UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2017 March 31, 2019

☐
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

DPW HOLDINGS, 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,

201 Shipyard Way, Suite E

Newport Beach, CA 94538-3158

92663

(Address of principal executive offices)

(510) 657-2635

(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 valueDPWNYSE 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  ☑þ    No ☐¨

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  ☑þ    No ☐¨

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


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


At NovemberMay 17, 20172019 the registrant had outstanding 15,817,39337,735,115 shares of common stock.

 

Table of Contents
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC.

TABLE OF CONTENTS

  Page
PART I – FINANCIAL INFORMATION 
    
Item 1.Financial Statements 
    
  
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2019 (Unaudited) and
December
31, 20162018 (Audited)
1-2F-1 – F-2 
    
  
Condensed Consolidated Statements of Operations and Comprehensive Loss for the
three and
nine months ended September 30, 2017March 31, 2019 and 20162018 (Unaudited)
3F-3 
    
  
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders' Equity for the nine three
months ended September 30,
2017March 31, 2019 and 20162018 (Unaudited)
4-5F-4 – F-5 
    
  Notes to Interim Condensed Consolidated Financial Statements of Cash Flows for the three months ended March
31, 2019 and 2018 (Unaudited)		6 - 42F-6 – F-7 
    
 Notes to Interim Condensed Consolidated Financial Statements (Unaudited)F-8 – F-33 
Item 2.Management's Discussion and Analysis of Financial Condition and Results of
Operations		431 
    
Item 3. Quantitative and Qualitative Disclosures about Market Risk516 
    
Item 4.Controls and Procedures516 
    
PART II – OTHER INFORMATION 
    
Item 1.Legal Proceedings528 
Item 1A.Risk Factors528 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds539 
Item 3.Defaults Upon Senior Securities539 
Item 4.Reserved54Mine Safety Disclosures9 
Item 5.Other Information549 
Item 6.Exhibits55
Exhibits10 

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'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, 2016,2018, 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 NovemberMay 20, 2017.2019. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  March 31,  December 31, 
  2019  2018 
  (Unaudited)    
ASSETS      
       
CURRENT ASSETS        
Cash and cash equivalents $1,283,607  $902,329 
Marketable equity securities  283,988   178,597 
Accounts receivable  2,819,484   1,930,971 
Accounts and other receivable, related party  3,915,075   3,887,654 
Accrued revenue  1,535,704   1,353,411 
Inventories, net  2,864,324   3,261,126 
Prepaid expenses and other current assets  802,429   775,981 
TOTAL CURRENT ASSETS  13,504,611   12,290,069 
         
Intangible assets  4,252,454   4,359,798 
Digital currencies  4,225   1,535 
Goodwill  8,613,429   8,463,070 
Property and equipment, net  8,605,306   9,313,299 
Right-of-use assets  3,948,834   — 
Investments - related party, net of original issue discount of $1,974,791        
  and $2,336,693, respectively  6,972,378   5,611,621 
Investments in derivative instruments and common stock - related party  2,561,332   3,043,499 
Investments in preferred stock of private company  480,000   480,000 
Investment in limited partnership  1,969,000   1,969,000 
Loans receivable  2,413,122   2,572,230 
Other investments, related parties  855,000   862,500 
Other assets  594,100   459,259 
TOTAL ASSETS $54,773,791  $49,425,880 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
CURRENT LIABILITIES        
Accounts payable and accrued expenses $15,776,556  $13,065,838 
Accounts payable and accrued expenses, related party  60,224   57,752 
Operating lease liability, current  856,475   — 
Advances on future receipts  2,187,685   2,085,807 
Short term advances  47,000   — 
Short term advances, related party  127,961   73,761 
Revolving credit facility  289,911   285,605 
Notes payable, net  5,650,699   6,388,787 
Notes payable, related party  166,925   166,925 
Convertible notes payable  6,260,294   6,742,494 
Other current liabilities  1,577,548   1,868,402 
TOTAL CURRENT LIABILITIES  33,001,278   30,735,371 
         
LONG TERM LIABILITIES        
Operating lease liability, non-current  3,124,524   — 
Notes payable  473,243   483,659 
Notes payable, related parties  142,309   142,059 
         
TOTAL LIABILITIES  36,741,354   31,361,089 

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

U.S. dollars in thousands, except shares and per share data
  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 partTable of these unaudited condensed consolidated financial statements.Contents
1
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

  March 31,  December 31, 
  2019  2018 
  (Unaudited)    
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS' EQUITY      
Series A Convertible Preferred Stock, $25.00 stated value per share,  1   1 
   $0.001 par value – 1,000,000 shares authorized; 1,504 and 1,434 shares        
   issued and outstanding at March 31, 2019 and December 31, 2018,        
   respectively (redemption amount and liquidation preference of $37,600        
   and $35,850 as of March 31, 2019 and December 31, 2018, respectively)        
Series B Convertible Preferred Stock, $10 stated value per share,  125   125 
   share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued        
   and outstanding at March 31, 2019 and December 31, 2018 (liquidation        
   preference of $1,250,000 at March 31, 2019 and December 31, 2018        
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized;  9,259   4,036 
   9,259,115 and 4,036,407 shares issued and outstanding at March 31, 2019        
   and December 31, 2018, respectively        
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized;  —   — 
   nil shares issued and outstanding at March 31, 2019 and December 31, 2018        
Additional paid-in capital  84,894,620   77,643,609 
Accumulated deficit  (62,270,464)  (55,721,115)
Accumulated other comprehensive loss  (4,609,346)  (3,902,523)
TOTAL DPW HOLDINGS STOCKHOLDERS' EQUITY  18,024,195   18,024,133 
Non-controlling interest  8,242   40,658 
TOTAL STOCKHOLDERS' EQUITY  18,032,437   18,064,791 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $54,773,791  $49,425,880 

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

U.S. dollars in thousands, except shares and per share data
  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 partTable of these unaudited condensed consolidated financial statements.Contents
2
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHNSIVECOMPREHENSIVE LOSS

(Unaudited)

  For the Three Months Ended 
  March 31, 
  2019  2018 
       
Revenue $5,551,651  $3,165,459 
Revenue, cryptocurrency mining  28,804   237,496 
Revenue, related party  —   1,792,892 
Revenue, restaurant operations  1,173,499   — 
Revenue, lending activities  185,089   — 
Total revenue  6,939,043   5,195,847 
Cost of revenue  5,118,313   3,802,709 
Gross profit  1,820,730   1,393,138 
Operating expenses        
Engineering and product development  455,678   343,023 
Selling and marketing  474,343   725,471 
General and administrative  5,430,966   3,221,623 
Change in fair value of marketable equity securities  116,042   — 
Impairment (gain) loss on digital currency  (1,503)  71,316 
Total operating expenses  6,475,526   4,361,433 
Loss from operations  (4,654,796)  (2,968,295)
Interest expense  (1,262,614)  (3,132,116)
Loss on extinguishment of convertible debt  (807,784)  — 
Loss before income taxes  (6,725,194)  (6,100,411)
Income tax benefit  14,168   4,458 
Net loss  (6,711,026)  (6,095,953)
Less: Net loss attributable to non-controlling interest  32,416   35,431 
Net loss attributable to DPW Holdings  (6,678,610)  (6,060,522)
Preferred dividends on Series A Preferred Stock  (1,869)  — 
Net loss available to common stockholders $(6,680,479) $(6,060,522)
Basic and diluted net loss per common share $(1.17) $(3.33)
Basic and diluted weighted average common shares outstanding  5,695,740   1,819,598 
         
Comprehensive Loss        
Loss available to common stockholders $(6,680,479) $(6,060,522)
Other comprehensive income (loss)        
Foreign currency translation adjustment  29,857   26,457 
Net unrealized (loss) gain on securities available-for-sale  (736,680)  (4,741,114)
Other comprehensive income (loss)  (706,823)  (4,714,657)
Total Comprehensive loss $(7,387,302) $(10,775,179)

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

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

DPW HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

Three Months Ended March 31, 2018

                    Accumulated       
              Additional     Other     Total 
  Preferred Stock  Common Stock  Paid-In  Accumulated  Comprehensive  Non-Controlling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  Deficit  Income (Loss)  Interest  Equity 
                            
BALANCES, January 1, 2018  478,776  $479   1,511,115  $1,511  $36,916,659  $(23,414,151) $4,503,046  $780,737  $18,788,281 
Compensation expense due to stock                                    
 option issuances  —   —   —   —   232,854   —   —   —   232,854 
Compensation expense due to warrant issuances  —   —   —   —   23,477   —   —   —   23,477 
Issuance of common stock and warrants for cash  —   —   256,040   256   6,243,099   —   —   —   6,243,355 
Issuance of common stock for services  —   —   84,152   84   3,033,212   —   —   —   3,033,296 
Issuance of common stock for conversion                                    
 of debt  —   —   101,500   102   2,167,742   —   —   —   2,167,844 
Issuance of common stock upon exercise                                    
 of stock options  —   —   3,000   3   97,797   —   —   —   97,800 
Issuance of common stock upon exercise                                    
 of warrants  —   —   93,323   93   867,073   —   —   —   867,166 
Issuance of common stock for conversion                                    
 of Series E preferred stock  (254,500)  (254)  25,450   26   (26)  —   —   —   — 
Issuance of common stock in connection                                    
 with convertible notes  —   —   27,173   27   353,646   —   —   —   353,673 
Beneficial conversion feature in connection                                    
 with convertible notes  —   —   —   —   288,573   —   —   —   288,573 
Fair value of warrants issued in connection                                    
 with convertible notes  —   —   —   —   1,405,048   —   —   —   1,405,048 
Cash for exchange fees and other financing costs  —   —           (858,671)  —   —   —   (858,671)
Comprehensive loss:                                    
Net loss  —   —   —   —   —   (6,060,522)  —   —   (6,060,522)
Net unrealized gain on securities                                    
 available-for-sale, net of income taxes  —   —   —   —   —   —   (4,741,114)  —   (4,741,114)
Foreign currency translation adjustments  —   —   —   —   —   —   26,457   —   26,457 
Net loss attributable to non-controlling interest  —   —   —   —   —   —   —   (35,431)  (35,431)
                                     
BALANCES, March 31, 2018  224,276  $225   2,101,753  $2,102  $50,770,483  $(29,474,673) $(211,611) $745,306  $21,832,086 

The above Condensed Consolidated Statement of Changes in Stockholders’ Equity reflects a 1 for 20 reverse stock split effective March 14, 2019, see Note 1 for further information.

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

 F-4
Table of Contents

DPW HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

Three Months Ended March 31, 2019

                    Accumulated       
              Additional     Other     Total 
  Preferred Stock  Common Stock  Paid-In  Accumulated  Comprehensive  Non-Controlling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  Deficit  Income (Loss)  Interest  Equity 
BALANCES, January 1, 2019  126,434  $126   4,036,407  $4,036  $77,643,609  $(55,721,115) $(3,902,523) $40,658  $18,064,791 
Compensation expense due to stock                                    
 option issuances  —   —   —   —   245,614   —   —   —   245,614 
Issuance of common stock for cash  —   —   3,791,642   3,792   4,393,743   —   —   —   4,397,535 
Issuance of common stock for services  —   —   375,000   375   252,644   —   —   —   253,019 
Issuance of common stock for conversion                                    
  of debt  —   —   1,056,066   1,056   2,607,401   —   —   —   2,608,457 
Issuance of Series A preferred stock for cash  70   —   —   —   1,750   —   —   —   1,750 
Cash for exchange fees and other financing costs  —   —   —   —   (250,141)  —   —   —   (250,141)
Comprehensive loss:                                    
Net loss  —       —   —   —   (6,678,610)  —   —   (6,678,610)
Preferred dividends  —   —   —   —   —   (1,869)  —   —   (1,869)
Net unrealized loss on derivatives                                    
  in related party  —   —   —   —   —   —   (736,680)  —   (736,680)
Foreign currency translation adjustments  —   —   —   —   —   131,130   29,857   —   160,987 
Net loss attributable to non-controlling interest  —   —   —   —   —   —   —   (32,416)  (32,416)
                                     
BALANCES, March 31, 2019  126,504  $126   9,259,115  $9,259  $84,894,620  $(62,270,464) $(4,609,346) $8,242  $18,032,437 

The above Condensed Consolidated Statement of Changes in Stockholders’ Equity reflects a 1 for 20 reverse stock split effective March 14, 2019, see Note 1 for further information.

