UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2017March 31, 2021 

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

Commission file number 1-12711

DIGITAL POWER CORPORATION

AULT GLOBAL 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, CA 94538-3158

11411 Southern Highlands Pkwy #240

Las Vegas, NV 89141

(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 November 17, 2017May 20, 2021 the registrant had outstanding 15,817,39349,774,538 shares of common stock.

 

DIGITAL POWER CORPORATION

AULT GLOBAL HOLDINGS, INC.

TABLE OF CONTENTS

  Page
PART I – FINANCIAL INFORMATION 
    
Item 1.Financial Statements 
    
  
Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited)March 31, 2021 and December
31, 2016 (Audited)

2020 (Unaudited)		1-2F-1 – F-2
    
  
Condensed Consolidated Statements of OperationsIncome and Comprehensive Loss Income (Loss)
for the three and
nine months ended September 30, 2017March 31, 2021 and 20162020 (Unaudited)
3F-3
    
  
Condensed Consolidated Statements of Changes in Stockholders' Equity for the three
months ended March 31, 2021 and 2020 (Unaudited)
F-4 – F-5
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30,
2017
March 31, 2021 and 20162020 (Unaudited)
4-5F-6 – F-7
    
  Notes to Interim Condensed Consolidated Financial Statements (Unaudited)6 - 42F-8 – F-33
    
Item 2.Management's Discussion and Analysis of Financial Condition and Results of
Operations		431
    
Item 3. Item 3. Quantitative and Qualitative Disclosures about Market Risk518
    
Item 4.Controls and Procedures518
    
PART II – OTHER INFORMATION 
    
Item 1.Legal Proceedings5210
Item 1A.Risk Factors5212
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds5312
Item 3.Defaults Upon Senior Securities5312
Item 4.Reserved54Mine Safety Disclosures12
Item 5.Other Information5412
Item 6.Exhibits55
13

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, 2016,2020, particularly the "Risk Factors"“Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of November 20, 2017.May 24, 2021. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaimsdisclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGITAL POWER CORPORATION

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

  March 31,  December 31, 
  2021  2020 
ASSETS      
       
CURRENT ASSETS      
Cash and cash equivalents $107,801,265  $18,679,848 
Marketable equity securities  18,153,863   2,562,983 
Securities purchased under agreement to resell  33,647,059   — 
Accounts receivable  3,506,451   3,852,033 
Accounts and other receivable, related party  1,196,379   1,196,379 
Accrued revenue  1,533,215   1,695,905 
Inventories  3,476,512   3,373,851 
Prepaid expenses and other current assets  2,918,284   2,988,080 
TOTAL CURRENT ASSETS  172,233,028   34,349,079 
         
Intangible assets, net  4,240,420   4,390,388 
Goodwill  9,466,577   9,645,686 
Property and equipment, net  6,288,714   2,122,730 
Right-of-use assets  4,816,798   4,317,778 
Investment in promissory notes, related parties  13,467,783   10,668,470 
Investments in derivatives and common stock, related parties  14,822,439   6,139,391 
Investments in debt and equity securities  2,320,539   261,767 
Investment in limited partnership  1,869,000   1,869,000 
Loans receivable  596,568   750,174 
Other investments, related parties  3,465,000   802,500 
Other assets  443,543   326,419 
TOTAL ASSETS $234,030,409  $75,643,382 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Accounts payable and accrued expenses $9,020,134  $10,579,501 
Securities purchase consideration payable  33,310,589   — 
Accounts payable and accrued expenses, related party  32,569   35,687 
Operating lease liability, current  855,933   524,326 
Revolving credit facility  117,215   125,188 
Notes payable, net  2,154,676   4,048,009 
Notes payable, related parties  149,489   187,818 
Convertible notes payable, related party  400,000   400,000 
Warrant liability  4,870,821   4,192,052 
Other current liabilities  1,836,937   1,789,825 
TOTAL CURRENT LIABILITIES  52,748,363   21,882,406 

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 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DIGITAL POWER CORPORATION

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

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

  March 31,  December 31, 
  2021  2020 
  (Unaudited)     
LONG TERM LIABILITIES        
Operating lease liability, non-current  4,020,877   3,854,573 
Notes payable  319,047   336,500 
Notes payable, related parties  66,083   51,537 
Convertible notes payable  406,327   386,283 
         
TOTAL LIABILITIES  57,560,697   26,511,299 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ EQUITY        
Series A Convertible Preferred Stock, $25.00 stated value per share,  7   7 
   $0.001 par value – 1,000,000 shares authorized; 7,040 shares        
   issued and outstanding at March 31, 2021 and December 31, 2020,        
   respectively (redemption amount and liquidation preference of $176,000        
   as of March 31, 2021 and December 31, 2020)        
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, 2021 and December 31, 2020 (liquidation        
   preference of $1,250,000 at March 31, 2021 and December 31, 2020)        
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized;  49,499   27,754 
  49,498,676 and 27,753,562 shares issued and outstanding at March 31, 2021        
   and December 31, 2020, respectively        
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized;  -   - 
 nil shares issued and outstanding at March 31, 2021 and December 31, 2020        
Additional paid-in capital  292,763,040   171,397,199 
Accumulated deficit  (119,403,734)  (121,396,715)
Accumulated other comprehensive income (loss)  1,158,542   (1,717,934)
TOTAL DPW HOLDINGS STOCKHOLDERS’ EQUITY  174,567,479   48,310,436 
         
Non-controlling interest  1,902,233   821,647 
         
TOTAL STOCKHOLDERS’ EQUITY  176,469,712   49,132,083 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $234,030,409  $75,643,382 

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 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DIGITAL POWER CORPORATION

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

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME AND COMPREHNSIVE LOSS

COMPREHENSIVE INCOME (LOSS) (Unaudited)

  For the Three Months Ended 
  March 31, 
  2021  2020 
Revenue $7,904,511  $5,569,282 
Revenue, cryptocurrency mining  129,896   — 
Revenue, lending and trading activities  5,210,222   36,152 
Total revenue  13,244,629   5,605,434 
Cost of revenue  5,107,908   3,853,435 
Gross profit  8,136,721   1,751,999 
         
Operating expenses        
Engineering and product development  601,918   440,626 
Selling and marketing  1,241,542   338,163 
General and administrative  5,092,268   2,902,994 
Provision for credit losses  —   1,000,000 
Total operating expenses  6,935,728   4,681,783 
Income (loss) from continuing operations  1,200,993   (2,929,784)
Other income (expenses)        
Interest income  36,923   320 
Interest expense  (313,934)  (1,086,163)
Change in fair value of marketable equity securities  1,959,791   (365,359)
Realized gain on marketable securities  397,331   — 
Gain (loss) on extinguishment of debt  481,533   (463,134)
Change in fair value of warrant liability  (678,769)  4,411 
Total other income (expenses), net  1,882,875   (1,909,925)
         
Income (loss) from continuing operations before income taxes  3,083,868   (4,839,709)
Income tax (expense) benefit  (5,901)  5,905 
Net income (loss) from continuing operations  3,077,967   (4,833,804)
Net loss from discontinued operations, net of taxes  —   (1,697,744)
Net income (loss)  3,077,967   (6,531,548)
Less: Net income attributable to non-controlling interest  (1,080,586)  — 
Net income (loss) attributable to Ault Global Holdings  1,997,381   (6,531,548)
Preferred dividends  (4,400)  (4,460)
Net income (loss) available to common stockholders $1,992,981  $(6,536,008)
         
Basic net income (loss) per common share:        
Continuing operations $0.05  $(1.07)
Discontinued operations  —   (0.37)
Net income (loss) per common share $0.05  $(1.44)
         
Diluted net income (loss) per common share:        
Continuing operations $0.05  $(1.07)
Discontinued operations  —   (0.37)
Net income (loss) per common share $0.05  $(1.44)
         
Weighted average basic common shares outstanding  39,256,336   4,533,217 
Weighted average diluted common shares outstanding  40,202,443   4,533,217 
         
Comprehensive income (loss)        
Income (loss) available to common stockholders $1,992,981  $(6,536,008)
Other comprehensive income (loss)        
Foreign currency translation adjustment  (92,694)  (148,607)
Net unrealized gain (loss) on derivative securities of related party  2,969,170   (1,242,094)
Other comprehensive income (loss)  2,876,476   (1,390,701)
Total comprehensive income (loss) $4,869,457  $(7,926,709)

(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)
 

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

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

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

Three Months Ended March 31, 2021

                    Accumulated       
  Series A & B        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, 2021  132,040  $132   27,753,562  $27,754  $171,397,199  $(121,396,715) $(1,717,934) $821,647  $49,132,083 
Stock based compensation:                                    
Options  —   —   —   —   19,602   —   —   —   19,602 
Issuance of common stock for cash  —   —   21,561,900   21,562   124,961,743   —   —   —   124,983,305 
Issuance of common stock for conversion                                    
  of convertible notes payable  —   —   183,214   183   449,333   —   —   —   449,516 
Financing cost in connection with sales of
common stock		  —   —   —   —   (4,064,837)  —   —   —   (4,064,837)
Net income  —       —   —   —   1,997,381   —   —   1,997,381 
Preferred dividends  —   —   —   —   —   (4,400)  —   —   (4,400)
Net unrealized gain on derivatives                                    
  in related party  —   —   —   —   —   —   2,969,170   —   2,969,170 
Foreign currency translation adjustments  —   —   —   —   —   —   (92,694)  —   (92,694)
Net income attributable to non-controlling
interest		                              1,080,586   1,080,586 
                                     
BALANCES, March 31, 2021  132,040  $132   49,498,676  $49,499  $292,763,040  $(119,403,734) $1,158,542  $1,902,233  $176,469,712 

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

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

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

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

Three Months Ended March 31, 2020

                    Accumulated       
              Additional     Other     Total 
  Preferred Stock  Common Stock  Paid-In  Accumulated  Comprehensive  Non-Controlling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  Deficit  Loss  Interest  Equity 
                            
BALANCES, January 1, 2020  132,040  $132   3,318,390  $3,318  $101,099,347  $(88,650,465) $(5,511,624) $8,242  $6,948,950 
Stock based compensation:                                    
Options  —   —   —   —   19,956   —   —   —   19,956 
Common stock  —   —   65,000   65   73,385   —   —   —   73,450 
Issuance of common stock in payment of                                    
  short term advances, related party  —   —   660,667   661   739,287   —   —   —   739,948 
Issuance of common stock in payment of                                    
  accrued liabilities  —   —   12,500   13   73,141   —   —   —   73,154 
Issuance of common stock for conversion                                    
  of debt  —   —   1,345,164   1,345   2,118,617   —   —   —   2,119,962 
Beneficial conversion feature in connection                                    
 with convertible notes  —   —   —   —   20,345   —   —   —   20,345 
Fair value of warrants issued in connection                                    
 with convertible notes  —   —   —   —   414,895   —   —   —   414,895 
Comprehensive loss:                                    
Net loss  —       —   —   —   (6,531,548)  —   —   (6,531,548)
Preferred dividends  —   —   —   —   —   (4,460)  —   —   (4,460)
Net unrealized loss on derivatives                                    
  in related party  —   —   —   —   —   —   (1,242,094)  —   (1,242,094)
Foreign currency translation adjustments  —   —   —   —   —   —   (148,607)  —   (148,607)
                                     
BALANCES, March 31, 2020  132,040  $132   5,401,721  $5,402  $104,558,973  $(95,186,473) $(6,902,325) $8,242  $2,483,951 

3
 
DIGITAL POWER CORPORATION

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

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

  For the Three Months Ended March 31, 
  2021  2020 
       
Cash flows from operating activities:      
Net loss $3,077,967  $(6,531,548)
Less: Net loss from discontinued operations  —   (1,697,744)
Net income (loss) from continuing operations  3,077,967   (4,833,804)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation  161,713   174,947 
Amortization  104,130   83,285 
Amortization of right-of-use assets  228,703   122,034 
Amortization, related party  7,500   7,500 
Interest expense – debt discount  20,044   677,022 
Gain on extinguishment of debt  (481,533)  — 
Change in fair value of warrant liability  678,769   (4,411)
Accretion of original issue discount on notes receivable – related party  (3,870)  — 
Accretion of original issue discount on notes receivable  (64,596)  (3,738)
Increase in accrued interest on notes receivable – related party  (745)  — 
Stock-based compensation  19,602   122,763 
Realized losses on other investments  —   27,500 
Realized gains on sale of marketable securities  (4,891,601)  (14,442)
Unrealized (gains) losses on marketable equity securities  (2,259,739)  121,068 
Unrealized (gains) losses on equity securities – related party  (153,576)  181,990 
Unrealized (gains) losses on equity securities  (57,560)  92,930 
Provision for loan losses  -   1,000,000 
Changes in operating assets and liabilities:        
Marketable equity securities  (8,869,664)  — 
Accounts receivable  300,848   (607,615)
Accrued revenue  104,231   403,955 
Inventories  (117,654)  25,590 
Prepaid expenses and other current assets  (90,656)  103,636 
Other assets  (85,525)  (46,813)
Accounts payable and accrued expenses  (1,709,982)  894,001 
Accounts payable, related parties  (3,118)  (9,725)
Other current liabilities  77,677   480,477 
Lease liabilities  (229,812)  (115,350)
Net cash used in continuing operating activities  (14,238,447)  (1,117,200)
Net cash provided by discontinued operating activities  —   1,246 
Net cash used in operating activities  (14,238,447)  (1,115,954)
Cash flows from investing activities:        
Purchase of property and equipment  (4,348,871)  (155,981)
Investment in promissory notes, related parties  (3,594,698)  (50,661)
Investments in derivative liabilities and common stock, related parties  (4,756,302)  (1,413)
Investment in real property, related party  (2,670,000)  — 
Purchase of marketable equity securities  -   — 
Sales of marketable equity securities  430,124   106,589 
Investments in debt and equity securities  (1,787,010)  (510)
Net cash used in investing activities $(16,726,757) $(101,976)

U.S. dollars in thousands, except shares and per share data
  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 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
DIGITAL POWER CORPORATION

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

AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

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

  For the Three Months Ended March 31, 
  2021  2020 
       
Cash flows from financing activities:        
Gross proceeds from sales of common stock and warrants $124,983,305  $— 
Financing cost in connection with sales of equity securities  (4,064,837)  — 
Proceeds from notes payable  —   600,000 
Proceeds from short-term advances – related party  —   573,754 
Payments on short-term advances – related party  —   (28,779)
Payments on notes payable  (971,925)  (80,782)
Payments on advances on future receipts  —   (20,000)
Payments of preferred dividends  (4,400)  (4,460)
Payments on revolving credit facilities, net  (7,973)  231,957 
Net cash provided by financing activities  119,934,170   1,271,690 
         
Effect of exchange rate changes on cash and cash equivalents  152,451   89,194 
         
Net increase (decrease) in cash and cash equivalents  89,121,417   142,954 
         
Cash and cash equivalents at beginning of period  18,679,848   483,383 
         
Cash and cash equivalents at end of period $107,801,265  $626,337 
         
Supplemental disclosures of cash flow information:        
Cash paid during the period for interest $658,042  $38,345 
         
Non-cash investing and financing activities:        
Cancellation of notes payable into shares of common stock $449,516  $1,909,350 
Payment of accounts payable with digital currency $118,627  $— 
Cancellation of short term advances, related party into shares        
of common stock $—  $739,948 
Purchase of marketable equity securities for future payment $33,647,059  $— 

U.S. dollars in thousands
 
  For the Nine Months Ended September 30, 
  2017  2016 
       
Supplemental disclosures of cash flow information:      
Cash paid during the period for interest $69  $- 
         
Non-cash investing and financing activities:        
Cancellation of notes payable – related party into shares of common stock $100  $- 
Cancellation of notes payable into shares of common stock $648  $- 
Cancellation of note payable – related party into series B convertible preferred stock $500  $- 
Cancellation of convertible note payable into shares of common stock $145  $- 
         
In connection with the Company's acquisition of Microphase Corporation, equity instruments were issued and liabilities assumed during 2017 as follows: 
         
Fair value of assets acquired $7,893     
Equity instruments issued  (1,451)    
Minority interest  (945)    
Liabilities assumed $5,497     

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
DIGITAL POWER CORPORATION

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

AULT GLOBAL 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, 2021

 

1. DESCRIPTION OF BUSINESS

Digital Power Corporation ("Digital Power"

Ault Global Holdings, Inc., a Delaware corporation (“Ault Global” or the “Company”), formerly known as DPW Holdings, was incorporated in 1969, under the General Corporation Law of the State of California. Digital Power and Digital Power Limited ("DP Limited"),September 2017. The Company is a wholly owned subsidiary, located in the United Kingdom, are currentlydiversified holding company owning subsidiaries engaged in the design, manufacturefollowing operating businesses: commercial and sale of switching power suppliesdefense solutions, commercial lending and converters. On November 30, 2016,advanced textile technology. The Company’s wholly-owned operating subsidiaries are Gresham Worldwide, Inc. (“GWW”), Coolisys Technologies Corp. (“Coolisys”), Gresham Power Electronics Ltd. (f/k/a Digital Power formedLimited) (“Gresham Power”), Relec Electronics Ltd. (“Relec”), Digital Power Lending, LLC (“(“DP Lending”), Ault Alliance, Inc. (“Ault Alliance”), Ault Disruptive Technologies Company, LLC and on April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”Tansocial LLC (“Tansocial”). Both DP LendingThe Company also has a controlling interest in Enertec Systems 2001 Ltd (“Enertec”), Microphase Corporation (“Microphase”) and Alliance Cloud Services, LLC (“Alliance Cloud Services”). The Company has three reportable segments:

·GWW – defense solutions with operations conducted by Microphase, Enertec, Gresham Power and Relec,

·Coolisys – commercial electronics solutions, and

·Ault Alliance – commercial lending and digital learning through DP Lending, Alliance Cloud Services and Tansocial.

