Accrued interest receivable, Ault & Company      418,000   368,000 
Total investment in promissory note, related party     $2,918,000  $2,868,000 

12
F-16

Summary of interest income, related party, recorded within interest and other income on the condensed consolidated statement of operations:

  For the Three Months Ended 
  March 31, 
  2023  2022 
 Interest income, related party $50,000  $50,000 

Investment in Common Stock and Options, Related Parties

  March 31,  December 31, 
  2023  2022 
Investment in common stock of Alzamend $4,856,000  $6,449,000 

The following table summarizes the changes in the Company’s investments in Alzamend during the three months ended March 31, 2023:

Schedule of investment in warrants and common stock    
  Investment in
common stock of
Alzamend		 
Balance at January 1, 2023 $6,449,000 
Investment in common stock of Alzamend  5,000 
Unrealized loss in common stock of Alzamend  (1,598,000)
Balance at March 31, 2023 $4,856,000 

Unrealized loss in common stock of Alzamend is recorded within revenue from lending and trading activities on the condensed consolidated statements of operations.

Investments in Alzamend Common Stock

The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended March 31, 2023:

Schedule of investment of common stock            
  Shares of  Per Share  Investment in 
  Common Stock  Price  Common Stock 
Balance at January 1, 2023  11,415,000  $0.56  $6,449,000 
Open market purchases after initial public offering  10,000  $0.50   5,000 
Unrealized loss in common stock of Alzamend  -  $-   (1,598,000)
Balance at March 31, 2023  11,425,000  $0.43  $4,856,000 

F-17

13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Other current liabilities at March 31, 2023 and December 31, 2022 consisted of:

Schedule of other current liabilities        
  March 31,  December 31, 
  2023  2022 
 Accounts payable $25,411,000  $21,347,000 
 Accrued payroll and payroll taxes  11,265,000   9,939,000 
 Interest payable  4,079,000   3,207,000 
 Accrued legal  3,075,000   3,168,000 
 Accrued lender profit participation rights  -   6,000,000 
 Financial instrument liabilities  1,226,000   651,000 
 Related party advances  289,000   352,000 
 Other accrued expenses  15,725,000   17,980,000 
  $64,070,000  $62,644,000 

Accrued Lender Profit Participation Rights

During the quarter ended March 31, 2023, the $6.0 million accrued lender profit participation rights obligation was paid in full.

14. PREFERRED STOCK LIABILITY

March 28, 2023 Security Purchase Agreement

On March 28, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company sold in a private placement (the “Offering”), an aggregate of 100,000 shares of its preferred stock, with each such share having a stated value of $100.00 and consisting of (i) 83,000 shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”), (ii) 1,000 shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and (iii) 16,000 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and collectively, the “Preferred Shares”). The Preferred Shares are convertible into shares of the Company’s common stock at the option of the holders and, in certain circumstances, by the Company.

Preferred stock liability at March 31, 2023 was comprised of the following:

Schedule of preferred stock liability              
Preferred Type Shares  Conversion
Price		 Stated
Value		  Fair Value 
Series E Convertible Preferred Liability  83,000  See below* $8,300,000  $7,055,000 
Series F Convertible Preferred Liability  1,000  See below*  100,000   82,000 
Series G Convertible Preferred Liability  16,000  See below*  1,600,000   1,360,000 
Total  100,000    $10,000,000  $8,500,000 

*Each Preferred Share is convertible into such number of shares of the Company’s common stock equal to the stated value per share divided by the conversion price, which is equal to 85% of the closing sale price of the common stock on the trading day prior to the date of conversion, subject to a floor price of $0.10, which floor price is not affected by the recently consummated reverse split.

The purchase price of the Series E Preferred Stock and the Series F Preferred Stock was paid for by the Investors’ canceling outstanding secured promissory notes in the principal amount of $8.4 million, whereas the purchase price of the shares of Series G Preferred Stock consisted of accrued but unpaid interest on these notes, as well as other good and valuable consideration. The Company recorded a loss on extinguishment of debt of $0.1 million related to the transaction. The Preferred Shares have been classified as a liability as they embody an unconditional obligation to transfer a variable number of shares, based on a fixed monetary amount known at inception. The Company elected the fair value option to record the Preferred Shares with changes in fair value recorded through earnings.

F-18
DIGITAL POWER CORPORATION AND

15. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY LIABILITY

The Company records redeemable noncontrolling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. As of March 31, 2023, the carrying amount of the redeemable noncontrolling interest in equity of subsidiaries was recorded at its redemption value of $118.7 million. These redeemable noncontrolling interests are classified as current liabilities in the condensed consolidated balance sheets. This classification is due to the expiry of time that was allotted for Ault Disruptive to consummate its initial business combination, which occurred on December 20, 2022. Ault Disruptive announced two, three-month extension periods, however, the deposits associated with these extensions have yet to be made. 

16. NOTES PAYABLE

Notes payable at March 31, 2023 and December 31, 2022, were comprised of the following:

Schedule of notes payable            
  Interest
rate		 Due date March 31,
2023		  December 31,
2022		 
Short-term notes payable – in default 5.0% January 3, 2023 $375,000  $700,000 
AGREE Madison secured construction loans 7.0% January 1, 2025  64,893,000   62,395,000 
SMC line of credit * 8.0% October 14, 2025  -   1,761,000 
SMC installment notes 7.6% June 18, 2024  139,000   158,000 
Circle 8 revolving credit facility 8.4% December 16, 2025  13,903,000   14,724,000 
Circle 8 equipment financing notes 7.2% November 16, 2026  9,400,000   10,677,000 
XBTO note payable 12.5% December 30, 2023  2,093,000   2,749,000 
16% senior secured promissory note 16.0% May 31, 2023  10,456,000   17,456,000 
3% secured promissory notes 3.0% May 18, 2023  -   5,672,000 
8.5% secured promissory notes 8.5% May 7, 2024  17,191,000   17,389,000 
10% secured promissory notes 10.0% August 10, 2023  -   8,789,000 
Short-term bank credit facilities 6.3%  Renews monthly  3,340,000   1,702,000 
Total notes payable     $121,790,000  $144,172,000 
Less: Unamortized debt discounts      (3,458,000)  (13,087,000)
Total notes payable, net     $118,332,000  $131,085,000 
Less: current portion      (26,459,000)  (39,621,000)
Notes payable – long-term portion     $91,873,000  $91,464,000 

*As of March 31, 2023, SMC was in violation of a financial covenant on this line of credit. However, SMC subsequently obtained a waiver for this covenant violation in May 2023.

Notes Payable Maturities

The contractual maturities of the Company’s notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of March 31, 2023 were:

Schedule Of maturities     
Year    
2023  $25,508,000 
2024   15,307,000 
2025   66,630,000 
2026   14,345,000 
   $121,790,000 

Interest Expense

Schedule of interest expense        
  For the Three Months Ended 
  March 31, 
  2023  2022 
Contractual interest expense $2,727,000  $921,000 
Forbearance fees  603,000   1,203,000 
Amortization of debt discount  10,400,000   27,700,000 
Total interest expense $13,730,000  $29,824,000 

10% Secured Promissory Notes

The 10% secured promissory notes were retired in March 2023 and converted into the Preferred Shares, as described in Note 14 – Preferred Stock Liability.

F-19

Amendments to 16% Secured Promissory Notes

On April 6, 2023, the Company entered into an amendment agreement, effective as of March 16, 2023, with the initial investor related to the December 2022 16% secured promissory note extending the due date on the note to May 31, 2023, which will automatically extend to June 30, 2023 if the Company repays the balance outstanding on the note as of the extension date, which was $8.3 million, by May 31, 2023. The Company agreed to increase the principal amount of the note by approximately $2.0 million, reflecting a $1.7 million extension fee and $0.4 million of liquidated damages for failure to obtain an effective registration statement.

On May 4, 2023, the Company entered into an amendment agreement, effective as of March 16, 2023, with the subsequent investor related to the December 2022 16% secured promissory note extending the due date on the note to June 30, 2023. The Company agreed to increase the principal amount of the note by approximately $0.8 million, reflecting a $0.6 million extension fee and $0.2 million amendment fee.

17. CONVERTIBLE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

Convertible notes payable at March 31, 2023 and December 31, 2022, were comprised of the following:

Schedule of convertible notes payable              
  Conversion price per
share		 Interest
rate		 Due date March 31,
2023		  December 31,
2022		 
Convertible promissory note $4.00 4% May 10, 2024 $500,000  $660,000 
AVLP convertible promissory notes, principal $0.35 (AVLP stock) 7% August 22, 2025  9,911,000   9,911,000 

GIGA senior secured convertible notes – in default

 $0.25 (GIGA stock) 18% October 11, 2023  3,333,000   - 
Fair value of embedded options and derivatives        2,283,000   2,316,000 
Less: unamortized debt discounts        (744,000)  (111,000)
Total convertible notes payable, net of financing cost, long term       $15,283,000  $12,776,000 
Less: current portion        (3,869,000)  (1,325,000)
Convertible notes payable, net of financing cost – long-term portion       $11,414,000  $11,451,000 

Significant inputs associated with the embedded option include:

Schedule of weighted average assumptions        
  March 31, 2023  December 31, 2022 
Exercise price Variable  Variable 
Contractual term in years  2.7   2.7 
Volatility  75% – 97%  75% – 93%
Dividend yield  0%  0%
Risk-free interest rate  4.6%  4.0%

GIGA Senior Secured Convertible Notes

On January 11, 2023, GIGA entered into a Securities Purchase Agreement (“GIGA SPA”) with two accredited investors (the “Lenders”) pursuant to which GIGA sold to the Lenders $3.3 million 10% original issue discount Senior Secured Convertible Notes (the “Notes”) and five-year warrants (the “Warrants”) to purchase shares of common stock, no par value for total gross proceeds of $3.0 million. The net proceeds shall be used primarily for working capital.

The Notes are secured by the assets of GIGA pursuant to a Security Agreement entered into for such purpose, and are senior to the indebtedness payable to Ault and Ault Lending, pursuant to a Subordination Agreement entered into in connection with the GIGA SPA.

The Notes mature on the earlier of (i) nine months from the issuance date, or October 11, 2023, or (ii) completion of the uplist transaction pursuant to which GIGA’s common stock becomes listed for trading on a national securities exchange operated by The Nasdaq Stock Market or the New York Stock Exchange (an “Uplist Transaction”). The Notes accrue interest at a rate of 6% per annum payable monthly, which increases to 18% upon an event of default. In addition, under the Notes upon an event of default GIGA is required to pay 20% of its consolidated revenues monthly on each interest payment date in reduction of the principal amount of the Notes then outstanding.

F-20
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share

The Notes provide for certain events of default which include failure of the Uplist Transaction to occur by the maturity date, failure to maintain effectiveness of the registration statement under the Registration Rights Agreement (as described below), suspension of trading of GIGA’s common stock for five consecutive trading days, failure to timely deliver shares issuable upon conversion of the Notes or exercise of the Warrants, failure to timely make payments under the Notes, default under other indebtedness, and certain other customary events of default, subject to certain exceptions and limitations.

Upon an event of default, the holders will have the right to require GIGA to prepay the Notes at a 125% premium. Further, upon a bankruptcy event of default or a change of control event, GIGA will be required to prepay the Notes at a premium. If the conversion price falls below $0.25, GIGA may also elect to prepay the notes at a 125% premium.

The Notes are convertible upon the earlier of the Uplist Transaction and an event of default at a conversion price equal to the greater of (a) 90% of the lowest volume weighted average price (“VWAP”) for the 10 trading days prior to the conversion date and (b) $0.25 per share, data


Debt Discounts
subject to adjustment including downward adjustment upon any dilutive issuance of securities.

GIGA repaid its existing line of credit with Western Alliance Bank which had an existing balance of approximately $59,000. Under the Notes, GIGA may enter into a factoring agreement of $2 million using GIGA’s accounts receivable as collateral.

The Warrants entitle the holders to purchase a total of 1.7 million shares of common stock for a five-year period from issuance, at an exercise price determined as follows: (i) beginning on the issuance date and for a period of 90 days thereafter, $0.78, (ii) if the Uplist Transaction has occurred as of the date of exercise, the lower of (A) $0.78 and (B) 110% of the per share offering price to the public in the Uplist Transaction, and (iii) if neither of (i) and (ii) apply, the lower of (A) $0.78 and (B) 90% of the lowest VWAP for the 10 trading days prior to the date of the exercise, subject to adjustment including downward adjustment upon any dilutive issuance of securities. If the Uplist Transaction is not completed prior to the maturity date of the Notes, the number of shares of common stock that may be purchased upon exercise of the Warrants will be doubled, without an adjustment to the exercise price.

The GIGA SPA, Warrants and Notes require a reserve of authorized but unissued shares of common stock initially equal to approximately 15.0 million shares of common stock, subject to reduction as the Notes and Warrants are converted and exercised, respectively.

Spartan Capital Securities, LLC (the “Placement Agent”) served as placement agent in the offering and received a cash commission in the amount of 8% of the gross proceeds, or $0.2 million. In addition, GIGA agreed to pay the Placement Agent an expense allowance of $30,000. Furthermore, GIGA agreed to issue the Placement Agent five-year warrants (the “Placement Agent Warrants”) to purchase a number of shares of common stock equal to 8% of the total number of shares of common stock underlying the Notes and Warrants sold in the offering, or 1.2 million shares. The Placement Agent Warrants have an exercise price of 110% of the Warrant exercise price.

Under the GIGA SPA, GIGA reimbursed the Lenders a total of $60,000 out of the proceeds from the offering for fees and expenses incurred in connection therewith.

In connection with the GIGA SPA, GIGA entered into a Registration Rights Agreement pursuant to which it agreed to register the resale by the Lenders of the common stock issuable upon conversion of the Notes and Warrants. Pursuant to the Registration Rights Agreement, the initial registration statement on Form S-1 must be filed 30 days after the Notes become convertible, and to cause the registration statement to be declared effective within 90 days thereafter, subject to certain limitations and exceptions. GIGA did not complete the registration statement in a timely manner, which is an event of default. The Lenders required GIGA to terminate the Financing Agreement as a condition of lending it the $3 million and GIGA’s issuance of the Notes.

18. COMMITMENTS AND CONTINGENCIES

Contingencies

Litigation Matters

The Company accountsis involved in litigation arising from other matters in the ordinary course of business. The Company is regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.

F-21

Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.

With respect to the Company’s other outstanding matters, based on the Company’s current knowledge, the Company believes that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties. 

As of March 31, 2023, the Company had accrued $3.1 million as a loss contingency related to litigation matters.

SEC Investigation

The Company and certain affiliates and related parties received several subpoenas from the SEC for debt discount accordingthe production of documents and testimony in the non-public fact-finding investigation referred to ASC No. 470-20, Debtas In re DPW Holdings, Inc. The Company and those parties have engaged in discussions with Conversionthe SEC regarding the matters at issue in the investigation, and Other Options. Debt discounts are amortizedthose discussions have progressed. No final resolution regarding the matters at issue in the investigation has been reached however, and there can be no assurance as to the outcome of this matter. The Company recorded a $1.0 million loss contingency related to this matter.

19. STOCKHOLDERS’ EQUITY

2023 Issuances

2022 Common ATM Offering

On February 25, 2022, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets, LLC (“Ascendiant Capital”) to sell shares of common stock having an aggregate offering price of up to $200 million from time to time, through periodic charges to interest expense overan “at the term of the related financial instrument using the effective interest method.market offering” program (the “2022 Common ATM Offering”). During the three and nine months ended September 30, 2017,March 31, 2023, the Company recorded amortizationsold an aggregate of debt discounts0.1 million shares of $652common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $4.2 million. Effective March 17, 2023, the 2022 Common ATM Offering was terminated.

2022 Preferred ATM Offering

On June 14, 2022, the Company entered into an At-The-Market equity offering program with Ascendiant Capital under which it may sell, from time to time, shares of its Series D Preferred Stock for aggregate gross proceeds of up to $46.4 million (the “2022 Preferred ATM Offering”). During the three months ended March 31, 2023, the Company sold an aggregate of 90,184 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $1.2 million.

20. INCOME TAXES

The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and $1,239,ASC Topic 740, Income Taxes. The Company’s effective tax rate (“ETR”) from continuing operations was (0.5%) and 0% for the three months ended March 31, 2023 and 2022, respectively. The Company did not recognize any debt discount duringrecorded an income tax benefit of $0.3 million and $0 for the three and nine months ended September 30, 2016.

March 31, 2023 and 2022, respectively. The difference between the ETR and federal statutory rate of 21% is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes and changes in valuation allowance.

F-22
Net Loss per Share

21. NET LOSS PER SHARE

Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. The Company has included 317,460 warrants, with an exercise price of $.01, in its earnings per share calculationAnti-dilutive securities, which are convertible into or exercisable for the three and nine months ended September 30, 2017.  Anti-dilutive securitiesCompany’s common stock, consisted of the following at September 30,


  2017  2016 
Stock options  2,891,000   1,001,000 
Warrants  10,233,199   — 
Convertible notes  3,157,576   — 
Conversion of preferred stock  4,606,131   — 
Total  20,887,906   1,001,000 
At September 30, 2017, the 20,887,906 of potential common stock equivalents included 6,926,095 in warrants, convertible notesMarch 31, 2023 and preferred stock in which the holders are contractually prohibited from exercising or converting the warrants, convertible notes and preferred stock into shares of the Company’s common stock. The restriction shall remain until shareholder approval is received.

Subsequent to September 30, 2017, the Company entered into agreements to issue an additional 2,042,239 shares of common stock and issued convertible notes and warrants that when exercised would result in the issuance of an additional 2,274,800 shares of common stock. As a result, on November 2, 2017, if all of the potential common stock equivalents in which there are no contractual restrictions upon exercise were converted into shares of the Company’s common stock it would exceed the Company’s authorized shares of common stock.
Recently Issued Accounting Standards

The Company has considered all other recently issued accounting standards and does not believe the adoption of such standards will have a material impact on its condensed consolidated financial statements.

4. INVESTMENTS – RELATED PARTIES

Investments in AVLP at September 30, 2017, and December 31, 2016, are comprised of the following:
  September 30,  December 31, 
  2017  2016 
Investment in convertible promissory note of AVLP $3,797  $997 
Investment in common stock of AVLP  112   84 
Total investment in AVLP P – Gross  3,909   1,081 
Less: original issue discount  (127)  (45)
Total investment in AVLP P – Net $3,782  $1,036 
13
DIGITAL POWER CORPORATION2022:

Schedule of net loss per share        
  March 31, 
  2023  2022 
Stock options  19,000   21,000 
Restricted stock grants  -   7,000 
Warrants  52,000   67,000 
Convertible notes  1,000   1,000 
Total  72,000   96,000 

22. SEGMENT AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

During the year ended December 31, 2016, the Company made a strategic decision to invest in AVLP, a related party controlled by Philou, an existing majority stockholder. The Company’s investments in AVLP primarily consist of convertible promissory notes and shares of common stock of AVLP.
On October 5, 2016, November 30, 2016, and February 22, 2017, the Company entered into three 12% Convertible Promissory Notes with AVLP (the "AVLP Notes") in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in net loans to AVLP of $1,500 and an original issue discount of $75. The AVLP notes accrued interest at 12% per annum and were due on or before two years from the origination dates of each note. CUSTOMERS INFORMATION

The Company had the right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at approximately $0.74536 per share. Subject to adjustment, the AVLP Notes, inclusive of the original issue discount, were convertible into 2,113,086 shares of the Company’s common stock. During the period from March 29, 2017 to August 16, 2017, the Company funded $1,809 in excess of the $1,500 net loan amount required pursuant to the terms of the AVLP Notes


On September 6, 2017, the Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective date of August 21, 2017 pursuant to which the Company will provide Avalanche a non-revolving credit facility of up to $5,000, inclusive of prior amounts loaned to AVLP, for a period ending on August 21, 2019, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit.