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

 F-5
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

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

  For the Three Months Ended March 31, 
  2019  2018 
       
Cash flows from operating activities:      
Net loss $(6,711,026) $(6,095,953)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation  799,023   115,147 
Amortization  162,415   33,358 
Amortization of right-of-use assets  32,165   — 
Interest expense – debt discount  1,491,065   3,051,148 
Accretion of original issue discount on notes receivable – related party  (612,309)  (485,031)
Accretion of original issue discount on notes receivable  (49,505)  — 
Stock-based compensation  621,288   1,438,214 
Realized losses on sale of digital currencies  654   — 
Realized losses on sale of marketable equity securities  13,344   41,784 
Unrealized gains on marketable equity securities  (105,391)  — 
Unrealized losses on equity securities – related party  139,184   — 
Unrealized losses on equity securities  699   — 
Changes in operating assets and liabilities:        
Accounts receivable  (824,120)  344,137 
Accounts receivable, related party  (27,421)  (1,792,892)
Accrued revenue  (182,293)  — 
Digital currencies  (30,307)  (166,180)
Inventories  453,775   (215,786)
Prepaid expenses and other current assets  (102,479)  604,485 
Other assets  (155,616)  (380,714)
Accounts payable and accrued expenses  3,180,861   527,189 
Accounts payable, related parties  2,472   11,022 
Other current liabilities  (358,717)  10,946 
         
Net cash used in operating activities  (2,262,239)  (2,959,126)
Cash flows from investing activities:        
Purchase of property and equipment  (9,606)  (7,478,335)
Purchase of intangible asset  —   (3,025)
Investments – related party  (740,948)  (146,780)
Investments in derivative instruments and common stock - related party  (302,214)  (1,555,461)
Investments in marketable equity securities  —   (657,273)
Sales of marketable equity securities  286,656   430,375 
Proceeds from loans to related parties  —   16,088 
Investments in debt and equity securities  (205,125)  (370,500)
         
Net cash used in investing activities $(971,237) $(9,764,911)

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-6
The accompanying notes are an integral partTable of these unaudited condensed consolidated financial statements.Contents
4
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

U.S. dollars in thousands

  For the Three Months Ended March 31, 
  2019  2018 
       
Cash flows from financing activities:      
Gross proceeds from sales of common stock and warrants $4,397,535  $6,243,355 
Proceeds from issuance of Series A Convertible Preferred Stock  1,645   — 
Financing cost in connection with sales of equity securities  (250,141)  (858,668)
Proceeds from stock option exercises  —   97,740 
Proceeds from warrant exercises  —   867,166 
Proceeds from convertible notes payable  —   1,000,000 
Proceeds from notes payable  500,000   8,550,000 
Proceeds from short-term advances – related party  54,200   50,000 
Proceeds from short-term advances  47,000   762,000 
Payments on short-term advances  —   (425,000)
Payments on notes payable  (228,749)  (5,246,875)
Payments on convertible notes payable  (809,253)  — 
Proceeds from advances on future receipts  319,729   2,990,277 
Payments on advances on future receipts  (313,221)  (1,916,523)
Payments of preferred dividends  (1,869)  — 
Payments on revolving credit facilities, net  (7,375)  (220,815)
         
Net cash provided by financing activities  3,709,501   11,892,657 
         
Effect of exchange rate changes on cash and cash equivalents  (94,747)  (16,753)
Net increase (decrease) in cash and cash equivalents  381,278   (848,133)
Cash and cash equivalents at beginning of period  902,329   1,478,147 
         
Cash and cash equivalents at end of period $1,283,607  $630,014 
         
Supplemental disclosures of cash flow information:        
Cash paid during the period for interest $232,925  $100,000 
         
Non-cash investing and financing activities:        
Cancellation of convertible note payable into shares of common stock $2,608,458  $2,167,844 
Payment of accounts payable with digital currency $26,963  $— 
Issuance of common stock for prepaid services $—  $1,924,339 

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

  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     

 F-7
The accompanying notes are an integral partTable of these unaudited condensed consolidated financial statements.Contents
5
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

MARCH 31, 2019

 

1. DESCRIPTION OF BUSINESS

DPW Holdings, Inc., a Delaware corporation (“DPW” or the “Company”), formerly known as Digital Power Corporation, ("Digital Power") was incorporated in 1969, underSeptember 2017. The Company isa diversified holding company owning subsidiaries engaged in the General Corporation Law of the State of California. Digital Powerfollowing operating businesses: commercial and defense solutions, commercial lending, cryptocurrency blockchain mining, advanced textile technology and restaurant operations. The Company’s wholly-owned subsidiaries areCoolisys Technologies, Inc. (“Coolisys”), Digital Power Limited ("(“DP Limited"Limited”), a wholly owned subsidiary, located in the United Kingdom, are currently engaged in the design, manufacture and sale of switching power supplies and converters. On November 30, 2016, Digital Power formedEnertecSystems 2001 Ltd (“Enertec”),Power-Plus Technical Distributors, LLC (“Power-Plus”), Digital Power Lending, LLC (“(“DP Lending”), and on April 25, 2017, Digital Power formed Coolisys Technologies,Farms, Inc. (“Coolisys”(“Digital Farms”). 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 businessesalso has controlling interests 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”)and I. AM, Inc. (“I.AM”)“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 ofCompany has five reportable segments – North America with operations include the results of Microphase and Power-Plus from their respective acquisition dates forward. Digital Power, DP Limited,conducted by Microphase, Coolisys, Power-Plus and DP Lending, (collectively, the “Company”) has two reportable geographic segments - North America (salesEurope with operations through DP Limited, Middle East with operations through Enertec, digital currency blockchain mining through Digital Power, Microphase, Coolisys, Power-PlusFarms and DP Lending)restaurant operations through I.AM.

On March 14, 2019, pursuant to the authorization provided by the Company’s stockholdersat a Special Meeting of Stockholders, the Company’s Board of Directors approved the Certificate of Incorporation Amendment (the “COI Amendment”) to effectuate a reverse stock split of the Common Stock affecting both the authorized and Europe (sales through DP Limited)issued and outstanding number of such shares by a ratio of one-for-twenty (the “Reverse Stock Split”).


2. LIQUIDITY, GOING CONCERN AND MANAGEMENT’S PLANS


The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. As of September 30, 2017,March 31, 2019, the Company had cash and cash equivalents of $314,$1,283,607, an accumulated deficit of $17,212$62,720,464 and a negative working capital of $4,174.$19,496,667. The Company has incurred recurring losses and reported losses for the three and nine months ended September 30, 2017,March 31, 2019 and 2018, totaled $1,967$6,711,026 and $4,700,$6,095,953, 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,2019, the Company continuescontinued 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"(“MTIX”) to manufacture, install and service the Multiplex Laser Surface Enhancement (“(“MLSE”) plasma-laser system. Management believesCurrently, the Company has subcontracted out a significant amount of these services to third parties. Although the manufacture of the $50 million of MLSE plasma-laser systems is expected to exceed four years, management continues to believe that the MLSE purchase order will be a source of revenue and generate significant cash flows for the Company. Additionally, on April 2, 2019, the Company received gross proceeds of approximately $7 million in a public offering of its securities (See Note 22). Management believes that the Company has access to capital resources through potential public or private issuanceissuances 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 raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

 F-8
Table of Contents
8
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 

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 our condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from our 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, 2016,2018, filed with the Securities and Exchange Commission on April 10, 2017.16, 2019. The condensed consolidated balance sheet as of December 31, 20162018 was derived from the Company’s audited 20162018 financial statements contained in the above referenced Form 10-K. Results of the three and nine months ended September 30, 2017,March 31, 2019, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

2019.

Principles of Consolidation


The condensed consolidated financial statements include the accounts of Digital Power,DPW and its wholly-owned subsidiaries, Coolisys, DP Limited, Coolisys, Power-Plus, andEnertec, DP Lending and Digital Farms and its majority-owned subsidiary, Microphase.subsidiaries, Microphase and I.AM. All significant intercompany accounts and transactions have been eliminated in consolidation.


Accounting Estimates

The preparation of financial statements, in conformity with U.S. 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 dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include acquisition accounting, fair value of certain financial instruments, reserve for trade receivables and inventories, carrying amounts of investments, fair value of digital currencies, accruals of certain liabilities including product warranties, useful lives and depreciation, and deferred income taxes and related valuation allowance.

Revenue Recognition

The Company recognizes revenue under ASC 606,Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

·Step 1: Identify the contract with the customer,
·Step 2: Identify the performance obligations in the contract,
·Step 3: Determine the transaction price,
·Step 4: Allocate the transaction price to the performance obligations in the contract, and
·Step 5: Recognize revenue when the company satisfies a performance obligation.

 F-9
Table of Contents

DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 
Investments in Debt and Equity Securities

The Company classifies its investments in Avalanche International, Corp (“AVLP”), consisting of shares 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 investment in marketable securities and convertible promissory notes are both classified as “available-for-sale securities” and are carried at fair value, based on quoted market prices. Unrealized gains and losses are reported as a separate component of stockholder’s equity, accumulated other comprehensive loss. When evaluating the Company’s debt and equity investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial conditiondisaggregated revenues consist of the issuer and any changes thereto, andfollowing for the Company’s intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recoverythree months ended March 31, 2019:

  Three Months ended March 31, 2019 
           Digital       
  DPC  DPL  Enertec  Farms  I.AM  Total 
                   
Primary Geographical                  
Markets                  
North America $2,546,837  $—  $—  $28,804  $1,173,499  $3,749,140 
Europe  66,402   481,597   —   —   —   547,999 
Middle East  —   —   2,312,902   —   —   2,312,902 
Other  68,767   74,917   185,318   —   —   329,002 
  $2,682,006  $556,514  $2,498,220  $28,804  $1,173,499  $6,939,043 
                         
Major Goods                        
RF/Microwave Filters $652,559  $—  $—  $—  $—  $652,559 
Detector logarithmic                        
 video amplifiers  435,365   —   —   —   —   435,365 
Power Supply Units  1,408,993   —   —   —   —   1,408,993 
Power Supply Systems  —   556,514   —   —   —   556,514 
Healthcare diagnostic systems  —   —   648,668   —   —   648,668 
Defense systems  —   —   1,849,552   —   —   1,849,552 
Digital Currency Mining  —   —   —   28,804   —   28,804 
Restaurant operations  —   —   —   —   1,173,499   1,173,499 
Lending activities  185,089   —   —   —   —   185,089 
  $2,682,006  $556,514  $2,498,220  $28,804  $1,173,499  $6,939,043 
                         
Timing of Revenue                        
Recognition                        
Goods transferred at a                        
 a point in time $2,682,006  $419,613  $—  $28,804  $1,173,499  $4,303,922 
Services transferred over time  —   136,901   2,498,220   —   —   2,635,121 
  $2,682,006  $556,514  $2,498,220  $28,804  $1,173,499  $6,939,043 

Sales 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

Products

The Company generates revenues from the sale of its products through a direct and indirect sales force. Revenues fromThe Company’s performance obligations to deliver products are recognizedsatisfied at the point in accordance with ASC No. 605, Revenue Recognition,time when products are received by the customer, which is when the following criteriacustomer has title and the significant risks and rewards of ownership. The Company provides standard assurance warranties, which are met: persuasive evidencenot separately priced, that the products function as intended. The Company primarily receives fixed consideration for sales of an arrangement exists, delivery has occurred,product. Some of 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, certainCompany’s contracts with 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 toinclude stock rotation rights are deferredafter six months for slow moving inventory, which represents variable consideration. The Company uses an expected value method to estimate variable consideration and constrains revenue for estimated stock rotations until it is probable that a significant reversal in the products are soldamount of cumulative revenue recognized will not occur. To date, returns have been insignificant. The Company’s customers generally pay within 30 days from the receipt of a valid invoice.

Because the Company’s product sales agreements have an expected duration of one year or less, the Company has elected to adopt the end customer or until the rotation rights expire. Service revenues are deferred and recognized on a straight-line basis over the termpractical expedient in ASC 606-10-50-14(a) of the service agreement. Service revenues are immaterial in proportion to the Company's revenues. not disclosing information about its remaining performance obligations.

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9
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 
Warranty

Manufacturing Services

The Company offers a warranty periodprovides manufacturing services in exchange primarily for all its products. Warranty periods rangefixed fees, however, the initial two MLSE units are subject to variable pricing under the $50 million purchase order from one to two years depending onMTIX. Under the product. The Company estimatesterms of 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 stockMLSE purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) giveorder, 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 requirementshall be entitled to net cash settlecost plus $100,000 for the contract if an event occurs and if that event is outside the controlmanufacture 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.first two MLSE units. 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 date fair value of the awards.  Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture.  The Company uses 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 fair value of the equity instruments issued is determined at 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 contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur 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,costs of manufacturing the MLSE units will decline over time because of a learning curve which will result in accordance with ASC No. 470-20, Debt with Conversiona greater amount of revenue being recognized for these initial two MLSE units.

For manufacturing services, which include revenues generated by Enertec and Other Options (“ASC No. 470-20”). Under ASC No. 470-20in certain instances revenues generated by DPL, the Company’s performance obligation for manufacturing services is satisfied over time as the Company records, when necessary, discountscreates or enhances an asset based on criteria that is unique to convertible notes for the intrinsic valuecustomer and that the customer controls as the asset is created or enhanced. Generally, the Company recognizes revenue based upon proportional performance over time using a cost to cost method which measures progress based on the costs incurred to total expected costs in satisfying its performance obligation. This method provides a depiction of conversion options embeddedthe progress in debt instrumentsproviding the manufacturing service because there is a direct relationship between the costs incurred by the Company and the transfer of the manufacturing service to the customer. Manufacturing services that are recognized based upon the differencesproportional performance method are included in the above table as services transferred over time and to the extent the customer has not been invoiced for these revenues, as accrued revenue in the accompanying consolidated balance sheets. Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component to the extent that the period between when the fair valueCompany transfers its promised good or service to the customer and when the customer pays is one year or less.

The aggregate amount of the underlying common stocktransaction price allocated to the performance obligation that is partially unsatisfied as of March 31, 2019 for the MLSE units was approximately $48 million. The Company expects to recognize the remaining revenue related to the partially unsatisfied performance obligation over the next two and a half years. The Company will be paid in installments for this performance obligation over the next two and a half years.

Blockchain Mining

The Company derives its revenue by providing transaction verification services within the digital currency networks of cryptocurrencies, such as Bitcoin, Bitcoin Cash and Litecoin. The Company satisfies its performance obligation at the commitmentpoint in time that which the Company is awarded a unit of digital currency through its participation in the applicable network and network participants benefit from the Company’s verification service. In consideration for these services, the Company receives digital currencies which are recorded as revenue, using the closing U. S. dollar price of the related cryptocurrency on the date of receipt. Expenses associated with running the note transactioncryptocurrency mining business, such as equipment deprecation and the effective conversion price embedded in the note. electricity cost are recorded as a component of cost of revenues.

Restaurant Operations

The Company accounts for convertible instruments (whenrecords revenue from restaurant sales at the Company has determined thattime of sale, net of discounts, coupons, employee meals and complimentary meals and gift cards. Restaurant cost of sales primarily includes the embedded conversion options should be bifurcated from their host instruments)cost of good, beverages, and merchandise and disposable paper and plastic goods used in accordancepreparing and selling the Company’s menu items and exclude depreciation and amortization. Vendor allowances received in connection 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 reportingpurchase of a vendor’s products are recognized as a reduction of the related food 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 relate to changes in foreign currency translation adjustments.

beverage costs as earned.

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.

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 

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. 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, tradeaccounts receivables and tradeaccounts and other 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 $3,782 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's investment in AVLP is comprised of convertible promissory notes of $3,670, net of unamortized discount, and marketable equity securities of $112. At December 31, 2016, 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, the Company took into consideration general market conditions, the duration and extent to which the fair value is below cost, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery of value 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 investments are accounted for pursuant to the fair value method based upon the closing market prices of common stock for these three companies at September 30, 2017.