During March 2020, the Company ceased restaurant operations at I.AM, Inc. (“I.AM”). Management determined that the permanent closing of the restaurant operations at I.AM, which owned and operated the Prep Kitchen brand restaurants located in the San Diego area, met the criteria for presentation as discontinued operations. Accordingly, the results of the restaurant operations segment are wholly-owned subsidiaries. DP Lending is engagedpresented as discontinued operations in providing commercial loans to companies throughoutour condensed consolidated statements of operations and comprehensive loss and are excluded from continuing operations for all periods presented. On November 2, 2020, I.AM filed a voluntary petition for bankruptcy under Chapter 7 in 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 businessesBankruptcy Court in the customizedCentral District of California, Santa Ana Division, case number 8:20-bk-13076. As a result of I.AM’s bankruptcy filing on November 2, 2020, Ault Global ceded authority for managing the business to the Bankruptcy Court. For this reason, the Company concluded that Ault Global had lost control of I.AM, and flexible power system solutions forno longer had significant influence over I.AM. Therefore, the medical, military, telecom and industrial markets, other thanCompany deconsolidated I.AM effective with the European markets which are primarily served by DP Limited, in Coolisys. On June 2, 2017, Digital Power purchased 56.4%filing of the outstanding equity interestsChapter 11 bankruptcy in November 2020.

In March 2021, the Company resumed cryptocurrency mining operations due to several factors, which had positively affected the number of Microphase Corporation,active miners the Company operated, including the market prices of digital currencies, and favorable power costs available at the Michigan cloud data center purchased on January 29, 2021.

On January 19, 2021, the Company changed its corporate name from DPW Holdings, Inc., to Ault Global Holdings, Inc. The name change was effected through a Delaware corporation (the “Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) delivering radio frequency (“RF”)parent/subsidiary short merger pursuant to an agreement and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assembliesplan of merger dated January 7, 2021. The merger and detector logarithmic video amplifiers (“DLVA”) toresulting name change do not affect the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut. Further, on September 1, 2017, Coolisys acquired allrights of security holders 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.Company. The Company’s results of operations includecommon stock continues to be quoted on the results of Microphase and Power-Plus from their respective acquisition dates forward. Digital Power, DP Limited, Microphase, Coolisys, Power-Plus and DP Lending (collectively,NYSE American under the “Company”) has two reportable geographic segments - North America (sales through Digital Power, Microphase, Coolisys, Power-Plus and DP Lending) and Europe (sales through DP Limited)symbol “DPW”.


2. LIQUIDITY GOING CONCERN AND MANAGEMENT’S PLANS


FINANCIAL CONDITION

As of September 30, 2017,March 31, 2021, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212 and a negative$107.8 million, working capital of $4,174. The Company has incurred recurring losses$119.5 million and reported losses for the three and nine months ended September 30, 2017, totaled $1,967 and $4,700, respectively.total stockholders’ equity of $176.5 million. In the past, the Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below,the three months ended March 31, 2021, the Company continuescontinued to successfully obtain additional equity financing.

The Company believes its current cash on hand is sufficient to meet its operating 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 CORPORATIONcapital requirements for at least the next twelve months from the date these financial statements are issued.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 
·On March 20, 2017, the Company issued $250 in demand promissory note to one of the Company's shareholders (See Note 14). This $250 demand promissory note was converted in shares of the Series B Preferred Stock for the benefit of Philou.

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

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

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

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

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

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

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

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

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

The Company expects to continue to incur losses for the foreseeable future and needs to raise additional capital to continue its business development initiatives and to support its working capital requirements. In March 2017, the Company was awarded a 3-year, $50 million purchase order by MTIX Ltd. (“MTIX") to manufacture, install and service the Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser system. Management believes that the MLSE purchase order will be a source of revenue and generate significant cash flows for the Company. Management believes that the Company has access to capital resources through potential public or private issuance of debt or equity securities. However, if the Company is unable to raise additional capital, it may be required to curtail operations and take additional measures to reduce costs, including reducing its workforce, eliminating outside consultants and reducing legal fees to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These matters 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.
8
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

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, 2016,2020, filed with the Securities and Exchange Commission on April 10, 2017.15, 2021. The condensed consolidated balance sheet as of December 31, 20162020 was derived from the Company’s audited 20162020 financial statements contained in the above referenced Form 10-K. Results of the three and nine months ended September 30, 2017,March 31, 2021, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Digital Power, its wholly-owned subsidiaries, DP Limited, Coolisys, Power-Plus and DP Lending and its majority-owned subsidiary, Microphase. All significant intercompany accounts and transactions2021.

Significant Accounting Policies

There have been eliminatedno material changes in consolidation.


Accounting Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the 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, accruals of certain liabilities including product warranties, and deferred income taxes and related valuation allowance.
Investments in Debt and Equity Securities

The Company classifies its investments in Avalanche International, Corp (“AVLP”), 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 extentsignificant accounting policies to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recovery of the investment’s amortized cost basis. Equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments), as described in ASC No. 325-20. Additionally, the investment in debt securities of AVLP qualifies for application of the fair value option in accordance with ASC No. 825.
Revenue Recognition

The Company generates revenues from the sale of its products through a direct and indirect sales force. Revenues from products are recognized in accordance with ASC No. 605, Revenue Recognition, when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller's price to the buyer is fixed or determinable, no further obligation exists and collectability is reasonably assured. Generally, the Company does not grant a right of return. However, certain distributors are allowed,those previously disclosed in the six months after the initial stock purchase, to rotate stock that has not been sold for2020 Annual Report other products. Revenues subject to stock rotation rights are deferred until the products are sold to the end customer or until the rotation rights expire. Service revenues are deferred and recognized on a straight-line basis over the term of the service agreement. Service revenues are immaterial in proportion to the Company's revenues. 
9
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Warranty
The Company offers a warranty period for all its products. Warranty periods range from one to two years depending on the product. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of units sold, historical rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. As of September 30, 2017 and December 31, 2016, the Company’s accrued warranty liability was $86.
Common Stock Purchase Warrants and Other Derivative Financial Instruments

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

The Company accounts for stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation ("ASC No. 718"). Under ASC No. 718, compensation expense related to stock-based payments is recorded over the requisite service period based on the grant 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, in accordance with ASC No. 470-20, Debt with Conversion and Other Options (“ASC No. 470-20”). Under ASC No. 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC No. 815.
Comprehensive Loss

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

disclosed below.

Fair value of Financial Instruments


In accordance with ASC No. 820, Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputsinclude those 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.


model.

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.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

 
As

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company has completed its evaluation process and the January 1, 2021 adoption did not have a material impact to the Company’s consolidated financial statements for the three months ended March 31, 2021.

4. Revenue Disaggregation

The following tables summarize disaggregated customer contract revenues and the source of September 30, 2017the revenue for the three months ended March 31, 2021 and December2020. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are not considered to be revenues from contracts with customers under GAAP.

The Company’s disaggregated revenues consist of the following for the three months ended March 31, 2016,2021 and 2020:

  Three Months ended March 31, 2021 
  GWW  Coolisys  Ault Alliance  Total 
Primary Geographical Markets            
North America $1,889,262  $1,207,400  $302,039  $3,398,701 
Europe  1,910,002   109,141   —   2,019,143 
Middle East  2,389,063   —   —   2,389,063 
Other  161,692   65,808   —   227,500 
Revenue from contracts with customers  6,350,019   1,382,349   302,039   8,034,407 
Revenue, lending and trading activities          5,210,222   5,210,222 
Total revenue $6,350,019  $1,382,349  $5,512,261  $13,244,629 
Major Goods                
RF/Microwave Filters $1,214,901  $—  $—  $1,214,901 
Detector logarithmic video amplifiers  71,070   —   —   71,070 
Power Supply Units  238,423   1,382,349   —   1,620,772 
Power Supply Systems  2,233,287   —   —   2,233,287 
Healthcare diagnostic systems  184,725   —   —   184,725 
Defense systems  2,407,613   —   —   2,407,613 
Digital currency mining          129,896   129,896 
Other  —   —   172,143   172,143 
Revenue from contracts with customers  6,350,019   1,382,349   302,039   8,034,407 
Revenue, lending and trading activities          5,210,222   5,210,222 
Total revenue $6,350,019  $1,382,349  $5,512,261  $13,244,629 
Timing of Revenue Recognition                
Goods transferred at a point in time $3,757,681  $1,382,349  $302,039  $5,442,069 
Services transferred over time  2,592,338   —   —   2,592,338 
Revenue from contracts with customers $6,350,019  $1,382,349  $302,039  $8,034,407 

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

  Three Month ended March 31, 2020 
  GWW  Coolisys  Ault Alliance  Total 
Primary Geographical Markets            
North America $1,672,726  $866,928  $-  $2,539,654 
Europe  310,569   227,328   —   537,897 
Middle East  2,306,288   —   —   2,306,288 
Other  97,864   87,579   —   185,443 
Revenue from contracts with customers  4,387,447   1,181,835   -   5,569,282 
Revenue, lending and trading activities          36,152   36,152 
Total revenue $4,387,447  $1,181,835  $36,152  $5,605,434 
Major Goods                
RF/Microwave filters $1,501,380  $—  $—  $1,501,380 
Detector logarithmic video amplifiers  288,846   —   —   288,846 
Power supply units  —   1,181,835   —   1,181,835 
Power supply systems  290,933   —   —   290,933 
Healthcare diagnostic systems  214,303   —   —   214,303 
Defense systems  2,091,985   —   —   2,091,985 
Revenue from contracts with customers  4,387,447   1,181,835   -   5,569,282 
Revenue, lending and trading activities          36,152   36,152 
Total revenue $4,387,447  $1,181,835  $36,152  $5,605,434 
Timing of Revenue Recognition                
Goods transferred at a point in time $2,081,159  $1,181,835  $-  $3,262,994 
Services transferred over time  2,306,288   —   —   2,306,288 
Revenue from contracts with customers $4,387,447  $1,181,835  $-  $5,569,282 

Sales of Products

The Company generates revenues from the fair valuesale of its products through a direct and indirect sales force. The Company’s performance obligations to deliver products are satisfied at the point in time when products are received by the customer, which is when the customer obtains control over the goods. The Company provides standard assurance warranties, which are not separately priced, that the products function as intended. The Company primarily receives fixed consideration for sales of product. Some of the Company’s investments were $3,782contracts with distributors include stock rotation rights after six months for slow moving inventory, which represents variable consideration. The Company uses an expected value method to estimate variable consideration and $1,036, respectively, and were concentratedconstrains revenue for estimated stock rotations until it is probable that a significant reversal in debt and equity securitiesthe amount of AVLP, a related party (See Note 4), which are classified as available-for-sale investments.  At Septembercumulative revenue recognized will not occur. To date, returns have been insignificant. The Company’s customers generally pay within 30 2017,days from the Company's investment in AVLP is comprisedreceipt 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, andan invoice.

Because the Company’s ability and intent to hold the investment for a sufficient periodproduct sales agreements have an expected duration of time to allow for recovery of value in the foreseeable future. As a result of this analysis,one year or less, the Company has determined thatelected to adopt the practical expedient in ASC 606-10-50-14(a) of not disclosing information about its cost basisremaining performance obligations.

Manufacturing Services

The Company provides manufacturing services in AVLP equitable securities approximatesexchange primarily for fixed fees; however, the current fair value.

Consistent withinitial two MLSE units are subject to variable pricing under the guidance at ASC No. 835,$50 million purchase order from MTIX. Under 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 amountterms of the convertible promissory notes. Thus,MLSE purchase order, the Company is entitled to cost plus $100,000 for the manufacture of the first two MLSE units. The Company has determined that the amortizedcosts of manufacturing the MLSE units will decline over time because of a learning curve which will result in a greater amount of revenue being recognized for these initial two MLSE units.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

For manufacturing services, which include revenues generated by Enertec and in certain instances revenues generated by Gresham Power, the Company’s performance obligation for manufacturing services is satisfied over time as the Company creates or enhances an asset based on criteria that are unique to the customer 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 ofto cost method which measures progress based on the costs incurred to total expected costs in satisfying its convertible promissory notes approximates fair value and are subject toperformance obligation. This method provides a periodic impairment review. The interest income, including amortizationdepiction of the discount arising at acquisition, forprogress in providing the convertible promissory notesmanufacturing 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 proportional performance method are included in earnings. In the future, ifabove 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 Company does not expecttransfers its promised good or service to recover the entire amortized cost basis,customer and when the customer pays in one year or less.

The aggregate amount of the transaction price allocated to the performance obligation that is partially unsatisfied as of March 31, 2021, for the MLSE units was $48.0 million, representing 24 MLSE units. Based on our expectations regarding funding of the production process and our experience building the first machines, the Company shallexpects to recognize other-than-temporary impairmentsthe remaining revenue related to the partially unsatisfied performance obligation over an estimated three year period. The Company will be paid in installments for this performance obligation over the estimated period that the remaining revenue is recognized.

Lending Activities and Trading Activities

Ault Alliance, through DP Lending, generates revenue from lending activities primarily through interest, origination fees and late/other comprehensivefees. Interest income (loss).

During 2017,on these products is calculated based on the contractual interest rate and recorded as interest income as earned. The origination fees or original issue discounts are recognized over the life of the loan using the effective interest method.

Financial instruments utilized in trading activities are carried at fair value. Fair value is generally based on quoted market prices for the same or similar assets and liabilities. If these market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where the determination of fair value may require significant management judgment or estimation. Realized gains and losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in revenue from lending activities.

Blockchain Mining

The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company purchased atprovides computing power to the market sharesmining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of common stockthe fixed digital currency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of three companies for a total cost of $25. In accordancerevenues), for successfully adding a block to the blockchain. The Company’s factional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with ASC No. 320-10, these investments are accounted for pursuant tomining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value method based uponat contract inception or the closingtime the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

Fair value of the digital currency award received is determined using the market pricesrate of common stockthe related digital currency at the time of receipt.

There is currently no specific definitive guidance under GAAP or alternative accounting framework for these three companies at September 30, 2017.

the accounting for digital currencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Expenses associated with running the cryptocurrency mining business, such as equipment deprecation and electricity cost are recorded as a component of cost of revenues.

5. fair value of financial instruments

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 that were measured at fair value on a recurring basis by level within the fair value hierarchy:

  Fair Value Measurement at March 31, 2021 
  Total  Level 1  Level 2  Level 3 
Investments in convertible and term
promissory notes of AVLP and Ault &
Company – related parties		 $13,467,783  $—  $—  $13,467,783 
Investments in common stock and derivative
instruments of AVLP – a related party		  10,335,348   819,324   —   9,516,024 
Investment in common stock and warrants of
Alzamend – a related party		  4,487,091   —   —   4,487,091 
Investments in marketable equity securities  18,153,863   18,153,863   —   — 
Securities purchased under agreement to resell  33,647,059   33,647,059         
Investments in debt and equity securities  2,320,539   —   506,574   1,813,965 
Total Investments $82,411,683  $52,620,246  $506,574  $29,284,863 

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

 
  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  $— 

  Fair Value Measurement at December 31, 2020 
  Total  Level 1  Level 2  Level 3 
Investments in convertible promissory notes
and advances of AVLP and Alzamend – related
parties		 $10,668,470  $—  $—  $10,668,470 
Investments in common stock and derivative
instruments of AVLP – a related party		  5,486,140   499,588   —   4,986,552 
Investment in common stock and warrants of
Alzamend – a related party		  653,251   —   —   653,251 
Investments in marketable equity securities  2,562,983   2,562,983   —   — 
Investments in debt and equity securities  261,767   —   —   261,767 
Total Investments $19,632,611  $3,062,571  $—  $16,570,040 

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 are 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 CORPORATIONmarket.

We measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

We assess the inputs used to measure fair value using the three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market.

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. The Company made an irrevocable election to record available-for-sale debt investments at fair value utilizing the fair value option available under U.S. GAAP. The Company believed that carrying these investments at fair value better portrayed the economic substance of the investments. Under the fair value option, gains and losses on the debt investments are included in unrealized gains/(losses) on investments within net earnings each reporting period. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments .

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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

Debt Discounts

Equity investments

The Company accountsfollowing discusses our marketable equity securities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities.

Our marketable equity securities are publicly traded stocks or funds measured at fair value and classified within Level 1 and 2 in the fair value hierarchy because we use quoted prices for debt discount accordingidentical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets.

Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to ASC No. 470-20, Debt with Conversion and Other Options. Debt discounts are amortized through periodic charges to interest expense over the termfair value upon observable transactions for identical or similar investments of the related financial instrument usingsame issuer or impairment (referred to as the effective interest method. Duringmeasurement alternative). Non-marketable equity securities that have been remeasured during the period based on observable transactions are classified within Level 2 or Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3.

We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.

Derivatives

Derivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.

The following table summarizes the changes in investments in debt and equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017,March 31, 2021:

  Investments in 
  debt and equity 
  securities 
Balance at January 1, 2021 $261,767 
Investment in convertible promissory notes  500,000 
Investment in warrants  1,000,000 
Change in fair value of warrants  57,560 
Accretion of discount  52,198 
Balance at March 31, 2021 $2,320,539 

See Note 12 for the changes in investments in AVLP, Alzamend and Ault & Company recorded amortizationmeasured and carried at fair value on a recurring basis with the use of debt discounts of $652 and $1,239, respectively. The Company did not recognize any debt discountsignificant unobservable inputs (Level 3) during the three and nine months ended September 30, 2016.

March 31, 2021.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

 

6. Net LossIncome (Loss) per Share


Net

Basic and diluted net income per common share for the three months ended March 31, 2021 are calculated as follows:

  For the Three Months Ended March 31, 2021 
  Income  Shares  Per-Share 
  (Numerator)  (Denominator)  Amount 
 Net income (loss) attributable to Ault Global Holdings $1,997,381         
 Less: Preferred stock dividends  (4,400)        
             
 Basic earnings per share            
 Net income available to common stockholders  1,992,981   39,256,336  $0.05 
             
 Effect of dilutive securities            
 Stock options  -   505,245     
 8% convertible notes, related party  8,000   275,862     
 4% convertible notes  6,600   165,000     
             
 Diluted earnings per share            
 Income available to common stockholders plus
assumed conversions		 $2,007,581   40,202,443  $0.05 

For the three months ended March 31, 2020, 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,the three months ended March 31, 2020, 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 calculationthe period. Anti-dilutive securities, which are convertible into or exercisable for the three and nine months ended September 30, 2017.  Anti-dilutive securities consistedCompany’s common stock, consist of the following at September 30,


  2017  2016 
Stock options  2,891,000   1,001,000 
Warrants  10,233,199   — 
Convertible notes  3,157,576   — 
Conversion of preferred stock  4,606,131   — 
Total  20,887,906   1,001,000 
At September 30, 2017,March 31, 2020:

March 31, 2020
Stock options950
Warrants765,422
Convertible notes561,158
Conversion of preferred stock2,232
Total1,329,762

7. Discontinued Operations

On March 16, 2020, to try and mitigate the 20,887,906spread 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 andCOVID-19, San Diego County health officials issued convertible notes and warrantsorders mandating that when exercised would result in the issuance of an additional 2,274,800 shares of common stock.all restaurants must end dine-in services. As a result of these temporary closures and the deteriorating business conditions at the Company’s restaurant businesses, the Company concluded that discontinuing the operations of I.AM was ultimately in its best interest.

In the first quarter of 2020, management determined that the permanent closing of the restaurant operations met the criteria for presentation as discontinued operations. Accordingly, the results of the restaurant operations are presented as discontinued operations in the Company’s condensed consolidated statements of operations and comprehensive income (loss) and are excluded from continuing operations for all periods presented. On November 2, 2020, I.AM filed a voluntary petition for bankruptcy under Chapter 7 in the United States Bankruptcy Court in the Central District of California, Santa Ana Division, case number 8:20-bk-13076. As a result of I.AM’s bankruptcy filing on November 2, 2017, if all2020, Ault Global ceded authority for managing the business to the Bankruptcy Court. For this reason, the Company concluded that Ault Global had lost control of I.AM, and no longer had significant influence over I.AM. Therefore, the Company deconsolidated I.AM effective with the filing of the potential common stock equivalentsChapter 11 bankruptcy 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 
13November 2020.
DIGITAL POWER CORPORATION

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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

During

The restaurant operations are included in our results as discontinued operations through March 16, 2020, the year endeddate of closing of the restaurants. The following tables summarize the major classes of line items included in loss from discontinued operations:

  For the Three 
  Months Ended 
  March 31, 2020 
Revenue $543,327 
Cost of revenue  (160,310)
Selling and marketing  — 
General and administrative  (555,445)
Impairment of property and equipment and right-of-use assets  (1,525,316)
Income (loss) from discontinued operations $(1,697,744)

8. Marketable Equity Securities

Marketable securities in equity securities with readily determinable market prices consisted of the following as of March 31, 2021 and December 31, 2016,2020:

  Marketable equity securities at March 31, 2021 
        Gross unrealized   Gross unrealized     
    Cost   gains   losses   Fair value 
Common shares  $15,225,347  $3,733,672  $(805,156) $18,153,863 

   Marketable equity securities at December 31, 2020 
        Gross unrealized   Gross unrealized     
    Cost   gains   losses   Fair value 
Common shares  $1,505,686  $1,083,532  $(26,235) $2,562,983 

Marketable equity securities

The following table presents additional information about marketable equity securities:

  Marketable 
  Equity Securities 
Balance at January 1, 2021 $2,562,983 
Purchases of marketable equity securities in operations  62,994,562 
Sales of marketable equity securities in operations  (54,124,898)
Sales of marketable equity securities  (430,124)
Realized gains on marketable equity securities  4,891,601 
Unrealized gains on marketable equity securities  2,259,739 
Balance at March 31, 2021 $18,153,863 

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

At March 31, 2021 and December 31, 2020, the Company madehad invested in the marketable equity securities of certain publicly traded companies. 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, 2021and December 31, 2020 is a strategic decisionLevel 1 measurement based on quoted prices in an active market.

At March 31, 2021 and December 31, 2020, the Company also held an investment in a limited partnership. This investment does not have a readily determinable fair value and has been measured at cost less impairment, if any, and adjusted for observable price changes for identical or similar investments.

Naked Brand Group stock purchase agreement

On March 29, 2021, DP Lending entered into a stock purchase agreement with an institutional investor (the “Seller”) to investpurchase 47,058,824 shares of Naked Brand Group Limited (the “NAKD shares”). Under the agreement, DP Lending agreed to sell the NAKD shares and pay the Seller 99% of the net proceeds from the sale. As of March 31, 2021, the fair value of the NAKD shares was $33.6 million and is included in securities purchased under agreement to resell. The Company also recorded a $33.3 million stock purchase consideration payable and a $336,000 contract liability as of March 31, 2021.

9. PROPERTY AND EQUIPMENT, NET

At March 31, 2021 and December 31, 2020, property and equipment consist of:

  March 31, 2021  December 31, 2020 
Cryptocurrency machines and related equipment $593,226  $567,216 
Computer, software and related equipment  3,340,446   3,056,711 
Office furniture and equipment  751,272   489,315 
Land  2,566,621   — 
Building  1,283,311     
Leasehold improvements  1,343,162   1,352,124 
   9,878,038   5,465,366 
Accumulated depreciation and amortization  (3,589,324)  (3,342,636)
Property and equipment, net $6,288,714  $2,122,730 

For the three months ended March 31, 2021 and 2020, depreciation expense amounted to $162,000 and $175,000 respectively.

Acquisition of Michigan Cloud Data Center

On January 29, 2021, Alliance Cloud Services, LLC, a majority-owned subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on the acquisition of a 617,000 square foot energy-efficient facility located on a 34.5 acre site in southern Michigan for a purchase price of $3.9 million. The facility is subject to a final corrective measures plan with the Environment Protection Agency. The seller performed remedial activities at the Michigan facility relating to historical soil and groundwater contamination and the Company is responsible for ongoing monitoring and final remediation plans. The Company’s estimated cost of the environmental remediation obligation is approximately $300,000 and reflects its best estimate of probable future costs for remediation based on the current assessment data and regulatory obligations. Future costs will depend on many factors, including the extent of work necessary to implement monitoring and final remediation plans and the Company’s time frame for remediation. The Company may incur actual costs in the future that are materially different than this estimate and such costs could have a material impact on results of operations, financial condition, and cash flows during the period in which they are recorded.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

10. INTANGIBLE ASSETS, NET

At March 31, 2021 and December 31, 2020 intangible assets consist of:

  March 31, 2021  December 31, 2020 
Trade name and trademark $1,555,571  $1,551,197 
Customer list  3,391,272   3,441,654 
Domain name and other intangible assets  665,295   689,920 
   5,612,138   5,682,771 
Accumulated depreciation and amortization  (1,371,718)  (1,292,383)
Intangible assets, net $4,240,420  $4,390,388 

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 $104,000 and $83,000, respectively, for the three months ended March 31, 2021 and 2020.

11. GOODWILL

The following table summarizes the changes in our goodwill during the three months ended March 31, 2021:

  Goodwill 
Balance as of January 1, 2021 $9,645,686 
Effect of exchange rate changes  (179,109)
Balance as of March 31, 2021 $9,466,577 

12. INVESTMENTS – RELATED PARTIES

Investments in AVLP, Alzamend Neuro, Inc. (“Alzamend”) and Ault and Company, Inc. (“Ault & Company”) at March 31, 2021 and December 31, 2020, are comprised of the following:

  March 31,  December 31, 
  2021  2020 
Investment in convertible promissory note of AVLP $13,924,136  $11,269,136 
Short term advance in Alzamend  -   750,000 
Investment in convertible promissory note of Alzamend  -   50,000 
Investment in promissory note of Ault & Company  2,500,000   - 
Accrued interest in promissory notes, related parties  2,027,557   2,026,812 
Total investment in promissory notes, related parties – gross  18,451,693   14,095,948 
Less: original issue discount  (1,560,302)  (3,870)
Less: provision for loan losses  (3,423,608)  (3,423,608)
Total investment in promissory notes, related parties  13,467,783   10,668,470 
         
Investment in derivative instruments of AVLP  9,516,024   4,986,552 
Investment in common stock of AVLP  819,324   499,588 
Investment in common stock and warrants of Alzamend  4,487,091   653,251 
Investments in derivatives and common stock, related parties  14,822,439   6,139,391 
Total investments, related parties – net $28,290,222  $16,807,861 
         
Investments in derivatives and common stock, related parties $14,822,439  $6,139,391 
Investment in promissory notes, related parties  13,467,783   10,668,470 
Total investment, related parties – net $28,290,222  $16,807,861 

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

The following table summarizes the changes in our investments in AVLP, Alzamend and Ault & Company during the three months ended March 31, 2021:

     Investment in    
  Investment in  promissory notes  Total 
  warrants and  and advances  investment 
  common stock  of AVLP,  in AVLP, 
  of AVLP and  Alzamend and  Alzamend and 
  Alzamend  Ault & Company  Ault & Company, net 
Balance at January 1, 2021 $6,139,391  $10,668,470  $16,807,861 
Investment in convertible promissory notes of AVLP  —   1,094,698   1,094,698 
Investment in convertible promissory note of Alzamend  —   (50,000)  (50,000)
Investment in promissory note of Ault & Company  —   2,500,000   2,500,000 
Investment in common stock of AVLP and Alzamend  3,046,016   —   3,046,016 
Investment in warrants of Alzamend  953,984   —   953,984 
Short term advance in Alzamend  —   (750,000)  (750,000)
Fair value of derivative instruments issued by AVLP  1,560,302   —   1,560,302 
Unrealized gain in derivative instruments of AVLP  2,969,170   —   2,969,170 
Unrealized loss in warrants of Alzamend  (13,086)  —   (13,086)
Unrealized gain in common stock of AVLP and Alzamend  166,662   —   166,662 
Accretion of discount  —   3,870   3,870 
Accrued Interest  —   745   745 
Balance at March 31, 2021 $14,822,439  $13,467,783  $28,290,222 

Investments in AVLP

The Company’s investments in AVLP, a related party controlled by Philou Ventures, LLC (“Philou”), an existing majority stockholder. The Company’s investments in AVLP primarilyaffiliate of the Company, consist of convertible promissory notes, derivative instruments and shares of AVLP common stockstock. As of AVLP.

On October 5, 2016, November 30, 2016, and February 22, 2017, the Company entered into three 12% Convertible Promissory Notes with AVLP (the "AVLP Notes") in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in netMarch 31, 2021, loans to AVLP of $1,500totaled $13.9 million 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 6,948,800 shares of AVLP Common Stock at $0.50 per share. Future advances under the AVLP Loan Agreement, if any, will be evidenced by a convertible promissory containing a conversion price feature at $0.50 per share and warrant with an exercise price of $0.50 per share. Further, under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP.
The Warrant entitles the Company to purchase up to 6,948,80027.8 million shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The exercise pricewarrants are considered derivative financial instruments.

At March 31, 2021, the Company recorded a cumulative unrealized gain on its investment in warrants of $0.50 is subjectAVLP of $1.9 million compared to adjustment for customary stock splits, stock dividends, combinations or similar events. The Warrant may be exercised for cash or on a cashless basis.


The original issue discountcumulative unrealized loss of $165 on$1.1 million at December 31, 2020 representing the New Note is being amortized as interestdifference between the cost basis and the estimated fair value of the warrants in the Company’s accumulated other comprehensive income throughin the maturity date usingstockholder's equity section of the interest rate method.Company’s consolidated balance sheet. During the three and nine months ended September 30, 2017,March 31, 2021, the Company recorded $18recognized, in other comprehensive income (loss), net unrealized gain on derivative securities of related party of $3.0 million compared to a net unrealized loss on derivative securities of related party of $1.2 million during the three months ended March 31, 2020. 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 and $38, respectively, ofthe following assumptions:

Exercise price$0.50
Remaining contractual term (in years)1.68 — 5.0
Volatility68.7% — $104.6%
Weighted average risk free interest rate0.13% — 2.98%
Expected dividend yield0%

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

The volatility factor was determined based on historical stock prices for similar technology companies with market capitalizations under $100 million. The warrant valuation is a Level 3 measurement.

During the three months ended March 31, 2021 and 2020, no interest income was recognized from the Company’s investment in AVLP. The Company evaluated the collectability of both interest and principal for the discount accretion. Asconvertible promissory notes in AVLP to determine whether there was an impairment. Based on current information and events, primarily the value of September 30, 2017,the underlying conversion feature and December 31, 2016, current economic events, the Company recorded contractual interest receivable attributed toconcluded that an impairment existed. At March 31, 2021, the Company determined that the fair value of the convertible promissory notes in AVLP Notes and AVLP Loan Agreementwas $12.5 million. The Company’s determination of $208 and $13, respectively.


The Company has classifiedfair value was based upon the AVLP Notes as Available-for-Sale securities, subject to the guidance in ASC No. 320. The Company elected to apply the Fair Value Option Subsectionsestimated present value of Subtopic 320-10 and 825-10 to the AVLP Notes. At September 30, 2017,a future liquidity event combined with the closing market price of AVLP’s common Stock was $0.64. Subsequentstock at March 31, 2021. Impairment assessments require significant judgments and are based on significant assumptions related to quarter-end,the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral.

In aggregate, the Company has 999,175 shares of AVLP common stock which represents 18.0% of AVLP’s outstanding shares of common stock. At March 31, 2021, the closing market price of AVLP’s common stock was in$0.82, an increase from $0.50 at December 31, 2020. Based upon the rangeclosing market price of $0.51 and $ 0.85 and due to the illiquidity and significant volatility of AVLP’sAVLP common stock at March 31, 2021, the Company’s investment in AVLP common stock had an unrealized gain of $71,000.

The Company has determined that AVLP is a variable interest entity (“VIE”) as it does not have sufficient equity at risk. The Company does not consolidate AVLP because the Company is not the primary beneficiary and does not have a controlling financial interest. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although the Company has made a significant investment in AVLP, the Company has determined that Philou, which controls AVLP through the voting power conferred by its cost basisequity investment and which is deemed to be more closely associated with AVLP, is the primary beneficiary. As a result, AVLP’s financial position and results of operations are not consolidated in AVLPour financial position and results of operations.

Investments in Alzamend

At December 31, 2020, the Company had provided Alzamend a short-term advance of $750,000 and invested $50,000 in an 8% convertible promissory note. In conjunction with the issuance of the 8% convertible promissory note, Alzamend issued to the Company warrants to purchase 16,667 shares of Alzamend common stock approximatesat an exercise price of $3.00 per share for a period of five years.

On March 9, 2021, DP Lending, entered into a securities purchase agreement with Alzamend to invest $10.0 million in Alzamend common stock and warrants, subject to the currentachievement of certain milestones. DP Lending funded $4.0 million upon execution of the securities purchase agreement, which included the conversion of the short term advance and convertible promissory note in the aggregate amount of $800,000. The remaining $6.0 million will be funded upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, in aggregate, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DP Lending for $10.0 million, or $1.50 per share, and issue to DP Lending warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by the Company’s independent directors after receiving a third-party valuation report of Alzamend.

In addition to the Alzamend common shares purchase on March 9, 2021, the Company also held 427,888 shares of Alzamend common stock that it had acquired in during the years ended December 31, 2020 and 2019 for $252,000. At March 31, 2021, the estimated fair value.

14
DIGITAL POWER CORPORATIONvalue of Alzamend’s common stock was $1.14. Based upon the estimated fair value of Alzamend common stock at March 31, 2021, the Company’s investment in Alzamend common stock had an unrealized gain of $236,000.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

SEPTEMBER 30, 2017
U.S. dollars

Investment in thousands, except shareAult & Company, Inc.