In consideration of entering into the AVLP Loan Agreement, the Company and AVLP cancelled the AVLP Notes and consolidated the AVLP Notes and prior advances totaling $3,309 plus original issue discount of $165 and issued a new Convertible Promissory Note in the aggregate principal amount of $3,474 (the “New Note”) that is convertible into shares of AVLP at a conversion price of $0.50 per share. The New Note is due in two years and accrues interest at 12% per annum on the principal amount. Prior interest accrued under the AVLP Notes and advances will continue to be an obligation of AVLP. The New Note contains standard events of defaults. In addition, concurrent to issuing the New Note, AVLP issued to the Company a five-year Warrant to purchase 6,948,800 shares of AVLP Common Stock at $0.50 per share. Future advances under the AVLP Loan Agreement, if any, will be evidenced by a convertible promissory containing a conversion price feature at $0.50 per share and warrant with an exercise price of $0.50 per share. Further, under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP.
The Warrant entitles the Company to purchase up to 6,948,800 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The exercise price of $0.50 is subject to adjustment for customary stock splits, stock dividends, combinations or similar events. The Warrant may be exercised for cash or on a cashless basis.

The original issue discount of $165 on the New Note is being amortized as interest income through the maturity date using the interest rate method. During the three and nine months ended September 30, 2017, the Company recorded $18 and $38, respectively, of interest income for the discount accretion. As of September 30, 2017, and December 31, 2016, the Company recorded contractual interest receivable attributed to the AVLP Notes and AVLP Loan Agreement of $208 and $13, respectively.

The Company has classified the AVLP Notes as Available-for-Sale securities, subject to the guidance in ASC No. 320. The Company elected to apply the Fair Value Option Subsections of Subtopic 320-10 and 825-10 to the AVLP Notes. At September 30, 2017, the closing market price of AVLP’s common Stock was $0.64. Subsequent to quarter-end, the closing market price of AVLP’s common stock was in the range of $0.51 and $ 0.85 and due to the illiquidity and significant volatility of AVLP’s common stock, the Company has determined that its cost basis in AVLP common stock approximates the current fair value.
14
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The Company has concluded that indicators of impairment, including those described in ASC No. 320-10-35-27, do not currently exist for the Company’s investment in debt and equity securities of AVLP.

5. ACQUISITIONS

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 September 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 based on the closing price of the Company’s common stock on June 2, 2017, and the Exchange warrants, valued at $229. The Company computed the fair value of these warrants using the Black-Scholes option pricing model.

Power-Plus Technical Distributors

On August 3, 2017, Coolisys entered into a Securities Purchase Agreement (the “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, which was reduced by certain debts of Power-Plus in the amount of $186. The purchase price of $664 will be 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 resulting in a net purchase price of $664.

The acquisition of Microphase and Power-Plus 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.
15
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Upon initial measurement, components of the purchase price are as follows:
  
Microphase
  
Power-Plus
 
       
Cash and cash equivalents $11  $27 
Accounts receivable  439   235 
Inventories  667   241 
Prepaid expenses and other current assets  139   2 
Restricted cash  100   — 
Intangible assets  95   250 
Property and equipment  93   23 
Other investments  303   — 
Deposits and loans  44   — 
Accounts payable and accrued expenses  (1,680)  (392)
Revolving credit facility  (880)  (210)
Notes payable  (2,204)  — 
Notes payable, related parties  (406)  — 
Other current liabilities  (327)  — 
Net liabilities assumed/assets acquired  (3,606)  176 
Goodwill and other intangibles  6,002   488 
Non-controlling interest  (945)  — 
Purchase price $1,451  $664 
The following pro forma data summarizes the results of operations for the periods indicated as if the Microphase and Power-Plus acquisitions 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  For the Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
             
Revenue $3,583  $3,751  $10,329  $12,692 
                 
Net loss $(2,277) $(711) $(4,820) $(1,742)
                 
Less: Net loss attributable to non-controlling interest  103   290   103   714 
                 
Net loss attributable to Digital Power Corp $(2,144) $(421) $(4,717) $(1,028)
                 
Preferred deemed dividends  —   —   (319)  — 
Preferred dividends  (27)  —   (35)  — 
                 
Loss available to common shareholders $(2,171) $(421) $(5,071) $(1,028)
                 
Basic and diluted net loss per common share $(0.14) $(0.05) $(0.40) $(0.12)
                 
Basic and diluted weighted average common shares
outstanding
  15,587,988   8,618,419   12,727,396   8,618,419 
                 
Comprehensive Loss                
Loss available to common shareholders $(2,171) $(421) $(5,071) $(1,028)
Other comprehensive income (loss)                
Change in net foreign currency translation adjustments  42   (55)  141   (265)
Net unrealized gain (loss) on securities available-for-
sale, net of income taxes
  (43)  186   (43)  204 
Other comprehensive income (loss)  (1)  131  98   (61)
Total Comprehensive loss $(2,172) $(290) $(4,973) $(1,089)
16
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
6. STOCK-BASED COMPENSATION
Under the Company's 2016 Stock Incentive Plan (the “2016 Plan”) and the 2012 Stock Option Plan, as amended (the “2012 Plan”) (collectively, the “Plans”), options may be granted to employees, officers, consultants, service providers and directors of the Company. The Plans, as amended, provide for the issuance of a maximum of 5,372,630 shares of the Company’s common stock. The Company also has 206,000 outstanding options that were granted between 2009 and 2011 pursuant to the terms of the Company's 2002 Stock Option Plan (the “2002 Plan”). Options granted pursuant to the 2002 Plan expire between September 2008 and February 2021.

Options granted under the Plans have an exercise price equal to or greater than the fair value of the underlying common stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. Typically, 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 expire between 5 and 10 years from the date of grant.  Restricted stock awards granted under the Plans are subject to a vesting period determined at the date of grant. As of September 30, 2017, an aggregate of 1,350,832 of the Company's options are still available for future grant.
During the three and nine months ended September 30, 2017, the Company granted 50,000 and 560,000 options, respectively, from the Plans to its employees at an average exercise price of $0.61 per share.  These options become fully vested after four years. The Company estimated that the grant date fair value of these options was $251, which is being recognized as stock-based compensation expense over the requisite four-year service period. During the three and nine months ended September 30, 2017, the Company also issued 380,645 and 1,336,798, respectively, shares of common stock to its consultants and service providers pursuant to the 2016 Plan. The Company estimated that the grant date fair value of these shares of common stock was $742, which was determined from the closing price of the Company’s common stock on the date of issuance. The Company did not grant any options or restricted stock awards during the three and nine months ended September 30, 2016.
The Company has valued the options at their date of grant utilizing the Black-Scholes option pricing model.  This model is dependent upon several variables such as the options’ term, exercise price, current stock price, risk-free interest rate estimated over the expected term and estimated volatility of our stock over the expected term of the options. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The estimated volatility was determined based on the historical volatility of our common stock.

During the nine months ended September 30, 2017, the Company estimated the fair value of stock options granted using the Black-Scholes option pricing model with the following weighted average assumptions:
  September 30, 2017 
Weighted average risk free interest rate  1.73% — 2.14%
Weighted average life (in years)  5.0 
Volatility  98.41% — 107.22%
Expected dividend yield  0%
Weighted average grant-date fair value per share of options granted $0.45 
17
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The options outstanding as of September 30, 2017, have been classified by exercise price, as follows:

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  2,425,000   9.14  $0.66   1,249,167  $0.66 
$1.10 - $1.32  25,000   6.10  $1.28   20,000  $1.27 
$1.51 - $1.69  441,000   5.11  $1.61   378,500  $1.60 
                     
$0.57 - 1.69  2,891,000   8.50  $1.10   1,647,667  $0.88 
The total stock-based compensation expense related to stock options and restricted stock awards issued pursuant to the Plans to the Company’s employees, consultants and directors, included in reported net loss for the three and nine months ended September 30, 2017 and 2016, is comprised as follows:
  Three Months Ended  Nine Months Ended 
  Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016 
Cost of revenues $2  $1  $6  $5 
Engineering and product development  6   1   20   3 
Selling and marketing  8   5   18   13 
General and administrative  349   35   1,017   108 
                 
Stock-based compensation from Plans  365   42   1,061   129 
                 
Stock-based compensation from
issuances outside of Plans
  152   —   208   — 
Total stock-based compensation $517  $42  $1,269  $129 
The combination of stock-based compensation of $1,061 from the issuances of equity based awards pursuant to the Plans and stock-based compensation attributed to restricted stock awards of $130 and warrants and options of $78, which were issued outside of the Plans, resulted in aggregate stock-based compensation of $1,269 during the nine months ended September 30, 2017. During the three months ended September 30, 2017, aggregate stock-based compensation was $517, which consisted of $365 from the issuances of equity based awards pursuant to the Plans and stock-based compensation attributed to restricted stock award of $120 warrants and options of $32, which were issued outside of the Plans. During the three and nine months ended September 30, 2016, the only stock-based compensation expense was from issuances pursuant to the Plans.
18
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

A summary of option activity under the Company's stock option plans as of September 30, 2017, and changes during the nine months ended are as follows:
     Outstanding Options 
           Weighted    
        Weighted  Average    
  Shares     Average  Remaining  Aggregate 
  Available  Number  Exercise  Contractual  Intrinsic 
  for Grant  of Shares  Price  Life (years)  Value 
                
December 31, 2016  3,247,630   2,331,000  $0.83   9.08  $0 
Restricted stock awards  (1,336,798)                
Grants  (510,000)  560,000  $0.61         
                     
September 30, 2017  1,350,832   2,891,000  $0.81   8.50  $0 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 30, 2017, $0.55 and the exercise price, multiplied by the number of in-the-money-options).
As of September 30, 2017, there was $425 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 2.3 years.
7. WARRANTS
During the nine months and ended September 30, 2017, the Company issued a total of 8,484,073 warrants, at an average exercise price of $0.81 per share.  Warrant issuances during the current quarter ended September 30, 2017, included:
(i)
On April 17, 2017, the Company issued warrants to purchase 166,668 shares of common stock, at an exercise price of $0.90 per share of common stock, in connection with the issuance of two 7% convertible notes in the aggregate principal amount of $250. On July 25, 2017, the Company agreed to reduce the exercise price of warrants to purchase 83,334 shares of common stock from $0.90 per share to $0.55 per share and on July 28, 2017, the Company issued a new warrant to purchase 83,334 shares of common stock at $0.55 per share and cancelled the prior warrant to purchase 83,334 shares of common stock at $0.90 per share (See Note 12).
(ii)On July 25, 2017, we issued warrants to purchase an aggregate of 163,636 shares of the Company’s common stock at an exercise price equal to $0.55 per share in connection with a private placement agreement under which we issued and sold 272,727 shares of common stock to the investor at $0.55 per share for an aggregate purchase price of $150. At that time, we also issued warrants to purchase 109,090 shares of the Company’s common stock at an exercise price equal to $0.75 per share to two investors that purchased shares of our common stock at $0.55 per share pursuant to subscription agreements (See Note 14).
19
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
(iii)
On July 28, 2017, we entered into an exchange agreement related to a 7% Convertible Note in the principal amount of $125 in which we exchanged the 7% Convertible Note for three new promissory notes in the principal amounts of $110,000 due August 1, 2017; $35,000 due August 1, 2017; and $34,000 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes). Concurrent with entering into the exchange agreement, the investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110,000. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110,000. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share (See Note 12).
(iv)On August 3, 2017, we issued warrants to purchase an aggregate of 666,666 shares of the Company’s common stock at an exercise price equal to $0.70 per share in connection with the issuance of a 12% Convertible Promissory Note in the aggregate principal amount of $400 (See Note 12). 
(v)On August 10, 2017, we issued warrants to purchase an aggregate of 1,475,000 shares of the Company’s common stock at an exercise price equal to $0.66 per share in connection with the issuance of 10% Convertible Promissory Notes in the aggregate principal amount of $880 (See Note 12).
(vi)
On August 23, 2017, the Company issued warrants to purchase 272,727 shares of common stock at an exercise price equal to $0.65 per share in connection with entering into securities purchase agreements to issue and sell 272,727 shares of common stock at to the investors at $0.55 per share for an aggregate purchase price of $150. The common stock has yet to be issued and is subject to approval from the NYSE American prior to issuance, which had not been received at September 30, 2017.
The following table summarizes information about common stock warrants outstanding at September 30, 2017:

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   9.09  $0.01   79,364  $0.01 
$0.55  450,304   5.05  $0.55   —   — 
$0.65  272,727   2.90  $0.65   —   — 
$0.66  1,475,000   4.86  $0.66   1,475,000  $0.66 
$0.70  2,428,571   4.92  $0.70   690,476  $0.70 
$0.72  182,003   4.72  $0.72   —   — 
$0.75  244,999   4.69  $0.75   —   — 
$0.80  1,415,128   2.55  $0.80   1,166,666  $0.80 
$0.90  445,002   3.05  $0.90   265,000  $0.90 
$1.00  2,002,005   4.68  $1.00   —   — 
$1.10  1,000,000   2.67  $1.10   —   — 
                     
$0.01 - 1.10  10,233,199   4.26  $0.79   3,676,506  $0.32 
20
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The Company has valued the warrants at their date of grant utilizing the Black-Scholes option pricing model.  This model is dependent upon several variables such as the warrants’ term, exercise price, current stock price, risk-free interest rate and estimated volatility of our stock over the contractual term of the options. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the contractual life of the warrants.

The Company utilized the Black-Scholes option pricing model and the assumptions used during the nine months ended September 30, 2017:
  September 30, 2017 
Weighted average risk free interest rate  1.42% — 2.01%
Weighted average life (in years)  4.9 
Volatility  98.5% — 107.5%
Expected dividend yield  0%
Weighted average grant-date fair value per
share of warrants granted
 $0.41 
8. ADVANCES ON FUTURE RECEIPTS

Between July 6, 2017 and September 13, 2017, the Company received funding as a result of entering into multiple Agreements for the Purchase and Sale of Future Receipts with TVT Capital, LLC pursuant to which the Company sold in the aggregate $2,585 in future receipts of the Company for $1,772. Under the terms of the agreements, the Company will be obligated to pay the initial daily amount of $13 until the $2,585 has been paid in full. As of September 30, 2017, the Company had paid back $439. The term future receipts means cash, check, ACH, credit card, debit card, bank card, charged card or other form of monetary payment. The Company recorded a discount in the amount of $813. The discount is being amortized as non-cash interest expense over the term of the agreement. During the three and nine months ended September 30, 2017, non-cash interest expense of $142 was recorded from the amortization of debt discounts.

9. REVOLVING CREDIT FACILITY

Microphase entered into a revolving loan agreement with Gerber Finance, Inc. (“Gerber”) in February of 2012, as amended in September 2015 and July 2017 (the “Revolving Credit Facility”). Under the Revolving Credit Facility, Microphase can receive funds based on a borrowing base, which consists of a percentage of eligible accounts receivable, up to a maximum revolving amount of $1,400 (the “Maximum Revolving Amount”). Pursuant to the terms of the Revolving Credit Facility, Microphase is subject to an annual facility fee in an amount equal to 1.75% of the Maximum Revolving Amount due on each anniversary, a monthly collateral monitoring fees of $1 and other fees. Interest accrues at the prime rate plus three and three-quarters percent (3.75%) on the unpaid principal. Effective June 15, 2017, the prime rate was increased from 4.00% to 4.25% resulting in a base rate of 8.00%. If borrowings under the Revolving Credit Facility exceed the collateral borrowing base, then Microphase is subject to an additional 2.5% interest charge per month on the over-advance amounts and a separate additional charge of 2.5% if borrowings exceed the Maximum Revolving Amount. At September 30, 2017, the amount due pursuant to the Revolving Credit Facility, was $310. The interest expense for the three months ended September 30, 2017 and for the period from June 3, 2017 (date loan was assumed) to September 30, 2017, was $35 and $49, respectively.
21
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

On July 14, 2017, as a result of a notice that Microphase received from Gerber identifying several events of default under the terms of the Revolving Credit Facility, Microphase and Gerber entered into a Forbearance Agreement. The events of default were primarily related to, (i) the change in control that occurred on June 2, 2017, when Digital Power acquired a majority interest in Microphase, and (ii) borrowings under the Revolving Credit Facility exceeding the collateral borrowing base. The Forbearance agreement accelerated the repayment of borrowings that were secured by inventories and equipment until such borrowings were repaid and required the Company to provide a corporate guarantee for amounts advanced under the Revolving Credit Facility, which guarantee was provided on July 20, 2017. As of September 30, 2017, approximately $65 of borrowings subject to acceleration remained outstanding on the Revolving Credit Facility.
10.  NOTES PAYABLE

Notes Payable at September 30, 2017, are comprised of the following. At December 31, 2016 the Company did not have any Notes Payable.

  September 30, 
  2017 
10% short-term promissory notes (a)
 $705 
Notes payable to Lucosky Brookman, LLP (b)
  450 
Notes payable to Wells Fargo (c)
  304 
Note payable to Department of Economic and
Community Development (d)
  298 
Note payable to People's United Bank ( e)
  19 
Power-Plus Credit Facilities (f)
  182 
Note payable to Power-Plus Member (g)
  255 
Other short-term notes payable (h)
  55 
Total notes payable  2,268 
Less: current portion  (1,609)
Notes payable – long-term portion $659 
(a)
In December 2016, Microphase issued $705 in 10% short-term promissory notes to nineteen accredited investors which, after deducting $71 of placement fees to its selling agent, Spartan Capital Securities, LLC (“Spartan”), resulted in $634 in net proceeds to Microphase (the “10% Short-Term Notes”). The 10% Short-Term Notes are due one year from the date of issuance. The amount due pursuant to the 10% Short-Term Notes is equal to the entire original principal amount multiplied by 125% (the “Loan Premium”) plus accrued interest. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $19 and $25, respectively, of interest on these 10% short-term promissory notes. Concurrently, Microphase entered into a one-year agreement with Spartan for investment banking services which provided for: (i) $120 of consulting fees that were paid in cash from the proceeds of the 10% Short-Term Notes; and (ii) if Microphase completes an initial public offering, $90 payable in shares of Microphase common stock. As of September 30, 2017, accrued interest on the 10% Short-Term Notes was $237.

(b)On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450 8% promissory note with a maturity date of November 25, 2017 to Lucosky Brookman, LLP (the “Lucosky Note”). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of redeemable convertible Series E preferred stock (the “Series E Preferred Stock”) with a stated value of $45 per share as an alternative to providing a guarantee for the amount of the Lucosky Note. The Company, at its option, may redeem for cash, in whole or in part, at any time and from time to time, the shares of Series E Preferred Stock at the time outstanding, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company shall be credited against the Lucosky Note. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $3 and $6, respectively, of interest on the Lucosky Note. As of September 30, 2017, accrued interest on the Lucosky Note was $6.
22
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
(c)At September 30, 2017, Microphase had guaranteed the repayment of two equity lines of credit in the aggregate amount of $304 with Wells Fargo Bank, NA (“Wells Fargo”) (collectively, the “Wells Fargo Notes”). Microphase had previously guaranteed the payment under the first Wells Fargo equity line during 2008, the proceeds of which Microphase had received from a concurrent loan from Edson Realty Inc., a related party owned real estate holding company. As of September 30, 2017, the first line of credit, which is secured by residential real estate owned by a former officer, had an outstanding balance of $214, with an annual interest rate of 4.00%. Microphase had guaranteed the payment under the second Wells Fargo equity line in 2014. Microphase had received working capital loans from the former CEO from funds that were drawn against the second Wells Fargo equity line. As of September 30, 2017, the second line of credit, secured by the former CEO’s principal residence, had an outstanding balance of $90, with an annual interest rate of 3.00%. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $3 and $4, respectively, of interest on the Wells Fargo Notes.

(d)
In August 2016, Microphase received a $300 loan, of which $2 has been repaid, pursuant to the State of Connecticut Small Business Express Job Creation Incentive Program which is administered through the Department of Economic and Community Development (“DECD”) (the “DECD Note”). The DECD Note bears interest at a rate of 3% per annum and is due in August 2026. Payment of principal and interest was deferred during the initial year and commencing in September 2017, payable in equal monthly installments over the remaining term. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $3 of interest on the DECD Note. In conjunction with the DECD Note, Microphase was awarded a Small Business Express Matching Grant of $100. State grant funding requires a dollar for dollar match on behalf of Microphase. As of June 30, 2017, the Company has utilized $18 of the grant and the balance of $82 is reported within deferred revenue and classified in Accounts payable and accrued in the accompanying condensed consolidated balance sheet at September 30, 2017.