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. The following table sets forth the Company’s financial instruments (See Note 4 and Note 7) that were measured at fair value on a recurring basis by level within the fair value hierarchy:

  Fair Value Measurement at March 31, 2019 
  Total  Level 1  Level 2  Level 3 
Investments in common stock and
derivative instruments of AVLP – a related
party		 $2,385,082  $633,214  $—  $1,751,868 
Investment in common stock of Alzamend
– a related party		  176,250   —   —   176,250 
Investments in marketable equity securities  283,988   283,988   —   — 
Investments in warrants of public companies  33,673   —   —   33,673 
Total Investments $2,878,993  $917,202  $—  $1,961,791 

  Fair Value Measurement at December 31, 2018 
  Total  Level 1  Level 2  Level 3 
Investments in common stock and
derivative instruments of AVLP – a related
party		 $3,043,499  $812,858  $—  $2,230,641 
Investments in marketable securities  178,597   178,597   —   — 
Investments in warrants of public companies  34,372   —   —   34,372 
Total Investments $3,256,468  $991,455  $—  $2,265,013 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 
  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 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:

·Level 1 – inputs include quoted prices for identical instruments and aremarket.

Leases

Effective January 1, 2019, the most observable.

·Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.
·
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.
12
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

Debt Discounts
The Company accounts for debt discount according toits leases under ASC No. 470-20, Debt with Conversion842,Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases. As of January 1, 2019, we only had operating leases. Operating leases are recognized in Operating lease right-of-use (“ROU”) assets, Operating lease liabilities, current, and Other Options. Debt discountsOperating lease liabilities, non-current on our consolidated balance sheets. Lease assets and liabilities are amortized through periodic charges to interest expenserecognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In certain of our lease agreements, we receive rent holidays and other incentives. We recognize lease costs on a straight-line basis over the lease term without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the related financial instrument using the effective interest method. During the threelease, without assuming renewal features, if any, are exercised. We do not separate lease and nine months ended September 30, 2017, the Company recorded amortization of debt discounts of $652 and $1,239, respectively. non-lease components for our leases.

The Company did not recognize any debt discount duringcontinues to account for leases in the three and nine months ended September 30, 2016.

prior period financial statements under ASC Topic 840.

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 calculation for the three and nine months ended September 30, 2017.  Anti-dilutive securities, consistedwhich are convertible into the Company’s Class A common stock, consist of the following at September 30,March 31, 2019 and 2018:

  March 31, 
  2019  2018 
Stock options  360,250   222,875 
Warrants
  936,381   323,743 
Convertible notes  1,438,456   — 
Conversion of preferred stock  89,286   83,856 
Total  2,824,373   630,474 

Reclassifications

Certain prior year amounts have been reclassified for comparative purposes to conform to the current-year financial statement presentation. These reclassifications had no effect on previously reported results of operations. In addition, certain prior year amounts from the restated amounts have been reclassified for consistency with the current period presentation.

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Table of Contents
  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 notes 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 CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

SEPTEMBER 30,

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11,Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Upon adoption the Company recognized cumulative operating lease liabilities and operating right-of-use assets of approximately $4.2 million which were reflected as non-cash items in the consolidated statement of cash flows.

In July 2017,

U.S. dollars the FASB issued ASU No. 2017-11,Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) (“ASU 2017-11”). ASU 2017-11 consists of two parts. The amendments in thousands, except share andPart I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share data(“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common stockholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments in Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. The Company adopted this standard on January 1, 2019 and the adoption did not have a material impact on its consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under ASU 2018-07, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within that fiscal year. The Company adopted this standard on January 1, 2019 and the adoption did not have a material impact on its consolidated financial statements and related disclosures.

4. Marketable Equity Securities

Marketable securities in equity securities with readily determinable market prices consisted of the following as of March 31, 2019 and December 31, 2018:

  Marketable equity securities at March 31, 2019 
     Gross unrealized  Gross realized    
  Cost  gains (losses)  gains (losses)  Fair value 
Common shares $220,880  $63,108  $—  $283,988 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 

  Marketable equity securities at December 31, 2018 
     Gross unrealized  Gross realized    
  Cost  gains (losses)  gains (losses)  Fair value 
Common shares $220,880  ($42,283) $—  $178,597 

The following table presents additional information about marketable equity securities:

  Marketable Equity
Securities		 
Balance at January 1, 2018 $1,834,570 
Purchases of marketable equity securities  858,458 
Sales of marketable equity securities  (2,188,292)
Realized losses on marketable equity securities  (175,405)
Unrealized gains on marketable equity securities  (150,734)
Balance at December 31, 2018 $178,597 
Purchases of marketable equity securities  300,000 
Sales of marketable equity securities  (286,656)
Realized losses on marketable equity securities  (13,344)
Unrealized gains on marketable equity securities  105,391 
Balance at March 31, 2019 $283,988 

At March 31, 2019 and December 31, 2018, the Company had invested in the marketable equity securities of certain publicly traded companies. During the yearthree months ended March 31, 2019, unrealized gains of $105,391 were included in net income as a component of change in fair value of equity securities. During the three months ended March 31, 2018, the Company recorded an unrealized loss of $150,734 as accumulated other comprehensive income in the stockholder's equity section of the Company’s consolidated balance sheet and as a change in unrealized gains and losses on marketable equity securities in the Company’s consolidated statements of comprehensive income (loss). The Company’s investment in marketable equity securities will be revalued on each balance sheet date.  The fair value of the Company’s holdings in marketable equity securities at March 31, 2019 and December 31, 2016,2018 is a Level 1 measurement based on quoted prices in an active market.

At March 31, 2019 and December 31, 2018, the Company madealso held an investment in preferred stock of a strategic decisionprivate company and an investment in a limited partnership. These investments do not have readily determinable fair values and have been measured at cost less impairment, if any, and adjusted for observable price changes for identical or similar investments of the issuer.

5. PROPERTY AND EQUIPMENT, NET

At March 31, 2019 and December 31, 2018 property and equipment consist of:

  March 31,  December 31, 
  2019  2018 
Cryptocurrency machines and related equipment $9,198,928  $9,168,928 
Computer, software and related equipment  2,476,156   2,495,470 
Restaurant equipment  757,029   752,103 
Office furniture and equipment  359,937   287,583 
Leasehold improvements  1,304,302   1,274,865 
   14,096,352   13,978,949 
Accumulated depreciation and amortization  (5,491,046)  (4,665,650)
Property and equipment, net $8,605,306  $9,313,299 

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

For the three months ended March 31, 2019 and 2018, depreciation expense amounted to invest$799,023 and $115,147, respectively.

6. INTANGIBLE ASSETS, NET

At March 31, 2019 and December 31, 2018 intangible assets consist of:

  March 31,  December 31, 
  2019  2018 
Trade name and trademark $1,562,332  $1,562,332 
Customer list  2,434,448   2,388,139 
Non-competition agreements  150,000   150,000 
Domain name and other intangible assets  782,381   762,807 
   4,929,161   4,863,278 
Accumulated depreciation and amortization  (676,707)  (503,480)
Intangible assets, net $4,252,454  $4,359,798 

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 $162,415 and $33,358 for the three months ended March 31, 2019 and 2018, respectively.

7. INVESTMENTS – RELATED PARTIES

Investments in AVLP and Alzamend at March 31, 2019 and December 31, 2018, are comprised of the following:

  March 31,  December 31, 
  2019  2018 
Investment in convertible promissory note of AVLP $7,732,660  $6,943,997 
Accrued interest in convertible promissory note of AVLP  1,214,509   1,004,317 
Total investment in convertible promissory note of AVLP – Gross  8,947,169   7,948,314 
Less: original issue discount  (1,974,791)  (2,336,693)
Total investment in convertible promissory note of AVLP $6,972,378  $5,611,621 
         
Investment in derivative instruments of AVLP  1,751,868   2,230,641 
Investment in common stock of AVLP  633,214   812,858 
Investment in common stock of Alzamend  176,250   — 
Investment in derivative instruments and common stock of AVLP and Alzamend $2,561,332  $3,043,499 
         
Total investment in AVLP and Alzamend – Net $9,533,710  $8,655,120 

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

The following table summarizes the changes in our investments in AVLP and Alzamend during the three months ended March 31, 2019:

  Investment in       
  warrants and  Investment in  Total 
  common stock  convertible  investment 
  of AVLP and  promissory  in AVLP and 
  Alzamend  note of AVLP  Alzamend – Net 
Balance at January 1, 2019 $3,043,499  $5,611,621  $8,655,120 
Investment in convertible promissory notes of AVLP  —   530,756   530,756 
Investment in common stock of AVLP and Alzamend  135,790   —   135,790 
Fair value of derivative instruments issued by AVLP  257,907   —   257,907 
Unrealized loss in derivative instruments of AVLP  (736,680)  —   (736,680)
Unrealized loss in common stock of AVLP and Alzamend  (139,184)  —   (139,184)
Accretion of discount  —   619,809   619,809 
Accrued Interest  —   210,192   210,192 
Balance at March 31, 2019 $2,561,332  $6,972,378  $9,533,710 

The Company’s investments in AVLP, a related party controlled by Philou an existing majority stockholder. The Company’s investments in AVLP primarilyVentures, LLC, or Philou, a significant stockholder of the Company, consist of convertible promissory notes, derivative instruments and shares of common stock of AVLP.

On October 5, 2016, November 30, 2016, and February 22, 2017, At March 31, 2019, the Company entered into three 12% Convertible Promissory Notes withhas provided loans to AVLP (the "AVLP Notes") in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting$7,732,660 and, 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 pursuantaddition to the terms of the12% convertible promissory notes, 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, AVLPhas issued to the Company a five-year Warrantwarrants to purchase 6,948,80015,465,320 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.
common stock. The Warrant entitleswarrants entitle the Company to purchase up to 6,948,80015,465,320 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The exercise pricewarrants were determined by the issuer to be financial derivative instruments. At March 31, 2019 and December 31, 2018, the Company recorded an unrealized loss on its investment in warrants of $0.50AVLP of $3,150,061 and $2,413,381, respectively, representing the difference between the cost basis and the estimated fair value of the warrants in the Company’s accumulated other comprehensive income in the stockholder's equity section of the Company’s consolidated balance sheet. During the three months ended March 31, 2019 and 2018, the Company recognized, in other comprehensive loss, net unrealized loss on derivative securities of related party of $736,680 and $4,273,014, respectively. The Company’s investment in AVLP will be revalued on each balance sheet date. The fair value of the Company’s holdings in the AVLP warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate, which ranged between 2.22% and 2.77%, was derived from the U.S. Treasury yield curve, matching the term of our investment, in effect at the measurement date. The volatility factor which ranged between 68.7% and 82.8% was determined based on historical stock prices for similar technology companies with market capitalizations under $100 million. The warrant valuation is subject to adjustmenta Level 3 measurement.

In accordance with ASC No. 310, Receivables (“ASC 310”), the Company accounts for customary stock splits, stock dividends, combinations or similar events. The Warrant may be exercisedits convertible promissory notes in AVLP at amortized cost, which represents the amount at which the convertible promissory notes were acquired, adjusted for cash or on a cashless basis.


Theaccrued interest and accretion of original issue discount and discount attributed to the fair value of $165the 15,465,320 warrants that the Company received in conjunction with its investment. Interest is accreted using the effective interest method. The Company records interest on an accrual basis and recognizes it as earned in accordance with the New Notecontractual terms of the convertible promissory notes, to the extent that such amounts are expected to be collected. An aggregate of $5,029,211 of original issue discount and discount attributed to the fair value of the warrants is being amortized as interest income through the maturity date using the interest rate method.date. During the three and nine months ended September 30, 2017,March 31, 2019 and 2018, the Company recorded $18$619,809 and $38,$490,031, respectively, of interest income for the discount accretion. As of September 30, 2017,During the three months ended March 31, 2019 and December 31, 2016,2018, the Company recorded contractual interest receivable attributed to the AVLP Notes and AVLP Loan Agreement of $208$210,191 and $13,$143,682, respectively.

The Company has classifiedevaluated the collectability of both interest and principal for the convertible promissory notes in AVLP Notes as Available-for-Sale securities, subjectto determine whether there was an impairment. Based on current information and events, the Company determined that it is probable that it will be able to collect amounts due according to the guidance in ASC No. 320. The Company elected to apply the Fair Value Option Subsections of Subtopic 320-10existing contractual terms. Impairment assessments require significant judgments and 825-10are based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral.

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

During the three months ended March 31, 2019 and the year ended December 31, 2018, the Company also acquired in the open market 71,000 shares of AVLP Notes.common stock for $41,790 and 430,942 shares of AVLP common stock for $417,169, respectively. At September 30, 2017, the closing market price of AVLP’s common Stock was $0.64. Subsequent to quarter-end,March 31, 2019, 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$0.65, a decline from $0.90 at December 31, 2018. The Company has determined that its cost basisinvestment in AVLP marketable equity securities are accounted for pursuant to the fair value method and based upon the closing market price of AVLP common stock at March 31, 2019, the Company’s investment in AVLP common stock approximateshad an unrealized loss of $102,104.

8. OTHER INVESTMENTS, RELATED PARTIES

The Company’s other related party investments primarily consist of two investments.

MTIX, Ltd.

On December 5, 2017, the currentCompany entered into an exchange agreement with WT Johnson pursuant to which the Company issued to WT Johnson two convertible promissory notes in the principal amount of $600,000 (“Note A”) and $1,667,766 (“Note B”), in exchange for cancellation of amounts due to WT Johnson by MTIX Ltd., a related party of the Company.

During December 2017, the Company issued 30,000 shares of its common stock to WT Johnson & Sons upon the conversion of Note A and WT Johnson subsequently sold the 30,000 shares. The proceeds from the sale of shares of common stock received upon the conversion of Note A were sufficient to satisfy the entire $2,267,766 obligation as well as an additional $400,500 of value added tax due to WT Johnson. Concurrent with entering into the exchange agreement, the Company received a promissory note in the amount of $2,668,266 from MTIX and cancelled Note B. At March 31, 2019 and December 31, 2018, the Company has valued the note receivable at $600,000, the carrying amount of Note A. The Company will recognize the remainder of the amount due from MTIX upon payment of the promissory note by MTIX.