On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to the Company. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per share data

annum, is due and payable on February 25, 2022.

13. OTHER INVESTMENTS, RELATED PARTIES

Executive Chairman relocation benefit

On February 23, 2021, as part of a relocation benefit for our Executive Chairman, Milton C. Ault, III, related to the Company moving its corporate headquarters from Newport Beach, CA to Las Vegas, NV, the Company agreed to purchase Mr. Ault’s California residence for $2.7 million. The transaction was structured such that upon the closing of the subsequent sale of the residence, the Company shall have not recognized a gain or a loss on the transaction. The Company has concluded that indicatorsand Mr. Ault agreed to escrow $254,000 of impairment, including those describedthe purchase price in ASC No. 320-10-35-27, do not currently exist for the Company’s investment in debt and equity securitiesevent of AVLP.


5. ACQUISITIONS

Microphase Corporation

Ona loss on the subsequent sale of the residence. During April 28, 2017,2021, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Microphase; Microphase Holding Company LLC, a limited liability company organized underan agreement for 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”)subsequent sale of the issuedresidence, which closed on April 19, 2021.

14. STOCK-BASED COMPENSATION

The options outstanding as of March 31, 2021, 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 
$480 - $560 894  4.70  $537.34  695  $530.84 
$1,208 - $1,352 25  3.00  $1,336.00  25  $1,336.00 
$480 - $1,352 919  4.65  $559.07  720  $558.82 
                  
Issuances outside of Plans
$1.79 850,000  9.47  $1.79  0  $0.00 
                  
Total Options
$480 - 1,856 850,919  9.47  $2.39  720  $558.82 

On March 31, 2021 and December 31, 2020, there was no aggregate intrinsic value of stock options that were outstanding commonand exercisable. The intrinsic value for 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 $1,222options is calculated based on the closingexercise price of the Company’s common stock on June 2, 2017,underlying awards 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 termssuch awards as 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 CORPORATIONperiod-end date.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Upon initial measurement, components of the purchase price are as follows:
 
  
Microphase
  
Power-Plus
 
       
Cash and cash equivalents $11  $27 
Accounts receivable  439   235 
Inventories  667   241 
Prepaid expenses and other current assets  139   2 
Restricted cash  100   — 
Intangible assets  95   250 
Property and equipment  93   23 
Other investments  303   — 
Deposits and loans  44   — 
Accounts payable and accrued expenses  (1,680)  (392)
Revolving credit facility  (880)  (210)
Notes payable  (2,204)  — 
Notes payable, related parties  (406)  — 
Other current liabilities  (327)  — 
Net liabilities assumed/assets acquired  (3,606)  176 
Goodwill and other intangibles  6,002   488 
Non-controlling interest  (945)  — 
Purchase price $1,451  $664 
The following pro forma data summarizes the results of operations for the periods indicated as if the Microphase and Power-Plus acquisitions had been completed as of the beginning of each period presented. The pro forma data gives effect to actual operating results prior to the acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of each period presented or that may be obtained in future periods:
  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
             
Revenue $3,583  $3,751  $10,329  $12,692 
                 
Net loss $(2,277) $(711) $(4,820) $(1,742)
                 
Less: Net loss attributable to non-controlling interest  103   290   103   714 
                 
Net loss attributable to Digital Power Corp $(2,144) $(421) $(4,717) $(1,028)
                 
Preferred deemed dividends  —   —   (319)  — 
Preferred dividends  (27)  —   (35)  — 
                 
Loss available to common shareholders $(2,171) $(421) $(5,071) $(1,028)
                 
Basic and diluted net loss per common share $(0.14) $(0.05) $(0.40) $(0.12)
                 
Basic and diluted weighted average common shares
outstanding
  15,587,988   8,618,419   12,727,396   8,618,419 
                 
Comprehensive Loss                
Loss available to common shareholders $(2,171) $(421) $(5,071) $(1,028)
Other comprehensive income (loss)                
Change in net foreign currency translation adjustments  42   (55)  141   (265)
Net unrealized gain (loss) on securities available-for-
sale, net of income taxes
  (43)  186   (43)  204 
Other comprehensive income (loss)  (1)  131  98   (61)
Total Comprehensive loss $(2,172) $(290) $(4,973) $(1,089)
16
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
6. STOCK-BASED COMPENSATION
Under the Company's 2016 Stock Incentive Plan (the “2016 Plan”) and the 2012 Stock Option Plan, as amended (the “2012 Plan”) (collectively, the “Plans”), options may be granted to employees, officers, consultants, service providers and directors of the Company. The Plans, as amended, provide for the issuance of a maximum of 5,372,630 shares of the Company’s common stock. The Company also has 206,000 outstanding options that were granted between 2009 and 2011 pursuant to the terms of the Company's 2002 Stock Option Plan (the “2002 Plan”). Options granted pursuant to the 2002 Plan expire between September 2008 and February 2021.

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

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

Outstanding  Exercisable 
     Weighted          
     Average  Weighted     Weighted 
     Remaining  Average     Average 
Exercise Number  Contractual  Exercise  Number  Exercise 
Price Outstanding  Life (Years)  Price  Exercisable  Price 
$0.57 - $0.79  2,425,000   9.14  $0.66   1,249,167  $0.66 
$1.10 - $1.32  25,000   6.10  $1.28   20,000  $1.27 
$1.51 - $1.69  441,000   5.11  $1.61   378,500  $1.60 
                     
$0.57 - 1.69  2,891,000   8.50  $1.10   1,647,667  $0.88 
The total stock-based compensation expense related to stock options and restricted stock awards issued pursuant to the Plans to the Company’s employees, consultants and directors, included in reported net loss for the three and nine months ended September 30, 2017 and 2016, is comprised as follows:
  Three Months Ended  Nine Months Ended 
  Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016 
Cost of revenues $2  $1  $6  $5 
Engineering and product development  6   1   20   3 
Selling and marketing  8   5   18   13 
General and administrative  349   35   1,017   108 
                 
Stock-based compensation from Plans  365   42   1,061   129 
                 
Stock-based compensation from
issuances outside of Plans
  152   —   208   — 
Total stock-based compensation $517  $42  $1,269  $129 
The combination of stock-based compensation of $1,061 from the issuances of equity based awards pursuant to the Plans and stock-based compensation attributed to restricted stock awards of $130 and warrants and options of $78, which were issued outside of the Plans, resulted in aggregate stock-based compensation of $1,269 during the nine months ended September 30, 2017. During the three months ended September 30, 2017, aggregate stock-based compensation was $517, which consisted of $365 from the issuances of equity based awards pursuant to the Plans and stock-based compensation attributed to restricted stock award of $120 warrants and options of $32, which were issued outside of the Plans. During the three and nine months ended September 30, 2016, the only stock-based compensation expense was from issuances pursuant to the Plans.
18
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

A summary of option activity under the Company's stock option plans as of September 30, 2017,March 31, 2021, 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 

The aggregate intrinsic value in

       Outstanding Options 
               Weighted     
           Weighted  Average     
   Shares      Average  Remaining  Aggregate 
   Available  Number  Exercise   Contractual  Intrinsic 
   for Grant  of Shares  Price  Life (years)   Value 
January 1, 2021   6,693   925  $564.43   4.87  $— 
Forfeited 1   —   (6) $1,352.00         
March 31, 2021   6,693   919  $559.07   4.65  $— 

1 Includes options that were issued pursuant to the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 30, 2017, $0.55Company’s 2002 Plan and the exercise price, multiplied by the number of in-the-money-options).

As of September 30, 2017, there was $425 of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Company's stock option plans. That cost is expected to be recognized over a weighted average period of 2.3 years.
7.are not available for future issuance.

15. WARRANTS

During the ninethree months and ended September 30, 2017,March 31, 2021, the Company issued a total of 8,484,073 warrants, at an average exercise price of $0.81 per share.  Warrant issuances during the current quarter ended September 30, 2017, included:

(i)
On April 17, 2017, the Company issued warrants to purchase 166,668 shares of common stock, at an exercise price of $0.90 per share of common stock, in connection with the issuance of two 7% convertible notes in the aggregate principal amount of $250. On July 25, 2017, the Company agreed to reduce the exercise price of warrants to purchase 83,334 shares of common stock from $0.90 per share to $0.55 per share and on July 28, 2017, the Company issued a new warrant to purchase 83,334 shares of common stock at $0.55 per share and cancelled the prior warrant to purchase 83,334 shares of common stock at $0.90 per share (See Note 12).
(ii)On July 25, 2017, we issued warrants to purchase an aggregate of 163,636 shares of the Company’s common stock at an exercise price equal to $0.55 per share in connection with a private placement agreement under which we issued and sold 272,727 shares of common stock to the investor at $0.55 per share for an aggregate purchase price of $150. At that time, we also issued warrants to purchase 109,090 shares of the Company’s common stock at an exercise price equal to $0.75 per share to two investors that purchased shares of our common stock at $0.55 per share pursuant to subscription agreements (See Note 14).
19
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
(iii)
On July 28, 2017, we entered into an exchange agreement related to a 7% Convertible Note in the principal amount of $125 in which we exchanged the 7% Convertible Note for three new promissory notes in the principal amounts of $110,000 due August 1, 2017; $35,000 due August 1, 2017; and $34,000 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes). Concurrent with entering into the exchange agreement, the investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110,000. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110,000. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share (See Note 12).
(iv)On August 3, 2017, we issued warrants to purchase an aggregate of 666,666 shares of the Company’s common stock at an exercise price equal to $0.70 per share in connection with the issuance of a 12% Convertible Promissory Note in the aggregate principal amount of $400 (See Note 12). 
(v)On August 10, 2017, we issued warrants to purchase an aggregate of 1,475,000 shares of the Company’s common stock at an exercise price equal to $0.66 per share in connection with the issuance of 10% Convertible Promissory Notes in the aggregate principal amount of $880 (See Note 12).
(vi)
On August 23, 2017, the Company issued warrants to purchase 272,727 shares of common stock at an exercise price equal to $0.65 per share in connection with entering into securities purchase agreements to issue and sell 272,727 shares of common stock at to the investors at $0.55 per share for an aggregate purchase price of $150. The common stock has yet to be issued and is subject to approval from the NYSE American prior to issuance, which had not been received at September 30, 2017.
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 CORPORATIONMarch 31, 2021:

Outstanding    Exercisable 
     Weighted          
     Average  Weighted     Weighted 
     Remaining  Average     Average 
Exercise Number  Contractual  Exercise  Number  Exercise 
Price Outstanding  Life (Years)  Price  Exercisable  Price 
$ — 6,500  3.00  $—  6,500  $— 
$0.88 - $1.91 3,237,016  4.05  $1.43  3,237,016    $0.88 - $1.91 
$8.00 - $19.80 53,452  3.13  $12.74  53,452    $8.00 - $19.80 
$440 - $920 16,225  1.95  $733.40  16,225    $440 - $920 
$1,040 - $2,000 2,367  1.93  $1,404.85  2,367    $1,040 - $2,000 
$0.88 - $2,000 3,315,560  4.02  $6.19  3,315,560  $6.19 

Warrant issuances during 2020 requiring shareholder approval

Rule 713 of the NYSE American, the national securities exchange on which the Common Stock is listed, requires stockholder approval of a transaction, other than a public offering, involving the sale, issuance or potential issuance by an issuer of Common Stock (or securities convertible into or exercisable for Common Stock) at a price less than the greater of book or market value which together with sales by officers, directors or principal stockholders of the issuer equals 20% or more of presently outstanding Common Stock, or equal to 20% or more of presently outstanding stock for less than the greater of book or market value of the stock, or when the issuance or potential issuance of additional shares will result in a change of control of the issuer. Accordingly, absent shareholder approval, the holders of warrants issued between October 22, 2020 and November 19, 2020 to purchase an aggregate of 2,627,394 shares of Common Stock are prohibited from exercising the warrants and receiving shares of Common Stock unless stockholder approval is obtained for the warrants. The Company anticipates seeking stockholder approval for the exercise of all the warrants during July 2021.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 
The Company has valued the warrants at their date of grant utilizing the Black-Scholes option pricing model.  This model is dependent upon several variables such as the warrants’ term, exercise price, current stock price, risk-free interest rate and estimated volatility of our stock over the contractual term of the options. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the contractual life of the warrants.

The Company utilized the Black-Scholes option pricing model and the assumptions used during the ninethree months ended September 30, 2017:

  September 30, 2017 
Weighted average risk free interest rate  1.42% — 2.01%
Weighted average life (in years)  4.9 
Volatility  98.5% — 107.5%
Expected dividend yield  0%
Weighted average grant-date fair value per
share of warrants granted
 $0.41 
8. ADVANCES ON FUTURE RECEIPTS

Between July 6, 2017March 31, 2020:

Exercise price$0.88 - $1.91
Remaining contractual term (in years)5.0
Volatility86.3%
Weighted average risk free interest rate0.46% — 1.38%
Expected dividend yield0%

16. OTHER CURRENT LIABILITIES

Other current liabilities at March 31, 2021 and September 13, 2017, the Company received funding as a result of entering into multiple AgreementsDecember 31, 2020 consist of:

  March 31, 2021  December 31, 2020 
Accrued payroll and payroll taxes $1,497,374  $1,411,728 
Warranty liability  91,043   90,640 
Other accrued expenses  248,520   287,457 
  $1,836,937  $1,789,825 

17. LEASES

We have operating leases 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 theoffice space. Our leases have remaining lease terms of 2 month to 11 years, some of which may include options to extend the agreements,leases perpetually, and some of which may include options to terminate the Company will be obligated to pay the initial daily amountleases within 1 year.

The following table provides a summary of $13 until the $2,585 has been paid in full. Asleases by balance sheet category as of September 30, 2017, the Company had paid back $439. March 31, 2021:

  March 31, 2021 
Operating right-of-use assets $4,816,798 
Operating lease liability - current  855,933 
Operating lease liability - non-current  4,020,877 

The term future receipts means cash, check, ACH, credit card, debit card, bank card, charged card or other formcomponents of monetary payment. The Company recorded a discount in the amount of $813. The discount is being amortized as non-cash interest expense over the term of the agreement. During the three and nine months ended September 30, 2017, non-cash interest expense of $142 was recorded from the amortization of debt discounts.


9. REVOLVING CREDIT FACILITY

Microphase entered into a revolving loan agreement with Gerber Finance, Inc. (“Gerber”) in February of 2012, as amended in September 2015 and July 2017 (the “Revolving Credit Facility”). Under the Revolving Credit Facility, Microphase can receive funds based on a borrowing base, which consists of a percentage of eligible accounts receivable, up to a maximum revolving amount of $1,400 (the “Maximum Revolving Amount”). Pursuant to the terms of the Revolving Credit Facility, Microphase is subject to an annual facility fee in an amount equal to 1.75% of the Maximum Revolving Amount due on each anniversary, a monthly collateral monitoring fees of $1 and other fees. Interest accrues at the prime rate plus three and three-quarters percent (3.75%) on the unpaid principal. Effective June 15, 2017, the prime rate was increased from 4.00% to 4.25% resulting in a base rate of 8.00%. If borrowings under the Revolving Credit Facility exceed the collateral borrowing base, then Microphase is subject to an additional 2.5% interest charge per month on the over-advance amounts and a separate additional charge of 2.5% if borrowings exceed the Maximum Revolving Amount. At September 30, 2017, the amount due pursuant to the Revolving Credit Facility, was $310. The interest expenselease expenses for the three months ended September 30, 2017 andMarch 31, 2021, were as follows:

  Three Months Ended 
  March 31, 2021 
Operating lease cost $345,755 
Short-term lease cost  — 
Variable lease cost  — 

The following tables provides a summary of other information related to leases for the period from June 3, 2017 (date loan was assumed) to September 30, 2017, was $35 and $49, respectively.

21
DIGITAL POWER CORPORATIONthree months ended March 31, 2021:

  March 31, 2021 
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows from operating leases $346,864 
Right-of-use assets obtained in exchange for new operating lease liabilities $— 
Weighted-average remaining lease term - operating leases   6.4 years 
Weighted-average discount rate - operating leases  9.0%

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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

On July 14, 2017,

The Company determined that using a discount rate of 9% is reasonable, as a result of a notice that Microphase received from Gerber identifying several events of default underthis is consistent with the mortgage rates for commercial properties for the time period commensurate with the terms of the Revolving Credit Facility, Microphase and Gerber entered into a Forbearance Agreement. The eventsleases.