(e)In December 2016, Microphase utilized a $20 overdraft credit line at People’s United Bank with an annual interest rate of 15%. As of September 30, 2017, the balance of that overdraft credit line was $19.

(f)
       At September 30, 2017, Power-Plus had guaranteed the repayment of two lines of credit in the aggregate amount of $182 with Bank of America NA (“B of A”) and Wells Fargo (collectively, the “Power-Plus Lines”). As of September 30, 2017, the B of A line of credit had an outstanding balance of $107, with an annual interest rate of 6.25%. As of September 30, 2017, the Wells Fargo line of credit had an outstanding balance of $75, with an annual interest rate of 10.00%. During the period September 2 to September 30, 2017, Power-Plus incurred $1 of interest on the Power-Plus Lines.

(g)Pursuant to the terms of the Purchase Agreement with Power-Plus, the Company entered into a two-year promissory note in the amount of $255 payable to the former owner as part of the purchase consideration. The $255 note is payable in 24 equal monthly installments.

(h)Between May 5, 2017 and September 30, 2017, the Company received additional short-term loans of $215 from five accredited investors, of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share. The warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of these warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. During the quarter ended June 30, 2017, the Company recorded debt discount in the amount of $95 based on the estimated fair value of these warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the short-term feature of these loans and advances, the debt discount was amortized as non-cash interest expense upon issuance of the warrants using the effective interest method.
23
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
During June 2017, the holders of $55 of these short-term loans agreed to cancel their notes for the purchase of 100,001 shares of the Company’s common stock at a price of $0.55 per share. An additional $75 in short-term loans from the Company’s corporate counsel was converted into the Company’s equity securities; $52 was converted into one of the Series C Units and $23 was converted into the Company’s common stock. The Company did not record any additional interest expense as a result of the extinguishment of $130 in short-term loans since the carrying amount of the short-term loans was equivalent to the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of extinguishment. During the three months ended September 30, 2017, the Company also repaid $30 in short-term loans.
Other Notes Payable

In February 2017, the Company issued to eight accredited investors $400 in demand promissory notes bearing interest at a rate of 6% per annum. Of the eight accredited investors, one investor was deemed a related party. As additional consideration, the investors received five-year warrants to purchase 333,333 shares of common stock at an exercise price of $0.70 per share (the “Feb. 2017 Warrants”). The Feb. 2017 Warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of the Feb. 2017 Warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The Feb. 2017 Warrants may be exercised for cash or on a cashless basis. During the quarter ended March 31, 2017, the Company recorded debt discount in the amount of $151 based on the estimated fair value of the Feb. 2017 Warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the due on demand feature of the promissory notes, the debt discount was amortized as non-cash interest expense upon issuance of the Feb. 2017 Warrants using the effective interest method.

Between February 16, 2017 and February 23, 2017, the holders of the $400 in demand promissory notes agreed to cancel their demand promissory notes for the purchase of 666,667 shares of the Company’s common stock, an extinguishment price of $0.60 per share. During the quarter ended March 31, 2017, the Company recorded additional interest expense of $13 as a result of the extinguishment of the $400 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of extinguishment.

On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. These demand promissory notes accrued interest at the rate of 6% per annum. The Company received gross proceeds of $220 on March 31, 2017. The remaining balance of $50 was received on April 3, 2017. On April 5, 2017, the Company canceled these promissory notes by issuing to the investors 360,000 shares of common stock, at $0.75 per share, and warrants to purchase 180,002 shares of common stock at $0.90 per share. During the quarter ended June 30, 2017, the Company recorded additional interest expense of $109 as a result of the extinguishment of the $270 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of extinguishment.
24
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
11. NOTES PAYABLE – RELATED PARTIES

Notes Payable – Related parties at September 30, 2017, and December 31, 2016, are comprised of the following:

  September 30,  December 31, 
  2017  2016 
Notes payable to MCKEA Holdings, LLC (a)
 $—  $250 
Notes payable to former officer and employee (b)
  406   — 
Total notes payable  406   250 
Less: current portion  (274)  — 
Notes payable – long-term portion $132  $250 
(a)On December 29, 2016, the Company entered into an agreement with MCKEA Holdings, LLC (“MCKEA”). MCKEA is the majority member of Philou Ventures, LLC, which is the Company’s controlling shareholder. Kristine L. Ault, a director and the wife of Milton C. Ault III, Executive Chairman of the Company’s Board of Directors, is the manager and owner of MCKEA, for a demand promissory note (The “MCKEA Note”) in the amount of $250 bearing interest at the rate of 6% per annum on unpaid principal. The MCKEA Note may be prepaid, in whole or in part, without penalty, at the option of the Company and without the consent of MCKEA. As of December 31, 2016, no interest was accrued on the MCKEA Note. On March 24, 2017, the MCKEA Note was cancelled to purchase the Company’s Series B Preferred Stock pursuant to the terms of the Preferred Stock Purchase Agreement entered into on March 9, 2017 (See Note 14). Since there was no difference between the reacquisition price and the net carrying value of the cancelled debt, no gain or loss was recognized as a result of this transaction.

(b)Microphase is a party to several notes payable agreements with seven of its past officers, employees and their family members. As of September 30, 2017, the aggregate outstanding balance pursuant to these notes payable agreements, inclusive of $87 of accrued interest, was $493, with annual interest rates ranging between 3.00% and 6.00%. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $7 of interest on these notes payable agreements. In July 2016, one of these noteholders initiated litigation to collect the balance owed under the terms of his respective agreement. At September 30, 2017, the outstanding principal balance and accrued interest owed under this particular agreement was $162.

12. CONVERTIBLE NOTES
Convertible notes at September 30, 2017, are comprised of the following. At December 31, 2016 the Company did not have any Convertible Notes.
  September 30, 
  2017 
10% Convertible secured notes $880 
12% Convertible secured note  400 
Total convertible notes payable  1,280 
Less:    
Unamortized debt discounts  (726)
Unamortized financing cost  (89)
Total convertible notes payable, net of debt discounts and
financing cost
 $465 
12% Convertible secured notes

On August 3, 2017, the Company entered into a Securities Purchase Agreement (“Agreement”) to sell a 12% Convertible (“Convertible Note”) and a warrant to purchase 666,666 shares of common stock to an accredited investor (the “Investor”). The principal of the Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share.
25
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

The Convertible Note is in the principal amount of $400, included an original issue discount (“OID”) of $40 resulting in net proceeds to the Company of $360, bears interest at 12% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share.
The Company computed the fair value of the 666,666 warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $167 based on the estimated fair value of the 666,666 warrants.
The beneficial conversion feature (“BCF”) embedded in the Convertible Note is accounted for under ASC No. 470, Debt. At issuance, the estimated fair value of the BCF totaled $187. The Company, however, is prohibited from issuing shares of common stock pursuant to the Convertible Note unless stockholder approval of such issuance of securities is obtained as required by applicable NYSE MKT listing rules. The Company has not yet received stockholder approval of such share issuances. The fair value of the BCF was allocated from the net proceeds of the Convertible Note and, upon stockholder approval, if received, will be amortized to interest expense over the term of the Convertible Note using the effective interest method. The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the Convertible Note. In aggregate, the Company recorded debt discount in the amount of $207 based on the relative fair values of the 666,666 warrants and OID of $40. During the three and nine months ended September 30, 2017, non-cash interest expense of $37 was recorded from the amortization of debt discounts.
10% Convertible secured note
On August 10, 2017, the Company, entered into Securities Purchase Agreements (“Agreements”) with five institutional investors (the “Investors”) to sell for an aggregate purchase price of $800, 10% Senior Convertible Promissory Notes (“Convertible Notes”) with an aggregate principal face amount of $880 and warrants to purchase an aggregate of 1,475,000 shares of common stock. The principal of the Convertible Notes and interest earned thereon may be converted into shares of common stock at $0.60 per share and under the terms of the Warrant, up to 1,475,000 shares of common stock may be purchased at an exercise price of $0.66 per share.
The Convertible Notes are in the aggregate principal amount of $880, included an OID of $80 resulting in net proceeds to the Company of $800, bear simple interest at 10% on the principal amount, and principal and interest are due on February 10, 2018. Subject to certain beneficial ownership limitations, each Investor may convert the principal amount of the Convertible Note and accrued interest earned thereon at any time into shares of common stock at $0.60 per share. The conversion price of the Convertible Notes is subject to adjustment for customary stock splits, stock dividends, combinations or similar events.
The Company computed the fair value of the 1,475,000 warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $357 based on the estimated fair value of the 1,475,000 warrants.
The beneficial conversion feature (“BCF”) embedded in the Convertible Notes is accounted for under ASC No. 470, Debt. At issuance, the estimated fair value of the BCF totaled $327. The fair value of the BCF was allocated from the net proceeds of the Convertible Notes and was amortized to interest expense over the term of the Convertible Notes using the effective interest method.  The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the Convertible Note. In aggregate, the Company recorded debt discount in the amount of $764 based on the relative fair values of the 1,475,000 warrants of $357, BCF of $327 and OID of $80. During the three and nine months ended September 30, 2017, non-cash interest expense of $212 was recorded from the amortization of debt discounts.
26
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Other Convertible Notes Payable
On April 17, 2017, the Company entered into two 7% convertible notes (the “7% Convertible Notes”) each in the aggregate principal amount of $125 for a total of $250. The 7% Convertible Notes accrue interest at 7% simple interest on the principal amount and were due on June 2, 2017. The principal may be converted into shares of the Company’s common stock at $0.75 per share. The noteholder may convert the principal amount of the 7% Convertible Notes at any time into common stock. The 7% Convertible Notes contains standard and customary events of default including, but not limited to, failure to make payments when due under the 7% Convertible Note agreements and bankruptcy or insolvency of the Company. The Company has the right to prepay the 7% Convertible Notes. The 7% Convertible Notes were repaid during July 2017.
As additional consideration, the investors received five and a half year warrants to purchase 166,668 shares of common stock at an exercise price of $0.90 per share (collectively the “7% Convertible Note Warrants”). The 7% Convertible Note Warrants are exercisable commencing six months after the issuance date. The exercise price of the 7% Convertible Note Warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The 7% Convertible Note Warrants may be exercised for cash or on a cashless basis. The Company computed the fair value of the 7% Convertible Note Warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $61 based on the estimated fair value of the 7% Convertible Note Warrants.
The beneficial conversion feature (“BCF”) embedded in the 7% Convertible Notes is accounted for under ASC No. 470, Debt. At issuance, the estimated fair value of the BCF totaled $31. The fair value of the BCF was allocated from the net proceeds of the 7% Convertible Note and was amortized to interest expense over the term of the 7% Convertible Notes using the effective interest method.  The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the Convertible Note. In aggregate, the Company recorded debt discount in the amount of $93 based on the relative fair values of the 7% Convertible Note Warrants of $61 and BCF of $32. During the three months ended June 30, 2017, the entire non-cash interest expense of $93 was recorded from the amortization of debt discounts.
On July 25, 2017, the Company repaid one of the 7% Convertible Notes. Due to the event of default, the Company agreed to reduce the exercise price of warrants to purchase 83,334 shares of common stock from $0.90 per share to $0.55 per share and made a payment of $144. As a result of this transaction, the Company recorded additional interest expense of $17 and recorded an additional $3 in non-cash interest expense based upon the change in the fair value of the warrants due to the adjustment to the exercise price.
On July 28, 2017, we entered into an exchange agreement related to the second 7% Convertible Note. Under the terms of the exchange agreement, we agreed to exchange the 7% Convertible Note for three new promissory notes in the principal amounts of $110,000 due August 1, 2017; $35,000 due August 1, 2017; and $34,000 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes) and issue a new warrant to purchase 83,334 shares of common stock at $0.55 per share and cancel the prior warrant to purchase 83,334 shares of common stock at $0.90 per share.
Concurrent with entering into the exchange agreement, the investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110,000. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110,000. In addition, in a concurrent private placement, the investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35,000. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35,000. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share. The final Exchange Note in the principal amount of $34 was repaid. During the quarter ended September 30, 2017, the Company recorded additional non-cash interest expense of $110 as a result of the extinguishment of the $125 7% Convertible Note based on the difference of the carrying amount of the 7% Convertible Note and the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of extinguishment and based upon (i) the change in the fair value of the warrants due to the exchange of the warrant with an exercise price of $0.90 per share with a new warrant with an exercise price of $0.55 per share, (ii) the fair value of the warrant to purchase 120,000 shares of common stock and (iii) the value of the shares of cash and common stock in excess of the amount owed pursuant to the 7% Convertible Note.
27
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
On April 26, 2017, the Company entered into a 7% convertible note in the aggregate principal amount of $104. On June 28, 2017, the noteholder converted the outstanding balance into 189,091 shares of the Company’s common stock. The Company did not record any additional interest expense as a result of the extinguishment since the carrying amount of the convertible notes was equivalent to the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of extinguishment.
As additional consideration, the investor received a five-year warrant to purchase 160,000 shares of common stock at an exercise price of $0.80 per share. The warrants are exercisable commencing six months after the issuance date. The exercise price of the warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. The Company computed the fair value of these warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $25 based on the estimated fair value of the warrants.

The beneficial conversion feature (“BCF”) embedded in this convertible note is accounted for under ASC No. 470, Debt. At issuance, the estimated fair value of the BCF totaled $26. The fair value of the BCF was allocated from the net proceeds of the convertible note and was amortized to interest expense over the term of the convertible note using the effective interest method. The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the convertible note. In aggregate, the Company recorded debt discount in the amount of $51 based on the relative fair values of the warrants of $25 and BCF of $26. During the three months ended June 30, 2017, non-cash interest expense of $51 was recorded from the amortization of debt discounts.

13. CONVERTIBLE NOTE – RELATED PARTY

Convertible notes – related party at September 30, 2017, and December 31, 2016, are comprised of the following:

  September 30,  December 31, 
  2017  2016 
12% Convertible secured note $530  $530 
Less:        
Unamortized debt discounts  (355)  (484)
Unamortized financing cost  (9)  (12)
Convertible note – related party, net of debt discounts and
financing cost
 $166  $34 

On October 21, 2016, the Company entered into a 12% convertible secured note (the “Convertible Note”) in the principal amount of $530. The Convertible Note included an original issue discount (“OID”) of $30 resulting in net proceeds to the Company of $500. Additionally, the Convertible Note accrues interest at 12% simple interest on the principal amount, is secured by all the assets of the Company, and is due on October 20, 2019. Interest only payments are due on a quarterly basis and the principal may be converted into shares of the Company’s common stock at $0.55 per share. Subject to certain beneficial ownership limitations, the noteholder may convert the principal amount of the Convertible Note at any time into common stock. The conversion price of the Convertible Note is subject to adjustment for customary stock splits, stock dividends, combinations or other standard anti-dilution events.
28
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The Convertible Note contains standard and customary events of default including, but not limited to, failure to make payments when due under the Convertible Note agreement and bankruptcy or insolvency of the Company. Upon 30 days’ notice, the Company has the right to prepay the Convertible Note. In addition, provided that the closing price for a share of the Company’s common stock exceeds $3.00 per share for 30 consecutive trading days, the Company has the right to compel the noteholder to convert the principal amount into shares of common stock at the contractual conversion price.
As additional consideration, the investor received a three-year warrant to purchase 265,000 shares of common stock, at an exercise price of $0.80 per share, and a three-year warrant to purchase 265,000 shares of common stock, at an exercise price of $0.90 per share (collectively the “Convertible Note Warrants”). The Convertible Note Warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of the Convertible Note Warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The Convertible Note Warrants may be exercised for cash or on a cashless basis. The Convertible Note Warrants have a call feature that permits the Company to force redemption at $0.001 per share in the event the closing price for a share of the Company’s common stock exceeds $3.00 for 30 consecutive trading days. The Company computed the fair value of the Convertible Note Warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $159 based on the estimated fair value of the Convertible Note Warrants.

The beneficial conversion feature (“BCF”) embedded in the Convertible Note is accounted for under ASC No. 470, Debt. At issuance, the estimated fair value of the BCF totaled $329. The fair value of the BCF was allocated from the net proceeds of the Convertible Note and the respective discount and is being amortized to interest expense over the term of the Convertible Note using the effective interest method.  The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the Convertible Note.

In aggregate, the Company recorded debt discount in the amount of $518 based on the relative fair values of the Convertible Note Warrants of $159, BCF of $329 and OID of $30. The debt discount is being amortized as non-cash interest expense over the term of the debt. In addition, the Company incurred $13 of debt issuance costs which are also being amortized as non-cash interest expense over the term of the debt. During the three and nine months ended September 30, 2017, non-cash interest expense of $44 and $129, respectively, was recorded from the amortization of debt discounts and debt financing cost. As of September 30, 2017 and December 31, 2016, accrued interest on the Convertible Note was $16 and $12, respectively.
14. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 2,000,000 shares of Preferred Stock with no par value. The Board of Directors has designated 500,000 shares of its Preferred Stock as Series A cumulative Redeemable Convertible Preferred shares (the “Series A Preferred Stock”), 500,000 shares as Series B Convertible Preferred Stock (the “Series B Preferred Stock”), 460,000 shares as Series C Convertible Preferred Stock (the “Series C Preferred Stock”), 378,776 shares as Series D Convertible Preferred Stock (the “Series D Preferred Stock”), and 10,000 shares as Series E Convertible Preferred Stock (the “Series E Preferred Stock”). The rights, preferences, privileges and restrictions on the remaining authorized 151,224 shares of Preferred Stock 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 September 30, 2017, there were 100,000 shares of Series B Preferred Stock, 455,002 shares of Series C Preferred Stock, 378,776 shares of Series D Preferred Stock, 10,000 shares of Series E Preferred Stock issued and outstanding and no other shares of Preferred Stock were issued or outstanding. As of December 31, 2016, there were no shares of Preferred Stock issued or outstanding.
29
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Series B Preferred Stock

On March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou, a related party. Pursuant to the terms of the Preferred Stock Purchase Agreement, Philou may invest up to $5,000 in the Company through the purchase of Series B Preferred Stock over the term of 36 months.

Each share of Series B Preferred Stock has a stated value of $10.00 per share. Each share of Series B Preferred Stock may be convertible at the holder’s option into shares of common stock of the Company at a conversion rate of $0.70 per share, upon the earlier to occur of: (i) 60 months from the closing date, or (ii) upon the filing by the Company of one or more periodic reports that, singly or collectively, evidence(s) that the Company’s gross revenues have reached no less than $10,000 in the aggregate, on a consolidated reporting basis, over four consecutive quarters in accordance with U.S.  GAAP. The conversion price will be subject to standard anti-dilution provisions in connection with any stock split, stock dividend, subdivision or similar reclassification of the common stock.

Each share of Series B Preferred Stock shall have the right to receive dividends equal to one ten millionth (0.0000001) of earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”) calculated for a particular calendar year. Assuming the purchase of the entire $5,000 of shares of Preferred Stock, the holders thereof will be entitled to receive dividends equal to five percent (5%) in the aggregate of EBITDAS. Payment of dividends shall be calculated for a calendar year, payable on a quarterly basis, with payments to occur no later than 90 days in arrears from each reporting period subject to a year-end reconciliation. EBITDAS shall mean earnings before interest, taxes, depreciation, amortization, and stock-based compensation.

At such time as (i) all shares of common stock issuable upon conversion of all outstanding shares of Series B Preferred Stock (the “Conversion Shares”) shall have been registered for resale pursuant to an effective Registration Statement covering such Conversion Shares, (ii) but no earlier than the twenty-fifth (25th) anniversary of the effective date, the shares of Series B Preferred Stock shall be subject to redemption in cash at the option of the Company in an amount per share equal to 120% of the greater of (a) the stated value plus all accrued and unpaid dividends, if any and (b) the fair market value of such shares of Series B Preferred Stock.

