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~~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~~10-K/A for the year ended December 31, ~~2016,~~2021, particularly the ~~"Risk Factors"~~“Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of ~~November 20, 2017.~~the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly ~~disclaims~~disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

~~DIGITAL POWER CORPORATION~~

AULT ALLIANCE, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,		December 31,
	2022		2021
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	24,133,000	$	15,912,000
Restricted cash		4,672,000		5,321,000
Marketable equity securities		17,467,000		40,380,000
Digital currencies		2,745,000		2,165,000
Accounts receivable		18,076,000		6,455,000
Accrued revenue		2,177,000		2,283,000
Inventories		20,833,000		5,482,000
Investment in promissory notes and other, related parties		2,770,000		2,842,000
Prepaid expenses and other current assets		13,734,000		15,436,000
TOTAL CURRENT ASSETS		106,607,000		96,276,000

Cash and marketable securities held in Trust Account		116,895,000		116,725,000
Intangible assets, net		8,084,000		4,035,000
Goodwill		55,322,000		10,090,000
Property and equipment, net		245,987,000		174,025,000
Right-of-use assets		7,735,000		5,243,000
Investments in common stock, related parties		8,845,000		13,230,000
Investments in other equity securities		38,495,000		30,482,000
Investment in unconsolidated entity		-		22,130,000
Loans receivable		4,352,000		14,337,000
Other assets		3,949,000		3,713,000
TOTAL ASSETS	$	596,271,000	$	490,286,000

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	43,525,000	$	22,755,000
Investment margin accounts payable		-		18,488,000
Operating lease liability, current		2,484,000		1,123,000
Notes payable, net		7,340,000		39,554,000
Convertible notes payable, current		1,884,000		-
TOTAL CURRENT LIABILITIES		55,233,000		81,920,000

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

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

September 30, December 31,
2017 2016
(Unaudited)
ASSETS

CURRENT ASSETS

Cash and cash equivalents $ 314 $ 996
Accounts receivable, net 2,892 1,439
Inventories, net 1,858 1,122
Prepaid expenses and other current assets 603 285
TOTAL CURRENT ASSETS 5,667 3,842

Intangible assets 420 —
Goodwill 6,490 —
Property and equipment, net 603 570
Investments - related parties, net of original issue discount of $127
and $45, respectively, at September 30, 2017 and December 31, 2016 3,782 1,036
Other investments 679 —
Other investments, related parties 354 —
Other assets 265 24
TOTAL ASSETS $ 18,260 $ 5,472

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable and accrued expenses $ 5,460 $ 1,231
Accounts payable and accrued expenses, related party 104 —
Advances on future receipts, net of discount of $671 1,475 —
Revolving credit facility 310 —
Notes payable 1,609 —
Notes payable, related parties 274 250
Convertible notes payable, net 465 —
Other current liabilities 144 398
TOTAL CURRENT LIABILITIES 9,841 1,879

LONG TERM LIABILITIES
Notes payable 659 —
Notes payable, related parties 132 —
Convertible notes payable, related party, net of discount of $364
and $496, respectively, at September 30, 2017 and December 31, 2016 166 34

TOTAL LIABILITIES $ 10,798 $ 1,913

F-1

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

~~DIGITAL POWER CORPORATION~~

AULT ALLIANCE, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

~~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.~~

~~DIGITAL POWER CORPORATION~~

(Unaudited)

	June 30,			December 31,
	2022			2021
LONG TERM LIABILITIES
Operating lease liability, non-current		5,538,000			4,213,000
Notes payable		55,547,000			55,055,000
Convertible notes payable		14,209,000			468,000
Deferred underwriting commissions of Ault Disruptive subsidiary		3,450,000			3,450,000

TOTAL LIABILITIES		133,977,000			145,106,000

COMMITMENTS AND CONTINGENCIES
Redeemable noncontrolling interests in equity of subsidiaries		116,895,000			116,725,000

STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock, $25 stated value per share,		-			-
$0.001 par value – 1,000,000 shares authorized; 7,040 shares
issued and outstanding at June 30, 2022 and December 31, 2021
(redemption amount and liquidation preference of $176,000 as of
June 30, 2022 and December 31, 2021)
Series B Convertible Preferred Stock, $10 stated value per share,		-			-
share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued
and outstanding at June 30, 2022 and December 31, 2021 (liquidation
preference of $1,250,000 at June 30, 2022 and December 31, 2021)
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated
value per share, $0.001 par value – 2,000,000 shares authorized;
shares authorized, 146,618 shares and 0 shares issued and outstanding at
June 30, 2022 and December 31, 2021, respectively (liquidation preference of
$3,665,450 and $0 as of June 30, 2022 and December 31, 2021, respectively)
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized;		324,000			84,000
324,440,579 and 84,344,607 shares issued and outstanding at June 30,
2022 and December 31, 2021, respectively
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized;		-			-
0 shares issued and outstanding at June 30, 2022 and December 31, 2021
Additional paid-in capital		549,713,000			385,644,000
Accumulated deficit		(200,184,000	)		(145,600,000	)
Accumulated other comprehensive loss		(1,863,000	)		(106,000	)
Treasury stock, at cost		(20,639,000	)		(13,180,000	)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY		327,351,000			226,842,000