Israeli Property

During the year ended December 31, 2017, our President, Amos Kohn, purchased certain real property that serves as a facility for the Company’s business operations in Israel. The Company made $300,000 of payments to the seller of the property and received a 28% undivided interest in the real property (“Property”). The Company’s subsidiary, Coolisys, entered into a Trust Agreement and Tenancy In Common Agreement with Roni Kohn, who owns a 72% interest in the Property, the daughter of Mr. Kohn and an Israeli citizen. The Property was purchased to serve as a residence/office facility for the Company in order to oversee its Israeli operations and to expand its business in the hi-tech industry located in Israel. Pursuant to the Trust Agreement, Ms. Kohn will hold and manage Coolisys’ undivided 28% interest in the Property. The trust will be in effect until it is terminated by mutual agreement of the parties. During the term of the trust, Ms. Kohn will not sell, lease, sublease, transfer, grant, encumber, change or effect any other disposition with respect to the Property or Coolisys’ interest without the Company’s approval.

Under the Tenancy In Common Agreement, Coolisys and its executive officers shall have the exclusive rights to use the Property for the Company and its affiliates’ business operations. The Property shall be managed by Ms. Kohn. Further, pursuant to the Tenancy In Common Agreement, for each completed calendar month of employment of Mr. Kohn by the Company, Ms. Kohn shall have the right to purchase a portion of the Company’s interest in the Property. Such right shall fully vest at the end of five years of continuous employment and the Trustee shall have the right to purchase the Company’s 28% interest in the Property for a nominal value. The Company will amortize its $300,000 investment over ten years, subject to a cliff vesting after five years. During the three months ended March 31, 2019 and 2018, the Company recognized $7,500 in amortization expense. If Mr. Kohn is not employed by the Company, the Company shall have the right to demand that Ms. Kohn purchase the Company’s remaining interest in the Property that was not subject to vesting for the fair value.market value of such unvested Property interest.

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14
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

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 

9. ACQUISITIONS

The following pro forma data for the three months ended March 31, 2018 summarizes the results of operations for the periodsperiod indicated as if the Microphase and Power-Plus acquisitionsEnertec acquisition, which closed on May 23, 2018 had been completed as of the beginning of eachthe 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 eachthe 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.

  For the Three 
  Months Ended 
  March 31, 2018 
Total Revenue $7,774,229 
Net loss $(6,136,615)
Less: Net loss attributable    
to non-controlling interest  35,431 
Loss available to common shareholders $(6,101,184)
Basic and diluted net loss per common share $(3.35)
Basic and diluted weighted average    
common shares outstanding  1,819,598 
Comprehensive Loss    
Loss available to common shareholders $(6,101,184)
Other comprehensive income (loss)    
Change in net foreign currency    
translation adjustments  26,457 
Net unrealized loss on derivative    
securities of related party  (4,741,114)
Other comprehensive income (loss)  (4,714,657)
Total Comprehensive loss $(10,815,841)

10. STOCK-BASED COMPENSATION

Under the Company's 2018 Stock Incentive Plan (the “2018 Plan”), 2017 Stock Incentive Plan (the “2017 Plan”), 2016 Stock Incentive Plan (the “2016“2016 Plan”) and the 2012 Stock Option Plan, as amended (the “2012“2012 Plan”) (collectively, the “Plans”“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 5,372,630868,632 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,March 31, 2019, an aggregate of 1,350,832520,539 of the Company's options are still available for future grant.

During the three and nine months ended September 30, 2017,March 31, 2019, the Company granted 50,000 and 560,000did not grant any options.During the three months ended March 31, 2018, the Company did not grant any options respectively, from the PlansPlans; however, the Company did grant 38,750options to its employees at an average exercise priceoutside of $0.61 per share.the Plans. These options become fully vested after four years. The Company estimated that the grant date fair value of these options granted utilizing the Black-Scholes option pricing model during the three months ended March 31, 2018 was $251,$1,480,195 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,March 31, 2019 and 2018, the Company also issued 380,645375,000 and 1,336,798,64,153, respectively, shares of common stock to its consultants and service providers pursuant to the 2016 Plan.providers. The Company estimated that the grant date fair value of these shares of common stock was $742, $253,019 and $2,457,102, respectively, which was determined from the closing price of the Company’s common stock on the date of issuance.

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

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 ninethree months ended September 30, 2017,March 31, 2018, 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

  Three Months Ended 
  March 31, 2018 
Weighted average risk-free interest rate  2.41% — 2.43% 
Weighted average life (in years)  5.0 
Volatility  124.7% 
Expected dividend yield  0% 
Weighted average grant-date fair value per share of
options granted		 $38.20 

The options outstanding as of September 30, 2017,March 31, 2019, 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 

Outstanding Exercisable
    Weighted      
  AverageWeighted Weighted
  RemainingAverage Average
ExerciseNumberContractualExerciseNumberExercise
PriceOutstandingLife (Years)PriceExercisablePrice
$12.00 - $14.00 149,000 7.27 $13.44 96,751 $13.31
$26.40 - $27.60 8,500 8.28 $27.46 3,500 $27.26
$30.20 - $33.80 2,875 3.33 $32.67 2,875 $32.67
$12.00 - $33.80 160,375 7.25 $14.53 103,126 $14.32

Issuances outside of Plans
$16.00 - $46.40 199,875 7.15 $26.09 47,121 $28.87
           
Total Options
$12.00 - 46.40 360,250 7.20 $20.94 150,247 $18.88

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, 2017March 31, 2019 and 2016,2018, is comprised as follows:

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 
  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 

  Three Months Ended 
  March 31, 2019  March 31, 2018 
Cost of revenues $-  $4,874 
Engineering and product development  -   13,650 
Selling and marketing  -   11,922 
General and administrative  162,326   664,165 
Stock-based compensation from Plans $162,326  $694,611 
Stock-based compensation from issuances
outside of Plans		  458,962   743,603 
Total Stock-based compensation $621,288  $1,438,214 

The combination of stock-based compensation of $1,061$162,326 from the issuances of equity basedequity-based awards pursuant to the Plans and stock-based compensation attributed to restricted stock awards of $130 and warrants$253,019 and options of $78,$205,943, which were issued outside of the Plans, resulted in aggregate stock-based compensation of $1,269$621,288 during the ninethree months ended September 30, 2017.March 31, 2019. During the three months ended September 30, 2017, aggregateMarch 31, 2018, stock-based compensation was $517, which consistedcomprised of $365$694,611 from the issuances of equity basedequity-based awards pursuant to the Plans and stock-based compensation attributed to restricted stock awardawards of $120$576,194 and warrants and options of $32,$167,409, which were issued outside of the Plans. During the three and nine months ended September 30, 2016, the onlyPlans, resulted in aggregate 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

of $1,438,214.

A summary of option activity under the Company's stock option plans as of September 30, 2017,March 31, 2019, and changes during the ninethree 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 

   Outstanding Options
       Weighted  
     Weighted Average  
 Shares   Average Remaining Aggregate
 Available Number Exercise  Contractual Intrinsic
 for Grant of Shares Price Life (years)  Value
January 1, 2019507,789 173,125 $14.41 7.52 $0
Forfeited12,750 (12,750) $12.89    
March 31, 2019520,539 160,375 $14.53 7.25 $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, $0.55March 31, 2019 of $0.29 and the exercise price, multiplied by the number of in-the-money-options).

As of September 30, 2017,March 31, 2019, there was $425$403,373 of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Company's stock option plans.Plans. That cost is expected to be recognized over a weighted average period of 2.32.4 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:
 F-21
(i)
On April 17, 2017, the Company issued warrants to purchase 166,668 sharesTable of common stockContents, 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

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

MARCH 31, 2019

 
(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.

11. WARRANTS

During the three months ended March 31, 2019, the Company did not issue any warrants. 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
March 31, 2019:

Outstanding   Exercisable
    Weighted      
    Average Weighted   Weighted
    Remaining Average   Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
$0.20 15,873 7.59 $0.20 15,873 $0.20
$11.00 14,182 3.61 $11.00 14,182 $11.00
$12.00 3,750 4.09 $12.00 3,750 $12.00
$13.20 7,407 3.59 $13.20 7,407 $13.20
$14.00 106,286 3.62 $14.00 106,286 $14.00
$15.00 6,795 3.13 $15.00 6,795 $15.00
$16.00 24,083 1.45 $16.00 24,083 $16.00
$17.40 86,207 4.12 $17.40 86,207 $17.40
$18.80 384,589 4.13 $18.80 384,589 $18.80
$20.00 14,000 3.70 $20.00 14,000 $20.00
$22.00 37,974 2.43 $22.00 37,974 $22.00
$23.00 85,000 3.99 $23.00 85,000 $23.00
$26.00 49,679 4.04 $26.00 49,679 $26.00
$27.00 55,556 4.12 $27.00 55,556 $27.00
$44.00 31,250 3.82 $44.00 31,250 $44.00
$45.00 5,625 3.82 $45.00 5,625 $45.00
$50.00 8,125 3.82 $50.00 8,125 $50.00
$0.20 - $50.00 936,381 3.93 $20.19 936,381 $20.19

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.warrants. 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 ninethree months ended September 30, 2017:March 31, 2018:

  2018 
Weighted average risk-free interest rate  2.41% — 2.61% 
Weighted average life (in years)  4.0 
Volatility  124.8% — 138.4% 
Expected dividend yield  0% 
Weighted average grant-date fair value per
share of warrants granted		 $23.20 

 F-22
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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 

12. OTHER CURRENT LIABILITIES

At March 31, 2019 and December 31, 2018 other current liabilities consist of:

  March 31,  December 31, 
  2019  2018 
Accrued payroll and payroll taxes $1,274,875  $1,497,470 
Other accrued expenses  302,673   370,932 
  $1,577,548  $1,868,402 

13. LEASES

We have operating leases for office space and restaurant locations. Our leases have remaining lease terms of 3 months to 9 years, some of which may include options to extend the leases perpetually, and some of which may include options to terminate the leases within 1 year.

The following table provides a summary of leases by balance sheet location as of March 31, 2019:

  March 31, 2019 
Operating right-of-use assets $3,948,834 
Operating lease liability - current  856,475 
Operating lease liability - non-current  3,124,524 

The components of lease expenses for the three months ended March 31, 2019 were as follows:

  Three 
  Months Ended 
  March 31, 2019 
Operating lease cost $386,134 
Short-term lease cost  - 
Variable lease cost  - 

The following tables provides a summary of other information related to leases for the three months ended March 31, 2019:

  March 31, 2019 
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows from operating leases $355,070 
Right-of-use assets obtained in exchange for new operating lease liabilities $- 
Weighted-average remaining lease term - operating leases   5.76 years 
Weighted-average discount rate - operating leases  10% 

  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 
 F-23
Table of Contents

DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 
8.

Maturity of lease liabilities under our non-cancellable operating leases as of March 31, 2019, are as follows:

Payments due by period     
2019 (Remainder) $936,849 
2020  1,039,687 
2021  779,008 
2022  501,411 
2023  514,895 
Thereafter  1,582,121 
Total lease payments  5,353,971 
Less interest  (1,372,972)
Present value of lease liabilities $3,980,999 

Information for our leases for the year ended December 31, 2018 under ASC Topic 840, Leases, follows for comparative purposes.

Minimum future payments under all operating leases as of December 31, 2018, were as follows:

Payments due by period      
2019 $1,291,919 
2020  1,039,687 
2021  779,008 
2022  501,411 
2023  514,895 
Thereafter  1,582,121 
Total lease payments $5,709,041 

14. ADVANCES ON FUTURE RECEIPTS


Between July 6, 2017 and September 13, 2017,

During the three months ended March 31, 2019, the Company received funding as a result of entering into multiplethree Agreements for the Purchase and Sale of Future Receipts with TVT Capital, LLC pursuant to which(collectively, the “Agreements on Future Receipts”). The Company sold in the aggregate $2,585$568,123 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,$395,095. During 2019, the Company had paid back $439.repaid $388,587. 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$173,028 in connection with these three agreements, based upon the termdifference between the amount of future receipts sold and the agreement.actual proceeds received by the Company. During the three and nine months ended September 30, 2017,March 31, 2019 and 2018, non-cash interest expense of $142$95,371 and $996,297, respectively, was recorded from the amortization of debt discounts.

 F-24

Table of Contents
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

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

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.

15. NOTES PAYABLE


Notes Payable at September 30, 2017,March 31, 2019 and December 31, 2018, are comprised of the following. At December 31, 2016

  March 31,  December 31, 
  2019  2018 
12% short-term promissory note $1,000,000  $1,000,000 
Other short-term notes payable  853,379   1,033,553 
12% September 2018 short-term promissory note  743,847   789,473 
8% short-term promissory notes  636,300   1,272,600 
October 2018 short-term promissory note  —   565,000 
Enertec short-term promissory note  500,000   — 
Notes payable to Wells Fargo  291,913   291,988 
Note payable to Dept. of Economic and Community Development  250,071   260,169 
Microphase short-term promissory note  200,000   200,000 
Note payable to Power-Plus Member  13,250   13,250 
Note payable to People's United Bank  17,082   18,589 
Short term bank credit  1,636,182   1,586,864 
Total notes payable  6,142,024   7,031,486 
Less:        
Unamortized debt discounts  (18,082)  (151,499)
Unamortized financing cost  —   (7,541)
Total notes payable, net of financing cost $6,123,942  $6,872,446 
Less: current portion  (5,650,699)  (6,388,787)
Notes payable – long-term portion $473,243  $483,659 

January Exchange Agreement

On August 16, 2018, as amended on November 29, 2018, the Company didentered into a securities purchase agreement with four institutional investors providing for the issuance of 8% promissory notes, each in the principal amount of $318,150, for an aggregate principal face amount of $1,272,600, due February 15, 2019 (individually the “8% Short-Term Promissory Note” and collectively the “8% Short-Term Promissory Notes”).

On January 23, 2019 the Company entered into an Exchange Agreement (the “January Exchange Agreement”) with one of the institutional investors pursuant to which the Company issued to the investor two new 8% promissory notes in the aggregate principal amount of $1,043,799 (the “New Notes”) in exchange for one of the 8% Short-Term Promissory Notes and the October short-term promissory note in the principal amount of $565,000.

Pursuant to the January Exchange Agreement, the investor received 436,753 shares of common stock of the Company issued under the Company’s Registration Statement on Form S-3 (File No. 333-222132) in satisfaction of the New Notes. Further, since the investor’s proceeds from the sale of all 436,753 shares of common stock received were not have anyequal to the outstanding principal balance of the New 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 
the Company was required to pay to the investor the difference, which amounted to $244,898, in cash or through the delivery of free trading shares of common stock. The Company recognized additional interest expense for the difference of $244,898. On March 19, 2019, the Company issued to the investor an additional 102,041 shares of the Company’s common stock, with a value of $73,016, in partial satisfaction of the liability, resulting in a remaining balance due of $171,882.