Maturity 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) borrowingslease liabilities under the Revolving Credit Facility exceeding the collateral borrowing base. The Forbearance agreement accelerated the repaymentour non-cancellable operating leases as 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.March 31, 2021, are as follows:

Payments due by period   
2021 (remainder) $1,033,945 
2022  1,292,334 
2023  992,390 
2024  914,693 
2025  697,692 
Thereafter  1,793,975 
Total lease payments  6,725,029 
Less interest  (1,848,219)
Present value of lease liabilities $4,876,810 

18. NOTES PAYABLE


Notes Payable at September 30, 2017,March 31, 2021 and December 31, 2020, are comprised of the following. At December 31, 2016following:

  March 31, 2021  December 31, 2020 
Esousa purchased notes $—  $200,000 
Short-term notes payable  1,087,491   1,088,899 
Notes payable to Wells Fargo  174,290   182,615 
Note payable to Dept. of Economic and Community Development  185,546   196,597 
Paycheck Protection Program Loans  447,201   1,162,302 
SBA Economic Injury Disaster Loan  150,000   150,000 
Short term bank credit  429,195   1,404,096 
Total notes payable $2,473,723  $4,384,509 
Less: current portion  (2,154,676)  (4,048,009)
Notes payable – long-term portion $319,047  $336,500 

Master Exchange Agreement

On February 10, 2020, the Company did not have any Notes Payable.


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

(b)On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450 8% promissory note with a maturity date of November 25, 2017 to Lucosky Brookman, LLP (the “Lucosky Note”). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of redeemable convertible Series E preferred stock (the “Series E Preferred Stock”) with a stated value of $45 per share as an alternative to providing a guarantee for the amount of the Lucosky Note. The Company, at its option, may redeem for cash, in whole or in part, at any time and from time to time, the shares of Series E Preferred Stock at the time outstanding, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company shall be credited against the Lucosky Note. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $3 and $6, respectively, of interest on the Lucosky Note. As of September 30, 2017, accrued interest on the Lucosky Note was $6.
entered into a master exchange agreement (the “Master Exchange Agreement”) with Esousa Holdings, LLC (“Esousa” or the “Creditor”) which acquired certain promissory notes that had been previously issued by the Company. During January 2021, the Company issued to the investor an aggregate of 183,214 shares of the Company’s common stock upon the exchange of principal and interest in the amount of $200,000 and $15,948, respectively. A loss on extinguishment of $234,000 was recognized on the issuance of common stock based on the fair value of the Company’s common stock at the date of the exchanges.

22Paycheck Protection Program

DIGITAL POWER CORPORATION

During April 2020, the Company received loans under the Paycheck Protection Program (“PPP”)in the principal amount of $715,000 and the Company’s majority owned subsidiary, Microphase, received loans in the principal amount of $467,000. The principal of the loan may be forgiven up to the total cost of payroll, mortgage interest payments, rent and utility payments made during the eight-week period after origination. On January 11, 2021, the Company received forgiveness in the principal amount of $715,000. The Company expects the remaining amount received under the PPP shall also be forgiven.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
 
(c)At September 30, 2017, Microphase had guaranteed the repayment of two equity lines of credit in the aggregate amount of $304 with Wells Fargo Bank, NA (“Wells Fargo”) (collectively, the “Wells Fargo Notes”). Microphase had previously guaranteed the payment under the first Wells Fargo equity line during 2008, the proceeds of which Microphase had received from a concurrent loan from Edson Realty Inc., a related party owned real estate holding company. As of September 30, 2017, the first line of credit, which is secured by residential real estate owned by a former officer, had an outstanding balance of $214, with an annual interest rate of 4.00%. Microphase had guaranteed the payment under the second Wells Fargo equity line in 2014. Microphase had received working capital loans from the former CEO from funds that were drawn against the second Wells Fargo equity line. As of September 30, 2017, the second line of credit, secured by the former CEO’s principal residence, had an outstanding balance of $90, with an annual interest rate of 3.00%. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $3 and $4, respectively, of interest on the Wells Fargo Notes.

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

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

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

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

(h)Between May 5, 2017 and September 30, 2017, the Company received additional short-term loans of $215 from five accredited investors, of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371

19. NOTES PAYABLE – RELATED PARTIES

Notes Payable – Related parties at March 31, 2021 and December 31, 2020, are comprised of the following:

  March 31, 2021  December 31, 2020 
Notes payable, related parties $215,572  $239,355 
Less: current portion  (149,489)  (187,818)
Notes payable, related parties – long-term portion $66,083  $51,537 

Microphase is a party to several notes payable agreements with six of its past officers, employees and their family members. As of March 31, 2021, the aggregate outstanding balance pursuant to these notes payable agreements, inclusive of $33,000 of accrued interest, was $248,000, with annual interest rates ranging between 3.00% and 6.00%.

20. CONVERTIBLE NOTES

Convertible Notes Payable at March 31, 2021 and December 31, 2020, are comprised of the following:

  March 31, 2021  December 31, 2020 
4% Convertible promissory note $660,000  $660,000 
Less: Unamortized debt discounts  (253,673)  (273,717)
Total convertible notes payable, net of financing cost $406,327  $386,283 

4% Convertible Promissory Note

On May 20, 2019, the Company entered into a securities purchase agreement with an investor to sell, for a purchase price of $500,000, a 4% original issue discount (“OID”) convertible promissory note with an aggregate principal face amount of $660,000 and a five-year warrant to purchase an aggregate of 12,500 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 additionalis required to make quarterly interest expense as a result ofpayments and the extinguishment of $130 in short-term loans since the carryingprincipal amount of the short-term loans was equivalent to the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securitiesnote is due on the date of extinguishment. During the three months ended September 30, 2017, the Company also repaid $30 in short-term loans.
Other Notes Payable

In February 2017, the Company issued to eight accredited investors $400 in demand promissory notes bearing interest at a rate of 6% per annum. Of the eight accredited investors, one investor was deemed a related party. As additional consideration, the investors received five-year warrants to purchase 333,333May 20, 2024. The note is convertible into shares of common stockCommon Stock at an exercise price of $0.70$4.00 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.share. The exercise price of the Feb. 2017 Warrantswarrant 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$12.00 per share. In addition, the quarter ended March 31, 2017,Executive Chairman of 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 notesguarantee and act as surety for the purchase of 666,667 shares ofCompany’s obligation to repay 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 asnote pursuant to a result of the extinguishment of the $400 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of extinguishment.

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

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

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

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

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

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

The Convertible Note is in the principal amount of $400, included an original issue discount (“OID”) of $40 resulting in net proceeds to the Company of $360, bears interest at 12% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share.
personal guarantee.

The Company computed the fair value of the 666,666 warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $167 based$58,000based on the estimated fair value of the 666,666 warrants.

The beneficial conversion feature (“BCF”) embedded in At the Convertible Note is accounted for under ASC No. 470, Debt. Attime of issuance the estimated fair value of the BCF totaled $187. The Company, however, is prohibited from issuing shares of common stock pursuant tonote, 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 valueclosing price of the BCFCommon Stock was allocated from the net proceedsin excess 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 withresulting in a beneficial conversion feature (“BCF”) of $188,000, based on the marketdifference between the effective conversion price and the fair value of the Company’s common stock onat the commitment date of issuance of the Convertible Note. transaction.

In aggregate, the Company recorded a debt discount in the amount of $207 based on the relative fair values of the 666,666 warrants and OID of $40. During the three and nine months ended September 30, 2017, non-cash interest expense of $37 was recorded from the amortization of debt discounts.

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

The beneficial conversion feature (“BCF”) embedded in this convertible note is accounted for under ASC No. 470, Debt. At issuance, the estimated fair value of the BCF totaled $26. The fair value of the BCF was allocated from the net proceeds of the convertible note and was amortized to interest expense over the term of the convertible note using the effective interest method. The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the convertible note. In aggregate, the Company recorded debt discount in the amount of $51$406,896 based on the relative fair values of the warrants, of $25BCF and BCF of $26.OID. During the three months ended June 30, 2017,March 31, 2021 and 2020, non-cash interest expense of $51$20,000 and $20,000, respectively, 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 The fair value 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,warrants was estimated using the Company entered into a 12% convertible secured note (the “Convertible Note”) inBlack-Scholes option-pricing method. The risk-free rate of 2.18% was derived from the principal amount of $530. The Convertible Note included an original issue discount (“OID”) of $30 resulting in net proceeds toU.S. Treasury yield curve, matching the Company of $500. Additionally, the Convertible Note accrues interest at 12% simple interest on the principal amount, is secured by all the assetsterm of the Company, and is duewarrant, in effect at the measurement date. The volatility factor of 87.51% was determined based on October 20, 2019. Interest only payments are due on a quarterly basis and the principal may be converted into shareshistorical stock prices 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 CORPORATIONsimilar technology companies.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

SEPTEMBER 30, 2017
U.S. dollars

21. COMMITMENTS AND CONTINGENCIES

Blockchain Mining Supply and Services, Ltd.

On November 28, 2018, Blockchain Mining Supply and Services, Ltd. (“Blockchain Mining”) a vendor who sold computers to our subsidiary, filed a Complaint (the “Complaint”) in thousands, except sharethe United States District Court for the Southern District of New York against us and per share data

our subsidiary, Digital Farms, Inc. (f/k/a Super Crypto Mining, Inc.), in an action captioned Blockchain Mining Supply and Services, Ltd. v. Super Crypto Mining, Inc. and DPW Holdings, Inc., Case No. 18-cv-11099.

The Convertible Note contains standardComplaint asserts claims for breach of contract and customary events of default including, but not limited to,promissory estoppel against the Company and its subsidiary arising from the subsidiary’s alleged failure to make payments when duehonor its obligations under the Convertible Note agreementpurchase agreement. The Complaint seeks monetary damages in excess of $1,388,495, plus attorneys’ fees and bankruptcy or insolvencycosts.

The Company intends to vigorously defend against the claims asserted against it in this action.

On April 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against us, and the promissory estoppel claim as against its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Complaint in connection with the breach of contract claim.

On April 29, 2020, Blockchain Mining filed an amended complaint (the “Amended Complaint”). The Amended Complaint asserts the same causes of action and seeks the same damages as the initial Complaint.

On May 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Amended Complaint in its entirety as against the Company, and the promissory estoppel claim as against of its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Amended Complaint in connection with the breach of contract claim.

In its partial Answer, the Company’s subsidiary admitted to the validity of the Company. Upon 30 days’ notice,contract at issue and also asserted numerous affirmative defenses concerning the proper calculation of damages.

On December 4, 2020, the Court issued an Order directing the Parties to engage in limited discovery (the “Limited Discovery”) to be completed by March 4, 2021. In connection therewith, the Court also denied the defendants’ Motion to Dismiss without prejudice.

The Company and its subsidiary have informed the Court that they intend to file a revised motion to dismiss the Amended Complaint and anticipate filing such motion to dismiss when the Court issues a briefing schedule.

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 reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has established a reserve in the right to prepay the Convertible Note. In addition, provided that the closing price for a shareamount of the Company’s common stock exceeds $3.00 per shareunpaid portion of the purchase agreement. An unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.

Ding Gu (a/k/a Frank Gu) and Xiaodan Wang Litigation

On January 17, 2020, Ding Gu (a/k/a Frank Gu) (“Gu”) and Xiaodan Wang (“Wang” and with “Gu” collectively, “Plaintiffs”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against us and our Chief Executive Officer, Milton C. Ault, III, in an action captioned Ding Gu (a/k/a Frank Gu) and Xiaodan Wang v. DPW Holdings, Inc. and Milton C. Ault III (a/k/a Milton Todd Ault III a/k/a Todd Ault), Index No. 650438/2020.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

The Complaint asserts causes of action for 30 consecutive trading days,declaratory judgment, specific performance, breach of contract, conversion, attorneys’ fees, permanent injunction, enforcement of Guaranty, unjust enrichment, money had and received, and fraud arising from: (i) a series of transactions entered into between Gu and us, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and DPW, in or about July 2019. The Complaint seeks, among other things, monetary damages in excess of $1.1 million, plus a decree of specific performance directing the Company has the right to compel the noteholder to convert the principal amount intodeliver unrestricted shares of common stock atto Gu, plus attorneys’ fees and costs.

The Company intends to vigorously defend against the contractual conversion price.

As additional consideration,claims asserted against it in this action.

On May 4, 2020, the investorCompany and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.

On July 24, 2020, Plaintiffs filed their opposition papers to the Company’s joint motion to dismiss.

The motion to dismiss has been fully briefed and is currently pending before the court.

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

Subpoena

The Company received a three-year warrantsubpoena from the SEC for the voluntary production of documents. The Company is fully cooperating with this non-public, fact-finding inquiry and Management believe that the Company has operated its business in compliance with all applicable laws. The subpoena expressly provides that the inquiry is not to purchase 265,000 sharesbe construed as an indication by the Commission or its staff that any violations of common stock, at an exercise pricethe federal securities laws have occurred, nor should it be considered a reflection upon any person, entity or security. However, there can be no assurance as to the outcome of $0.80 per share, and a three-year warrant to purchase 265,000 sharesthis matter.

AULT GLOBAL HOLDINGS AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

Other Litigation Matters

The Company is involved in litigation arising from other matters in the ordinary course of common stock, at an exercise price of $0.90 per share (collectively the “Convertible Note Warrants”). The Convertible Note Warrantsbusiness. We are exercisable commencing six months after the issuance date and areregularly subject to certain beneficial ownership limitations. The exercise price of the Convertible Note Warrants is subject to adjustment for customary stock splits, stock dividends, combinationsclaims, suits, regulatory and government investigations, and other standard anti-dilution events.proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.

Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Convertible Note Warrants mayCompany records a liability when it believes that it is probable that a loss has been incurred and the amount can be exercised for cash or on a cashless basis. The Convertible Note Warrants have a call feature that permitsreasonably estimated. If the Company to force redemption at $0.001 per share indetermines that a loss is reasonably possible and the eventloss or range of loss can be estimated, the closing price for a share ofCompany discloses the Company’s common stock exceeds $3.00 for 30 consecutive trading days. reasonably possible loss. 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 discountevaluates developments in its legal matters that could affect the amount of $159liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.

With respect to the Company’s other outstanding matters, based on the estimated fair valueCompany’s current knowledge, the Company believes that the amount or range of the Convertible Note Warrants.


The beneficial conversion feature (“BCF”) embeddedreasonably possible loss will not, either individually or 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 basedaggregate, have a material adverse effect on the effective conversion price compared withCompany’s business, consolidated financial position, results of operations, or cash flows. However, the market priceoutcome 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 $329such matters is inherently unpredictable 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.subject to significant uncertainties. 

22. STOCKHOLDERS’ EQUITY


Preferred Stock


The Company is authorized to issue 2,000,00025.0 million shares of Preferred Stock with no$0.001 par value. The Board of Directors has designated 500,0001.0 million 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 151,22423.5 million shares of Preferred Stock have not been determined. The Company’s Board of Directors is authorized to createdesignate 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, 2021, there were 100,0007,040 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 of December 31, 2016, there were no shares of Preferred Stock issued or outstanding.

29
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
Series B Preferred Stock

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

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

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

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

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

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

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

Series C Preferred Stock

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

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

Series E Preferred Stock

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

Common Stock


Common stock confers upon the holders the rights to receive notice to participate and vote in the generalat any 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.

2021 ATM Offering

On November 15, 2016,January 22, 2021, the Company entered into subscription agreementsan At-The-Market Issuance Sales Agreement, as amended on February 17, 2021 and thereafter on March 5, 2021 (the “2016 Subscription Agreements”“2021 Sales Agreement”) with nine accredited investors. PursuantAscendiant Capital Markets, LLC, or the sales agent, relating to the sale of shares of Common Stock offered by a prospectus supplement and the accompanying prospectus, as amended by the amendments to the sales agreement dated February 16, 2021 and March 5, 2021. In accordance with the terms of the 2016 Subscription Agreements,2021 Sales Agreement, the Company sold 901,666 units at $0.60 formay offer and sell shares of Common Stock having an aggregate purchaseoffering price of approximately $541. Each unit consistsup to $200.0 million from time to time through the sales agent. As of one shareMarch 5, 2021, the Company had sold an aggregate of common stock and one warrant21.6 million shares of Common Stock pursuant to purchase one sharethe sales agreement for gross proceeds of common stock (the “Nov. 2016 Warrants”) at an exercise price of $0.80.

32
DIGITAL POWER CORPORATION$125.0 million.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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

Issuance of up to 50%common stock for conversion 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,debt

During January 2021, 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 issuedto Esousa 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 163,636183,214 shares of the Company’s common stock at an exercise price equal to $0.55 per share.
On July 28, 2017, we entered into anupon the exchange agreement with an institutional investor who was the owner of (i) a 7% Convertible Noteprincipal and interest in the principal amount of $125$200,000 and a warrant dated April 17, 2017 to purchase 83,334 shares$16,000, respectively. A loss on extinguishment of our$234,000 was recognized on the issuance of common stock based on the fair value of the Company’s common stock at $0.90. Under the termsdate 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.exchanges.

23. RELATED PARTY TRANSACTION


TRANSACTIONS

a.
In anticipationThe Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective date 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 byAugust 21, 2017. At March 31, 2021, the Company from a strategic investment intohas provided loans to AVLP the Company entered into the AVLP Notes, three 12% Convertible Promissory Notes agreements in the principal amount of $525 each. The$13.9 million and, in addition to the 12% convertible promissory notes, AVLP Notes included a 5% original issue discount, resulting in net loanshas issued 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,warrants to convert all or any portion of the principal and accrued interest intopurchase 27.8 million shares of AVLP 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 tostock. Under the terms of the AVLP Notes.
Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP. As of March 31, 2021, the Company recorded contractual interest receivable attributed to the AVLP Loan Agreement of $2.0 million, and a provision for loan loss of $3.4 million.
On September 6, 2017, the

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 71,746owns 999,175 shares of AVLP common stock that it acquired 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. dollarsmarket. At March 31, 2021, the Company’s investment 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.
had an unrealized gain of $71,000.