In addition, for each share of Series B Preferred Stock purchased, Philou will receive warrants to purchase shares of common stock in a number equal to the stated value of each share of Series B Preferred Stock purchased divided by $0.70, at an exercise price equal to $0.70 per share of common stock. The warrants do not require a net cash-settlement or provide the holder with a choice of net-cash settlement. The warrants also do not contain a variable settlement provision. Accordingly, any warrants issued to Philou pursuant to the terms of the Preferred Stock Purchase Agreement shall be classified as equity instruments.
Further, Philou shall have the right to participate in the Company’s future financings under substantially the same terms and conditions as other investors in those respective financings in order to maintain its then percentage ownership interest in the Company. Philou’s right to participate in such financings shall accrue and accumulate provided that it still owns at least 100,000 shares of Series B Preferred Stock.

Between March 24, 2017 and June 2, 2017, Philou purchased 1,000,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement in consideration of the cancellation of the Company debt due to an affiliate of Philou in the amount of $250 and cash of $750. In addition, Philou received warrants to purchase 1,428,572 shares of common stock at an exercise price of $0.70 per share of common stock, which have been classified as equity instruments. The Company determined that the estimated relative fair value of these warrants, which are classified as equity, was $401 using the Black-Scholes option pricing model. Since the warrants were classified as equity securities, the Company allocated the $1,000 purchase price based on the relative fair values of the Series B Preferred Stock and the warrants following the guidance in ASC No. 470, Debt.
30
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The Series B Convertible Preferred Stock is convertible at any time, in whole or in part, at the option of Philou, into shares of common stock at a fixed conversion price, which is subject to adjustment for stock splits, stock dividends, combinations or similar events, of $0.70 per share. As the effective conversion price of the Series B Convertible Preferred Stock on a converted basis was below the market price of the Company’s common stock on the date of issuance, it was determined that these discounts represent contingent beneficial conversion features, which were valued at $265 based on the difference between the effective conversion price and the market price of the Company’s common stock on the date of issuance.

The Company, however, is prohibited from issuing shares of common stock pursuant to the Series B Convertible Preferred Stock unless stockholder approval of such issuance of securities is obtained as required by applicable NYSE MKT listing rules. The Company has not yet received stockholder approval of such share issuances. This provision resulted in a contingent beneficial conversion feature that shall be recognized once the contingency is resolved. These features are analogous to preference dividends and shall be recorded as a non-cash return to preferred shareholders through accumulated deficit upon resolution of the contingency.

Series C Preferred Stock

Between May 24, 2017 and June 19, 2017, Digital Power entered into subscription agreements (the “Series C Subscription Agreement”) with approximately twenty accredited investors (the “Series C Investors”) in connection with the sale of twenty-one Units at a purchase price of $52 per Unit raising in the aggregate $1,092 with each Unit consisting of Series C Preferred Stock and Warrants. Each Unit consists of 21,667 shares of Series C Preferred Stock and Warrants to purchase 86,667 shares of common stock.
Each share of Series C Preferred Stock has a stated value of $2.40 per share. Each share of Series C Preferred Stock may be convertible at the holder’s option into shares of Common Stock of the Company at a conversion price of $0.60 per share, which, currently, represents four shares of Common Stock. The conversion price is subject to standard anti-dilution provisions in connection with any stock split, stock dividend, subdivision or similar reclassification of the Common Stock. Each share of Series C Preferred stock is mandatorily converted into shares of Common Stock based on the then conversion price in effect in the event that the Company’s Common Stock closing price exceeds $1.20 per share for 20 consecutive trading days. As the effective conversion price of the Series C Convertible Preferred Stock on a converted basis was below the market price of the Company’s common stock on the date of issuance, it was determined that these discounts represent beneficial conversion features, which were valued at $371 and recognized as a deemed dividend, based on the difference between the effective conversion price and the market price of the Company’s common stock on the date of issuance.
Each share of Series C Preferred Stock has the right to receive dividends equal $0.24 per share per annum as declared by the Company’s Board of Directors. The dividends will be paid on a quarterly basis on the 20th day following each calendar quarter.
Each share of Series C Preferred Stock shall have dividend and liquidation rights in priority to any shares of Common Stock, the Company’s Series A Preferred Stock (of which none are outstanding) and any other subordinated securities; but shall be subordinated to any senior securities including the Company’s Series B Preferred Stock.
Each share of Series C Preferred Stock is subject to redemption by the Company for the stated value plus accrued but unpaid dividends five years after issuance, provided the holders of Series C Preferred Stock had not elected previously to convert the Series C Preferred Stock into shares of Common Stock.
Series D Preferred Stock
On June 2, 2017, pursuant to the terms of the Share Exchange Agreement, the Company acquired 1,603,434 shares of the issued and outstanding common stock of Microphase Common Stock in exchange for the issuance by the Company of 1,842,448 shares of the Company’s Common Stock and 378,776 shares of the Company’s Series D Preferred Stock, no par value per share, and warrants to purchase an aggregate of 1,000,000 shares of the Company’s Common Stock.
31
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
In the event the Company shall liquidate, dissolve or wind up, the holders of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the Common Stock, the Company’s Series A Preferred Stock, or to the holders of any other junior series of preferred stock, by reason of their ownership thereof and subject to the rights of the Company’s Series B Preferred Stock, Series C Preferred Stock and any other class or series of Company stock subsequently issued that ranks senior to the Series D Preferred Stock, an amount per share in cash or equivalent value in securities or other consideration equal to its Stated Value of $0.01 per share.

The holders of Series D Preferred Stock shall not be entitled to receive dividends and shall have no voting rights except as otherwise required by law. Upon the shareholders of DPW Common Stock approving the conversion of the Series D Preferred Stock into shares of DPW Common Stock in connection with the acquisition of MPC Common Stock and for purposes of compliance with Rule 713 of the NYSE MKT, then each share of Series D Preferred Stock shall automatically be converted into two shares of DPW Common Stock, for an aggregate of 757,552 shares of DPW Common Stock.

Series E Preferred Stock

On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450 8% promissory note with a maturity date of November 25, 2017 to an unsecured creditor, Lucosky Brookman, LLP (the “Lucosky Note”). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of Series E Preferred Stock, no par value per share, with a stated value equal to forty-five dollars ($45.00) per share. The Company, at its option, may redeem for cash, in whole or in part, at any time and from time to time, the shares of Series E Preferred Stock at the time outstanding, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company shall be credited against the Lucosky Note.
In the event the Company shall liquidate, dissolve or wind up, the holders of Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the DPW Common Stock, the Company’s Series A Preferred Stock, or to the holders of any other junior series of preferred stock, by reason of their ownership thereof and subject to the rights of the Company’s Series B Preferred Stock, Series C Preferred Stock and any other class or series of Company stock subsequently issued that ranks senior to the Series E Preferred Stock an amount per share in cash or equivalent value in securities or other consideration equal to $0.01 per share. The holders of Series E Preferred Stock shall not be entitled to receive dividends and shall have no voting rights except as otherwise required by law. Subject to the shareholders of DPW Common Stock of the Company approving the conversion of the Series E Preferred Stock into shares of Common Stock in connection with the acquisition of MPC Common Stock and for purposes of compliance with Rule 713 of the NYSE MKT, then each share of Series E Preferred Stock may be converted into sixty (60) shares of DPW Common Stock, for an aggregate of 600,000 shares of DPW Common Stock.
Common Stock

Common stock confers 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.

On November 15, 2016, the Company entered into subscription agreements (the “2016 Subscription Agreements”) with nine accredited investors. Pursuant to the terms of the 2016 Subscription Agreements, the Company sold 901,666 units at $0.60 for an aggregate purchase price of approximately $541. Each unit consists of one share of common stock and one warrant to purchase one share of common stock (the “Nov. 2016 Warrants”) at an exercise price of $0.80.
32
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
The 2016 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 Nov. 2016 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 Nov. 2016 Warrants are exercisable upon the six-month anniversary of the issuance date. The exercise price of the Nov. 2016 Warrants is subject to adjustment for stock splits, stock dividends, combinations and other standard anti-dilution events. The Nov. 2016 Warrants may be exercised for cash or, upon the failure to maintain an effective registration statement, on a cashless basis.

Between February 16, 2017 and February 23, 2017, the Company issued 666,667 shares of its common stock, an extinguishment price of $0.60 per share, for the cancellation of $400 in demand promissory notes.

On March 8, 2017, the Company issued an aggregate of 12,549 shares of its common stock as payment for services to a consultant.  The shares were valued at $10, an average of $0.80 per share.

On March 15, 2017, Company entered into a subscription agreement with a related party for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300.

On April 5, 2017, the Company issued 360,002 shares of its common stock, at a price of $0.75 per share, for the cancellation of $270 in demand promissory notes.

Between May 9, 2017 and June 18, 2017, the Company issued an aggregate of 956,153 shares of its common stock as payment for services to its consultant.  The shares were valued at $498, an average of $0.52 per share.
On June 28, 2017, the Company issued 189,091 shares of its common stock, at a price of $0.55 per share, for the cancellation of a 7% convertible promissory note in the principal amount of $104.

On June 28, 2017, the holders of $55 of in short-term loans agreed to cancel their notes for the purchase of 100,001 shares of the Digital Power’s common stock at a price of $0.55 per share.
On July 7, 2017, the Company entered into an asset purchase agreement to acquire the intellectual property of Coolisys.com, consisting of the common law rights associated with the trademarks and name as well as the domain name and content of www.Coolisys.com. The aggregate purchase price of $81 was comprised of 50,000 shares of common stock, valued at $31 based on the closing price of the Common Stock on the date of the acquisition, and cash of $50.
On July 24, 2017, we entered into subscription agreements with six investors, and on July 25, 2017 we entered into securities purchase agreements (the “Securities Purchase Agreement”) with an institutional investor, under which we agreed to issue and sell in the aggregate 851,363 shares of common stock to the investors at $0.55 per share for an aggregate purchase price of $468. Of the aggregate purchase price of $468, $445 was paid in cash and $23 was in consideration for the cancellation of debt of the Company. The company granted warrants to purchase 109,090 shares of common stock to two of the investors that entered into the subscription agreements at $0.75 per share.
In a concurrent private placement, we sold to the institutional investor warrants to purchase an aggregate of 163,636 shares of the Company’s common stock at an exercise price equal to $0.55 per share.
On July 28, 2017, we entered into an exchange agreement with an institutional investor who was the owner of (i) a 7% Convertible Note in the principal amount of $125 and a warrant dated April 17, 2017 to purchase 83,334 shares of our common stock at $0.90. Under the terms of the exchange agreement, we agreed to exchange the 7% Convertible Note for three new promissory notes in the principal amounts of $110 due August 1, 2017; $35 due August 1, 2017; and $34 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes) and to exchange the prior warrant for a new warrant to purchase 83,334 shares of common stock at $0.55 per share.
33
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Concurrent with entering into this exchange agreement, the institutional investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. In addition, in a concurrent private placement, the institutional investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share.

Between August 21, 2017 and September 5, 2017, the Company issued an aggregate of 680,645 shares of its common stock as payment for services to its consultant.  The shares were valued at $424, an average of $0.62 per share.

15. RELATED PARTY TRANSACTION

a.
In anticipation of the acquisition of MTIX Ltd., an advanced materials and processing technology company located in Huddersfield, West Yorkshire, UK (“MTIX”) by AVLP and the expectation of future business generated by the Company from a strategic investment into AVLP, the Company entered into the AVLP Notes, three 12% Convertible Promissory Notes agreements in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in net loans to AVLP of $1,500 and an original issue discount of $75. The AVLP notes accrued interest at 12% per annum and were due on or before two years from the origination dates of each note. The Company had the right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at approximately $0.74536 per share. Subject to adjustment, the AVLP Notes, inclusive of the original issue discount, were convertible into 2,113,086 shares of the Company’s common stock. During the period from March 29, 2017 to August 16, 2017, the Company funded $1,809 in excess of the $1,500 net loan amount required pursuant to the terms of the AVLP Notes.
On September 6, 2017, the Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective date of August 21, 2017 pursuant to which the Company provided Avalanche a non-revolving credit facility of up to $5,000, inclusive of prior amounts loaned to AVLP, for a period ending on August 21, 2019, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. In consideration of entering into the AVLP Loan Agreement, the Company and AVLP cancelled the AVLP Notes and consolidated the AVLP Notes and prior advances and issued a new Convertible Promissory Note in the aggregate principal amount of $3,474 (the “New Note”) that is convertible into shares of AVLP at a conversion price of $0.50 per share. The New Note is due in two years and accrues interest at 12% per annum on the principal amount. Prior interest accrued under the AVLP Notes and advances will continue to be an obligation of AVLP. The New Note contains standard events of defaults. In addition, concurrent to issuing the New Note, AVLP issued to the Company a five-year Warrant to purchase 6,948,800 shares of AVLP Common Stock at $0.50 per share. Future advances under the AVLP Loan Agreement, if any, will be evidenced by a convertible promissory containing a conversion price feature at $0.50 per share and warrant with an exercise price of $0.50 per share. Further, under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP. (See Note 4).
During the nine months ended September 30, 2017, the Company invested $2,682 pursuant to the AVLP Loan Agreement and acquired 71,746 shares of AVLP common stock in the open market for $28.
34
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

During the three months ended December 31, 2016, the Company invested $950 pursuant to the AVLP Loan Agreement and acquired 250,900 shares of AVLP common stock in the open market for $85.
Philou is AVLP’s controlling shareholder.  Mr. Ault is Chairman of AVLP’s Board of Directors and the Executive Chairman of the Company’s Board of Directors. Mr. William B. Horne is the Chief Financial Officer of AVLP and also the audit committee chairman of the Company.
On October 24, 2016, AVLP entered into a letter of intent to acquire MTIX and made an initial payment of $50 towards the purchase. On August 22, 2017, pursuant to the terms of a Share Exchange Agreement datedreportable segments as of March 3, 2017,31, 2023 and seven as amended on July 13, 2017 and August 21, 2017 (the “Exchange Agreement”) with MTIX Limited, a company formed under the laws of England and Wales (“MTIX”) and the three (3) shareholders of MTIX (the “Sellers”), AVLP completed its acquisition of MTIX. Upon the terms and subject to the conditions set forth in the Exchange Agreement, AVLP acquired MTIX from the Sellers through the transfer of all issued and outstanding ordinary shares of MTIX (the “MTIX Shares”) by the Sellers to AVLP in exchange (the “Exchange”) for the issuance by AVLP of: (a) 7% secured convertible promissory notes (individually, a “Note” and collectively, the “Notes”) in the aggregate principal face amount of $9,500 to the Sellers in pro rata amounts commensurate with their current respective ownership percentages of MTIX’s ordinary shares, (b) (i) $500 in cash, $50, of which was paid on October 26, 2016, and (ii) 100,000 shares of AVLP’s newly designated shares of Class B Convertible Preferred Stock (the “Class B Shares”) to the principal shareholder of MTIX (the “Majority Shareholder”).
On the closing date, the fully-diluted AVLP shares shall be approximately 52 million shares of common stock, assuming that (i) the MTIX promissory notes are convertible into shares of AVLP common stock at a conversion price of $0.50 per share, (ii) the shares of AVLP Class B Convertible Preferred Stock are convertible into shares of AVLP common stock at a conversion rate of $0.50 per share and (iii) the issuance of stock options to purchase an aggregate of 531,919 shares of AVLP common stock to the members of the MTIX management group.

During March 2017, the Company was awarded a 3-year, $50 million purchase order by MTIX to manufacture, install and service the MLSE plasma-laser system.

b.On September 22, 2016, the Company entered into consulting agreement with Mr. Ault to assist the Company in developing a business strategy, identifying new business opportunities, developing a capital raising program and implementing of a capital deployment program.  For his services, Mr. Ault was paid $135 during the nine months ended September 30, 2017.

c.On October 21, 2016, the Company entered into a 12% convertible secured note in the principal amount of $530 and warrants with the Barry Blank Living Trust, an existing stockholder of the Company, for $500 due on October 20, 2019. The principal amount of the 12% convertible secured note may be convertible into shares of the Company’s common stock at $0.55 per share. Subject to certain beneficial ownership limitations, the Barry Blank Living Trust may convert the principal amount of the convertible note at any time into common stock. During the nine months ended September 30, 2017 the Company recorded interest expenses of $48 on the convertible note obligation.

d.
On December 29, 2016, the Company received a $250 short term loan from MCKEA. Kristine Ault, a director of the Company and the wife of Mr. Ault, is the managing member of MCKEA which, in turn, is the Manager of Philou, the majority stockholder of the Company. On March 24, 2017, the $250 loan was cancelled in consideration for the issuance of 25,000 shares of Series B preferred stock of the Company to Philou. During the nine months ended September 30, 2017 the Company recorded interest expenses of $3 on the short-term loan from MCKEA.
35
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

e.
In February 2017, the Company issued to eight accredited investors $400 in demand promissory notes bearing interest at a rate of 6% per annum. Of the eight accredited investors, one investor was deemed a related party.

f.On March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou. Pursuant to the terms of the Preferred Stock Purchase Agreement, Philou may invest up to $5,000 in the Company through the purchase of Series B Preferred Stock over 36 months. Between March 24, 2017 and June 2, 2017, Philou purchased 100,000 shares of Series B Preferred Stock pursuant to the terms of the Preferred Stock Purchase Agreement.

g.On March 15, 2017, Company entered into a subscription agreement with a related party for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300.

h.On March 20, 2017, the Company received a $250 short term loan from JLA Realty, an entity which owns 666,667 shares of the Company’s common stock, constituting approximately 4.7% of the Company’s outstanding shares of common stock at September 30, 2017, on behalf of Philou. The proceeds from this short-term loan comprised a portion of Philou’s purchase of Series B Preferred Stock.

i.
Between May 5, 2017 and June 30, 2017, the Company received additional short-term loans of $140 from four accredited investors of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share.On June 28, 2017, $52 in short-term loans that was received from the related party was converted into one of the Series C Units (See Note 10) and on        July 24, 2017, the remaining $23 in short-term loans was converted in 41,818 shares of the Company’s common stock in conjunction with the subscription agreements that the Company entered into with six investors (See Note 14).
j.
Between July 6, 2017 and September 30, 2017, Milton C. Ault, III, the Company’s Executive Chairman, personally guaranteed the repayment of (i) $2,585 to TVT Capital, (ii) $400 from the sale of the Convertible Note and (iii) $880 from the sale of the Convertible Notes. These personal guarantees were necessary to facilitate the consummation of these financing transactions. Mr. Ault’s payment obligations would be triggered if the Company failed to perform under these financing obligations. Our board of directors has agreed to compensate Mr. Ault for his personal guarantees. The amount of annual compensation for each of these guarantees, which will be in the form of non-cash compensation, is approximately 2% of the amount of the obligation.
k.
During the three months ended June 30, 2017, our Chief Executive Officer Amos Kohn purchased certain real property that will serve as a facility for the Company’s business operations in Israel. The Company made $300 of payments to the seller of the property that will be applied to either (i) an ownership interest, that would be transferred to the Company upon the approval of certain governmental authorities that authorize foreign ownership of real property in Israel or (ii) a leasing arrangement providing for the Company’s use of the property should such authorization not be obtained. The payments are classified as Other investments, related party in the accompanying condensed consolidated balance sheet at September 30, 2017.
l.
During the three and nine months ended September 30, 2017, DP Lending made loans to related parties of $54. The loans were made to Alzamend Neuro, Inc. (“Alzamend”), Restaurant Capital Group, LLC, a wholly-owned subsidiary of AVLP, and Click Media, Inc. (“Cross Click”) in the amounts of $44, $5, and $5, respectively.  The loans are classified as Other investments, related party in the accompanying condensed consolidated balance sheet at September 30, 2017. AVLP is a party to a management services agreement with Alzamend Neuro, Inc. (“Alzamend”) pursuant to which Avalanche provides management, consulting and financial services to Alzamend. MCKEA is the controlling shareholder of Cross Click.
36
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

16. SEGMENT, CUSTOMERS AND GEOGRAPHICAL INFORMATION

The Company has two reportable geographic segments;31, 2022; see Note 1 for a brief description of the Company’s business.