February 2019 Exchange Agreement

On February 20, 2019 the Company entered into an Exchange Agreement (the “February Exchange Agreement”) with another one of the institutional investors pursuant to which the Company issued to the investor a new 8% promissory note in the principal amount of $433,884 (the “New Note”) in exchange for the 8% Short-Term Promissory Note (the “Old Note”).

Pursuant to the February ’19 Exchange Agreement, the investor received 180,785 shares of common stock of the Company issued under the Company’s Registration Statement on Form S-3 (File No. 333-222132) in satisfaction of the New Note. Further, since the investor’s proceeds from the sale of all 180,785 shares of common stock received were not equal to the outstanding principal balance of the New Note, the Company is required to pay the difference, which amounted to $289,954, to the investor in cash or through the delivery of free trading shares of common stock. The Company recognized additional interest expense for the difference of $289,954. On April 4, 2019, the Company issued to the investor an additional 375,000 shares of the Company’s common stock, with a value of $108,523, in partial satisfaction of the liability, resulting in a remaining balance due of $183,822.

 F-25
(a)
In December 2016, Microphase issued $705 in 10% short-term promissory notes to nineteen accredited investors which, after deducting $71Table of placement fees to its selling agent, Spartan Capital Securities, LLC (“Spartan”Contents), 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

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

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,

Enertec Short-Term Promissory Note

On December 28, 2018, Enertec entered into a $500,000 secured promissory note (the “Enertec Short-Term Promissory Note”) whereby Enertec agreed to pay interest in an amount of 10% per annum in cash to the investor, until the Enertec Short-Term Promissory Note is paid in full. The proceeds from the Enertec Short-Term Promissory Note were received in January 2019 and repaid on April 2, 2019. In connection with the Enertec Short-Term Promissory Note, Milton C. Ault III provided a personal guarantee for the benefit of the investor.

16. NOTES PAYABLE – RELATED PARTIES

Notes Payable – Related parties at March 31, 2019 and December 31, 2018, are comprised of the following.

  March 31,  December 31, 
  2019  2018 
Notes payable to Microphase former officers and employees $309,234  $308,984 
Total notes payable  309,234   308,984 
Less: current portion  (166,925)  (166,925)
Notes payable – long-term portion $142,309  $142,059 

17. CONVERTIBLE NOTES

Convertible Notes Payable at March 31, 2019 and December 31, 2018, are comprised of the following.

  March 31,  December 31, 
  2019  2018 
10% Convertible secured notes $6,260,294  $7,997,126 
Less:        
Unamortized debt discounts  —   (1,189,276)
Unamortized financing cost  —   (65,356)
Total convertible notes payable, net of financing cost $6,260,294  $6,742,494 

On May 15, 2018, the Company entered into a securities purchase agreement to sell a 10% convertible note (the “10% Convertible Note”) in the principal amount of $6,000,000. On July 2, 2018 and August 31, 2018, the Company entered into securities purchase agreements with the institutional investor providing for the issuance of a second 10% convertible note with a principal face amount of $1,000,000 (the “Second 10% Convertible Note”) and a third 10% convertible note with a principal face amount of $2,000,000 (the “Third 10% Convertible Note” and with the Second 10% Convertible Note, the “Additional 10% Convertible Notes”), respectively.

On January 9, 2019, the 10% Convertible Note was amended revising the amortization schedule such that the conversion price on eleven monthly amortization payments in the principal amount $309,193 each, at the request of the holder, shall be satisfied 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 loansconversion price on these monthly amortization payments was equivalent to the fair value of the consideration transferred, which was determinedreduced 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%$8.00 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 sharesshare of common stock at an exerciseto a price equal to the greater of $0.70(i) $2.40 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 January 9, 2019) or (ii) 80% of the lowest daily VWAP in the three days prior to the date of extinguishment.

On March 28, 2017,issuance, but not to exceed $8.00 per share. Further, the Company issued $270shall have the right to pay the monthly amortization payment in demand promissory notes to several investors. These demand promissory notes accrued interest atcash within 72 hours by advising the rateinvestor within two hours of 6% per annum.receipt of any conversion notice. 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 issuingamendment 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 resultembedded conversion option of the extinguishment of the $27010% Convertible Note caused a material change 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 determinedembedded conversion options and resulted in a loss on extinguishment of $807,784.

Between January 4, 2019 and February 21, 2019, the Company issued to the investor 336,487 shares of its common stock upon the conversion of $1,053,351 in principal and accrued interest. The investor received $660,337 from the closing pricesale of these shares of common stock. In accordance with the January 9, 2019 amendment, the Company is required to pay the difference between the conversion amount and the proceeds received from the subsequent sale of the Company’s common stock onshares by the dateinvestor, which amounted to $393,014. The Company recognized additional interest expense in the amount of extinguishment.$393,014.

 F-26
Table of Contents
24
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

SEPTEMBER 30, 2017
U.S. dollars

On April 2, 2019, the Company repaid principal of $3,000,000 and accrued interest of $1,125,000 on the Additional 10% Convertible Notes and made a payment of $353,308 towards the 10% Convertible Note.

18. COMMITMENTS AND CONTINGENCIES

On July 31, 2018 a stockholder derivative complaint was filed in thousands, except sharethe United States District Court for the Central District of California against the Company as the nominal defendant, as well as its current directors and per share data

11. NOTES PAYABLE – RELATED PARTIES

Notes Payable – Related parties at September 30, 2017,a former director styledEthan Young and December 31, 2016, are comprisedGreg Young, Derivatively on Behalf of Nominal Defendant, DPW Holdings, Inc. v. Milton C. Ault, III, Amos Kohn, William B. Horne, Jeff Bentz, Mordechai Rosenberg, Robert O. Smith, and Kristine Ault and DPW Holdings, Inc., as the nominal defendant (Case No. 18-cv-6587) (the “Complaint”). No hearings have been scheduled as of the following:
date hereof.

The Complaint alleges violations of state law and breaches of fiduciary duty, unjust enrichment and gross mismanagement by the individual defendants as, in the view of the plaintiffs, the Company has entered into poorly advised loan transactions and related party transactions. The Company and the individual defendants believe that these claims are without merit and intend to vigorously defend themselves. The Company and the individual defendants moved to dismiss the Complaint and on February 25, 2019, the Court granted the motion to dismiss but granted plaintiffs leave to amend their Complaint.  On March 11, 2019, plaintiffs filed their amended complaint asserting violations of breaches of fiduciary duties and unjust enrichment claims based on the previously pled transactions. On March 25, 2019, the Company and the individual defendants filed a motion to dismiss the amended complaint.  On May 6, 2019, the Motion to Dismiss was fully submitted to the Court without oral argument. The Motion is now pending before the Court.

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.

On November 28, 2018,Blockchain Mining Supply and Services, Ltd, a vendor who sold computers to the Company’s subsidiary, filed in the United States District Court for the Southern District of New York against Super Crypto Mining, Inc. and the Company (Case No. 18-cv-11099). The Complaint asserted claims for breach of contract and promissory estoppel against the Company and its subsidiary arising from the subsidiary’s failure to satisfy a purchase agreement.  The Complaint seeks damages in the amount of $1,388,495.

On February 4, 2019, pursuant to the Court’s Rules, the Company requested a pre-motion Conference with the Court.  The Company’s time to file its motion to dismiss is stayed until the Court’ holds the pre-motion Conference, which has not yet been scheduled by the Court.

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, the Company has established a reserve in the amount of the unpaid portion of the purchase agreement. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.


  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 
 F-27
(a)On December 29, 2016, the Company entered into an agreement with MCKEA Holdings, LLC (“MCKEA”). MCKEA is the majority memberTable 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 ContentsChairman 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

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 

The Convertible Note is in

19. STOCKHOLDERS’ EQUITY

Amendments to Certificate of Incorporation

On January 3, 2019, the principal amountCompany filed a certificate of $400, includedamendment (the “Certificate of Amendment”) to its Certificate of Incorporation, with the Secretary of State of the State of Delaware, to effectuate an original issue discount (“OID”) of $40 resulting in net proceedsincrease to the number of authorized shares of common stock of the Company. Pursuant to the Certificate of Amendment, the Company increased the number 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.authorized shares of its Class A common stock to 500,000,000 from 200,000,000 (the “Authorized Increase”). The principal may be converted intonumber of authorized shares of the Company’s Class B common stock remains at $0.55 per share.

The Company computed25,000,000 and the fair valuenumber of authorized shares of the 666,666 warrants using the Black-Scholes option pricing model and, asCompany’s preferred stock remains at 25,000,000. As a result of this calculation, recorded debt discount in the amountincrease of $167 based on the estimated fair valueauthorized shares of the 666,666 warrants.
The beneficial conversion feature (“BCF”) embedded inCompany’s Class A common stock, the Convertible Note is accounted for under ASC No. 470, Debt. At issuance, the estimated fair valueaggregate number of the BCF totaled $187.Company’s authorized shares is 550,000,000. The Authorized Increase was approved by the Company’s board of directors as of December 28, 2018 and approved by a vote of the stockholders of the Company at the December 28, 2018 Annual Meeting of Stockholders. The Certificate of Amendment became effective upon filing with the State of Delaware on January 3, 2019.

On March 14, 2019, pursuant to the authorization provided by the Company’s stockholdersat a Special Meeting of Stockholders, the Company’s Board of Directors approved the Certificate of Incorporation Amendment (the “COI Amendment”) to effectuate a reverse stock split of the Common Stock affecting both the authorized and issued and outstanding number of such shares by a ratio of one-for-twenty (the “Reverse Stock Split”). The Company however, is prohibited from issuingfiled the COI Amendment to its Certificate of Incorporation with the State of Delaware effectuating the Reverse Stock Split on March 14, 2019. As a result of the Reverse Stock Split, each twenty (20) shares of common stock pursuantissued and outstanding prior 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 beReverse Stock Split were converted into sharesone (1) share 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 theno change in the fairauthorized shares or par 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 2,000,00025,000,000 shares of Preferred Stock with no$0.001 par value. The Board of Directors has designated 500,0001,000,000 shares of itsas Series A Convertible Preferred Stock as Series A cumulative Redeemable Convertible Preferred shares (the “Series“Series A Preferred Stock”), 500,000 shares as Series B Convertible Preferred Stock (the “Series“Series B Preferred Stock”), 460,000 and 2,500 shares as Series C Convertible Redeemable Preferred Stock (the “Series“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 151,22423,497,500 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,March 31, 2019, there were 100,0001,434 shares of Series A Preferred Stock, 125,000 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

On February 27, 2019, the Company filed a Certificate of December 31, 2016, there were noDesignations of Rights and Preferences of Series C Convertible Redeemable Preferred Stock to its Certificate of Incorporation, as amended on January 2, 2019, with the Secretary of State of the State of Delaware to establish the preferences, limitations and relative rights of the Series C Convertible Redeemable Preferred Stock. The holders of Series C Preferred Stock shall not be entitled to receive dividends. Unless previously converted into shares of common stock, any shares of Series C Preferred Stock issued and outstanding sixty (60) months from their date of issuance (the “Redemption Date”), shall be mandatorily redeemed and repurchased by the Company at the stated value. In addition, upon the voluntary or outstanding.

29
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollarsinvoluntary liquidation, dissolution or winding up of the Company’s affairs, then, before any distribution or payment shall be made to the holders of any common stock or any other class or series of junior stock, the holders of the Series C Preferred Stock shall be entitled to receive out of the Company’s assets legally available for distribution to stockholders, liquidating distributions in thousands, except share andthe amount of the liquidation preference, or $1,000 per share data

Holders of the Series BC Preferred Stock


shall be entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration. The Series C Preferred Stock shall be voted on an “as converted” basis together with the common stock, subject to the provisions of the Delaware General Corporation Law.

On March 9, 2017,February 27, 2019, the Company entered into a Preferred StockSecurities Purchase Agreement with Philou,Ault & Company, Inc., a related party.Delaware corporation and a stockholder of the Company (“Ault & Company”). Pursuant to the terms of the Preferred Stock Purchase Agreement, Philou mayAult & Company will invest at its sole and absolute discretion up to $5,000$2,500,000 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 atduring 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 basedperiod commencing 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 StockClosing Date and ending 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.
December 31, 2019. Each share of Series C Preferred Stock shall have dividend and liquidation rights in prioritybe purchased at $1,000 (the “Stated Value”) for up to anya maximum issuance of 2,500 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 BC Preferred Stock.
Each share of Series C Preferred Stock is subject to redemption byshall become convertible after the Company foreighteen months from the stated value plus accrued but unpaid dividends five years afterdate from the date of issuance provided the holdersinto such number 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 issuedfully paid and outstanding common stock of Microphase Common Stock in exchange for the issuance by the Company of 1,842,448non-assessable shares of the Company’s common stock (“Common Stock and 378,776 shares of the Company’s Series DStock”) for $2.40 per share, subject to adjustments (the “Conversion Price”). The Preferred Stock no par value per share, and warrants to purchase an aggregateis mandatorily redeemable by the Company after five years from the date of 1,000,000 shares of the Company’s Common Stock.issuance.

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DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

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 shareholdersstockholders 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.


The Class B common stock carries the voting power of 10 shares of Class A common stock.

2018 Issuances

Issuance of Common Stock pursuant to the At the Market Offering

On November 15, 2016,October 10, 2018, the Company entered into subscription agreementsan At-The-Market Issuance Sales Agreement (the “2016 Subscription Agreements”“Sales Agreement”) with nine accredited investors. PursuantWilson-Davis & Co., Inc., as sales agent (the “Agent”) to sell shares of its common stock, having an aggregate offering price of up to $25,000,000 (the “Shares”) from time to time, through an “at the market offering” program (the “WDCO ATM Offering”). During the three months ended March 31, 2019, the Company had received gross proceeds of $4,397,535 through the sale of 3,791,642 shares of the Company’s common stock through the WDCO ATM Offering. The offer and sale of the shares through the WDCO ATM Offering were made pursuant to our then effective “shelf” registration statement on Form S-3 and an accompanying base prospectus contained therein (Registration Statement No. 333-222132) filed with the SEC on December 18, 2017, amended on January 8, 2018, and declared effective by the SEC on January 11, 2018, and a prospectus supplement related to the termsWDCO ATM Offering, dated October 15, 2018.