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.the Company. Mr. William B. Horne is the Chief Financial Officer and a director of AVLP and also the audit committee chairmanChief Executive Officer, Vice Chairman and Director 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 Mr. Nisser is General Counsel 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 membersPresident, General Counsel and Director of the MTIX management group.

DuringCompany.

In March 2017, the Company was awarded a 3-year, $50$50.0 million purchase order by MTIX to manufacture, install and service the MLSEMultiplex Laser Surface Enhancement (“MLSE”) plasma-laser system.


On April 12, 2019, the Company received payment of $2.7 million for manufacturing services performed on the first MLSE system. At December 31, 2020, the Company had recorded a receivable from MTIX of $1.2 million.

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 CompanyMarch 12, 2021, DP Lending, entered into a 12% convertible secured notesecurities purchase agreement with Alzamend to invest $10.0 million in the principal amount of $530Alzamend common stock and warrants, withsubject to the Barry Blank Living Trust, an existing stockholderachievement of certain milestones. DP Lending funded $4.0 million upon execution of the Company,securities purchase agreement, which included the conversion of a short-term advance of $750,000 and a convertible promissory note of $50,000. The remaining $6.0 million will be funded upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for $500 due on October 20, 2019. The principal amount ofAlzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the 12% convertible secured note may be convertible intosecurities purchase agreement, in aggregate, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DP Lending for $10.0 million, or $1.50 per share, and issue to DP Lending warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by 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 amountindependent directors after receiving a third-party valuation report 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.Alzamend.

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

In addition to the Alzamend common shares purchased on March 9, 2021, the Company also held 427,888 shares of Alzamend common stock that it had acquired during the years ended December 31, 2020 and 2019 for $252,000. At March 31, 2021, the estimated fair value of Alzamend’s common stock was $1.50. Based upon the estimated fair value of Alzamend common stock at March 31, 2021, the Company’s investment in Alzamend common stock had an unrealized gain of $236,000.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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

Mr. Ault is Executive Chairman of Alzamend’s Board of Directors and per share data


the Chairman of the Board. Mr. William B. Horne and Mr. Henry Nisser are directors of Alzamend and the Company. Mr. Kenneth S. Cragun is Chief Financial Officer of Alzamend and the Company.

e.c.
InOn February 2017,25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the Company issuedprincipal amount of $2.5 million to eight accredited investors $400 in demand promissory notes bearingthe Company. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 6%8% per annum. Ofannum, is due and payable on February 25, 2022, Ault and Company is the eight accredited investors, one investor was deemed a related party.
Manager of Philou which presently owns 125,000 shares of the Company’s Series B Preferred Stock. Mr. Ault and Mr. Horne serve as the Chief Executive Officer and Chief Financial Officer, respectively, of Ault & Company.

f.d.On March 9, 2017,February 23, 2021, as part of a relocation benefit for our Executive Chairman, Milton C. Ault, III, related to the Company moving its corporate headquarters from Newport Beach, CA to Las Vegas, NV, the Company agreed to purchase Mr. Ault’s California residence for $2.7 million. The transaction was structured such that upon the closing of the subsequent sale of the residence, the Company shall have not recognized a gain or a loss on the transaction. During April 2021, 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 subscriptionan 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 thesubsequent 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,residence, which will be in the form of non-cash compensation, is approximately 2% of the amount of the obligation.
closed on April 19, 2021.
k.
During the three months ended June 30, 2017, our Chief Executive Officer Amos Kohn purchased certain real property that will serve as a facility for the Company’s business operations in Israel. The Company made $300 of payments to the seller of the property that will be applied to either (i) an ownership interest, that would be transferred to the Company upon the approval of certain governmental authorities that authorize foreign ownership of real property in Israel or (ii) a leasing arrangement providing for the Company’s use of the property should such authorization not be obtained. The payments are classified as Other investments, related party in the accompanying condensed consolidated balance sheet at September 30, 2017.
l.
During the three and nine months ended September 30, 2017, DP Lending made loans to related parties of $54. The loans were made to Alzamend Neuro, Inc. (“Alzamend”), Restaurant Capital Group, LLC, a wholly-owned subsidiary of AVLP, and Click Media, Inc. (“Cross Click”) in the amounts of $44, $5, and $5, respectively.  The loans are classified as Other investments, related party in the accompanying condensed consolidated balance sheet at September 30, 2017. AVLP is a party to a management services agreement with Alzamend Neuro, Inc. (“Alzamend”) pursuant to which Avalanche provides management, consulting and financial services to Alzamend. MCKEA is the controlling shareholder of Cross Click.
36
DIGITAL POWER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data

16.

24. SEGMENT, CUSTOMERS AND GEOGRAPHICAL INFORMATION


The Company has twothree reportable geographic segments; 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.

  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 The total income (loss) from operations of the Company’s reportable segments is different than the Company’s consolidated income (loss) from operations due to Ault Global Holdings corporate expenses.

  Three Months ended March 31, 2021 
  GWW  Coolisys  Ault Alliance  Total 
Revenue $6,350,019  $1,382,349  $172,143  $7,904,511 
Revenue, lending and trading
activities		  —   —   5,210,222   5,210,222 
Revenue, cryptocurrency
mining		  —   —   129,896   129,896 
Total revenues $6,350,019  $1,382,349  $5,512,261  $13,244,629 
                 
Depreciation and                
amortization expense $213,217  $6,810  $45,816  $265,843 
                 
Loss from operations $211,658  $(200,332) $4,033,013  $4,044,339 
                 
Capital expenditures for                
segment assets, as of                
March 31, 2021 $92,268  $-  $4,256,603  $4,348,871 
                 
Identifiable assets as of                
March 31, 2021 $29,838,776  $1,720,894  $202,470,739  $234,030,409 

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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, 2020 
  GWW  Coolisys  Ault Alliance  Total 
Revenue $4,387,447  $1,181,835  $—  $5,569,282 
Revenue, lending and trading
activities		  —   —   36,152   36,152 
Total revenues $4,387,447  $1,181,835  $36,152  $5,605,434 
                 
Depreciation and                
amortization expense $150,014  $108,218  $—  $258,232 
                 
Loss from operations $95,756  $(218,544) $(35,713) $(158,501)
                 
Capital expenditures for                
segment assets, as of                
March 31, 2020 $138,672  $669  $16,640  $155,981 
                 
Identifiable assets as of                
March 31, 2020 $20,827,301  $15,352,192  $1,586,215  $37,765,708 

Concentration Risk:

The following table providestables provide the percentage of total revenues for the three months ended March 31, 2021 and 2020 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, 2021 
       
   Total Revenues   Percentage of 
   by Major   Total Company 
   Customers   Revenues 
Customer A $2,107,072   16%

  For the Three Months Ended 
  March 31, 2020 
       
   Total Revenues   Percentage of 
   by Major   Total Company 
   Customers   Revenues 
Customer A $1,854,295   33%

Revenue from Customer A and B wereis attributable to Digital Power and revenue from Customer C attributable to DP Limited.

For the three and nine months ended September 30, 2017 and 2016, total revenues from external customers divided on the basis ofEnertec. Further, at March 31, 2021, MTIX represented all the Company’s product lines are as follows:
  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2017  2016  2017  2016 
             
Revenues:            
Commercial products $1,342  $1,505  $3,362  $3,971 
Defense products  1,878   321   3,308   1,632 
Total revenues $3,220  $1,826  $6,670  $5,603 

Financial data relatingaccounts and other receivable, related party.

25. SUBSEQUENT EVENTS

Extension of AVLP Loan Agreement

On April 13, 2021, the AVLP Loan Agreement was increased to geographic areas:


The Company’s total revenues are attributedup to geographic areas based$15,000,000 and extended to December 31, 2023. As of April 14, 2021, the Company has provided loans to AVLP in the principal amount $13,924,136 and, in addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 27,848,272 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years.

Issuance of Common Stock for Convertible Promissory Note

On May 12, 2021, the Company issued 275,862 shares of Common Stock to Ault & Company, Inc. upon the conversion of $400,000 of principal on the location. The following table presents total revenues for the three and nine months ended September 30, 2017 and 2016. Other than as shown, no foreign country contributed materially to revenues or long-lived assets for these periods:

39
DIGITAL POWER CORPORATIONan 8% Convertible Promissory Note dated February 5, 2020.

AULT GLOBAL HOLDINGS AND SUBSIDIARY

SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)

March 31, 2021

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. SUBSEQUENT EVENTS

Sale of Naked Brand Group Stock

In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2017 and has determined that it does not have any material subsequent events to disclose in these financial statements except for the following.

Common Stock
On October 4, 2017, the Company entered into a Securities Purchase Agreement to sell 75,000April 22, 2021, DP Lending sold 47,058,824 shares of common stock and warrants to purchase 75,000 sharesNaked Brand Group Limited for gross proceeds 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$29.3 million. DP Lending remitted 99% 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 in the aggregate 725,000 shares of common stock to the investors at $0.60 per share for an aggregate purchase price of $435. $180 of the aggregate purchase price was paid in cash and $255 was paid through the cancellation of debt incurred by the Company.
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 AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
SEPTEMBER 30, 2017
U.S. dollars in thousands, except share and per share data
On November 1, 2017, the Company entered into an Agreement for the Purchase and Sale of Future Receipts with TVT pursuant to which the Company sold up to $223 in Future Receipts of the Company for $150. If the Company pays TVT by January 3, 2018, the purchased amount will be discounted to $177. Until that date, no specific payment schedules are required. After January 3, 2018, if the Company has not paid the $177, the Company agrees to pay an aggregate amount of $223 under the following terms. The Company will be obligated to pay $13 on a weekly basis until the purchase price of $223 has been paid in full. The Agreement also includes warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $0.725 per share. In addition, the purchase price of $150 has been personally guaranteed by Mr. Ault.

Convertible Debentures

On November 2, 2017, Digital Power entered into a Securities Purchase Agreement (the “Nov. Purchase Agreement”) with an institutional investor (the “Purchaser”), pursuant to which the Company has agreed, upon the terms and subject to the conditions of the Nov. Purchase Agreement, to issue and sell to the Purchaser (i) at the first closing, 300,000 shares of restricted common stock of the Company (the “Restricted Shares”) and a 10% Original Issue Discount Convertible Debenture for a purchase price of $1,010 with a principal face amount of $1,111 (the “First Convertible Debenture”) and (ii) at the second closing, an additional 10% Original Issue Discount Convertible Debenture for an aggregate purchase price of $990 with an aggregate principal face amount of $1,089 (the “Second Convertible Debenture”, and together with the First Convertible Debenture, the “Convertible Debentures”). The Company and the Purchaser consummated the first closing on November 2, 2017. The second closing, if any, shall occur only at both parties’ mutual agreement at any time following the Company’s registration for resale of the Restricted Shares and shares of common stock underlying the First Convertible Debenture, and shareholder approval of the transactions contemplated by the Purchase Agreement in accordance with Section 713 of the NYSE American Company Guide.
10% Original Issue Discount Convertible Debentures
The Convertible Debentures have a term of eight months, bear interest at 5% per year and the principal of the Convertible Debentures and interest earned thereon may be converted into shares of common stock at $0.60 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 toinstitutional investor and retained 1% or greater than $7,500, then the Company shall prepay to the holder$293,000, which will be recorded as revenue 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, all of the shares of Common Stock underlying the Warrant. Holders of the Warrant have “piggy-back” registration rights for a period of five years from the date of issue.

Loan and Security Agreement with I.AM, Inc.
On November 1, 2017, the Company and I.AM, Inc. (“I.AM”) entered into a Loan and Security Agreement (“Loan Agreement”) pursuant to which the Company will provide I.AM a non-revolving credit facility of up to $1,300, for a period ending on September 25, 2022, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. Advances on the credit facility accrue at a rate of 6.0% on the outstanding daily balance. The Loan Agreement is secured by the assets of I.AM’s membership interests in three restaurant LLCs.
42

April 2021.

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,Ault Global Holdings, Inc., a CaliforniaDelaware corporation, our wholly-owned subsidiaries, Gresham Worldwide, Inc., Coolisys Technologies, Corp, Ault Alliance, Inc., Power-Plus Technical Distributors, LLC, Digital Power Lending, LLC, Digital Farms, Inc., Gresham Power LimitedElectronics, Enertec Systems 2001 Ltd. and our majority owned subsidiary, Microphase Corporation.

GENERAL

Recent Developments

2021 ATM Offering

On January 22, 2021, we entered into an At-The-Market Issuance Sales Agreement, as amended on February 17, 2021 and thereafter on March 5, 2021 (the “2021 Sales Agreement”) with Ascendiant Capital Markets, LLC, or the sales agent, relating to the sale of shares of Common Stock offered by a prospectus supplement and the accompanying prospectus, as amended by the amendments to the sales agreement dated February 16, 2021 and March 5, 2021. In accordance with the terms of the 2021 Sales Agreement, we may offer and sell shares of Common Stock having an aggregate offering price of up to $200 million from time to time through the sales agent. As of March 5, 2021, we sold an aggregate of 21.6 million shares of Common Stock pursuant to the sales agreement for gross proceeds of $125 million.

Issuance of common stock for conversion of debt

During January 2021, principal and accrued interest of $200,000 and $16,000, respectively, on our debt securities was satisfied through the issuance of 183,214 shares of Common Stock. We arerecognized a growth company seeking to increase our revenues through acquisitions.  Our strategy reflects our management and Board’s current philosophy that occurredloss on extinguishment of $234,000 as a result of this issuance.

Acquisition of Michigan Cloud Data Center

On January 29, 2021, Alliance Cloud Services, LLC, a changemajority-owned subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on the acquisition of a 617,000 square foot energy-efficient facility located on a 34.5 acre site in control completedsouthern Michigan for a purchase price of $3.9 million. The purchase price was paid by the Company’s own working capital.

Investment in September 2016.  Our acquisitionAlzamend Neuro, Inc.

On March 12, 2021, we announced that its wholly owned subsidiary, DP Lending, entered into a securities purchase agreement with Alzamend, a related party, to invest $10 million in Alzamend common stock and development target strategy includes companies that have developedwarrants, subject to the achievement of certain milestones. We agreed to fund $4 million upon execution of the securities purchase agreement and to fund the balance upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DPL for $10 million, or $1.50 per share, and issue to DPL warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by our independent directors after receiving a “new waythird-party valuation report of doing business”Alzamend.

Investment in mature, well-developed industries experiencing changesAult & Company, Inc.

$2.5 million 8% one year On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to us. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per annum, is due to new technology; companies that may become profitable or more profitable through efficiency and reductionpayable on February 25, 2022.

Executive Chairman relocation benefit

On February 23, 2021, as part of costs; companies that area relocation benefit for our Executive Chairman, Milton C. Ault, III, related to our core businessmoving its corporate headquarters from Newport Beach, CA to Las Vegas, NV, we agreed to purchase Mr. Ault’s California residence for the appraised market value of the property of $2.7 million. The transaction was structured such that upon the closing of the subsequent sale of the residence, the Company shall have not recognized a gain or a loss on the transaction. During April 2021, the Company entered into an agreement for the subsequent sale of the residence, which closed on April 19, 2021.

Forgiveness of Debt

On January 11, 2021we received forgiveness of a loan under the PPP in the commercialprincipal amount of $715,000.

Impact of Coronavirus on Our Operations

The COVID-19 pandemic continues to present significant business challenges in 2021. During the first quarter of 2021, we continued to experience impacts in each of our business areas related to COVID-19, primarily in continued increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, site access and defense industries;quarantine restrictions, and companies that will enhancethe impacts of remote work and adjusted work schedules. During the first quarter, we continued to take measures to protect the health and safety of our overall revenues.  It isemployees, including measures to facilitate the provision of vaccines to our goalemployees in line with state and local guidelines. We also continued to substantially increasework with our gross revenuescustomers and suppliers to minimize disruptions.

Although the COVID-19 pandemic did not have a significant impact on our financial results in the near future.


We were originally a solution-driven organization that designs, develops, manufacturesfirst quarter of 2021, the ultimate impact of COVID-19 on our operations and sells high-grade customizedfinancial performance in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and flexible power system solutionswill depend on future pandemic related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted. The long-term impacts of COVID-19 on demand for our products and services are also difficult to predict but could negatively affect our future results and business operations. For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A, Risk Factors of our Annual Report on Form 10-K for the medical, military, telecomyear ended December 31, 2020.

GENERAL

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

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

Over the commercial, medicalrecent past we have provided capital and military/defense markets, where customers demand high density, high efficiency and ruggedized productsrelevant expertise to meet the harshest and/or military mission critical operating conditions.


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

On November 30, 2016, Digital Power formed Digital Power Lending, LLC (“DP Lending”), a wholly-owned subsidiary. DP Lending is engaged in providing commercial loans to companies throughout the United States to provide them with operating capital to financefuel 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 customizeddefense/aerospace, industrial, telecommunications, medical and flexible power system solutions for the medical, military, telecomtextiles. We have provided capital to subsidiaries as well as partner companies in which we have an equity interest or may be actively involved, influencing development through board representation 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.