The following data presents the revenues, expenditures and other operating data of the Company’s geographic operating segments and presented in accordance with ASC No. 280.for the three months ended March 31, 2023:

Schedule of operating segments                                            
  GWW  TurnOnGreen  Fintech  BNI  AGREE  

Ault

Disruptive

  SMC  Energy  BMI  

Holding

Company

  Total 
Revenue $8,708,000  $876,000  $-  $-  $-  $-  $3,383,000  $25,000  $-  $-  $12,992,000 
Revenue, cryptocurrency mining  -   -   -   7,347,000   -   -   -   -   -   -   7,347,000 
Revenue, commercial real estate leases  -   -   -   458,000   -   -   -   439,000   -   -   897,000 
Revenue, lending and trading activities  -   -   (4,939,000)  -   -   -   -   -   -   -   (4,939,000)
Revenue, crane operations  -   -   -   -   -   -   -   12,646,000   -   -   12,646,000 
Revenue, hotel operations  -   -   -   -   2,243,000   -   -   -   -   -   2,243,000 
Total revenues $8,708,000  $876,000  $(4,939,000) $7,805,000  $2,243,000  $-  $3,383,000  $13,110,000  $-  $-  $31,186,000 
                                             
Depreciation and amortization expense $590,000  $143,000  $-  $3,335,000  $838,000  $-  $371,000  $1,070,000  $83,000  $610,000  $7,040,000 
                                             
Income (loss) from operations $(2,672,000) $(980,000) $(6,985,000) $(475,000) $(1,555,000) $(383,000) $(2,251,000) $1,970,000  $(8,056,000) $(10,031,000) $(31,418,000)
                                             
Capital expenditures for the three months ended March 31, 2023 $46,000  $10,000  $-  $1,052,000  $2,699,000  $-  $142,000  $331,000  $407,000  $2,334,000  $7,021,000 
                                             
Identifiable assets as of March 31, 2023 $37,952,000  $6,293,000  $27,109,000  $73,589,000  $97,519,000  $119,649,000  $21,013,000  $95,942,000  $12,929,000  $34,913,000  $526,907,000 

Segment information for the three months ended March 31, 2022:

  GWW  TurnOnGreen  Ault
Alliance		  BNI  AGREE  Ault
Disruptive		  Holding
Company		  Total 
Revenue $7,245,000  $1,129,000  $7,000  $-  $-  $-  $-  $8,381,000 
Revenue, cryptocurrency mining  -   -   -   3,548,000   -   -   -   3,548,000 
Revenue, commercial real estate leases  -   -   -   278,000   -   -   -   278,000 
Revenue, lending and trading activities  -   -   17,921,000   -   -   -   -   17,921,000 
Revenue, hotel operations  -   -   -   -   2,698,000   -   -   2,698,000 
Total revenues $7,245,000  $1,129,000  $17,928,000  $3,826,000  $2,698,000  $-  $-  $32,826,000 
                                 
Depreciation and amortization expense $294,000  $298,000  $34,000  $1,527,000  $828,000  $-  $173,000  $3,154,000 
                                 
Income (loss) from operations $(144,000) $(1,175,000) $11,912,000  $(363,000) $(1,382,000) $(297,000) $(7,521,000) $1,030,000 
                                 
Capital expenditures for the three months ended March 31, 2022 $129,000  $75,000  $88,000  $34,987,000  $34,000  $-  $46,000  $35,359,000 
                                 
Identifiable assets as of March 31, 2022 $34,479,000  $6,342,000  $71,852,000  $131,833,000  $92,473,000  $118,650,000  $63,295,000  $518,924,000 

F-23
  Nine months ended September 30, 2017 (unaudited) 
  DPC  DPL  Eliminations  Total 
             
Revenues $5,206  $1,464  $—  $6,670 
Inter-segment revenues $43  $—  $(43) $— 
Total revenues $5,249  $1,464  $(43) $6,670 
                 
Depreciation and amortization expense $75  $53  $—  $128 
                 
Loss from operations $(3,277) $(272) $—  $(3,549)
                 
Interest expense, net             $(1,367)
                 
Net loss attributable to non-controlling interest             $216 
                 
Net loss attributable to Digital Power Corp             $(4,700)
                 
Capital expenditures for segment assets, as Sept. 30, 2017 $8  $13  $—  $21 
                 
Identifiable assets as of September 30, 2017 $12,315   1,666  $—  $13,981 
  Nine months ended September 30, 2016 (unaudited) 
  DPC  DPL  Eliminations  Total 
             
Revenues $3,408  $2,195  $—  $5,603 
Inter-segment revenues $89  $—  $(89) $— 
Total revenues $3,497  $2,195  $(89) $5,603 
                 
Depreciation and amortization expense $57  $66  $—  $123 
                 
Loss from operations $(147) $(125) $—  $(272)
                 
Interest income, net             $85 
                 
Income tax benefit             $22 
                 
Net loss             $(165)
                 
Capital expenditures for segment assets, as of Sept. 30, 2016 $23  $51  $—  $74 
                 
Identifiable assets as of September 30, 2016 $2,084  $2,371  $—  $4,455 
37
DIGITAL POWER CORPORATION

23. CONCENTRATIONS OF CREDIT AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
  Three months ended September 30, 2017 (unaudited) 
  DPC  DPL  Eliminations  Total 
             
Revenues $2,877  $343  $—  $3,220 
Inter-segment revenues $6  $—  $(6) $— 
Total revenues $2,883  $343  $(6) $3,220 
                 
Depreciation and amortization expense $32  $16  $—  $48 
                 
Loss from operations $(1,137) $(181) $—  $(1,318)
                 
Interest expense, net             $(753)
                 
Net loss attributable to non-controlling interest             $104 
                 
Net income (loss)             $(1,967)
                 
Capital expenditures for segment assets, as of Sept. 30, 2017 $-  $-  $—  $- 
                 
Identifiable assets as of September 30, 2017 $12,315  $1,666  $—  $13,981 
  Three months ended September 30, 2016 (unaudited) 
  DPC  DPL  Eliminations  Total 
             
Revenues $1,248  $578  $—  $1,826 
Inter-segment revenues $27  $—  $(27) $— 
Total revenues $1,275  $578  $(27) $1,826 
                 
Depreciation and amortization expense $19  $21  $—  $40 
                 
Income (loss) from operations $34  $(117) $—  $(83)
                 
Interest income, net             $23 
                 
Income tax benefit             $22 
                 
Net income (loss)             $(38)
                 
Capital expenditures for segment assets, as of September 30,
2016
 $—  $4  $—  $4 
                 
Identifiable assets as of September 30, 2016 $2,084  $2,371  $—  $4,455 
38
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Concentration Risk:
REVENUE RISK

The following table providessummarizes accounts receivable that are concentrated with certain large customers as of March 31, 2023 and December 31, 2022:

Schedule of concentrations of credit risk        
  March 31, 2023  December 31, 2023 
 Customer A  15.9%  12.8%
 Customer B  6.9%  13.5%

For the percentage of total revenues attributable to a singleyear three months ended March 31, 2023 and 2022, no customer from which represented 10% or more of total revenues are derived:

  For the three months ended Sept. 30, 2017  For the nine months ended Sept. 30, 2017 
             
  Total Revenues     Total Revenues    
  by Major  Percentage of  by Major  Percentage of 
  Customers  Total Company  Customers  Total Company 
  (in thousands)  Revenues  (in thousands)  Revenues 
Customer A $433   13% $1,062   16%
  For the three months ended Sept. 30, 2016  For the nine months ended Sept. 30, 2016 
             
  Total Revenues     Total Revenues    
  by Major  Percentage of  by Major  Percentage of 
  Customers  Total Company  Customers  Total Company 
  (in thousands)  Revenues  (in thousands)  Revenues 
Customer A $407   22% $1,176   21%
Customer B $253   14% $—   — 
Customer C $196   11% $—   — 

Revenue from Customer A and B were attributableconsolidated revenues.

24. SUBSEQUENT EVENTS

2022 Preferred ATM Offering

During the period between April 1, 2023 through May 19, 2023, the Company sold an aggregate of 105,475 shares of Series D Preferred Stock pursuant to Digital Power and revenue from Customer C attributable to DP Limited.

For the three and nine months ended September 30, 2017 and 2016, total revenues from external customers divided on2022 Preferred ATM Offering for net proceeds of $1.2 million.

Investments in Alpha Fund

During the basisperiod between April 1, 2023 through May 19, 2023, Ault Lending purchased an additional $0.3 million of the Company’s product lines are as follows:

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2017  2016  2017  2016 
             
Revenues:            
Commercial products $1,342  $1,505  $3,362  $3,971 
Defense products  1,878   321   3,308   1,632 
Total revenues $3,220  $1,826  $6,670  $5,603 

Financial data relating to geographic areas:

The Company’s total revenues are attributed to geographic areas based on the location. The following table presents total revenues for the three and nine months ended September 30, 2017 and 2016. Other than as shown, no foreign country contributed materially to revenues or long-lived assets for these periods:
39
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollarslimited partnership interests in thousands, except share and per share data
  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2017  2016  2017  2016 
             
Revenues:            
North America $2,671  $1,125  $4,746  $3,128 
Europe  342   314   1,244   1,548 
South Korea  3   196   223   499 
Other  204   191   457   428 
Total revenues $3,220  $1,826  $6,670  $5,603 

17. SUBSEQUENT EVENTS

In accordance with FASB ASC 855-10,Alpha Fund.

12% Term Note

On April 5, 2023, the Company issued a term note with a principal amount of $1.1 million, bearing an interest rate of 12%. The term note was issued at a discount, with net proceeds to the Company amounting to $1.0 million. The note is scheduled to mature on June 5, 2023. The Company has analyzed its operations subsequentthe option to September 30, 2017 and has determined that it does not have any material subsequent events to disclose in these financial statements except forextend the following.

Common Stock
maturity date by one month, upon payment of a $30,000 extension fee. Ault & Company, a related party, guaranteed the term note.

Series C Preferred Purchase Agreement

On October 4, 2017,May 1, 2023, the Company entered into a Securities Purchase Agreementsecurities purchase agreement (the “Agreement”) with Ault & Company, pursuant to which the Company agreed to sell 75,000to Ault & Company up to 40,000 shares of commonSeries C convertible preferred stock and warrants to purchase 75,000up to 1.3 million shares of common stock at $0.60 per sharefor a total purchase price of up to $40 million. The consummation of the transactions contemplated by the Agreement are subject to various customary closing conditions and the receipt of certain third party consents. In addition to customary closing conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company for $50. Mr. Ault isof financing in an amount sufficient to consummate the Chairman and majority shareholder oftransaction. The Agreement contains customary termination provisions for Ault & Company.

Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to May 31, 2023, although such date may be extended by Ault & Company as set forth in the Agreement.

Amendment to 16% Secured Promissory Note

On October 18, 2017,May 2, 2023, the Company entered into subscription agreementsa second amendment agreement, effective as of April 18, 2023, with five investors, under which we agreed to issue and sell in the aggregate 452,239 shares of common stockInitial Investor related to the investors at $0.67 per shareDecember 2022 16% secured promissory note extending the due date on the date for an aggregate purchase price of $303. $75 of the purchase price was paid in cash and $228 was paid through the cancellation of debt incurred by the Company, of which $93 was from a related party.

On November 7, 2017, the Company entered into subscription agreements with investors under which the Company was required to make a payment of $1.0 million. The Company agreed to issue and sell inincrease the aggregate 725,000 shares of common stock to the investors at $0.60 per share for an aggregate purchase price of $435. $180principal amount of the aggregate purchase price was paid in cashnote by $0.2 million as an extension fee and $255 was paid throughto grant the cancellationInvestors an additional 2,000 miners as collateral for repayment of debt incurred by the Company.
October 3, 2017,notes.

Original Issuance Discount Term Notes

On May 15, 2023, the Company issued a term note with a principal amount of $1.3 million, which does not bear interest unless there is an aggregateevent of 490,000 shares of its common stock as payment for servicesdefault. The term note was issued at a discount, with net proceeds to its consultant.  The shares were valued at $265, an average of $0.54 per share.


Advance on Future Receipts

On October 17, 2017, the Company amounting to $1.0 million. The Company is obligated to repay $1.0 million of the note on June 15, 2023 and Microphase, entered intothe remaining $0.3 million on June 30, 2023. Upon an Agreement for the Purchase and Saleevent of Future Receipts with TVT Capital LLC pursuant to whichdefault, the Company and Microphase collectively sold in the aggregate $834 in Future Receiptswill pledge its ownership of the Company and Microphase for $600. Under the terms of the agreement, the Company and Microphase will be obligated to pay $21membership interests in the aggregate on456 Lux Hotel NYC, LLC, which is a weekly basis until the purchase price of $834, has been paidlimited partner in full. In connection with entering into the agreement, the Company and Microphase collectively paid a $30 origination fee. In addition, the purchase price of $834 has been personally guaranteed byNYREIC 456 LP. Milton “Todd” Ault, III, the Company’s Executive Chairman.

Chairman, and his wife, guaranteed repayment of the term note.

On November 1, 2017,May 16, 2023, the Company issued a term note with a principal amount of $120,000, which does not bear interest. The term note was issued at a discount, with net proceeds to the Company amounting to $100,000. The note is scheduled to mature on June 16, 2023. The Company has the option to extend the maturity date by 15 days, upon payment of an extension fee equal to 1% of the amount then outstanding.

On May 17, 2023, the Company issued a term note with a principal amount of $1.3 million, which does not bear interest unless there is an event of default. The term note was issued at a discount, with net proceeds to the Company amounting to $1.0 million. The note is scheduled to mature on July 17, 2023. Milton “Todd” Ault, III, the Company’s Executive Chairman, and Libertas Funding LLC (“Libertas”),Ault & Company guaranteed repayment of the term note.

BMI Securities Purchase Agreement

On April 27, 2023, BMI entered into an Agreementa securities purchase agreement with certain accredited investors providing for the Purchaseissuance of senior secured convertible notes with an aggregate principal face amount of $6.9 million convertible into shares of BMI common stock and Sale of Future Receivables pursuant to which the Company and Libertas collectively sold the rights of up to $594 in future receipts of the Company for $400. If the Company pays Libertas by January 3, 2018, the purchased amount will be discounted to $497. Until that date, no specific payment schedules are required. After January 3, 2018, if the Company has not paid the $497, the Company agrees to pay the aggregate of $594 in future receipts under the following terms. The Company will be obligated to pay $25 on a weekly basis until the purchased price of $594 has been paid in full. In conjunction with this agreement, the Company also issuedfive-year warrants to purchase an aggregate of 200,00063.0 million shares of the Company’s Common Stock at $0.725 per share. The purchase price of $400 has been personally guaranteed by Philou and by Milton and Kristine Ault, directors of the Company.

40
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
On November 1, 2017, the Company entered into an Agreement for the Purchase and Sale of Future Receipts with TVT pursuant to which the Company sold up to $223 in Future Receipts of the Company for $150. If the Company pays TVT by January 3, 2018, the purchased amount will be discounted to $177. Until that date, no specific payment schedules are required. After January 3, 2018, if the Company has not paid the $177, the Company agrees to pay an aggregate amount of $223 under the following terms. The Company will be obligated to pay $13 on a weekly basis until the purchase price of $223 has been paid in full. The Agreement also includes warrants to purchase 75,000 shares of the Company’sBMI common stock at an exercise price of $0.725 per share. In addition, the purchase price of $150 has been personally guaranteed by Mr. Ault.

Convertible Debentures

On November 2, 2017, Digital Power entered into a Securities Purchase Agreement (the “Nov. Purchase Agreement”) with an institutional investor (the “Purchaser”), pursuant to which the Company has agreed, upon the terms and subject to the conditions of the Nov. Purchase Agreement, to issue and sell to the Purchaser (i) at the first closing, 300,000 shares of restricted common stock of the Company (the “Restricted Shares”) and a 10% Original Issue Discount Convertible Debenture for a purchase price of $1,010 with a principal face amount of $1,111 (the “First Convertible Debenture”) and (ii) at the second closing, an additional 10% Original Issue Discount Convertible Debenture for an aggregate purchase price of $990 with an aggregate principal face amount of $1,089 (the “Second Convertible Debenture”, and together with the First Convertible Debenture, the “Convertible Debentures”). The Company and the Purchaser consummated the first closing on November 2, 2017. The second closing, if any, shall occur only at both parties’ mutual agreement at any time following the Company’s registration for resale of the Restricted Shares and shares of common stock underlying the First Convertible Debenture, and shareholder approval of the transactions contemplated by the Purchase Agreement in accordance with Section 713 of the NYSE American Company Guide.
10% Original Issue Discount Convertible Debentures
The Convertible Debentures have a term of eight months, bear interest at 5% per year and the principal of the Convertible Debentures and interest earned thereon may be converted into shares of common stock at $0.60$0.1091 per share, subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. In the event thatadjustment. The Notes are secured by a guaranty provided by the Company, consummates any debt or equity financing with gross proceeds toas well as by Milton “Todd” Ault, III, the Company’s Executive Chairman, and Ault & Company equal to or greater than $7,500, then the Company shall prepay to the holder in cash 110%guaranteed repayment of the outstanding principal amounts of the Convertible Debentures and any accrued and unpaid interest if the closing of such transaction occurs within ninety days from the original issue date of a debenture,term note.

BMI and the Company shall prepay to the holder in cash 115% of the outstanding principal amounts of the Convertible Debentures and any accrued and unpaid interest if the closing of such transaction occurs between 91 days from the original issue date and the maturity date of the Convertible Debenture. The Company has the option to prepay all amounts owed under the Convertible Debentures in cash at a rate of 110% within 90 days from the original issue date and 115% from 91 days from the original issue date through the maturity date.

Registration Rights Agreement
In connection with the Nov. Purchase Agreement, the Companyinvestors entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchaser, pursuant to which the Company haswhereby BMI agreed to file a registration statement to register the conversion shares and warrant shares.

The senior secured convertible notes bear no interest as they were issued with an original issuance discount. The maturity date of the SecuritiesNotes is April 27, 2024. The senior secured convertible notes are convertible at a price per share equal to the lower of (i) $0.1091 or (ii) the greater of (A) $0.0168 and Exchange Commission covering(B) 85% of the Restricted Shares and the shareslowest volume weighted average price of BMI common stock underlyingduring the First Convertible Debenture within 3010 trading days of the first closing and the shares of common stock underlying the Second Convertible Debenture within 30 days of the second closing. The Company has agreedprior to use its best efforts to have the registration statement declared effective within 60 days of each closing date. If the Company is unable to meet its obligations under the Registration Rights Agreement, on each such date of failure or breach and on each monthly anniversary thereof if not cured by such date, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1% of the subscription amount paid pursuant to the Purchase Agreement. Subsequent to the 90th day from such date of failure or breach, the 1% penalty shall increase to 2%, with an aggregate cap of 20% per year. If the Company fails to pay any partial liquidated damages within seven days after the date payable, the Company will pay interest thereon at a rate of 18% (or such lesser maximum amount that is permitted to be paid by applicable law).


41
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Warrant Issued to Financial Advisor
In connection with the transactions contemplated by the Nov. Purchase Agreement, on November 2, the Company paid to Aegis Capital Corp. (“Aegis”), its financial advisor, a cash fee of $81 and issued to Aegis a warrant to purchase up to 148,133 shares of common stock with an exercise price of $0.66 per share (the “Warrant”), subject to adjustment for stock splits, stock dividends, combinations or similar events. The Warrant is exercisable at any time commencing six months from the date of issuance through five years from the date of issuance. The Warrant may be exercised for cash or on a “cashless” basis if there is no effective registration statement registering, or no current prospectus available for the resale of, all of the shares of Common Stock underlying the Warrant. Holders of the Warrant have “piggy-back” registration rights for a period of five years from the date of issue.