Issuance of Common Stock for Services

During the 2016 Subscription Agreements,three months ended March 31, 2019, the Company sold 901,666 units at $0.60 forissued to its consultants a total 375,000 shares of its common stock with an aggregate purchase pricevalue of approximately $541. Each unit consists$253,019, an average of one$0.67 per share for services rendered.

Issuance of common stock for conversion of debt

During the three months ended March 31, 2019, principal and one warrant to purchase one shareaccrued interest of $2,128,878 and $651,462, respectively, on the Company’s debt securities was satisfied through the issuance of 1,056,066 shares of the Company’s common stock.

20. RELATED PARTY TRANSACTIONS

a.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 AVLP a non-revolving credit facility of up to $10,000,000 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. At March 31, 2019, the Company has provided loans to AVLP in the principal amount $7,732,660 and, in addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 15,465,320 shares of AVLP common stock. Under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP. As of March 31, 2019, the Company recorded contractual interest receivable attributed to the AVLP Loan Agreement of $1,214,509.

During the three months ended March 31, 2019 and the year ended December 31, 2018, the Company also acquired in the open market 71,000 shares of AVLP common stock (the “Nov. 2016 Warrants”) atfor $41,790 and 430,942 shares of AVLP common stock for $417,169, respectively. At March 31, 2019, the Company’s investment in AVLP common stock had an exercise priceunrealized loss of $0.80.$102,104.

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32
DIGITAL POWER CORPORATION

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

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 and a director 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 dated as of March 3, 2017, and 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

In March 2017, the Company was awarded a 3-year, $50 million purchase order by MTIX to manufacture, install and service the MLSEMultiplex Laser Surface Enhancement (“MLSE”) plasma-laser system.


At March 31, 2019, the Company had recorded a receivable from MTIX of $3,915,075. The receivable was primarily the result of revenues recognized during the year ended December 31, 2018 and reflected on the financial statements as accounts receivable, related party.

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 toMarch 31, 2019, the Company upon the approvalacquired 117,500 shares of certain governmental authorities that authorize foreign ownershipcommon stock 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, from a wholly-owned subsidiarythird party for $94,000 consisting of AVLP, the cancellation of principal and Click Media, Inc. (“Cross Click”) ininterest due the amountsCompany of $44, $5,$91,483 and $5, respectively.  The loans are classified as Other investments, related party in the accompanying condensed consolidated balance sheet at September 30, 2017. cash of $2,517. AVLP is a party to a management services agreement with Alzamend Neuro, Inc. (“Alzamend”) pursuant to which AvalancheAVLP 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.

21. SEGMENT, CUSTOMERS AND GEOGRAPHICAL INFORMATION


The Company has five reportable segments as of March 31, 2019 and had two reportable geographic segments;segments as of September 30, 2017; 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.

  Three Months ended March 31, 2019 
  DPC  DPL  Enertec  SC Mining  I.AM  Total 
Revenue $2,496,917  $556,514  $2,498,220  $—  $—  $5,551,651 
Revenue, cryptocurrency                        
mining  —   —   —   28,804   —   28,804 
Revenue, related party  —   —   —   —   —   - 
Revenue, restaurant
operations		  —   —   —   —   1,173,499   1,173,499 
Revenue, lending activities $185,089   —   —   —   —   185,089 
Total revenues $2,682,006  $556,514  $2,498,220  $28,804  $1,173,499  $6,939,043 
Depreciation and                        
amortization expense $70,146  $19,797  $154,922  $716,572  $—  $961,437 
Loss from operations $(517,376) $(925) $(49,888) $(742,423) $(104,353) $(1,414,965)
Capital expenditures for                        
segment assets, as of                        
March 31, 2019 $3,793  $-  $-  $-  $5,813  $9,606 
Identifiable assets as of                        
March 31, 2019 $33,120,205  $1,578,448  $11,590,778  $6,420,076  $2,064,284  $54,773,791 

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Table of Contents
  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

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

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:
 

  Three Months ended March 31, 2018 
  DPC  DPL  SC Mining  Eliminations  Total 
Revenue $2,839,696  $325,763  $237,496  $—  $3,402,955 
Revenue, related party  1,792,892   —   —   —   1,792,892 
Inter-segment revenues  4,513   —   —   (4,513)  — 
Total revenues $4,637,101  $325,763  $237,496  $(4,513) $5,195,847 
Depreciation and                    
amortization expense $76,236  $17,381  $54,888  $—  $148,505 
Loss from operations $(1,851,354) $(252,519) $(864,422) $—  $(2,968,295)
Capital expenditures for                    
segment assets, as of                    
March 31, 2018 $311,143  $1,399  $7,165,793  $—  $7,478,335 
Identifiable assets as of                    
March 31, 2018 $29,104,475  $1,487,674  $7,901,237  $—  $38,493,386 

Concentration Risk:

The following table providestables provide the percentage of total revenues for the three months ended March 31, 2019 and 2018 attributable to a single customer from which 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% $—   — 

derived.

  For the Three Months Ended 
  March 31, 2019 
       
  Total Revenues  Percentage of 
   by Major   Total Company 
   Customers   Revenues 
Customer A $1,416,086   20%

  For the Three Months Ended 
  March 31, 2018 
       
  Total Revenues  Percentage of 
   by Major   Total Company 
   Customers   Revenues 
Customer B $1,792,892   35%

Revenue from Customer A and B wereis attributable to Digital Power and revenueEnertec. Revenue from Customer CB relates to MTIX, a related party, and is attributable to DP Limited.

Coolisys. Further, at March 31, 2019, MTIX represented all the Company’s accounts and other receivable, related party.

For the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, total revenues from external customers divided on the basis of the Company’s product lines are as follows:

  For the Three Months Ended 
  March 31, 
  2019  2018 
Revenues:      
Commercial products $3,435,850  $3,665,069 
Defense products  3,503,193   1,530,778 
Total revenues $6,939,043  $5,195,847 

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DPW HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

MARCH 31, 2019

 
  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, 2017March 31, 2019 and 2016.2018. Other than as shown, no foreign country or region 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. dollars 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.

  For the Three Months Ended 
  March 31, 
  2019  2018 
Revenues:      
North America $3,749,140  $4,747,546 
Middle East  2,312,902   — 
Europe  547,999   266,655 
Other  329,002   181,646 
Total revenues $6,939,043  $5,195,847 

22. SUBSEQUENT EVENTS


In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2017March 31, 2019 and thru the date of this report being issued and has determined that it does not have any material subsequent events to disclose in these financial statements except for the following.

Common Stock

Public Offering

On October 4, 2017,March 29, 2019, the Company entered into a Securities Purchase Agreementan underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance Global Partners (the “Underwriter”), pursuant to sell 75,000 shares of common stock and warrants to purchase 75,000 shares of common stock at $0.60 per share to Ault & Company for $50. Mr. Ault is the Chairman and majority shareholder of Ault & Company.

On October 18, 2017, the Company entered into subscription agreements with five investors, under which we agreed to issue and sell in the aggregate 452,239 shares of common stock to the investors at $0.67 per share 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 agreed to issue and sell an aggregate of (a) 2,855,500 shares of its common stock (the “Shares”) together with warrants to purchase 2,855,500 shares of common stock (the “Common Warrants”) and (b)  pre-funded warrants to purchase up to an aggregate of 12,700,000 shares of its common stock (the “Pre-Funded Warrants”) together with a number of Common Warrants to purchase 12,700,000 shares of common stock (the “Offering”). The Shares were sold to the purchasers at the public offering price of $0.44 per share (the “Offering Price”). The Common Warrants were sold at a public offering price of $0.01 per Common Warrant. The Pre-Funded Warrants were offered to each purchaser whose purchase of the Shares and the Common Warrant in the aggregate 725,000Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of the Company’s outstanding common stock immediately following the consummation of the Offering. The purchase price of each Pre-Funded Warrant equaled the Offering Price at which the Shares were sold to the public in the Offering, minus $0.01, and the exercise price of each Pre-Funded Warrant equaled $0.01 per share.

Pursuant to the Underwriting Agreement, the Company also granted the Underwriter the option to purchase up to 428,325 additional shares of common stock, and/or Pre-funded Warrants to purchase up to 1,905,000 additional shares of common stock and/or Common Warrants to purchase up to 2,333,325 additional shares of common stock to cover over-allotments, if any. The option is exercisable 45 days after entry into the investors at $0.60 per share for an aggregate purchase price of $435. $180 ofUnderwriting Agreement. The Offering was made pursuant to the aggregate purchase priceshelf registration statement on Form S-3 (File No. 333-222132), as amended, that was paid in cash and $255 was paid through the cancellation of debt incurredfiled by the Company.Company with the SEC on January 8, 2019 and declared effective by the SEC on January 11, 2018, and a related prospectus supplement.

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Table of Contents
October 3, 2017, the Company issued an aggregate of 490,000 shares of its common stock as payment for services 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 and Microphase, entered into an Agreement for the Purchase and Sale of Future Receipts with TVT Capital LLC pursuant to which the Company and Microphase collectively sold in the aggregate $834 in Future Receipts of the Company and Microphase for $600. Under the terms of the agreement, the Company and Microphase will be obligated to pay $21 in the aggregate on a weekly basis until the purchase price of $834, has been paid 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 by Milton Ault, III, the Company’s Executive Chairman.

On November 1, 2017, the Company and Libertas Funding LLC (“Libertas”), entered into an Agreement for the Purchase 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 issued warrants to purchase an aggregate of 200,000 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

DPW HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

MARCH 31, 2019

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 
On November 1, 2017,

The Common Warrants are exercisable at any time after the Company entered into an Agreement for the Purchase and Saledate 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’s common stockissuance at an exercise price of $0.725$0.45 per share. In addition,share and will expire on 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 conditionsfifth anniversary of the Nov. Purchase Agreement, to issue and sell to the Purchaser (i)original issuance date. If at the first closing, 300,000 sharestime 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 per share, subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. In the event that the Company consummates any debt or equity financing with gross proceeds to the Company equal to or greater than $7,500, then the Company shall prepay to the holder in cash 110% 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, 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 Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchaser, pursuant to which the Company has agreed to file a registration statement with the Securities and Exchange Commission covering the Restricted Shares and the shares of common stock underlying the First Convertible Debenture within 30 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 agreed 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, allissuance of the shares of Common Stockcommon stock underlying the Common Warrants, then the Common Warrant may be exercised through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the Common Warrant. HoldersIf on any date on or after May 2, 2019, the volume weighted average price of the Company’s common stock fails to exceed the exercise price of the Common Warrant have “piggy-back” registration rightsin effect on such date, the Common Warrant may be exercised such that the holder will receive one common share for each warrant held.

The Pre-Funded Warrants are exercisable at any time after the date of issuance and may be exercised at any time until all the Pre-Funded Warrants are exercised in full. As an alternative to payment in immediately available funds, the holder may elect to exercise the Pre-Funded Warrant through a periodcashless exercise.

In addition, the Company has also issued the Underwriter a warrant to purchase a maximum of 622,220 additional shares of common stock (equal to 4% of the Shares sold in the Offering plus the number of shares of common stock underlying the Pre-Funded Warrants) at an initial exercise price of $0.50 per share, with a term of five years (the “Underwriter’s Warrant”). The Underwriter’s Warrant contains demand and piggy-back registration rights. If at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of common stock underlying the Underwriter’s Warrant, then the Underwriter’s Warrant may be exercised through a cashless exercise.

The Company received net proceeds from the dateOffering of issue.


Loan$6,204,717, after deducting underwriting discounts and Security Agreement with I.AM, Inc.
commissions and offering expenses. The Company used the net proceeds from the Offering primarily for the repayment of debt.

The Offering closed on April 2, 2019 and as of May 8, 2019 the Company had issued a total of 27,101,000 shares of its common stock, inclusive of shares issued pursuant to the exercise of a total of 12,700,000 Pre-Funded Warrants and 11,545,500 shares issued pursuant to the cashless exercise of the Common Warrants.

WDCO ATM Offering

On NovemberApril 1, 2019, the Company received net proceeds of $248,172 through the sale of 1,000,000 shares of the Company’s common stock through the WDCO ATM Offering.

Payment of related party receivable

During the years ended December 31, 2018 and 2017, the Company recognized $3,907,280 and I.AM, Inc. ($173,751 in revenues from MTIX, a related party, to manufacture the Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser systems. On April 12, 2019, the Company received payment of $2,676,219 for manufacturing services performed on the first MLSE system.

Offering Statement

“I.AMOn May 13, 2019, the Company filed an Offering Statement on Form 1-A pursuant to Regulation A promulgated by the Securities and Exchange Commission (the “Commission”), pursuant to which up to $50 million of 3-year, non-convertibles promissory notes (“Promissory Notes”) will be offered and sold once the Commission has qualified the Offering Statement. The Company anticipates that the Promissory Notes will accrue annualized interest of between 5% and 15% that will be paid rata monthly and will be offered on a continuous basis, in each case as determined by the Company in its sole discretion. The Company cannot provide any assurance that any notes will be sold pursuant this Offering Statement”).

Convertible Promissory Note

On May 13, 2019, the Company entered into a Loan and Security Agreement (“Loan Agreement”)securities purchase agreement pursuant to which the Company will provide I.AMit issued a non-revolving credit facilityfive year $660,000 4% convertible promissory note and a warrant to purchase 500,000 shares of upcommon stock to $1,300, for a period ending on September 25, 2022, subject to the terms and conditions statedan accredited investor.The promissory note is in the Loan Agreement, including that the Company having available funds to grant such credit. Advances on the credit facility accrue at a rateprincipal amount 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.$660,000 and was sold for $500,000.

 F-33
Table of Contents
42

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

In this quarterly report, the “Company,” “Digital Power,“DPW Holdings,” “we,” “us” and “our” refer to Digital Power Corporation,DPW Holdings, Inc., a CaliforniaDelaware corporation, our wholly-owned subsidiaries, Coolisys Technologies, Inc., Power-Plus Technical Distributors, LLC, Digital Power Lending, LLC, Digital Farms, Inc., Digital Power Limited, Enertec Systems 2001 Ltd. and our majority owned subsidiary,subsidiaries, Microphase Corporation.