43

management support.

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


www.aultglobal.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, 2021 AND 2020

The following table summarizes the results of our operations for the three months ended September 30, 2017, from $1,826March 31, 2021 and 2020.

  For the Three Months Ended 
  March 31, 
  2021  2020 
       
Revenue $7,904,511  $5,569,282 
Revenue, cryptocurrency mining  129,896   — 
Revenue, lending and trading activities  5,210,222   36,152 
Total revenue  13,244,629   5,605,434 
Cost of revenue  5,107,908   3,853,435 
Gross profit  8,136,721   1,751,999 
Total operating expenses  6,935,728   4,681,783 
Income (loss) from continuing operations  1,200,993   (2,929,784)
Interest income  36,923   320 
Interest expense  (313,934)  (1,086,163)
Change in fair value of marketable equity securities  1,959,791   (365,359)
Realized gain on marketable securities  397,331   — 
Gain (loss) on extinguishment of debt  481,533   (463,134)
Change in fair value of warrant liability  (678,769)  4,411 
         
Income (loss) from continuing operations before income taxes  3,083,868   (4,839,709)
Income tax (expense) benefit  (5,901)  5,905 
Net income (loss) from continuing operations  3,077,967   (4,833,804)
Net loss from discontinued operations, net of taxes  —   (1,697,744)
Net income (loss)  3,077,967   (6,531,548)
Less: Net gain attributable to non-controlling interest  (1,080,586)  — 
Net income (loss) attributable to Ault Global Holdings  1,997,381   (6,531,548)
Preferred dividends  (4,400)  (4,460)
Net income (loss) available to common stockholders $1,992,981  $(6,536,008)
         
Comprehensive income (loss)        
Income (loss) available to common stockholders $1,992,981  $(6,536,008)
Other comprehensive income (loss)        
Foreign currency translation adjustment  (92,694)  (148,607)
Net unrealized gain (loss) on derivative securities of related party  2,969,170   (1,242,094)
Other comprehensive income (loss)  2,876,476   (1,390,701)
Total comprehensive income (loss) $4,869,457  $(7,926,709)

Revenues

Revenues by segment for the three months ended September 30, 2016.March 31, 2021 and 2020 are as follows:

  For the Three Months Ended March 31,  Increase    
  2021  2020  (Decrease)  % 
             
GWW $6,350,019  $4,387,447  $1,962,572   45%
Coolisys  1,382,349   1,181,835   200,514   17%
Ault Alliance:                
Revenue, cryptocurrency mining  129,896   —   129,896   - 
Revenue, lending and trading activities  5,210,222   36,152   5,174,070   14312%
Other  172,143   —   172,143   — 
Total revenue $13,244,629  $5,605,434  $7,639,195   136%

Our revenues increased by $7,639,195, or 136%, to $13,244,629 for the three months ended March 31, 2021, from $5,605,434 for the three months ended March 31, 2020.

GWW

GWW revenues increased by $2.0 million, or 45%, to $6.4 million for the three months ended March 31, 2021, from $4.4 million for the three months ended March 31, 2020. The increase in revenue from our Gresham Worldwide segment for customized solutions for the military markets reflected the benefit of capital that was primarilyallocated to our defense business based on the overall improved capital structure of the Company. GWW revenue in 2021 includes $1.8 million from Relec, which was acquired on November 30, 2020. Revenue from Enertec, which largely consists of revenue recognized over time, for the three months ended March 31, 2021 increased $133,000 or 5.8% from the prior-year period.

Coolisys

Coolisys revenues increased by $201,000, or 16%, to $1.4 million for the three months ended March 31, 2021, from $1.2 million for three months ended March 31, 2020.

Ault Alliance

Revenues from our cryptocurrency mining operations revenues increased by $130,000, or 100% from the three months ended March 31, 2020, as we resumed our cryptocurrency mining operations during the first quarter of 2021, due to improved business conditions. Our decision to resume cryptocurrency mining operations in 2021 was based on several factors, which had positively affected the number of active miners we operated, including the market prices of digital currencies, and favorable power costs available at our acquisitionMichigan data center.

Revenues from our lending and trading activities increased to $5.2 million, for the three months ended March 31, 2021, from $36,000 for the three months ended March 31, 2020 attributed to a significant allocation of 56.4% capital from our recent equity financing transactions to our loan and investment portfolio. Under its business model, DP Lending generates revenue through origination fees charged to borrowers and interest generated from each loan. DP Lending may also generate income from appreciation of investments in marketable securities as well as any shares of common stock underlying convertible notes or warrants issued to DP Lending in any particular financing.

Gross margins

Gross margins increased to 61.2% for the outstanding equity intereststhree months ended March 31, 2021 compared to 31.3% for the three months ended March 31, 2020. Our gross margins have typically ranged between 33% and 37%, with slight variations depending on the overall composition of Microphase on June 2, 2017, combined with our acquisitionrevenue.

Our gross margins of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus61.2% recognized during the three months ended September 30, 2017,March 31, 2021, were $1,340 and $224, respectively. Excluding revenues that were generatedimpacted by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 from the three months ended September 30, 2016.


Revenuesfavorable margins from our U.S. operations increased by 130.5% to $2,877lending and trading activities. Excluding the effects of margin from our lending and trading activities, our adjusted gross margins for the three months ended September 30, 2017, from $1,248 for the three months ended September 30, 2016. As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of Microphase and Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operationsMarch 31, 2021, would have been $1,313, an increase of 5.2%. The increase in revenues from36.1%, consistent with 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. The recognition of revenue from the MLSE contract during the three months ended September 30, 2017, represents the first revenues recognized from this contract, which is expected to extend over several years.

Revenues from our European operation in Gresham, U.K. (“DP Limited”) decreased by $235 to $343 for the three months ended September 30, 2017, from $578 for the three months ended September 30, 2016, a decrease of 40.7%. 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.
historical average.

Engineering and Product Development

product development

Engineering and product development expenses increased by $159$161,000 to $306$602,000 for the three months ended September 30, 2017March 31, 2021, from $147$441,000 for the three months ended September 30, 2016.March 31, 2020. The increase is partly attributed to our acquisition of Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarilyexpenses is due to cost incurred at Coolisys related to an increase in direct manpower cost from the additiondevelopment of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.


44
our electric vehicle charger products.

Selling and Marketing

marketing

Selling and marketing expenses were $423$1.2 million for the three months ended September 30, 2017March 31, 2021, compared to $235$338,000 for the three months ended September 30, 2016,March 31, 2020, an increase of $188. Our acquisition$903,000 or 267.1%. The increase was the result of Microphase and Power-Plus accounted for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed to an increaseincreases in personnel costs directly attributed to an increase in sales and marketing personnel and consultants primarily at the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the three months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses due to the significant amount of time in which he devoted to the sales process. The increase in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate mattersAult Alliance related to our restructuringdigital marketing through Tansocial 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.


digital learning.

General and Administrative

administrative

General and administrative expenses were $1,685$5.1 million for the three months ended September 30, 2017March 31, 2021, compared to $404$2.9 million for the three months ended September 30, 2016,March 31, 2020, an increase of $1,281. Our acquisition$2.2 million. General and administrative expenses increased from the comparative prior period, mainly due to higher consulting, audit, legal and insurance costs. In addition, we have increased our general and administrative costs related to our Michigan Data Center, operated by Alliance Cloud Services. General and administrative expenses in 2021 include $341,000 of Microphase accountedcosts from Relec, which was acquired on November 30, 2020.

Income (loss) from continuing operations

We recorded income from continuing operations of $1.2 million for $410the three months ended March 31, 2021, compared to an operating loss of $2.9 million for the three months ended March 31, 2020. The prior year period included a $1.0 million provision for credit losses. In addition, the improve in operating results is attributable to an increase in revenue and gross margins partially offset by the increase in general and administrative expenses. The

Provision for credit losses

Loans are generally carried at the amount of unpaid principal, adjusted increase of $871 from the comparative prior period was mainly due to higher stock based compensation expenses, an increase in legalfor unearned loan fees 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 oforiginal issue discount, 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.
amortized over the term of the loan using the effective interest rate method. Interest (expense)on loans is accrued based on the principal amounts outstanding. During the three months ended March 31, 2021 and 2020, we evaluated the collectability of both interest and principal for the convertible promissory notes in AVLP to determine whether there was an impairment. As of March 31, 2020, based on information and events available at that time, primarily the value of the underlying conversion feature and recent economic events, we concluded that an impairment existed and, accordingly, we recorded a $1.0 million provision for credit losses.

Interest income net

Interest expense, netincome was $753$37,000 for the three months ended September 30, 2017March 31, 2021 compared to income of $23$320 for the three months ended September 30, 2016.March 31, 2020.

Interest expense

Interest expense was $314,000 for the three months ended March 31, 2021 compared to $1.1 million for the three months ended March 31, 2020. The increasedecrease in interest expense for the three months ended September 30, 2017March 31, 2021 is primarily related to debt discount,the decrease in the aggregate amountour level of $669, resulting from the issuanceborrowings.

Change in fair value of warrants in conjunction with the sale of debt and equity instruments of $3,452. warrant liability

During the three months ended September 30, 2017, asMarch 31, 2020, the fair value of the warrants that were issued during 2020 in a resultseries of debt financings increased by $679,000. The fair value of these issuances, non-cash interest expensewarrants is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value recorded as change in fair value of $669 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increasewarrant liability in the amountConsolidated Statements of the Company’s total borrowings. At September 30, 2017, the outstanding balanceOperations and Comprehensive Income (Loss).

Change in fair value of the Company’s convertible notes payable and notes payablemarketable equity securities

Change in fair value of marketable equity securities was $3,458. Conversely, at September 30, 2016, the Company did not have any outstanding convertible notes payable or notes payable. Interest expense was partially offset by interest income and the accretiona gain 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.


45
Operating Loss

         The Company recorded an operating loss of $1,318$2.0 million for the three months ended September 30, 2017March 31, 2021 compared to an operatinga loss of $83$365,000 for the three months ended September 30, 2016. The increase in operating loss is mostly attributable from the increase of general and administrative expenses.

Net Loss

          The Company recorded a net loss of $2,071March 31, 2020.

Realized gain on marketable securities

Realized gain on marketable securities was $397,000 for the three months ended September 30, 2017March 31, 2021.

Gain (loss) on extinguishment of debt

Gain on extinguishment of debt was $482,000 for the three months ended March 31, 2021 compared to a loss of $463,000 for the three months ended March 31, 2020. During the three months ended March 31, 2021, principal and accrued interest of $200,000 and $16,000, respectively, on our debt securities was satisfied through the issuance of 183,214 shares of our common stock. We recognized a loss on extinguishment of $234,000 as a result of this issuance of common stock based on the fair value of our common stock at the date of the exchange. The loss on extinguishment from the issuance of the 183,214 shares of our common stock was offset by the forgiveness of our Paycheck Protection Program loan in the principal amount of $715,000.

Net Loss from Discontinued Operations

As a result of temporary closures of restaurants in San Diego County and the deteriorating business conditions at the Company’s restaurant businesses, during the first quarter of 2020, the Company concluded that discontinuing the operations of I.AM was ultimately in its best interest. Management determined that the permanent closing of the restaurant operations met the criteria for presentation as discontinued operations. Accordingly, the results of the restaurant operations are presented as discontinued operations in our consolidated statements of operations and comprehensive loss and are excluded from continuing operations for all periods presented. Additionally, on November 2, 2020, I.AM filed a voluntary petition for bankruptcy under Chapter 7 in the United States Bankruptcy Court in the Central District of California, Santa Ana Division, case number 8:20-bk-13076. As a result of I.AM’s bankruptcy filing on November 2, 2020, Ault Global ceded authority for managing the business to the Bankruptcy Court. For this reason, we concluded that Ault Global had lost control of I.AM, and no longer had significant influence over I.AM. Therefore, we deconsolidated I.AM effective with the filing of the Chapter 11 bankruptcy in November 2020.

Net income (loss)

For the foregoing reasons, our net income for the three months ended March 31, 2021, was $3.1 million compared to a net loss of $38$6.5 million for the three months ended September 30, 2016 as a result of the aforementioned changes.March 31, 2020. After taking into consideration the losspreferred dividends of $4,400 and $4,460, respectively, and a net gain attributable to the non-controlling interest of the minority shareholders of Microphase, the net loss attributable to the Company was $1,967 and 38 respectively.


NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2016
Revenues
Our revenues increased by $1,067 or 19% to $6,670$1.1 million for the ninethree months ended September 30, 2017, from $5,603 for the nine months ended September 30, 2016. The increase in revenue was primarily due to our acquisition of 56.4% of the outstanding equity interests of Microphase on June 2, 2017, combined with our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus during the nine months ended September 30, 2017, were $1,563 and $224, respectively. Excluding revenues that were generated by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $4,883. As discussed below, the decrease of $720 from the nine months ended September 30, 2016, was primarily due to a decrease in revenues from our European operations.
Revenues from our U.S. operations increased by $1,798, or 52.8%, to $5,206 for the nine months ended September 30, 2017, from $3,408 for the nine months ended September 30, 2016. As previously noted, our consolidated revenues include $1,787 in revenues generated from our recent acquisitions of Microphase and Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operations would have been $3,419, an increase of 0.3%. The increase in revenues from our U.S. operations is attributed to the recognition of $109 in revenue from the MLSE $50 million purchase order contract which was offset by a slight decrease in sales of our legacy products.

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

Gross Margins
Gross margins increased to 38.0% for the nine months September 30, 2017 compared to 37.1% for the nine months ended September 30, 2016. The increase in gross margins was mainly attributable to the increase in sales of our commercial products sold in our U.S. operations, which have greater gross margins, combined with the decrease in sales from our European operations.
46
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, we augmented our sales and marketing team with2021, the addition of a Vice President of Business Development and two regional sales managers. Duringnet income available to common shareholders during the ninethree 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,March 31, 2021 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.
47
·Finally, during the nine months ended September 30, 2016, our Chief Executive Officer’s salary was reflected in selling and marketing expenses. As discussed above, our current practice is to record the salary and benefits of our Chief Executive Officer to general and administrative expense.
Interest (expense) income, net
Interest expense, net was $1,367 for the nine months ended September 30, 2017 compared to income of $85 for the nine months ended September 30, 2016. The increase in interest expense for the nine months ended September 30, 2017 is primarily related to debt discount, in the aggregate amount of $1,269, resulting from the issuance of warrants in conjunction with the sale of debt and equity instruments of $6,706. During the nine months ended September 30, 2017, as a result of these issuances, non-cash interest expense of $1,269 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increase in the amount of the Company’s total borrowings. Interest expense was partially offset by interest income and the accretion of original issue discount on the AVLP Loan Agreement of $242.

Operating Loss

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

Net Loss

          The Company recorded a net loss of $4,916 for the nine months ended September 30, 2017$2.0 million compared to a net loss available to common shareholders of $187$6.5 million during the three months ended March 31, 2020.

Other comprehensive income (loss)

Other comprehensive income was $4.9 million for the ninethree months ended September 30, 2016March 31, 2021, compared to other comprehensive loss of $7.9 million for the three months ended March 31, 2020. Other comprehensive income for the three months ended March 31, 2021, which increased our equity, was primarily due to unrealized gains in the warrant derivative securities that we received as a result of our investment in Avalanche International, Corp., or AVLP, a related party. During 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 ninethree months ended SeptemberMarch 30, 2016,2020, unrealized losses in the net loss attributable towarrant derivative securities of AVLP was the Company was $4,700 and $165, respectively.


primary component of other comprehensive loss.

LIQUIDITY AND CAPITAL RESOURCES

On September 30, 2017,March 31, 2021, we had cash and cash equivalents of $314.$107.8 million. This compares with cash and cash equivalents of $996$18.7 million at December 31, 2016.2020. The decreaseincrease in cash and cash equivalents was primarily due to cash used in operating and investing activities in excess of funds provided by financing activities.

activities related to our 2021 ATM offering.

Net cash used in continuing operating activities totaled $1,577$14.2 million for the ninethree months ended September 30, 2017,March 31, 2021, compared to $1.1 million for the three months ended March 31, 2020. Cash used for operating activities included $8.9 million net cash provided by operatingused for marketable securities related to trading activities of $138 for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the decrease in net cash provided by operating activities comparedrelated to the nine months ended September 30, 2016 was mainly dueoperations of DP Lending and $1.7 million cash used to the September 30, 2017 nine months loss of $4,916. The net loss was partially offset by non-cash charges, the amortization of debt discount of $1,239 and stock-based compensation of $1,269, an increase inreduce accounts payable and accrued expenses of $2,083 and decreases in our accounts receivable of $737 and other current liabilities of $595.

liabilities.

Net cash used in investing activities was $4,384$16.7 million for the ninethree months ended September 30, 2017March 31, 2021, compared to $12 of net cash provided by investing activities$102,000 for the ninethree months ended September 30, 2016. The increase ofMarch 31, 2020 and reflects the net usage of cash from investing activities was primarily related to the investment in AVLP, loans to third parties and the purchase of Power-Plus.