Loan and Security Agreement with I.AM, Inc.
On November 1, 2017, the Company and I.AM, Inc. (“I.AM”) entered into a Loan and Security Agreement (“Loan Agreement”) pursuant to which the Company will provide I.AM a non-revolving credit facility of up to $1,300, for a period ending on September 25, 2022,conversion, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. Advances on the credit facility accrue at a rate of 6.0% on the outstanding daily balance. The Loan Agreement is secured by the assets of I.AM’s membership interests in three restaurant LLCs.adjustment.

F-24
42

ITEM 2.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this quarterly report, the “Company,” “Digital Power,“AAI,” “we,” “us” and “our” refer to Digital Power Corporation,Ault Alliance, Inc., a California corporation,Delaware corporation. AAI is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through our wholly-owned subsidiaries, Coolisys Technologies, Inc., Power-Plus Technical Distributors, LLC, Digital Power Lending, LLC, Digital Power Limitedwholly and our majority owned subsidiary, Microphase Corporation.

GENERAL

We aresubsidiaries and strategic investments, we own and operate a growth company seekingdata center at which we mine Bitcoin, and provide mission-critical products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, we own and operate hotels and extend credit to increase our revenuesselect entrepreneurial businesses through acquisitions.  Our strategy reflects our managementa licensed lending subsidiary.

Recent Events and Board’s current philosophy that occurred asDevelopments

On January 23, 2023, we filed a resultCertificate of a change in control completed in September 2016.  Our acquisition and development target strategy includes companies that have developed a “new wayElimination with the Secretary of doing business” in mature, well-developed industries experiencing changes due to new technology; companies that may become profitable or more profitable through efficiency and reductionState of costs; companies that are relatedthe State of Delaware with respect to our core business inSeries C convertible redeemable preferred stock (“Series C Preferred Stock”) which, effective upon filing, eliminated the commercialSeries C Preferred Stock.

On February 8, 2023, we entered into a Share Exchange Agreement (the “Agreement”) with BMI and defense industries;the other signatories thereto. The Agreement provides that, subject to the terms and companies thatconditions set forth therein, BMI will enhanceacquire all of the outstanding shares of capital stock of our overall revenues.  It is our goal to substantially increase our gross revenues inthen subsidiary, BitNile.com, Inc. (“BitNile.com”), of which we owned approximately 86%, and the near future.


We were originally a solution-driven organization that designs, develops, manufacturesremaining 14% was owned by minority shareholders (the “Minority Shareholders”), as well as Ault Iconic, (formerly Ault Media Group) and sells high-grade customized and flexible power system solutions for the medical, military, telecom and industrial markets.  Although we intend to seek growth through acquisitions, we will continue to focus on high-grade and custom product designs for the commercial, medical and military/defense markets, where customers demand high density, high efficiency and ruggedized products to meet the harshest and/or military mission critical operating conditions.

We have operations located in Europe through our wholly-owned subsidiary, Digital Power Limited ("DP Limited"), Salisbury, England, which operates under the brand namesecurities of “Gresham Power Electronics” (“Gresham”).  DP Limited designs, manufactures and sells power products and system solutions mainly for the European marketplace, including power conversion, power distribution equipment, DC/AC (Direct Current/Active Current) inverters and UPS (Uninterrupted Power Supply) products. Our European defense business is specialized in the field of naval power distribution products.

On November 30, 2016, Digital Power formed Digital Power Lending, LLC (“DP Lending”), a wholly-owned subsidiary. DP Lending is engaged in providing commercial loans to companies throughout the United States to provide them with operating capital to finance the growth of their businesses. The loans will primarily be short-term, ranging from six to twelve months.

On June 2, 2017, Digital Power purchased 56.4%Earnity beneficially owned by BitNile.com (which represented approximately 19.9% of the outstanding equity interestssecurities of Microphase CorporationEarnity as of the date of the Agreement), in exchange for the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of BMI to be issued to our company (the “Microphase”“Series B Preferred”), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of BMI to be issued to the to the Minority Shareholders (the “Series C Preferred,” and together with the Series B Preferred, the “Preferred Stock”). MicrophaseThe Series B Preferred and the Series C Preferred each have a stated value of $10,000 per share (the “Stated Value”), for a combined stated value of the Preferred Stock to be issued by BMI of $100 million, and subject to adjustment, are convertible into an aggregate of 400 million shares of common stock of BMI (the “BMI Common Stock”), which represent and pursuant to the Agreement will represent approximately 92.4% of BMI’s outstanding BMI Common Stock on a fully-diluted basis as of the date of the Agreement. However, pending approval of the transaction by BMI’s shareholders, the Preferred Stock is subject to a design-to-manufacture original equipment manufacturer (“OEM”19.9% beneficial ownership limitation, including the Series A Convertible Preferred Stock that we acquired from BMI in June of 2022. The Agreement provides that BMI will seek shareholder approval (the “Shareholder Approval”) industry leader delivering world-class radio frequency (“RF”following the closing.

Pursuant to the Certificates of Designations of the Rights, Preferences and Limitations of the Series B Preferred and the Series C Preferred (collectively, the “Preferred Stock Certificates”), each share of Preferred Stock will be convertible into a number of shares of BMI Common Stock determined by dividing the Stated Value by $0.25 (the “Conversion Price”), or 40,000 shares of BMI Common Stock. The Conversion Price will be subject to certain adjustments, including potential downward adjustment if BMI closes a qualified financing resulting in at least $25 million in gross proceeds at a price per share that is lower than the Conversion Price then in effect. The holders of Preferred Stock will be entitled to receive dividends at a rate of 5% of the Stated Value per annum from issuance until February 7, 2033 (the “Dividend Term”). During the first two years of the Dividend Term, dividends will be payable in additional shares of Preferred Stock rather than cash, and thereafter dividends will be payable in either additional shares of Preferred Stock or cash as each holder may elect. If BMI fails to make a dividend payment as required by the Preferred Stock Certificates, the dividend rate will be increased to 12% for as long as such default remains ongoing and uncured. Each share of Preferred Stock will also have an $11,000 liquidation preference in the event of a liquidation, change of control event, dissolution or winding up of BMI, and will rank senior to all other capital stock of BMI with respect thereto, except that the Series B Preferred and Series C Preferred shall rank pari passu. Each share of Series B Preferred was originally entitled to vote with the BMI Common Stock at a rate of 10 votes per share of Common Stock into which the Series B Preferred is convertible, but that provision was subsequently eliminated. Other than certain rights granted to the Company relating to amendments or waiver of various negative covenants, the terms, rights, preferences and limitations of the Preferred Stock Certificates are essentially identical. The Agreement closed on March 6, 2023.

On March 28, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which we sold, in a private placement, an aggregate of 100,000 shares of our preferred stock, with each such share having a stated value of $100.00 and consisting of (i) 83,000 shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”), (ii) 1,000 shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies(iii) 16,000 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and detector logarithmic video amplifiers (“DLVA”collectively, the “Preferred Shares”). The Preferred Shares are convertible into shares of our common stock at the option of the holders and, in certain circumstances, by us.

1

Each share of Series E Preferred Stock and Series F Preferred Stock had a purchase price of $100.00, equal to each such share’s stated value. The purchase price of the Series E Preferred Stock and the Series F Preferred Stock was paid for by the Investors’ canceling outstanding secured promissory notes in the principal amount of $8.4 million, whereas the purchase price of the shares of Series G Preferred Stock consisted of accrued but unpaid interest on these notes, as well as for other good and valuable consideration. Each Preferred Share is convertible into shares of our common stock at a conversion price equal to 85% of the closing sale price of our common stock on the trading day prior to the date of conversion, subject to a floor price of $0.10. The Preferred Shares became convertible at the option of the holder following our receipt of stockholder approval of the Reverse Split (as defined below). The private placement closed on March 30, 2023.

We called a special meeting of stockholders, which was held on May 15, 2023, to consider an amendment (the “Amendment”) to our Certificate of Incorporation to authorize a reverse split of our common stock (the “Reverse Split”). The Investors agreed in the military, aerospacePurchase Agreement to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the Preferred Shares until after the Reverse Split. Pursuant to the certificate of designation of the Series E Preferred Stock, the shares of Series E Preferred Stock had the right to vote on such Amendment on an as converted to common stock basis. In addition, pursuant to the certificate of designation of the Series F Preferred Stock, the shares of Series F Preferred Stock had the right to vote on such Amendment. Each Investor agreed to vote the shares of the Series E Preferred Stock in favor of the Amendment and telecommunications industries. Microphase is headquarteredthat the shares of the Series F Preferred Stock shall automatically be voted in Shelton, Connecticut.


a manner that “mirrors” the proportions on which the shares of our common stock and Series E Preferred Stock are voted on the Amendment. The Amendment required the approval of the majority of the votes associated with our outstanding capital stock entitled to vote on the proposal.

On April 25, 2017, Digital Power formed Coolisys Technologies,May 15, 2023, we held the special meeting of stockholders, at which meeting the Reverse Split was approved by the stockholders. On May 15, 2023, we approved a ratio with respect to the Reverse Split of one-for-three hundred. The Reverse Split did not affect the number of authorized shares of common stock or preferred stock or their par value per share. As a result of the Reverse Split, each three hundred shares of common stock issued and outstanding prior to the Reverse Split were converted into one share of common stock. The Reverse Split became effective in the State of Delaware on May 17, 2023. All share amounts in this Quarterly Report have been updated to reflect the Reverse Split.

On May 1, 2023, we entered into a securities purchase agreement (the “Series C Agreement”) with Ault & Company, Inc. (“Coolisys”(“Ault & Company”), a wholly-owned subsidiary.related party, pursuant to which we agreed to sell to Ault & Company up to 40,000 shares of Series C convertible preferred stock and warrants to purchase up to 1.3 million shares of common stock for a total purchase price of up to $40 million. The Company intends to operate its existing businesses in the customized and flexible power system solutions for the medical, military, telecom and industrial markets, other than the European markets which are primarily served by DP Limited, in Coolisys.


Further, on September 1, 2017, Coolisys acquired allconsummation of the outstanding membership interests in Power-Plus Technical Distributors, LLC, a California limited liability company (“Power-Plus”). Power-Plus is an industrial distributortransactions contemplated by the Series C Agreement are subject to various customary closing conditions and the receipt of value added power supply solutions, UPS systems, fans, filters, line cords, and other power-related components.certain third party consents. In addition to its currentcustomary closing conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company of financing in an amount sufficient to consummate the transaction. The Series C Agreement contains customary termination provisions for Ault & Company under certain circumstances, and the Series C Agreement shall automatically terminate if the closing has not occurred prior to May 31, 2023, although such date may be extended by Ault & Company as set forth in the Series C Agreement.

General

As a holding company, our business Power-Plusobjective is designed to increase stockholder value. Under the strategy we have adopted, we are focused on managing and financially supporting our existing subsidiaries and partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to stockholders. We have, are and will serveconsider initiatives including, among others: public offerings, the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations and working capital needs.

From time to time, we engage in discussions with other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary or partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our stockholders’ best interests, we will seek to sell some or all of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner companies public through rights offerings and directed share subscription programs. We will continue to consider these (or similar) programs and the sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our stockholders.

2

In recent years, we have provided capital and relevant expertise to fuel the growth of businesses in metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. We have provided capital to subsidiaries as well as partner companies in which we have an extended sales organization for the Company’s overall flexible power system solutions.


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equity interest or may be actively involved, influencing development through board representation and management support.

We are a CaliforniaDelaware corporation formed in 1969 andwith our corporate office located in the heart of the Silicon Valley at 48430 Lakeview Blvd, Fremont, California 94538-3158.11411 Southern Highlands Pkwy, Suite 240, Las Vegas, NV 89141. Our phone number is 510-657-2635949-444-5464 and our website address is www.digipwr.com.


RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016
Revenues
Our revenues increased by $1,394 or 76% to $3,220www.ault.com.

Results of Operations

Results of Operations for the Three Months Ended March 31, 2023 and 2022

The following table summarizes the results of our operations for the three months ended September 30, 2017, from $1,826March 31, 2023 and 2022.

  For the Three Months Ended March 31, 
  2023  2022 
       
Revenue $13,889,000  $8,659,000 
Revenue, cryptocurrency mining  7,347,000   3,548,000 
Revenue, hotel operations  2,243,000   2,698,000 
Revenue, crane operations  12,646,000   - 
Revenue, lending and trading activities  (4,939,000)  17,921,000 
Total revenue  31,186,000   32,826,000 
Cost of revenue, products  9,787,000   5,748,000 
Cost of revenue, cryptocurrency mining  8,103,000   2,497,000 
Cost of revenue, hotel operations  2,688,000   2,249,000 
Cost of revenue, hotel operations  7,388,000   - 

Cost of revenue, lending and trading activities

  

1,180,000

   

-

 
Total cost of revenue  29,146,000   10,494,000 
Gross profit  2,040,000   22,332,000 
Total operating expenses  33,458,000   21,302,000 
Loss from operations  (31,418,000)  1,030,000 
Other income (expense):        
Interest and other income  1,197,000   449,000 
Interest expense  (13,730,000)  (29,824,000)

Loss on extinguishment of debt

  (63,000)  - 
Realized gain on marketable securities  (38,000)  109,000 
Loss from investment in unconsolidated entity  -   (533,000)
Impairment of equity securities  (9,555,000)  - 
Gain on the sale of fixed assets  4,515,000   - 
Change in fair value of warrant liability  -   (18,000)
Loss before income taxes  (49,092,000)  (28,787,000)
Income tax benefit  (263,000)  - 
Net loss  (48,829,000)  (28,787,000)
Net loss attributable to non-controlling interest  183,000   15,000 
Net loss attributable to Ault Alliance, Inc.  (48,646,000)  (28,772,000)
Preferred dividends  (229,000)  (5,000)
Net loss available to common stockholders $(48,875,000) $(28,777,000)
Comprehensive loss        
Net loss available to common stockholders $(48,875,000) $(28,777,000)
Other comprehensive income (loss)        
Foreign currency translation adjustment  170,000   (287,000)
Total comprehensive loss $(48,705,000) $(29,064,000)

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Revenues

Revenues by segment for the three months ended September 30, 2016. March 31, 2023 and 2022 were as follows:

  For the Three Months Ended
March 31,		  Increase    
  2023  2022  (Decrease)  % 
GIGA $8,708,000  $7,245,000  $1,463,000   20%
TurnOnGreen  876,000   1,129,000   (253,000)  -22%
SMC  3,383,000   -   3,383,000   — 
BNI                
Revenue, cryptocurrency mining  7,347,000   3,548,000   3,799,000   107%
Revenue, commercial real estate leases  458,000   278,000   180,000   65%
AGREE  2,243,000   2,698,000   (455,000)  -17%
Fintech:                
Revenue, lending and trading activities  (4,939,000)  17,921,000   (22,860,000)  -128%
Other  -   7,000   (7,000)  -100%
Energy  13,110,000   -   13,110,000   — 
Total revenue $31,186,000  $32,826,000  $(1,640,000)  -5%

Our revenues decreased by $1.6 million, or 5%, to $31.2 million for the three months ended March 31, 2023, from $32.8 million for the three months ended March 31, 2022.

GIGA

The $1.5 million increase in our GIGA segment revenue wasfor the three months ended March 31, 2023 included $0.4 million attributable to our recent acquisition of Giga-tronics Incorporated on September 8, 2022. The improved economic environment following COVID-19 disruptions, along with increased military spending, drove growth in our GIGA segment, which provides customized solutions for military markets. Additionally, revenue from Enertec Systems 2001 Ltd., a subsidiary of Giga-tronics Incorporated, which is primarily recognized over time, increased by 7%, to $3.5 million for the three months ended March 31, 2023, up $0.2 million from $3.3 million in the prior-year period.

TurnOnGreen

TurnOnGreen revenues were down $0.3 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

SMC

SMC revenues increased by $3.4 million due to the acquisition of SMC in June 2022.

BNI

Revenues from BNI’s cryptocurrency mining operations increased $3.8 million as we increased our cryptocurrency mining activities from the prior period, partially offset by lower Bitcoin prices and an increase in Bitcoin mining difficulty level in the current year period.

AGREE

AGREE’s revenues decreased by $0.5 million due to interruptions in business operations as the properties were being renovated during the three months ended March 31, 2023. The renovations were completed in April 2023.

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Fintech

Revenues from our lending and trading activities were negative $4.9 million due to significant unrealized losses for the three months ended March 31, 2023 from our investment portfolio. During the three months ended March 31, 2022, Ault Lending generated significant income from appreciation of investments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to Ault Lending in certain financing transactions. Revenue from lending and trading activities for the three months ended March 31, 2023 included an approximate $1.5 million unrealized loss from our investment in Alzamend. Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.

Revenues from our trading activities for the three months ended March 31, 2023 included net losses on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.

Energy

Energy revenues increased by $13.1 million for the three months ended March 31, 2023, primarily due to ourthe acquisition of 56.4% the Circle 8 crane operations in December 2022.

Gross Margins

Gross margins decreased to 7% for the three months ended March 31, 2023, compared to 68% for the three months ended March 31, 2022. Our gross margins have typically ranged between 33% and 37%, with slight variations depending on the overall composition of the outstanding equity interestsour revenue.

Our gross margins of Microphase on June 2, 2017, combined with our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus7% recognized during the three months ended September 30, 2017,March 31, 2023 were $1,340 and $224, respectively. Excluding revenues that were generatedimpacted by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 from the three months ended September 30, 2016.


Revenuesnegative margins from our U.S.lending and trading activities and negative margins from our BNI cryptocurrency mining segment due to the decline in the price of Bitcoin coupled with an increase in Bitcoin mining difficulty level. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, increased by 130.5% to $2,877our adjusted gross margins for the three months ended September 30, 2017,March 31, 2023 and 2022 would have been 31% and 30%, respectively, with gross margins slightly lower than our historical averages due to gross margins from $1,248SMC, which were 23%.

Research and Development

Research and development expenses increased by $1.1 million for the three months ended September 30, 2016. As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of MicrophaseMarch 31, 2023 due to expenditures related to development work on the BMI metaverse platform.

Selling and Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operations would have been $1,313, an increase of 5.2%. The increase in revenues from our U.S. operations is attributed to the recognition of $109 in revenue from the MLSE $50Marketing

Selling and marketing expenses were $8.8 million purchase order contract which was offset by a slight decrease in sales of our legacy products. The recognition of revenue from the MLSE contract during the three months ended September 30, 2017, represents the first revenues recognized from this contract, which is expected to extend over several years.


Revenues from our European operation in Gresham, U.K. (“DP Limited”) decreased by $235 to $343 for the three months ended September 30, 2017, from $578March 31, 2023, compared to $6.5 million for the three months ended September 30, 2016, a decreaseMarch 31, 2022, an increase of 40.7%$2.3 million, or 36%. The decreaseincrease was primarilythe result of $1.3 million higher advertising and promotion costs related to BMI’s metaverse platform, including an increase of $0.6 million related to an advertising sponsorship agreement. The increase is also attributable to a decrease of military and commercial products$0.8 million increases in sales and the impact of a weakening of the British Poundmarketing costs from SMC, which was acquired in June 2022 and Euro against the USD. The decline$0.3 million from GIGA, which was acquired in commercial product sales was mainly attributed to standard commodity products. The decline in military product sales was attributed to technical changes in the design of one of our development contracts.

Gross Margins
Gross margins decreased to 34.0% for the three months September 30, 2017 compared to 38.5%2022

General and Administrative

General and administrative expenses were $22.7 million for the three months ended September 30, 2016. The decrease in gross margins was mainly attributableMarch 31, 2023, compared to the decrease in sales from our European operations combined with slightly lower margins of 34.5% generated by our Microphase and Power-Plus subsidiaries. As the Company integrates its recent acquisitions of Microphase and Power-Plus, it expects that gross margins from its U.S. based operations will be fairly consistent among the three companies.