Corporation and I.AM, LLC.

Recent Developments

On October 15, 2018, we entered into an At-The-Market Issuance Sales Agreement with Wilson-Davis & Co., Inc., (“WDCO”) as sales agent to sell shares of our common stock, having an aggregate offering price of up to $25 million from time to time, through an “at the market offering” program (the “WDCO ATM Offering”). The offer and sale of our common stock was made pursuant to the Company’s effective “shelf” registration statement on Form S-3 and an accompanying base prospectus contained therein (Registration Statement No. 333-222132) filed with the SEC on December 18, 2017, amended on January 8, 2018, and declared effective by the SEC on January 11, 2018, and a prospectus supplement related to the ATM Offering, dated October 15, 2018. Subject to the terms and conditions of the At-The-Market Issuance Sales Agreement, WDCO used commercially reasonable efforts to sell shares of our common stock, based upon our instructions, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and rules of the NYSE American. We paid to WDCO a commission in an amount equal to 4.0% of the gross sales price per share of common stock sold through the WDCO ATM Offering as sales agent under the At-The-Market Issuance Sales Agreement. The WDCO ATM Offering was terminated effective April 1, 2019.

On March 29, 2019, we entered into an underwriting agreement pursuant to which we sold an aggregate of (a) 2,855,500 shares of our common stock (the “Shares”) together with warrants to purchase 2,855,500 shares of common stock (the “Common Warrants”) and (b)  pre-funded warrants to purchase up to an aggregate of 12,700,000 shares of our common stock (the “Pre-Funded Warrants”) together with a number of Common Warrants to purchase 12,700,000 shares of common stock (the “Offering”). The Shares were sold to the purchasers at the public offering price of $0.44 per share (the “Offering Price”). The Common Warrants were sold at a public offering price of $0.01 per Common Warrant. The Pre-Funded Warrants were offered to each purchaser whose purchase of the Shares and the Common Warrant in the Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of the Offering. The purchase price of each Pre-Funded Warrant equaled the Offering Price at which the Shares were sold to the public in the Offering, minus $0.01, and the exercise price of each Pre-Funded Warrant equaled $0.01 per share. We received net proceeds from the Offering of $6,204,717, after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds from the Offering primarily for the repayment of debt.

GENERAL


We are a growth company seeking to increase our revenues through acquisitions. Our strategy reflects our management and Board’s current philosophy that occurred as a result of awhich we began implementing upon the change in control that was completed inon September 22, 2016. Our acquisition and development target strategy includesinclude companies that have developed a “new way 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 reduction of costs; companies that are related to our core business in the commercial and defense industries; and companies that will enhance our overall revenues. It is our goal to substantially increase our gross revenues in the near future.


We were originally a solution-driven organization that designs, develops, manufacturesdesigned, developed, manufactured and sellssold 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.

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We have operations located in Europe through our wholly-owned subsidiary, Digital Power Limited ("(“DP Limited"Limited”), Salisbury, England, which operates under the brand name of “Gresham Power Electronics” (“Gresham”(“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% of the outstanding equity interests of Microphase Corporation (the “Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) industry leader delivering world-class 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.

On April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”), a wholly-owned subsidiary. 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 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. In addition to its current business, Power-Plus will serve as an extended sales organization for the Company’s overall flexible power system solutions.

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We are a Delaware corporation with our corporate office located at 201 Shipyard Way, Suite E, Newport Beach, California corporation formed in 1969 and located in the heart of the Silicon Valley at 48430 Lakeview Blvd, Fremont, California 94538-3158.92663. Our phone number is 510-657-2635949-444-5464 and our website address is www.digipwr.com.


www.dpwholdings.com.

Results of Operations 

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016
Revenues
Our revenues increased by $1,394 or 76% to $3,220MARCH 31, 2019 AND 2018

The following table summarizes the results of our operations for the three months ended September 30, 2017, from $1,826March 31, 2019 and 2018.

  For the Three Months Ended 
  March 31, 
  2019  2018 
       
Revenue $5,551,651  $3,165,459 
Revenue, cryptocurrency mining  28,804   237,496 
Revenue, related party  —   1,792,892 
Revenue, restaurant operations  1,173,499   — 
Revenue, lending activities  185,089   — 
Total revenue  6,939,043   5,195,847 
Cost of revenue  5,118,313   3,802,709 
Gross profit  1,820,730   1,393,138 
Total operating expenses  6,475,526   4,361,433 
Loss from operations  (4,654,796)  (2,968,295)
Interest expense  (1,262,614)  (3,132,116)
Loss on extinguishment of convertible debt  (807,784)  — 
Loss before income taxes  (6,725,194)  (6,100,411)
Income tax benefit  14,168   4,458 
Net loss  (6,711,026)  (6,095,953)
Less: Net loss attributable to non-controlling interest  32,416   35,431 
Net loss attributable to DPW Holdings $(6,678,610) $(6,060,522)
Preferred dividends  (1,869)  — 
Net loss available to common stockholders $(6,680,479) $(6,060,522)
Basic and diluted net loss per common share $(1.17) $(3.33)
Basic and diluted weighted average common shares outstanding  5,695,740   1,819,598 
Comprehensive Loss        
Loss available to common stockholders $(6,680,479) $(6,060,522)
Other comprehensive income (loss)        
Foreign currency translation adjustment  29,857   26,457 
Net unrealized loss on derivative securities of related party  (736,680)  (4,741,114)
Other comprehensive income (loss)  (706,823)  (4,714,657)
Total Comprehensive loss $(7,387,302) $(10,775,179)

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Revenues

Our revenues increased by $1,743,196, or 33.6%, to $6,939,043 for the three months ended September 30, 2016.March 31, 2019, from $5,195,847 for the three months ended March 31, 2018. The increase in revenue was primarily due to our acquisition of 56.4% 98.1% of the outstanding equity interests of MicrophaseI.AM on June 2, 2017, combined withMay 23, 2018, and our acquisition of allEnertec on May 23, 2018. During the three months ended March 31, 2019, these acquisitions represented $3,671,719 of our revenues. Excluding revenue from our acquisitions of I.AM and Enertec, the Company generated revenues of $3,267,324, which represented a decrease of $1,928,523. As discussed below, the decrease of $1,928,523 from the three months ended March 31, 2018, was primarily due to a decrease in revenue from our cryptocurrency mining operations and from the manufacture of the outstanding equity interestsMultiplex Laser Surface Enhancement (“MLSE”) plasma-laser system.

Revenues, cryptocurrency mining

In January 2018, we formed Digital Farms, Inc. (“Digital Farms”), a wholly-owned subsidiary. Digital Farms was established to operate our cryptocurrency business, which is pursuing a variety of Power-Plus on September 1, 2017. digital currencies. We are mining the top three cryptocurrencies for our own account. These cryptocurrencies include Bitcoin, Litecoin and Ethereum. During the three months ended March 31, 2019, due to the overall decline in market prices of digital currencies we curtailed our mining operations which resulted in a decrease in revenues $208,692.

Revenues, generated by Microphaserelated party

During the three months ended March 31, 2018, we recognized $1,792,892 in revenues resulting from our purchase order with MTIX Limited, a company formed under the laws of England and Power-PlusWales (“MTIX”). Conversely, we did not recognize any revenues from MTIX during the three months ended September 30,March 31, 2019. MTIX was acquired by AVLP on August 22, 2017 were $1,340 and $224, respectively. Excluding revenues that were generated by our recent acquisitions of Microphase and Power-Plus,is therefore a related party. In March 2017, the Company generated revenueswas awarded a 3-year, $50 million purchase order by MTIX to manufacture, install and service the Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser system. Over the next several years, management believes that the MLSE purchase order will be a source of $1,656, a decreaserevenue and generate significant cash flows. The lack of $170 fromrevenue during the three months ended September 30, 2016.


Revenues from our U.S. operations increased by 130.5%March 31, 2019 was due to $2,877an emphasis on reducing the debt obligations incurred in May 2018 to acquire Enertec. Payments, and the related manufacturing services, that otherwise would have gone to subcontractors of the MLSE plasma-laser system were delayed to position us to make significant debt reductions.

Gross Margins

Gross margins decreased to 26.2% for the three months ended September 30, 2017, from $1,248March 31, 2019 compared to 26.8% for the three months ended September 30, 2016. As previously noted,March 31, 2018. The Company’s gross margins have typically ranged between 33% and 37%, with slight variations depending on the overall composition of our consolidated revenues include $1,564revenue. During the three months ended March 31, 2018, our gross margins were 26.8%. The decrease in revenues generatedgross margins from our recent acquisitionshistorical average was partially attributable to the lower margin related party revenue of Microphase and Power-Plus.$1,792,892 from MTIX, with gross margins of 22.6%, combined with negative margins at Digital Farms. The negative gross margins at Digital Farms resulted from monthly recurring fixed costs at our colocation facilities which temporarily exceed the revenues from our mining operations. If we had not closed on these acquisition,recognized revenue, and the related cost of revenue, from Digital Farms and our contract with MTIX, then revenues from our U.S. operationsadjusted gross margins for the three months ended March 31, 2018 would have been $1,313, an increase33.6%. During the three months ended March 31, 2019, gross margins of 5.2%. The increase in revenues from our U.S. operations is attributed to26.2% were negatively affected by Digital Farms. Excluding the recognitioncontribution 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. The recognition of revenue from the MLSE contractDigital Farms, gross margins 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 $578 for the three months ended September 30, 2016, a decrease of 40.7%March 31, 2019 were 36.7%. 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 decreased to 34.0% for the three months September 30, 2017 compared to 38.5% for the three months ended September 30, 2016. The decrease in gross margins was mainly attributable 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$112,655 to $306$455,678 for the three months ended September 30, 2017March 31, 2019 from $147$343,023 for the three months ended September 30, 2016.March 31, 2018. The increase in engineering and product development expenses is partly attributed to our acquisition of Microphase,Enertec, which reported $118 in engineering and product development expenses. The remaining increasedue to the timing of the acquisition was primarily related to an increase in direct manpower costexcluded from the addition of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.prior period amount.

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Selling and Marketing

Selling and marketing expenses were $423$474,343 for the three months ended September 30, 2017March 31, 2019 compared to $235$725,471 for the three months ended September 30, 2016,March 31, 2018, a decrease of $251,128. Our acquisition of Enertec and I.AM resulted in an increase of $188. Our acquisition of Microphase and Power-Plus accounted for $46 and $55, respectively, of the$187,947. This increase in selling and marketing expenses. The remaining increase is attributed to an increasewas offset by increases in personnel costs directly attributed to sales and marketing personnel at the Company’s U.S. basedthroughout our 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. 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 three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter, 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$5,430,966 for the three months ended September 30, 2017March 31, 2019 compared to $404$3,221,623 for the three months ended September 30, 2016,March 31, 2018, an increase of $1,281.$2,209,343. Our acquisitionacquisitions of MicrophaseEnertec and I.AM accounted for $410$1,270,362 of the increase in general and administrative expenses. The adjusted increase of $871$938,981 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 allocationincrease in cost attributed to the hiring of oura Chief Executive Officer’s salary to generalAccounting Officer and administrative expense.Senior Vice President of Finance. 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$2,099,541 for the three months ended September 30, 2017March 31, 2019 compared to income of $23$3,731,436 for the three months ended September 30, 2016.March 31, 2018. The increasedecrease in interest expense for the three months ended September 30, 2017March 31, 2019 is primarily related to a reduction of amortization of debt discount, in the aggregate amount of $669,$1,559,935, resulting from original issue discount from the issuance of warrants in conjunction with the sale of debt and equity instruments of $3,452.instruments. During the three months ended September 30, 2017,March 31, 2019 and 2018, as a result of these issuances, non-cash interest expense of $669$1,491,065 and $3,051,000, respectively, was recorded from the amortization of debt discount and debt financing costs. The remaining increasedecrease 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 payableborrowings and notes payablewhich was $3,458. Conversely, at September 30, 2016, the Company did not have any outstanding convertible notes payable or notes payable. Interest expense was partiallyprimarily offset by interest income and the accretion of original issue discount pursuant to the Loan and Security Agreement entered into on September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”) of $141.


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AVLP.

Operating Loss


The Company recorded an operating loss of $1,318$4,654,796 for the three months ended September 30, 2017March 31, 2019 compared to an operating loss of $83$2,968,295 for the three months ended September 30, 2016.March 31, 2018. The increase in operating loss is mostly attributable from the increase of general and administrative expenses.


Net Loss


          The Company recorded a

For the foregoing reasons, our net loss of $2,071 for the three months ended September 30, 2017March 31, 2019, was $6,711,026 compared to a net loss of $38$6,095,953 for the three months ended September 30, 2016 as a result of the aforementioned changes.March 31, 2018. After taking into consideration the loss attributable to the non-controlling interest of the minority shareholders of Microphase during the three months ended March 31, 2019 and 2018, of $32,416 and $35,431, respectively, and preferred dividends of $1,869 and nil, respectively, the net loss attributableavailable to common shareholders during the Companythree months ended March 31, 2019 and 2018, was $1,967$6,680,479 and 38$6,060,522, 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

As reflected in our consolidated statement of cash flows for the ninethree months ended September 30, 2017, from $5,603March 31, 2019 and 2018, our reported net loss is comprised of non-cash charges of $2,444,142 and $4,152,000, respectively. A summary of these non-cash charges is as follows:

  For the Three Months Ended 
  March 31, 
  2019  2018 
Interest expense – debt discount $1,491,065  $3,051,000 
Stock-based compensation  621,288   1,438,000 
Depreciation and amortization  961,438   148,000 
Amortization of right-of-use assets  32,165   — 
Accretion of original issue discount on notes receivable – related party  (612,309)  (485,000)
Accretion of original issue discount on notes receivable  (49,505)  — 
Non-cash items included in net loss $2,444,142  $4,152,000 

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Other comprehensive loss

Other comprehensive loss was $706,823 and $4,714,114, respectively, for the ninethree months ended September 30, 2016. The increase in revenue was primarily due to our acquisition of 56.4% ofMarch 31, 2019 and 2018. Other comprehensive loss for 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 Microphase and Power-Plus during the ninethree months ended September 30, 2017, were $1,563 and $224, respectively. Excluding revenues that were generated byMarch 31, 2019, which decreased 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 andequity, reflects the impact of athe weakening of the British Pound and Euro againston 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 changesequity of DP Limited combined with unrealized losses 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.
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Engineering 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 ended March 31, 2017,warrants that 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,received as a result of these issuances, non-cash interest expenseour investment in Avalanche International, Corp., or AVLP, a related party. During the three months ended March 31, 2018, the effect of $1,269the foreign currency adjustment of the British Pound was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increaseoffset by unrealized losses in the amountwarrants 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.