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

48
following transactions:

·Acquisition of Michigan Cloud Data Center - On January 29, 2021, Alliance Cloud Services, LLC, a majority-owned subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on the acquisition of a 617,000 square foot energy-efficient facility located on a 34.5 acre site in southern Michigan for a purchase price of $3.9 million.

·Investment in Alzamend Neuro, Inc. - On March 12, 2021, we announced that its wholly owned subsidiary, DP Lending, entered into a securities purchase agreement with Alzamend, a related party, to invest $10 million in Alzamend common stock and warrants, subject to the achievement of certain milestones. We agreed to fund $4 million upon execution of the securities purchase agreement and to fund the balance upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DPL for $10,000,000, or $1.50 per share, and issue to DPL warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by our independent directors after receiving a third-party valuation report of Alzamend.

·Investment in Ault & Company, Inc. - On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to us. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per annum, is due and payable on February 25, 2022.

·Executive Chairman relocation benefit - On February 23, 2021, as part of a relocation benefit for our Executive Chairman, Milton C. Ault, III, related to the moving of our corporate headquarters from Newport Beach, CA to Las Vegas, NV, we agreed to purchase Mr. Ault’s California residence for the appraised market value of the property of $2.7 million. The house was subsequently sold during April 2021 and no gain or loss was recognized from sale of the property.

Historically, the Company haswe have financed itsour operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below, the Company continues2021, we continued to successfully obtain additional equity financing. Net cash provided by financing activities was $119.9 million and debt financing$1.3 million for the three months ended March 31, 2021 and 2020, respectively. Financing activities during the three months ended March 31, 2021, primarily related to proceeds from the 2021 ATM offering. On January 22, 2021, we entered into an At-The-Market Issuance Sales Agreement, as amended on February 17, 2021 and thereafter on March 5, 2021 (the “2021 Sales Agreement”) with Ascendiant Capital Markets, LLC, or the sales agent, relating to the sale of shares of Common Stock offered by a prospectus supplement and the accompanying prospectus, as amended by the amendments to the sales agreement dated February 16, 2021 and March 5, 2021. In accordance with the terms of the 2021 Sales Agreement, we may offer and sell shares of Common Stock having an aggregate offering price of up to $200 million from time to time through the sales agent. As of March 5, 2021, we sold an aggregate of 21.6 million shares of Common Stock pursuant to the sales agreement for gross proceeds of $125 million.

We believe our current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date the financial statements for its fiscal quarter ended March 31, 2021 are issued.

CRITICAL ACCOUNTING POLICIES

Fair value of Financial Instruments

In accordance with ASC No. 820, Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The guidance also establishes a three-tier 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 include those 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.

We assess the inputs used to measure fair value using the three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market.

The Company’s investments in AVLP, a related party controlled by Philou, an affiliate of the Company, consist of convertible promissory notes, derivative instruments and shares of AVLP common stock. As of December 31, 2020, the Company has provided loans to AVLP in the principal amount $13,924,136 and, in restructuring existing debt.addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 27,858,272 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. Management used both a market and income approach to quantify the carrying amount of the convertible notes, including credit risk. The following financings transactionsmarket approach considered the fair value of AVLP’s common stock adjusted for a lack of marketability discount and the time value of money based on expectation as to the timing of a potential liquidity event which could affect the timing of a settlement of the convertible notes. The income approach was primarily based on a discounted cash flow analysis with assumptions regarding forecasted revenues, operating margins and a risk-adjusted discount rate to compute the net present value of such cash flows.

In determining the revenue and expense assumptions that 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.

·
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.

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

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

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

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

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

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

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

·On July 28, 2017, we entered into an exchange agreement with an institutional investor who was the owner of (i) a 7% Convertible Note in the principal amount of $125 and a warrant dated April 17, 2017 to purchase 83,334 shares of our common stock at $0.90. Under the terms of the exchange agreement, we agreed to exchange the 7% Convertible Note for three new promissory notes in the principal amounts of $110 due August 1, 2017; $35 due August 1, 2017; and $34 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes) and to exchange the prior warrant for a new warrant to purchase 83,334 shares of common stock at $0.55 per share. Concurrent with entering into this exchange agreement, the institutional investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. In addition, in a concurrent private placement, the institutional investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share.
·On August 3, 2017, the Company entered into a Securities Purchase Agreement to sell a 12% Convertible (“12% Convertible Note”) and a warrant to purchase 666,666 shares of common stock to an accredited investor (the “Investor”). The principal of the Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share. The Convertible Note is in the principal amount of $400 and was sold for $360, bears interest at 12% simple interest on the principal amount, and is due on August 13, 2018. Interest only payments are due on a quarterly basis and the principal is due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share.  
·On August 10, 2017, the Company, entered into Securities Purchase Agreements (“Agreements”) with five institutional investors (the “Investors”) to sell for an aggregate purchase price of $800, 10% Senior Convertible Promissory Notes (“Convertible Notes”) with an aggregate principal face amount of $880 and warrants to purchase an aggregate of 1,475,000 shares of common stock. The principal of the Convertible Notes and interest earned thereon may be converted into shares of common stock at $0.60 per share and under the terms of the Warrant, up to 1,475,000 shares of common stock may be purchased at an exercise price of $0.66 per share. The Convertible Notes are in the aggregate principal amount of $880 and were sold for $800 and bear simple interest at 10% on the principal amount, and principal and interest are due on February 10, 2018. Subject to certain beneficial ownership limitations, each Investor may convert the principal amount of the Convertible Note and accrued interest earned thereon at any time into shares of common stock at $0.60 per share. The conversion price of the Convertible Notes is subject to adjustment for customary stock splits, stock dividends, combinations or similar events.
We expect to continue to incur lossesused in the discounted cash flow analysis, the Company considered the disruptive nature of AVLP’s Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser system, the size of the market for the foreseeable future and will be required to raise additional capital to continue to support our working capital requirements. We believe thattreatment of textiles, customer demand, existing treatment methods, the performance capabilities of the MLSE purchase order contractsystem and the risk of $50 million will contribute to generate meaningful revenuebusiness execution and corresponding cash in 2017. 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 diligenceadoption of potential future acquisitions, including the associated legal fees, in order to conserve cash in order to sustain operations and meet our obligations.

50
Based on the above, these matters raise substantial doubt about the Company’s ability to continue as a going concern.

  CRITICAL ACCOUNTING POLICIES

In our Annual Report on Form 10-K for the year ended December 31, 2016, we identified the critical accounting policies which affect our 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.
AVLP’s disruptive technology.

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 report. Based upon our evaluation, our principal executive officer and principal financial officer has determinedconcluded that our disclosure controls and procedures werethe Company’s internal control over financial reporting was not effective as of June 30, 2017the end of the period covered by this Quarterly Report on Form 10-Q because the Company has not yet completed its remediation of the material weakness previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the end of its most recent fiscal year.

Specifically, management has determined that 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, including applying complex accounting principles relating to consolidation accounting and fair value estimates, in a timely manner. In addition, due to certain material weaknesses as described herein.

our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses:

(i)
a lack of sufficient internal accounting resources to provide reasonable assurance that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and

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

Planned Remediation


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


51
Until such

On August 19, 2020, Mr. Horne resigned as our Chief Financial Officer and was appointed our President, and later became our Chief Executive Officer. Mr. Cragun, who had served as the Company’s Chief Accounting Officer since October 1, 2018, succeeded Mr. Horne as the Chief Financial Officer of the Company. In January 2018, we engaged the services of a financial accounting advisory firm. In January 2019, we hired a Senior Vice President of Finance. In May 2019, we hired an Executive Vice President and General Counsel, who later became our President and General Counsel. Finally, in January 2021, we hired a Director of Reporting. These individuals were tasked 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. On October 7, 2019, we created an Executive Committee which is currently comprised of our Executive Chairman, Chief Executive Officer and President. The Executive Committee meets on a daily basis to address the Company’s critical needs and provides a forum to approve transactions which are communicated to the Company’s Chief Financial Officer and Senior Vice President of Finance on a bi-weekly basis by our Chief Executive Officer, who also reviews all of the Company’s material transactions and reviews the financial performance of each of our subsidiaries. On December 16, 2020, in consultation with the Chairman of the Audit Committee, we engaged a professional services firm to review management’s assessment of compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and to identify internal control process improvement opportunities. These changes have improved and simplified our internal processes and resulted in enhanced controls. While these changes have improved and simplified our internal processes and resulted in enhanced controls, these enhancements have not been operating for a sufficient period of time for management to conclude, through testing, that these controls are operating effectively. Further, as we hire a new Chief Financial Officer,continue to expand our internal accounting department, the Chairman of the Audit Committee shall perform the following:


·assistsassist with documentation and implementation of policies and procedures and monitoring of controls, and

·reviewsreview all anticipated transactions that are not considered in the ordinary course of business to assist in the early identification of accounting issues and ensure that appropriate disclosures are made in the Company’s financial statements.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.


These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

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

Changes in Internal Controls over Financial Reporting.


During

Except as detailed above, during the most recent fiscal quarter 20172021 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

Blockchain Mining Supply and Services, Ltd.

On November 28, 2018, Blockchain Mining Supply and Services, Ltd. (“Blockchain Mining”) a vendor who sold computers to our subsidiary, filed a Complaint (the “Complaint”) in the United States District Court for the Southern District of New York against us and our subsidiary, Digital Farms, Inc. (f/k/a Super Crypto Mining, Inc.), in an action captioned Blockchain Mining Supply and Services, Ltd. v. Super Crypto Mining, Inc. and DPW Holdings, Inc., Case No. 18-cv-11099.

The Complaint asserts claims for breach of contract and promissory estoppel against us and our subsidiary arising from the subsidiary’s alleged failure to honor its obligations under the purchase agreement. The Complaint seeks monetary damages in excess of $1,388,495, plus attorneys’ fees and costs.

The Company intends to vigorously defend against the claims asserted against it in this action.

On April 13, 2020, we and our subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against us, and the promissory estoppel claim as against our subsidiary. On the same day, our subsidiary also filed a partial Answer to the Complaint in connection with the breach of contract claim.

On April 29, 2020, Blockchain Mining filed an amended complaint (the “Amended Complaint”). The Amended Complaint asserts the same causes of action and seeks the same damages as the initial Complaint.

On May 13, 2020, we and our subsidiary, jointly filed a motion to dismiss the Amended Complaint in its entirety as against us, and the promissory estoppel claim as against of our subsidiary. On the same day, our subsidiary also filed a partial Answer to the Amended Complaint in connection with the breach of contract claim.

In its partial Answer, the Company’s subsidiary admitted to the validity of the contract at issue and also asserted numerous affirmative defenses concerning the proper calculation of damages.

On December 4, 2020, the Court issued an Order directing the Parties to engage in limited discovery (the “Limited Discovery”) which was completed on March 4, 2021. In connection therewith, the Court also denied Defendants’ Motion to Dismiss without prejudice.

The Company and its subsidiary have informed the Court that they intend to file a revised motion to dismiss the Amended Complaint and anticipate filing such motion to dismiss when the Court issues a briefing schedule.

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

Ding Gu (a/k/a Frank Gu) and Xiaodan Wang Litigation

On January 17, 2020, Ding Gu (a/k/a Frank Gu) (“Gu”) and Xiaodan Wang (“Wang” and with “Gu” collectively, “Plaintiffs”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against us and our Chief Executive Officer, Milton C. Ault, III, in an action captioned Ding Gu (a/k/a Frank Gu) and Xiaodan Wang v. DPW Holdings, Inc. and Milton C. Ault III (a/k/a Milton Todd Ault III a/k/a Todd Ault), Index No. 650438/2020.

The Complaint asserts causes of action for declaratory judgment, specific performance, breach of contract, conversion, attorneys’ fees, permanent injunction, enforcement of Guaranty, unjust enrichment, money had and received, and fraud arising from: (i) a series of transactions entered into between Gu and us, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and DPW, in or about July 2019. The Complaint seeks, among other things, monetary damages in excess of $1,100,000, plus a decree of specific performance directing DPW to deliver unrestricted shares of DPW’s common stock to Gu, plus attorneys’ fees and costs.

The Company intends to vigorously defend against the claims asserted against it in this action.

On May 4, 2020, we and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.

On July 24, 2020, Plaintiffs filed their opposition papers to our joint motion to dismiss.

The motion to dismiss has been fully briefed and is currently pending before the court.

Based on our assessment of the facts underlying the above claims, the uncertainty of litigation, and the preliminary stage of the case, we cannot reasonably estimate the potential loss or range of loss that may result from this action. An unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.

Subpoena

The Company received a subpoena from the SEC for the voluntary production of documents. The Company is fully cooperating with this non-public, fact-finding inquiry and managements believe that the Company has operated its business in compliance with all applicable laws. The subpoena expressly provides that the inquiry is not to be construed as an indication by the Commission or its staff that any violations of the federal securities laws have occurred, nor should it be considered a reflection upon any person, entity or security. However, there can be no assurance as to the outcome of this matter.

Other Litigation Matters

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

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

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

ITEM 1A.RISK FACTORS

ITEM 1A.         RISK FACTORS

The risks described in Part I, Item 1A, "Risk“Risk Factors,"” in our 20162020 Annual Report on 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 20162020 Annual Report on Form 10-K remains current in all material respects except that we identified material weaknesses in our internal control over financial reporting and in our disclosure controls and procedures.


If We Fail to Establish and Maintain an Effective System of Internal Control, We May Not Be Able to Report Our Financial Results Accurately or Prevent Fraud. Any Inability to Report and File Our Financial Results Accurately and Timely Could Harm Our Reputation and Adversely Impact the Trading Price of Our Common Stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have also experienced complications reporting as a result of material weaknesses which resulted in the restatement of our Form 10-Q for the quarterly period ended June 30, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on August 21, 2017, and amended on November 14, 2017. We have carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, 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.
52
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:
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, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness.
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.
respects.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 7, 2017, the Company entered into an asset purchase agreement to acquire the intellectual property of Coolisys.com, in consideration for, in part, 50,000 shares of common stock. The seller of the intellectual property and purchaser of the common stock was an accredited investor.

On August 16, 2017, the Company approved the issuance and sale of (i) 272,727 shares of our common stock at a purchase price equal to $0.55 per share and (ii) warrants to purchase up to 272,727 shares of our common stock at $0.65 per share, which become exercisable six months after the issuance date, to two accredited investors for an aggregate purchase price of $150. The shares have 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 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 per share for an aggregate purchase price of $45. These shares and warrants have yet to be issued by the Company and are subject to approval from the NYSE American prior to issuance.  Ault & Company is controlled by Mr. Milton Ault, our Executive Chairman.

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

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

None

ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
53

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.MINE SAFETY DISCLOSURES

ITEM 4.            MINE SAFETY DISCLOSURES

None

ITEM 5.            OTHER INFORMATION

None

ITEM 5.OTHER INFORMATION12

None
54

ITEM 6.           EXHIBITS

ITEM 6.EXHIBITS
Exhibit Number Description
2.1
Share Exchange 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, dated as of April 28, 2017 (Incorporated by reference to Exhibit 2.1 of the Company’s current report filed on Form 8-K with the Securities and Exchange Commission on May 3, 2017)
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.
3.43.8 
Bylaws of Digital Power Corporation (Incorporateddated August 13, 2020. Incorporated herein 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)August 14, 2020 as Exhibit 3.1 thereto.
3.53.9 
FormAgreement and Plan of Series C Certificate of Determination (IncorporatedMerger dated January 7, 2021 (changing the Company name to Ault Global Holdings, Inc.).  Incorporated herein by reference to Exhibit 3.1 of the Company’s current report filedCurrent Report on Form 8-K with the Securities and Exchange Commission on May 31, 2017)
3.6
Form of Series D Certificate of Determination (Incorporated by reference to Exhibit 3.1 of the Company’s current report filed on Form 8-K with the Securities and Exchange Commission on May 3, 2017)
3.7
Form of Series E Certificate of Determination (Incorporated by reference toJanuary 19, 2021 as Exhibit 3.2 of the Company’s current report filed on Form 8-K with the Securities and Exchange Commission on May 3, 2017)2.1 thereto.
10.1 
Preferred Stock PurchaseAt-The-Market Issuance Sales Agreement, date March 9, 2017 between Digital Power Corporation, and Philou Ventures,dated January 22, 2021, with Ascendiant Capital Markets, LLC.  (IncorporatedIncorporated herein by reference to Exhibit 10.1 of the Company’s current report filedCurrent Report on Form 8-K filed on January 25, 2021 as Exhibit 10.1 thereto.
10.2Amendment No. 1 dated February 17, 2021 to At-The-Market Issuance Sales Agreement, dated January 22, 2021, with Ascendiant Capital Markets, LLC.  Incorporated herein by reference to the Securities and Exchange CommissionCurrent Report on Form 8-K filed on February 17, 2021 as Exhibit 10.1 thereto.
10.3Amendment No. 2 dated March 5, 2021 to At-The-Market Issuance Sales Agreement, dated January 22, 2021, with Ascendiant Capital Markets, LLC. Incorporated herein by reference to the Current Report on Form 8-K filed on March 9, 2017)5, 2021 as Exhibit 10.1 thereto.
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.

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

SIGNATURES

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


Dated:  November 20, 2017


Digital Power Corporation

May 24, 2021

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

14

 
56