Engineering and Product Development
Engineering and product development expenses increased by $159 to $306$13.7 million for the three months ended September 30, 2017March 31, 2022, an increase of $9.0 million, or 66%. General and administrative expenses increased from $147the comparative prior period, mainly due to:

·general and administrative costs of $3.0 million from Circle 8, which was acquired in December 2022;
·general and administrative costs of $2.2 million from SMC, which was acquired in June 2022;
·general and administrative costs of $1.3 million from GIGA, which was acquired in September 2022;
·higher stock-based compensation of $1.3 million;

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·$1.0 million higher travel costs;

·$0.8 million increase in the accrual of a performance bonus related to realized gains on trading activities during the period;
·general and administrative costs of $0.6 million from AVLP, which was acquired in June 2022; and
·partially offset by a decrease in corporate legal fees of $1.0 million.

Impairment of Mined Cryptocurrency

Impairment of mined cryptocurrency for the three months ended September 30, 2016. The increase is partly attributedMarch 31, 2023 and 2022 was $0.1 million and $0.4 million, respectively, attributable to our acquisitionthe volatility of Microphase, which reported $118 in engineeringthe Bitcoin market as market price of Bitcoin drops below the Company’s carrying value within the respective periods.

Interest and product development expenses. The remaining increaseOther Income

Interest and other income was primarily related to an increase in direct manpower cost from the addition of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.


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Selling and Marketing
Selling and marketing expenses were $423$1.2 million for the three months ended September 30, 2017March 31, 2023, compared to $235$0.4 million for the three months ended September 30, 2016, an increase of $188. Our acquisition of Microphase and Power-Plus accounted for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed to an increase in personnel costs directly attributed to sales and marketing personnel at the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the three months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses due to the significant amount of time in which he devoted to the sales process.2022. The increase in interest and other income is primarily due to higher interest rates resulting in higher income from ADRT’s cash and marketable securities held in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate matters related to our restructuring and expansion. As such, during the three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter,trust account.

Interest Expense

Interest expense was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.


General and Administrative
General and administrative expenses were $1,685$13.7 million for the three months ended September 30, 2017March 31, 2023, compared to $404$29.8 million for the three months ended September 30, 2016, an increase of $1,281. Our acquisition of Microphase accounted for $410 of the increase in general and administrative expenses.March 31, 2022. The adjusted increase of $871 from the comparative prior period was mainly due to higher stock based compensation expenses, an increase in legal and audit costs, an increase in investor relationship costs and hiring of additional consultants to build an infrastructure in anticipation of our future growth and the allocation of our Chief Executive Officer’s salary to general and administrative expense. The remaining increase in general and administrative expenses is due to various costs, none of which are significant individually.
·In aggregate, we incurred $517 of stock-based compensation during the three months ended September 30, 2017. Of this amount, $365 was from issuances of equity based awards pursuant to our Plans and $152 was from stock, options and warrants which were issued outside the Plans. It has been our policy to allocate the majority of stock based compensation to general and administrative expense. During the three months ended September 30, 2016 and 2017, and inclusive of equity based awards issued outside the Plans, we recorded $35 and $311, respectively, of stock-based compensation in general and administrative expense.
·We experienced an aggregate increase of $168 in audit and legal fees due to an overall increase in the operations conducted and the level of complexity and significant number of the transactions entered into during the three months ended September 30, 2017.
·Beginning during the quarter ended December 31, 2016, we spent significant effort on expanding our investor base and on hiring additional consultants to assist building an infrastructure to support our anticipated growth. As a result, we experienced an increase of $220 in costs attributed to investor relations and other consulting fees.
·Finally, during the three months ended September 30, 2016, our Chief Executive Officer’s salary was reflected in selling and marketing expenses. As discussed above, our current practice is to record the salary and benefits of our Chief Executive Officer to general and administrative expense.
Interest (expense) income, net
Interest expense, net was $753 for the three months ended September 30, 2017 compared to income of $23 for the three months ended September 30, 2016. The increase in$29.8 million interest expense for the three months ended September 30, 2017 isMarch 31, 2022 related primarily related to amortization of debt discount in the aggregate amount of $669, resulting$26.3 million from the issuance of warrants, in conjunction with the sale of debta non-cash charge, and equity instruments of $3,452. During the three months ended September 30, 2017, as a result of these issuances, non-cash interest expense of $669 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increase in the amount of the Company’s total borrowings. At September 30, 2017, the outstanding balance of the Company’s convertible notes payable and notes payable was $3,458. Conversely, at September 30, 2016, the Company did not have any outstanding convertible notes payable or notes payable. Interest expense was partially offset by interest income and the accretion of original issue discount, pursuant toin connection with the Loan and Security Agreement entered into on September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”) $66.0 million of $141.

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Operating Loss

         The Company recorded an operating loss of $1,318senior notes issued in December 2021, which were fully paid in March 2022. Interest expense for the three months ended September 30, 2017March 31, 2023 includes $9.0 amortization of debt discount primarily related to new debt agreements compared to an operating lossthe prior year period.

Loss on Extinguishment of $83Debt

Loss on extinguishment of debt was $0.1 million for the three months ended September 30, 2016. The increase in operating loss is mostly attributable from the increase of general and administrative expenses.


Net Loss

          The Company recorded a net loss of $2,071March 31, 2023, compared to $0 for the three months ended September 30, 2017 comparedMarch 31, 2022. The current period loss on extinguishment of debt relates to a net lossthe issuance of $38$8.5 million fair value of convertible preferred stock liabilities to satisfy $8.4 million of principal amount of secured promissory notes.

Loss From Investment in Unconsolidated Entity

Loss from investment in unconsolidated entity was $0 for the three months ended September 30, 2016 as a resultMarch 31, 2023, compared to $0.5 million for the three months ended March 31, 2022, representing our share of the aforementioned changes. After taking into consideration the loss attributablelosses from our equity method investment in AVLP prior to the non-controlling interestJune 1, 2022 acquisition.

Impairment of the minority shareholdersEquity Securities

Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at March 31, 2023 were $9.6 million.

Other Comprehensive (Loss) Income

Other comprehensive gain was $0.2 million compared to other comprehensive loss of Microphase, the net loss attributable to the Company was $1,967 and 38 respectively.


NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2016
Revenues
Our revenues increased by $1,067 or 19% to $6,670$0.3 million for the ninethree months ended September 30, 2017, from $5,603March 31, 2023 and 2022, respectively. The balance of other comprehensive income for both years was caused by foreign currency translation adjustments between our functional currency, the nine months ended September 30, 2016. The increase in revenue was primarily due to our acquisition of 56.4% of the outstanding equity interests of Microphase on June 2, 2017, combined with our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by MicrophaseU.S. Dollar, and Power-Plus during the nine months ended September 30, 2017, were $1,563 and $224, respectively. Excluding revenues that were generated by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $4,883. As discussed below, the decrease of $720 from the nine months ended September 30, 2016, was primarily due to a decrease in revenues from our European operations.
Revenues from our U.S. operations increased by $1,798, or 52.8%, to $5,206 for the nine months ended September 30, 2017, from $3,408 for the nine months ended September 30, 2016. As previously noted, our consolidated revenues include $1,787 in revenues generated from our recent acquisitions of Microphase and Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operations would have been $3,419, an increase of 0.3%. The increase in revenues from our U.S. operations is attributed to the recognition of $109 in revenue from the MLSE $50 million purchase order contract which was offset by a slight decrease in sales of our legacy products.

Revenues from our European operation in Gresham, U.K. (“DP Limited”) decreased by $731 to $1,464 for the nine months ended September 30, 2017, from $2,195 for the nine months ended September 30, 2016, a decrease of 33.3%. The decrease was primarily attributable to a decrease of military and commercial products sales and the impact of a weakening of the British Pound and Euro against the USD. The decline in commercial product sales was mainly attributed to standard commodity products. The decline in military product sales was attributed to technical changes in the design of one of our development contracts.

Gross Margins
Gross margins increased to 38.0% for the nine months September 30, 2017 compared to 37.1% for the nine months ended September 30, 2016. The increase in gross margins was mainly attributable to the increase in sales of our commercial products sold in our U.S. operations, which have greater gross margins, combined with the decrease in sales from our European operations.
46
EngineeringIsraeli Shekel.

Liquidity and Product Development

Engineering and product development expenses increased by $287 to $798 for the nine months ended September 30, 2017 from $511 for the nine months ended September 30, 2016. The increase is partly attributed to our acquisition of Microphase, which reported $173 in engineering and product development expenses. The remaining increase is attributed to a $95 increase in personnel costs directly attributed to engineering and product development at Digital Power’s U.S. based operations. During the fourth quarter of 2016, as part of its growth plan, Digital Power hired a new Head of Engineering and Technology, a highly-compensated position.

Selling and Marketing
Selling and marketing expenses were $1,045 for the nine months ended September 30, 2017 compared to $723 for the nine months ended September 30, 2016, an increase of $322. Our acquisition of Microphase and Power-Plus accounted for $55 and $65, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed to an increase in personnel costs directly attributed to sales and marketing personnel at Digital Power’s U.S. based operations. Beginning in December 2016 and throughout the quarter endedCapital Resources

On March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the nine months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses due to the significant amount of time in which he devoted to the sales process. The increase in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate matters related to our restructuring and expansion. As such, during the nine months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.


General and Administrative
General and administrative expenses were $4,240 for the nine months ended September 30, 2017 compared to $1,115 for the nine months ended September 30, 2016, an increase of $3,125. Our acquisition of Microphase accounted for $577 of the increase in general and administrative expenses. The adjusted increase of $2,548 from the comparative prior period was mainly due to higher stock based compensation expenses, an increase in legal and audit costs, an increase in investor relationship costs and hiring of additional consultants to build an infrastructure in anticipation of our future growth and the allocation of our Chief Executive Officer’s salary to general and administrative expense. The remaining increase in general and administrative expenses is due to various costs, none of which are significant individually.
·In aggregate, we incurred $1,269 of stock-based compensation during the nine months ended September 30, 2017. Of this amount, $1,061 was from issuances of equity based awards pursuant to our Plans and $208 was from stock, options and warrants which were issued outside the Plans. It has been our policy to allocate the majority of stock based compensation to general and administrative expense. During the nine months ended September 30, 2016 and 2017, and inclusive of equity based awards issued outside the Plans, we recorded $108 and $980, respectively, of stock-based compensation in general and administrative expense.
·We experienced an aggregate increase of $486 in audit and legal fees due to an overall increase in the operations conducted and the level of complexity and significant number of the transactions entered into during the nine months ended September 30, 2017.
·Beginning during the quarter ended December 31, 2016, we spent significant effort on expanding our investor base and on hiring additional consultants to assist building an infrastructure to support our anticipated growth. As a result, we experienced an increase of $589 in costs attributed to investor relations and other consulting fees.
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·Finally, during the nine months ended September 30, 2016, our Chief Executive Officer’s salary was reflected in selling and marketing expenses. As discussed above, our current practice is to record the salary and benefits of our Chief Executive Officer to general and administrative expense.
Interest (expense) income, net
Interest expense, net was $1,367 for the nine months ended September 30, 2017 compared to income of $85 for the nine months ended September 30, 2016. The increase in interest expense for the nine months ended September 30, 2017 is primarily related to debt discount, in the aggregate amount of $1,269, resulting from the issuance of warrants in conjunction with the sale of debt and equity instruments of $6,706. During the nine months ended September 30, 2017, as a result of these issuances, non-cash interest expense of $1,269 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increase in the amount of the Company’s total borrowings. Interest expense was partially offset by interest income and the accretion of original issue discount on the AVLP Loan Agreement of $242.

Operating Loss

         The Company recorded an operating loss of $3,549 for the nine months ended September 30, 2017 compared to an operating loss of $272 for the nine months ended September 30, 2016. The increase in operating loss is mostly attributable from the increase of general and administrative expenses.

Net Loss

          The Company recorded a net loss of $4,916 for the nine months ended September 30, 2017 compared to a net loss of $187 for the nine months ended September 30, 2016 as a result of the aforementioned changes. After taking into consideration the loss attributable to the non-controlling interest of the minority shareholders of Microphase and an income tax benefit that was recognized during the nine months ended September 30, 2016, the net loss attributable to the Company was $4,700 and $165, respectively.

LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2017,2023, we had cash and cash equivalents of $314. This compares with$9.2 million (excluding restricted cash of $1.9 million), compared to cash and cash equivalents of $996$10.5 million (excluding restricted cash of $3.6 million) at December 31, 2016.2022. The decrease in cash and cash equivalents was primarily due tothe payment of debt and purchases of property and equipment partially offset by cash used in operating and investing activities in excess of funds provided by financing activities related to the sale of common and preferred stock, as well as proceeds from notes payable and cash provided by operating activities.

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Net cash used in operating activities totaled $1,577 for the nine months ended September 30, 2017, compared to net cash provided by operating activities of $138totaled $12.2 million for the ninethree months ended September 30, 2016. DuringMarch 31, 2023, compared to $29.4 million for the ninethree months ended September 30, 2017,March 31, 2022. Cash provided by operating activities for the decrease inthree months ended March 31, 2023 included $22.0 million net cash provided by operatingmarketable securities from trading activities comparedrelated to the nine months ended September 30, 2016 was mainly due to the September 30, 2017 nine months lossoperations of $4,916. The net loss wasAult Lending, partially offset by non-cash charges, the amortization of debt discount of $1,239operating losses and stock-based compensation of $1,269, an increasechanges in accounts payable and accrued expenses of $2,083 and decreases in our accounts receivable of $737 and other current liabilities of $595.

working capital.

Net cash used in investing activities was $4,384$2.8 million for the ninethree months ended September 30, 2017March 31, 2023, compared to $12 of net$28.8 million for the three months ended March 31, 2022. Net cash provided byused in investing activities for the ninethree months ended September 30, 2016. The increase of the net usage of cash from investing activitiesMarch 31, 2023 was primarily related to capital expenditures, partially offset by proceeds from the investmentsale of fixed assets of $4.5 million.

Net cash used in AVLP, loansfinancing activities was $8.1 million for the three months ended March 31, 2023, compared to third parties and the purchase of Power-Plus.


Netnet cash provided by financing activities was $5,194 and nilof $22.2 million for the ninethree months ended September 30, 2017March 31, 2022, and 2016, respectively. The financing activities related toreflects the sale of 1,309,545 shares of common stock for net proceeds of $672, the sale of Series B and Series C Preferred Stock of $1,540, gross proceeds from the Company’s debt financings of $2,649, gross proceeds from advances of future receipts of $1,772 and payments on debt facilities of $626.

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Historically, the Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below, the Company continues to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:

transactions:

·In February 2017,2022 Common ATM Offering – During the Company issued demand promissory notes and warrants to purchase 333,333three months ended March 31, 2023, we sold an aggregate of 0.1 million shares of common stock at $ 0.70 per sharepursuant to the 2022 Common ATM Offering for aggregategross proceeds of $400. Further in February 2017,$4.2 million. Effective March 17, 2023, we terminated the holders of $400 in demand promissory notes agreed to extinguish their $400 of debt by cancelling their notes to purchase 666,667 shares of common stock of the Company at $0.60 per share.2022 Common ATM Offering;

·
On2022 Preferred ATM Offering – During the three months ended March 9, 2017, the Company entered into a Preferred Stock Purchase Agreement with Philou Ventures LLC (“Philou”), a related party, pursuant to which Philou was granted the right to invest up to $5,000 in the Company through the purchase31, 2023, we sold an aggregate of Series B Preferred Stock over a term of 36 months.   On March 24, 2017, Philou purchased 25,00090,184 shares of Series BD Preferred Stock pursuant to the 2022 Preferred Stock Purchase Agreement in considerationATM Offering for net proceeds of cancellation of Company debt of $250 due to MCKEA, an affiliate of Philou. On May 5, 2017, Philou purchased an additional 50,000 shares of Series B Preferred Stock pursuant to the Preferred Stock Purchase Agreement for $500.
$1.2 million;

·$19.7 million payments on notes payable, partially offset by $5.0 million proceeds from notes payable; and

·$2.7 million proceeds from convertible notes payable, partially offset by $0.2 million payments on convertible notes payable.

Financing Transactions Subsequent to March 31, 2023

Financing transactions subsequent to March 31, 2023 included the following:

2022 Preferred ATM Offering

During the period between April 1, 2023 through May 18, 2023, we sold an aggregate of 105,475 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $1.1 million.

12% Term Note

On April 5, 2023, we issued a term note with a principal amount of $1.1 million, bearing an interest rate of 12%. The term note was issued at a discount, with net proceeds to us amounting to $1.0 million. The note is scheduled to mature on June 5, 2023. We have the option to extend the maturity date by one month, upon payment of a $30,000 extension fee. Ault & Company, a related party, guaranteed the term note.

Original Issuance Discount Term Notes

On May 15, 2023, we issued a term note with a principal amount of $1.3 million, which does not bear interest unless there is an event of default. The term note was issued at a discount, with net proceeds to us amounting to $1.0 million. We are obligated to repay $1.0 million of the note on June 15, 2023 and the remaining $0.3 million on June 30, 2023. Upon an event of default, we will pledge our ownership of the membership interests in 456 Lux Hotel NYC, LLC, which is a limited partner in NYREIC 456 LP. Milton “Todd” Ault, III, our Executive Chairman, and his wife, guaranteed repayment of the term note.

On May 16, 2023, we issued a term note with a principal amount of $120,000, which does not bear interest. The term note was issued at a discount, with net proceeds to us amounting to $100,000. The note is scheduled to mature on June 16, 2023. We have the option to extend the maturity date by 15 days, upon payment of an extension fee equal to 1% of the amount then outstanding.

On May 17, 2023, we issued a term note with a principal amount of $1.3 million, which does not bear interest unless there is an event of default. The term note was issued at a discount, with net proceeds to us amounting to $1.0 million. The note is scheduled to mature on July 17, 2023. Milton “Todd” Ault, III, our Executive Chairman, and Ault & Company guaranteed repayment of the term note.

7

·On March 15, 2017, the Company entered into a subscription agreement with one investor for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300.

·On March 20, 2017, the Company issued $250 in demand promissory note to one of the Company's shareholders.

·On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. The Company received gross proceeds of $220 on March 31, 2017 and the remaining balance of $50 was received on April 3, 2017. On April 5, 2017, the Company canceled these promissory notes by issuing to the holders 360,000 shares of common stock at $0.75 per share and warrants to purchase 180,000 shares of common stock at $0.90 per share.

·
On April 17, 2017, the Company entered into two 7% convertible notes (the “7% Convertible Notes”) in the aggregate principal amount of $250. The 7% Convertible Notes accrue interest at 7% simple interest on the principal amount and were due on June 2, 2017. The 7% Convertible Notes were not repaid on the maturity date and as such were in default at June 30, 2017. During July 2017, these two 7% Convertible Notes were repaid.

·On April 26, 2017, the Company entered into a 7% convertible note in the aggregate principal amount of $104. On June 28, 2017, the noteholder converted the outstanding balance into 189,091 shares of Digital Power’s common stock.

·
Between May 5, 2017 and June 30, 2017, the Company received additional short-term loans of $140 from four accredited investors of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share.During June 2017, the holders of $55 of these short-term loans agreed to cancel their notes for the purchase of 100,001 shares of the Digital Power’s common stock at a price of $0.55 per share. An additional $52 in short-term loans from the related party was converted into one of the Series C Units.

·
Between May 24, 2017 and June 19, 2017, Digital Power entered into subscription agreements (the “Series C Subscription Agreement”) with approximately twenty accredited investors (the “Series C Investors”) in connection with the sale of twenty-one Units at a purchase price of $52 per Unit raising in the aggregate $1,092 with each Unit consisting of Series C Preferred Stock and Warrants.
49
·Between July 6, 2017 and September 13, 2017, the Company received funding as a result of entering into multiple Agreements for the Purchase and Sale of Future Receipts with TVT Capital LLC pursuant to which the Company sold in the aggregate $2,585 in Future Receipts of the Company for $1,772. Under the terms of the agreements, the Company will be obligated to pay the initial daily amount of $13 until the $2,585 has been paid in full. The term Future Receipts means cash, check, ACH, credit card, debit card, bank card, charged card or other form of monetary payment.
·
On July 24, 2017, we entered into subscription agreements with six investors, and on July 25, 2017 we entered into securities purchase agreements (the “Securities Purchase Agreement”) with an institutional investor, under which we agreed to issue and sell in the aggregate 851,363 shares of common stock to the investors at $0.55 per share for an aggregate purchase price of $468. Of the aggregate purchase price of $468, $445 was paid in cash and $23 was in consideration for the cancellation of debt from a related party of the Company.