AVLP.

LIQUIDITY AND CAPITAL RESOURCES

On September 30, 2017,March 31, 2019, we had cash and cash equivalents of $314.$1,283,607. This compares with cash and cash equivalents of $996$902,329 at December 31, 2016.2018. The decreaseincrease in cash and cash equivalents was primarily due to cash provided by financing activities being slightly in excess of the amount of cash used in operating and investing activities in excess of funds provided by financing activities.

Net cash used in operating activities totaled $1,577$2,262,239 for the ninethree months ended September 30, 2017,March 31, 2019, compared to net cash providedused by operating activities of $138$2,959,126 for the ninethree months ended September 30, 2016.March 31, 2018. During the ninethree months ended September 30, 2017,March 31, 2019, the decrease in net cash provided byused in operating activities compared to the ninethree months ended September 30, 2016March 31, 2018 was mainly due to the September 30, 2017 ninenet loss for the three months lossended March 31, 2019 of $4,916.$6,711,026. The net loss was partially offset by several non-cash charges, the amortization of debt discount of $1,239$1,491,065 and stock-based compensation of $1,269,$621,288, an increase in depreciation and amortization of $812,933 and accounts payable and accrued expenses of $2,083 and decreases in our accounts receivable$3,180,861.

Net cash provided by investing activities was $971,237 for the three months ended March 31, 2019 compared to $9,764,911 of $737 and other current liabilities of $595.

Netnet cash used in investing activities was $4,384 for the ninethree months ended September 30, 2017 compared to $12 of net cash provided by investing activities for the nine months ended September 30, 2016.March 31, 2018. The increasedecrease of the net usage of cash from investing activities was primarily relatedattributed to the purchase of property and equipment at Digital Farms and the investment in AVLP loans to third parties andduring the purchase of Power-Plus.

three months ended March 31, 2018.

Net cash provided by financing activities was $5,194$3,709,501 and nil$11,892,657 for the ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, respectively. The financing activities primarily related to the sale of 1,309,5453,791,642 shares of common stock through our ATM Offering for net proceeds of $672, the sale of Series B and Series C Preferred Stock of $1,540, gross$4,147,394, net proceeds from the Company’s debt financings of $2,649, gross proceedsand from advances of future receipts of $1,772 and$920,929 which was offset by payments on debt facilitiesinstruments of $626.


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$1,358,598.

Historically, the Company haswe have financed itsour operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017,2019, as reflected below, the Company continueswe continued to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:


·In February 2017,On October 15, 2018, we entered into an At-The-Market Issuance Sales Agreement with WDCO to sell shares of our common stock. Between January 1, 2019 and April 1, 2019, the date the WDCO ATM Offering was terminated, the Company issued demand promissory notes and warrants to purchase 333,333received net proceeds of $4,469,630 through the sale of 4,791,642 shares of our 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.

·
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.
WDCO ATM Offering.

·On March 15, 2017, the Company29, 2019, we entered into a subscriptionan underwriting agreement with one investorpursuant to which on April 2, 2019 we sold the Shares, Common Warrants and Pre-Funded Warrants. We received net proceeds from the Offering of $6,204,717, after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds from the Offering primarily for the salerepayment of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300.debt.

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·On March 20, 2017,May 13, 2019, we filed an Offering Statement on Form 1-A pursuant to Regulation A promulgated by 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, 2017Securities 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 notesExchange Commission (the “7% Convertible Notes”“Commission”) 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.
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·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 Receiptsup to $50 million of the Company for $1,772. Under the terms of the agreements, the Company3-year, non-convertibles promissory notes (“Promissory Notes”) 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 issuedoffered and sold in a registered direct offering 200,000 sharesonce the Commission has qualified the Offering Statement. We anticipate that the Promissory Notes will accrue annualized interest 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 issuedbetween 5% 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”)15% that will be paid rata monthly and a warrant to purchase 666,666 shares of common stock to an accredited investor (the “Investor”). The principal of the Convertible Note maywill 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 dueoffered on a quarterlycontinuous basis, and the principal is due on August 3, 2018.in each case as determined by us in our sole discretion. The principal mayCompany cannot provide any assurance that any notes will be converted into shares of the Company’s common stock at $0.55 per share.  sold pursuant this Offering Statement.
·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 for the foreseeable future and will be required to raise additional capital to continue to support our working capital requirements. We believe that the MLSE purchase order contract of $50 million will contribute to generate meaningful revenue and corresponding cash in 2017.2020. In addition, we have been successful over the last 12 months in raising capital 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, 2016,2018, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements.  The basis for developing 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.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.


ITEM 4.CONTROLS AND PROCEDURES

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'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 that our disclosure controls and procedures were not effective as of June 30, 2017March 31, 2019 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:

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(i)1.
We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a lack of sufficient internal accounting resources to provide reasonable assurance that information is accumulated and communicatedtimely manner. In addition, due to our management, includingsize 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 chief executive officer and chief financial officer, as appropriate,failure to allow timely decisions regarding required disclosure and

(ii)a lack ofhave segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness

2.We have inadequate controls to ensure adequate reviewthat information necessary 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–financial statement preparation.and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.

3.We did not design or maintain effective general information technology (“IT”) controls over certain information systems that are relevant to the mitigation of the risk pertaining to the misappropriation of assets. Specifically, we did not design and implement:

·Program change management controls for certain financially relevant systems to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital currency mining equipment, (iii) digital currency hardware wallets, and (iv) underlying accounting records, are identified, tested, authorized and implemented appropriately; and

·Physical security controls to ensure that the (i) digital currency hardware wallets, (ii) digital currency hardware wallet master seed phrases, (iii) digital currency hardware wallet pin codes, and (iv) the digital currency mining equipment were safeguarded, monitored, validated, and restorable, both physically and electronically.

Planned Remediation


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


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Until such time as

In January 2018 we hirehired a new Chief Financial Officer and engaged the services of a financial accounting advisory firm. In September 2018, we hired a Chief Accounting Officer and in January 2019, we hired a Senior Vice President of Finance. We have tasked these individuals with expanding and monitoring the Company’s internal controls, to provide an additional level of review of complex financial issues and to assist with financial reporting. Further, as we continue to expand our internal accounting department, 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’sour financial statements.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.

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Changes in Internal Controls over Financial Reporting.


During

Except as detailed above, during the most recent fiscal quarter 20172019 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 1.           LEGAL PROCEEDINGS

On July 31, 2018 a stockholder derivative complaint was filed in the United States District Court for the Central District of California against the Company as the nominal defendant, as well as its current directors and a former director styledEthan Young and Greg Young, Derivatively on Behalf of Nominal Defendant, DPW Holdings, Inc. v. Milton C. Ault, III, Amos Kohn, William B. Horne, Jeff Bentz, Mordechai Rosenberg, Robert O. Smith, and Kristine Ault and DPW Holdings, Inc., as the nominal defendant (Case No. 18-cv-6587) (the “Complaint”). No hearings have been scheduled as of the date hereof.

The Complaint alleges violations of state law and breaches of fiduciary duty, unjust enrichment and gross mismanagement by the individual defendants as, in the view of the plaintiffs, the Company has entered into poorly advised loan transactions and related party transactions. The Company and the individual defendants believe that these claims are without merit and intend to vigorously defend themselves. The Company and the individual defendants moved to dismiss the Complaint and on February 25, 2019, the Court granted the motion to dismiss but granted plaintiffs leave to amend their Complaint.  On March 11, 2019, plaintiffs filed their amended complaint asserting violations of breaches of fiduciary duties and unjust enrichment claims based on the previously pled transactions. On March 25, 2019, the Company and the individual defendants filed a motion to dismiss the amended complaint.  The motion to dismiss is returnable before the Court on May 6, 2019.

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.

On November 28, 2018,Blockchain Mining Supply and Services, Ltd, a vendor who sold computers to the Company’s subsidiary, filed in the United States District Court for the Southern District of New York against Super Crypto Mining, Inc. and the Company (Case No. 18-cv-11099). The Complaint asserted claims for breach of contract and promissory estoppel against the Company and its subsidiary arising from the subsidiary’s failure to satisfy a purchase agreement.  The Complaint seeks damages in the amount of $1,388,495.

On February 4, 2019, pursuant to the Court’s Rules, the Company requested a pre-motion Conference with the Court.  The Company’s time to file its motion to dismiss is stayed until the Court’ holds the pre-motion Conference, which has not yet been scheduled by the Court.

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, the Company has established a reserve in the amount of the unpaid portion of the purchase agreement. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.

ITEM 1A.RISK FACTORS

ITEM 1A.         RISK FACTORS

The risks described in Part I, Item 1A, "Risk“Risk Factors,"” in our 20162018 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 20162018 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.

respects.


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, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
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A material weakness is a deficiency, or a combination 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. 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:
 8
1.
We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregationTable 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.Contents
2.We have inadequate controls to ensure that information necessary 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–financial and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.
We have taken steps to remediate some of the weaknesses described above, including a greater level of involvement by our Audit Committee. We intend to continue to address these weaknesses as resources permit.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 7, 2017,

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2019, the Company entered into an asset purchase agreementissued to acquire the intellectual property of Coolisys.com, in consideration for, in part, 50,000its consultants a total 375,000 shares of common stock. The seller of the intellectual property and purchaser of theits 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 forwith an aggregate purchase pricevalue of $150. The shares have yet to be issued by the Company and are subject to approval from the NYSE American prior to issuance.

In addition, on September 9, 2017, the Company approved the issuance$253,019, an average of 100,000 shares of our common stock to Spartan Capital for capital advisory services.  Spartan Capital is an accredited investor. 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$0.67 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.

services rendered.

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


ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

On August 16, 2018, the Company issued secured promissory Notes dated August 16, 2018 (the “Notes”), and amended on November 29, 2018 (the “Amendment”), that had a maturity date of February 15, 2019 (the “Maturity Date”). The Notes, in the principal amount of $636,300, provide for an interest rate of eight percent (8%), payable on the Maturity Date. The Company did not pay these Notes on the Maturity Date and these Notes are currently in default. The Company is in negotiations with the investors to amend the payment terms on these Notes.

ITEM 4.MINE SAFETY DISCLOSURES

ITEM 4.            MINE SAFETY DISCLOSURES

None

ITEM 5.            OTHER INFORMATION

None

ITEM 5.OTHER INFORMATION 9

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None
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ITEM 6.           EXHIBITS

ITEM 6.EXHIBITS
Exhibit Number Description
2.11.1 
Share ExchangeUnderwriting Agreement by and among Digital Power Corporation, Microphase Corporation, Microphase Holding Company, RCKJ Trust, Ergul Family Limited Partnership, To Hong Yam and Eagle Advisers, LLC,with A.G.P/Alliance Global Partners, dated as of April 28, 2017 (IncorporatedMarch 29, 2019.  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)April 1, 2018 as Exhibit 1.1 thereto.
3.1 
Amended and Restated ArticlesCertification of Incorporation, of Digital Power Corporation (Incorporateddated September 22, 2017.  Incorporated herein by reference to the Current Report on Form 8-K filed on December 29, 2017 as Exhibit 3.1 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 16, 1996)thereto.
3.2 
Certificate of Amendment to Articles of Incorporation of Digital Power Corporation (IncorporatedBylaws, dated September 25, 2017.  Incorporated herein by reference to the Current Report on Form 8-K filed on December 29, 2017 as Exhibit 3.2 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 16, 1996)thereto.
3.3 
Certificate of Amendment to ArticlesCertificate of Incorporation, of Digital Power Corporation (Incorporateddated January 2, 2019. Incorporated by reference to the Current Report on Form 8-K filed on January 3, 2019 as Exhibit 3.1 thereto.
3.4Certificate 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 Company’s currentCurrent Report on Form 8-K filed on March 14, 2019 as Exhibit 3.1 thereto.
3.5Certificate 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.
3.6Form of Certificate of Determination of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, dated March 3, 2017.  Incorporated by reference to the Current Report on Form 8-K filed on March 9, 2017 as Exhibit 3.1 thereto.
3.7Certificate of Designations of Rights and Preferences of Series C Convertible Redeemable Preferred Stock, dated February 27, 2019. Incorporated herein by reference to the Current report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2013)February 28, 2019 as Exhibit 3.1 thereto.
3.4 
4.1BylawsForm of Digital Power Corporation (IncorporatedCommon Stock Purchase Warrant, dated April 2, 2019.  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)April 1, 2018 as Exhibit 4.1 thereto.
3.5 
4.2Form of Series C Certificate of Determination (IncorporatedPre-Funded Common Stock Purchase Warrant, dated April 2, 2019.  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)April 1, 2018 as Exhibit 4.2 thereto.
3.6 
4.3Form of Series D Certificate of Determination (IncorporatedUnderwriter’s Common Stock Purchase Warrant, dated April 2, 2019.  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)April 1, 2018 as Exhibit 4.3 thereto.
3.7 
Form of Series E Certificate of Determination (Incorporated by reference to Exhibit 3.2 of the Company’s current report filed on Form 8-K with the Securities and Exchange Commission on May 3, 2017)
10.1
Preferred Stock Purchase Agreement date March 9, 2017 between Digital Power Corporation, and Philou Ventures, LLC. (Incorporated by reference 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)
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 Code
101.INS*** XBRL Instance Document
101.SCH*** XBRL Taxonomy Extension Schema Document
101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB***    XBRL Taxonomy Extension Label Linkbase Document
101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.
**Furnished herewith.

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*      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.
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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:  NovemberMay 20, 2017


Digital Power Corporation

2019

By:/s/ Amos KohnDPW HOLDINGS, INC.
 
 Amos KohnBy:/s/ Milton C. Ault, III
 
President,
Milton C. Ault, III
Chief Executive and
Officer
(Principal Executive Officer)
By:/s/ William B. Horne
William B. Horne
Chief Financial Officer and
(Principal Accounting OfficerOfficer)

11

 
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