·On July 28, 2017, we entered into an exchange agreement with an institutional investor who was the owner of (i) a 7% Convertible Note in the principal amount of $125 and a warrant dated April 17, 2017 to purchase 83,334 shares of our common stock at $0.90. Under the terms of the exchange agreement, we agreed to exchange the 7% Convertible Note for three new promissory notes in the principal amounts of $110 due August 1, 2017; $35 due August 1, 2017; and $34 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes) and to exchange the prior warrant for a new warrant to purchase 83,334 shares of common stock at $0.55 per share. Concurrent with entering into this exchange agreement, the institutional investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. In addition, in a concurrent private placement, the institutional investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share.
·On August 3, 2017, the Company entered into a Securities Purchase Agreement to sell a 12% Convertible (“12% Convertible Note”) and a warrant to purchase 666,666 shares of common stock to an accredited investor (the “Investor”). The principal of the Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share. The Convertible Note is in the principal amount of $400 and was sold for $360, bears interest at 12% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share.  
·On August 10, 2017, the Company, entered into Securities Purchase Agreements (“Agreements”) with five institutional investors (the “Investors”) to sell for an aggregate purchase price of $800, 10% Senior Convertible Promissory Notes (“Convertible Notes”) with an aggregate principal face amount of $880 and warrants to purchase an aggregate of 1,475,000 shares of common stock. The principal of the Convertible Notes and interest earned thereon may be converted into shares of common stock at $0.60 per share and under the terms of the Warrant, up to 1,475,000 shares of common stock may be purchased at an exercise price of $0.66 per share. The Convertible Notes are in the aggregate principal amount of $880 and were sold for $800 and bear simple interest at 10% on the principal amount, and principal and interest are due on February 10, 2018. Subject to certain beneficial ownership limitations, each Investor may convert the principal amount of the Convertible Note and accrued interest earned thereon at any time into shares of common stock at $0.60 per share. The conversion price of the Convertible Notes is subject to adjustment for customary stock splits, stock dividends, combinations or similar events.
We expect to continue to incur losses

BMI Securities Purchase Agreement

On April 27, 2023, BMI entered into a securities purchase agreement with certain accredited investors providing for the foreseeableissuance of senior secured convertible notes with an aggregate principal face amount of $6.9 million convertible into shares of BMI common stock and five-year warrants to purchase an aggregate of 63.0 million shares of BMI common stock at an exercise price of $0.1091 per share, subject to adjustment. The Notes are secured by a guaranty provided by us, as well as by Milton “Todd” Ault, III, our Executive Chairman, and Ault & Company guaranteed repayment of the term note.

BMI and the investors entered into a registration rights agreement whereby BMI agreed to file a registration statement to register the conversion shares and warrant shares.

The senior secured convertible notes bear no interest as they were issued with an original issuance discount. The maturity date of the Notes is April 27, 2024. The senior secured convertible notes are convertible at a price per share equal to the lower of (i) $0.1091 or (ii) the greater of (A) $0.0168 and (B) 85% of the lowest volume weighted average price of BMI common stock during the 10 trading days prior to the date of conversion, subject to adjustment. 

Critical Accounting Policies

Variable Interest Entities

The accounting guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a Variable Interest Entity (“VIE”); to eliminate the solely quantitative approach previously required for determining the primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide readers of financial statements with more transparent information about an enterprise’s involvement in a VIE.

For VIEs, the Company assesses whether it is the primary beneficiary as prescribed by the accounting guidance on the consolidation of a VIE.

The Company evaluates its business relationships with related parties to identify potential VIEs under Accounting Standards Codification (“ASC”) 810, Consolidation. The Company consolidates VIEs in which it is considered to be the primary beneficiary. Entities are considered to be the primary beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (ii) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Company’s judgment with respect to its level of influence or control of an entity involves the consideration of various factors including the form of its ownership interest, its representation in the entity’s governance, the size of its investment, estimates of future cash flows, its ability to participate in policy making decisions and will be requiredthe rights of the other investors to raise additional capitalparticipate in the decision making process and to continuereplace the Company as manager and/or liquidate the joint venture, if applicable.

Business Combination

We allocate the purchase price of an acquired business to support our working capital requirements. We believe that the MLSEtangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase order contract of $50 million will contribute to generate meaningful revenue and corresponding cash in 2017. In addition, we have been successfulprice over the last 12 months in raising capitalfair value of the net assets acquired is recorded as goodwill. Acquired customer relations, technology, trade names and know how are recognized at fair value. The purchase price allocation process requires management to support our working capital requirements. We anticipate that we will continue to raise capital through public and private equity offerings, debt financings, or other means. If we are unable to secure additional capital, we may be required to curtail our current operations and take additional measures to reduce costs expenses, including reducing our workforce, eliminating outside consultants, ceasing or reducing our due diligence of potential future acquisitions, including the associated legal fees, in order to conserve cash in order to sustain operations and meet our obligations.


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Based on the above, these matters raise substantial doubt about the Company’s ability to continue as a going concern.

  CRITICAL ACCOUNTING POLICIES

In our Annual Report on Form 10-K for the year ended December 31, 2016, we identified the critical accounting policies which affect our moremake significant estimates and assumptions, usedespecially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in preparingcertain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. We include the results of operations of the business that we have acquired in our consolidated financial statements.  The basis for developingresults prospectively from the estimates and assumptions within our critical accounting policies is based on historical information and known current trends and factors.  The estimates and assumptions are evaluated on an ongoing basis and actual results have been within our expectations.  We have not changed these policies from those previously disclosed in our Annual Report.
date of acquisition. 

8

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.


ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.


Our principal executive officer and principal financial officer, with the assistance of other members of the Company'sCompany’s management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report and has determined thatreport. Based upon our disclosure controls and procedures were not effective asevaluation, each of June 30, 2017 due to certain material weaknesses as described herein.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses:
(i)
a lack of sufficient internal accounting resources to provide reasonable assurance that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and

(ii)a lack of segregation of duties to ensure adequate review of financial statement preparation.

Planned Remediation

Management, in coordination with the input, oversight and support of our Board of Directors, has identified the measures below to strengthen our control environment and internal control over financial reporting.

51
Until such time as we hire a new Chief Financial Officer, the Chairman of the Audit Committee shall perform the following:

·assists with documentation and implementation of policies and procedures and monitoring of controls,
·reviews all anticipated transactions that are not considered in the ordinary course of business to assist in the early identification of accounting issues and ensure that appropriate disclosures are made in the Company’s financial statements.
We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures.

Changes in Internal Controls over Financial Reporting.

During the most recent fiscal quarter 2017 there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
None
ITEM 1A.RISK FACTORS

The risks described in Part I, Item 1A, "Risk Factors," in our 2016 Form 10-K, could materially and adversely affect our business, financial condition and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face - our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The Risk Factors section of our 2016 Annual Report on Form 10-K remains current in all material respects except that we identified material weaknesses in our internal control over financial reporting and in our disclosure controls and procedures.

If We Fail to Establish and Maintain an Effective System of Internal Control, We May Not Be Able to Report Our Financial Results Accurately or Prevent Fraud. Any Inability to Report and File Our Financial Results Accurately and Timely Could Harm Our Reputation and Adversely Impact the Trading Price of Our Common Stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have also experienced complications reporting as a result of material weaknesses which resulted in the restatement of our Form 10-Q for the quarterly period ended June 30, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on August 21, 2017, and amended on November 14, 2017. We have carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer ofhas concluded that the effectiveness of the design and operation of our disclosure controls and proceduresCompany’s internal control over financial reporting was not effective as of the end of the most recent period covered by this report. BasedQuarterly Report on Form 10-Q because the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures wereCompany has not effective at the reasonable assurance level due toyet completed its remediation of the material weaknesses described below.
52
A material weakness is a deficiency, or a combinationpreviously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, the end of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. its most recent fiscal year.

Management has identified the following material weaknesses which have caused management to conclude that as of June 30, 2017 our internal controls over financial reporting (“ICFR”) were not effective at the reasonable assurance level:

weaknesses:

1.
We do not have sufficient resources in our accounting function,department, which restricts our ability to gather, analyze and properly review information related to financial reporting, including applying complex accounting principles relating to consolidation accounting, fair value estimates and analysis of financial instruments for proper classification in the consolidated financial statements, in a timely manner. In addition, duemanner;

2.Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness.weakness;

2.3.Our primary user access controls (i.e., provisioning, de-provisioning, privileged access and user access reviews) to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not designed and/or implemented effectively. We have inadequatedid not design and/or implement sufficient controls for program change management to certain financially relevant systems affecting our processes; and

4.The Company did not design and/or implement user access controls to ensure appropriate segregation of duties or program change management controls for certain financially relevant systems impacting the Company’s processes around revenue recognition and digital assets to ensure that information necessaryIT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital currency mining equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management evaluated the impact of the lack of timely communication between non–financialvalidate that data produced by its relevant IT system(s) were complete and financial personnel on our assessment of our reportingaccurate. Automated process-level controls and procedures andmanual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency. In addition, the Company has concluded that thenot effectively designed a manual key control deficiency represented ato detect material weakness.misstatements in revenue.

9
We have taken steps

Planned Remediation

Management continues to work to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding our IT systems and applications. Management will continue to implement measures to remediate somematerial weaknesses, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) enhancing design and documentation related to both user access and change management processes and control activities; and (ii) developing and communicating additional policies and procedures to govern the area of IT change management. In order to achieve the timely implementation of the weaknesses described above, including a greater level of involvement by our Audit Committee. We intend tomanagement has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:

·Engaging a third-party specialist to assist management with improving the Company’s overall control environment, focusing on change management and access controls;

·Implementing new applications and systems that are aligned with management’s focus on creating strong internal controls; and

·Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong Sarbanes Oxley and internal control backgrounds.

We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Despite the existence of these material weaknesses, we believe that the condensed consolidated financial statements included in the period covered by this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles. 

Changes in Internal Controls over Financial Reporting.

Except as resources permit.

detailed above, during the fiscal quarter ended March 31, 2023, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

10

PART II — OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Litigation Matters

The Company is involved in litigation arising from other matters in the ordinary course of business. We are regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.

Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.

With respect to our other outstanding matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties. 

SEC Investigation

The Company and certain affiliates and related parties received several subpoenas from the SEC for the production of documents and testimony in the non-public fact-finding investigation referred to as In re DPW Holdings, Inc. The Company and those parties have engaged in discussions with the SEC regarding the matters at issue in the investigation, and those discussions have progressed. No final resolution regarding the matters at issue in the investigation has been reached however, and there can be no assurance as to the outcome of this matter. The Company recorded a $1.0 million loss contingency related to this matter.

ITEM 1A.RISK FACTORS

There are no updates or changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 7, 2017, the Company entered into an asset purchase agreement to acquire the intellectual property of Coolisys.com, in consideration for, in part, 50,000

From January 1, 2023 through March 31, 2023, Ault Alpha LP purchased 6,379 shares of common stock. The seller of the intellectual property and purchaser of the common stock was an accredited investor.


On August 16, 2017, the Company approved the issuance and sale of (i) 272,727 shares of our common stock at a purchase price equal to $0.55 per share and (ii) warrants to purchase up to 272,727 shares of our common stock at $0.65 per share, which become exercisable six months after the issuance date, to two accredited investors for an aggregate purchase price of $150. The shares have yetAult Alpha LP may be deemed to be issued byan “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Company and are subject to approval from the NYSE American prior to issuance.

In addition, on September 9, 2017, the Company approved the issuanceSecurities Exchange Act of 100,000 shares of our common stock to Spartan Capital for capital advisory services.  Spartan Capital is an accredited investor.1934, as amended. The shares of common stock have yet to be issued by the Company and are subject to approval from the NYSE American prior to issuance.
On October 5, 2017, Ault & Company purchased 75,000 shares of our common stock at $0.60 per share and a warrant to purchase up to 75,000 shares of our common stock at $0.60 per share for an aggregate purchase price of $45. These shares and warrants have yet to be issued by the Company and are subject to approval from the NYSE American prior to issuance.  Ault & Company is controlled by Mr. Milton Ault, our Executive Chairman.

The foregoing issuances and sales and purchases were exempt from registration upon reliance of Section 4(a)(2) and Regulation D promulgated thereunder.
made through open market transactions.

  Total
Number of
Shares
Purchased		  Average Price
Paid Per
Share		  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs		  Maximum
Number of Shares
That May Yet Be
Purchased Under
Plans or Programs		 
January 1, 2023 – January 31, 2023  6,379  $30.00         
February 1, 2023 – February 28, 2023  -  $-         
March 1, 2023 – March 31, 2023  -  $-         
Total  6,379  $30.00   -   - 


11

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

53

ITEM 4.MINE SAFETY DISCLOSURES

None

Not applicable.

ITEM 5.OTHER INFORMATION

None
54

None.

ITEM 6.EXHIBITS

Exhibit
Number		Description
2.13.1
Share Exchange Agreement byForm of Certificate of Determination of Preferences, Rights and among Digital Power Corporation, Microphase Corporation, Microphase Holding Company, RCKJ Trust, Ergul Family Limited Partnership, To Hong Yam and Eagle Advisers, LLC,Limitations of Series B Convertible Preferred Stock, dated as of April 28, 2017 (IncorporatedMarch 3, 2017.  Incorporated by reference to Exhibit 2.1 of the Company’s current report filedCurrent Report on Form 8-K with the Securities and Exchange Commissionfiled on May 3, 2017)March 9, 2017 as Exhibit 3.1 thereto.
3.13.2Certificate of Incorporation, dated September 22, 2017.  Incorporated herein by reference to the Current Report on Form 8-K filed on December 29, 2017 as Exhibit 3.1 thereto.
3.3
Certificate of Designations of Rights and Preferences of 10% Series A Cumulative Redeemable Perpetual Preferred Stock, dated September 13, 2018. Incorporated herein by reference to the Current Report on Form 8-K filed on September 14, 2018 as Exhibit 3.1  thereto.
3.4Certificate of Amendment to Certificate of Incorporation, dated January 2, 2019. Incorporated by reference to the Current Report on Form 8-K filed on January 3, 2019 as Exhibit 3.1 thereto.
3.5Certificate of Amendment to Certificate of Incorporation (1-for-20 Reverse Stock Split of Common Stock), dated March 14, 2019. Incorporated herein by reference to the Current Report on Form 8-K filed on March 14, 2019 as Exhibit 3.1 thereto.
3.6Certificate of Elimination of the Series C convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on January 27, 2023 as Exhibit 3.1 thereto.
3.7Certificate of Ownership and Merger. Incorporated by reference to the Current Report on Form 8-K filed on January 19, 2021 as Exhibit 3.1 thereto.
3.8Amended and Restated ArticlesBylaws, effective as of Incorporation of Digital Power Corporation (IncorporatedNovember 2, 2021. Incorporated by reference to the Current Report on Form 8-K filed on November 3, 2021 as Exhibit 3.1 thereto.
3.9Certificate of Ownership and Merger, as filed with the Secretary of State of the Company’sState of Delaware on December 1, 2021. Incorporated by reference to the Current Report on Form 8-K filed on December 13, 2021 as Exhibit 3.1 thereto.
3.10Certificate of Designation, Preferences and Rights relating to the 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated May 25, 2022. Incorporated by reference to the Registration Statement on Form SB-28-A filed with the Securities and Exchange Commission on October 16, 1996)May 26, 2022 as Exhibit 3.6 thereto.
3.23.11Certificate of Increase of the Designated Number of Shares of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 10, 2022. Incorporated by reference to the Current Report on Form 8-K filed on June 14, 2022 as Exhibit 3.1 thereto.
3.12
Certificate of Correction to the Certificate of Designation, Rights and Preferences of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 16, 2022. Incorporated by reference to the Current Report on Form 8-K filed on June 17, 2022 as Exhibit 3.1 thereto.
3.13Certificate of Designation of Series E Convertible Preferred Stock. Incorporated by reference to the Current Report on Form 8-K filed on March 30, 2023 as Exhibit 3.1 thereto.
3.14Certificate of Designation of Series F Convertible Preferred Stock. Incorporated by reference to the Current Report on Form 8-K filed on March 30, 2023 as Exhibit 3.2 thereto.
3.15Certificate of Designation of Series G Convertible Preferred Stock. Incorporated by reference to the Current Report on Form 8-K filed on March 30, 2023 as Exhibit 3.3 thereto.
3.16Certificate of Amendment to ArticlesCertificate of Incorporation (1-for-300 Reverse Stock Split of Digital Power Corporation (IncorporatedCommon Stock), dated May 15, 2023. Incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 16, 1996)
3.3
Certificate of Amendment to Articles of Incorporation of Digital Power Corporation (Incorporated by reference to Exhibit 3.1 of the Company’s current reportCurrent Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2013)May 16, 2023 as Exhibit 3.1 thereto.

3.412 

10.1BylawsForm of Digital Power Corporation (IncorporatedShare Exchange Agreement, entered into February 8, 2023. Incorporated by reference to Exhibit 3.3 of the Company’s Registration StatementCurrent Report on Form SB-28-K filed with the Securities and Exchange Commission on October 16, 1996)February 10, 2023 as Exhibit 10.1 thereto.
3.510.2Form of Series B Preferred Stock Certificate of Designations. Incorporated by reference to the Current Report on Form 8-K filed on February 10, 2023 as Exhibit 10.2 thereto.
10.3
Form of Series C Preferred Stock Certificate of Determination (IncorporatedDesignations. Incorporated by reference to Exhibit 3.1 of the Company’s current report filedCurrent Report on Form 8-K with the Securities and Exchange Commissionfiled on May 31, 2017)February 10, 2023 as Exhibit 10.3 thereto.
3.610.4
Form of Series D Certificate of Determination (IncorporatedSecurities Purchase Agreement among the registrant and the Investors, dated March 28, 2023. Incorporated by reference to Exhibit 3.1 of the Company’s current report filedCurrent Report on Form 8-K with the Securities and Exchange Commissionfiled on May 3, 2017)March 30, 2023 as Exhibit 10.1 thereto.
3.710.5
Form of Series E Certificate of Determination (IncorporatedSide Letter among the registrant and the Investors, dated March 28, 2023. Incorporated by reference to Exhibit 3.2 of the Company’s current report filedCurrent Report on Form 8-K with the Securities and Exchange Commissionfiled on May 3, 2017)March 30, 2023 as Exhibit 10.2 thereto.
10.110.6*
Preferred Stock Purchase Agreement date March 9, 2017 between Digital Power Corporation, and Philou Ventures, LLC. (Incorporated by referenceForm of amendment #1 to Exhibit 10.1 of the Company’s current report filed on Form 8-K with the Securities and Exchange Commission on March 9, 2017)senior secured promissory note.
31.1*10.7*Form of amendment #1 to senior secured promissory note.
10.8*
Form of amendment #2 to senior secured promissory note.
31.1*Certification of Chief Executive andOfficer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2*Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1**
Certification of Chief Executive and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States CodeCode.
101.INS***Inline XBRL Instance DocumentDocument. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH***Inline XBRL Taxonomy Extension Schema DocumentDocument.
101.CAL***Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
101.DEF***101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
101.LAB*104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.
**Furnished herewith.

 XBRL Taxonomy Extension Label Linkbase Document
101.PRE***13 XBRL Taxonomy Extension Presentation Linkbase Document
______________________
*      Filed herewith.
**    Furnished herewith.
***  In accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
55

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated:  November 20, 2017


Digital Power Corporation

May 22, 2023

By:/s/ Amos KohnAULT ALLIANCE, INC. 
 Amos Kohn
 
President, By:
/s/ William B. Horne
William B. Horne
Chief Executive and
Officer
(Principal Executive Officer)
By:/s/ Kenneth S. Cragun
Kenneth S. Cragun
Chief Financial Officer and
(Principal Accounting OfficerOfficer)

14

 
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