Non-controlling interest		18,048,000			1,613,000

TOTAL STOCKHOLDERS’ EQUITY		345,399,000			228,455,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	596,271,000		$	490,286,000

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

AULT ALLIANCE, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ~~COMPREHNSIVE LOSS~~

COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
				2021						2021
	2022			Restated			2022			Restated
Revenue	$	7,849,000		$	8,564,000		$	16,508,000		$	16,469,000
Revenue, cryptocurrency mining		3,976,000			291,000			7,524,000			421,000
Revenue, hotel operations		4,598,000			-			7,296,000			-
Revenue, lending and trading activities		943,000			53,274,000			18,864,000			58,485,000
Total revenue		17,366,000			62,129,000			50,192,000			75,375,000
Cost of revenue		12,369,000			6,278,000			22,863,000			11,386,000
Gross profit		4,997,000			55,851,000			27,329,000			63,989,000

Operating expenses
Research and development		729,000			531,000			1,424,000			1,133,000
Selling and marketing		6,979,000			1,505,000			13,460,000			2,747,000
General and administrative		19,032,000			7,992,000			32,719,000			13,084,000
Impairment of mined cryptocurrency		1,976,000			-			2,415,000			-
Total operating expenses		28,716,000			10,028,000			50,018,000			16,964,000

(Loss) income from operations		(23,719,000	)		45,823,000			(22,689,000	)		47,025,000
Other income (expenses)
Interest and other income		81,000			14,000			530,000			51,000
Change in fair value of equity securities, related party		-			(5,893,000	)		-			(2,924,000	)
Interest expense		(2,031,000	)		(22,000	)		(31,855,000	)		(337,000	)
Change in fair value of marketable equity securities		241,000			(1,915,000	)		241,000			45,000
Realized gain (loss) on marketable securities		(43,000	)		-			66,000			397,000
Loss from investment in unconsolidated entity		(391,000	)		-			(924,000	)		-
Gain on extinguishment of debt		-			447,000			-			929,000
Change in fair value of warrant liability		(6,000	)		290,000			(24,000	)		(388,000	)
Total other expenses, net		(2,149,000	)		(7,079,000	)		(31,966,000	)		(2,227,000)

(Loss) income before income taxes		(25,868,000	)		38,744,000			(54,655,000	)		44,798,000
Income tax (provision) benefit		(217,000	)		(3,504,000	)		(217,000	)		(3,510,000	)
Net (loss) income		(26,085,000	)		35,240,000			(54,872,000	)		41,288,000
Net loss attributable to non-controlling interest		321,000			1,083,000			336,000			3,000
Net (loss) income attributable to Ault Alliance, Inc.		(25,764,000	)		36,323,000			(54,536,000	)		41,291,000
Preferred dividends		(44,000	)		(4,000	)		(49,000	)		(9,000	)
Net (loss) income available to common stockholders	$	(25,808,000	)	$	36,319,000		$	(54,585,000	)	$	41,282,000

Basic net (loss) income per common share	$	(0.09	)	$	0.72		$	(0.29	)	$	0.92
Diluted net (loss) income per common share	$	(0.09	)	$	0.69		$	(0.29	)	$	0.86

Weighted average basic common shares outstanding		289,672,000			50,783,000			190,870,000			45,052,000
Weighted average diluted common shares outstanding		289,672,000			52,780,000			190,870,000			47,574,000

Comprehensive (loss) income
Net (loss) income available to common stockholders	$	(25,808,000	)	$	36,319,000		$	(54,585,000	)	$	41,282,000
Other comprehensive income (loss)
Foreign currency translation adjustment		(1,471,000	)		134,000			(1,758,000	)		41,000
Other comprehensive (loss) income		(1,471,000	)		134,000			(1,758,000	)		41,000
Total comprehensive (loss) income	$	(27,279,000	)	$	36,453,000		$	(56,343,000	)	$	41,323,000

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

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended June 30, 2022

															Accumulated
	Series A, B & D								Additional						Other			Non-						Total
	Preferred Stock				Common Stock				Paid-In			Accumulated			Comprehensive			Controlling			Treasury			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Loss			Interest			Stock			Equity
BALANCES, April 1, 2022		132,040	$	-		225,015,203	$	225,000	$	495,536,000		$	(174,378,000	)	$	(393,000	)	$	1,640,000		$	(14,172,000	)	$	308,458,000
Issuance of common stock for restricted stock awards		-		-		429,379		-		-			-			-			-			-			-
Preferred stock issued		146,618		-		-		-		3,666,000			-			-			-			-			3,666,000
Preferred stock offering costs		-		-		-		-		(537,000	)		-			-			-			-			(537,000	)
Stock-based compensation										983,000									36,000						1,019,000
Sale of common stock		-		-		98,995,997		99,000		53,180,000			-			-			-			-			53,279,000
Financing cost in connection with sales of common stock		-		-		-		-		(1,266,000	)		-			-			-			-			(1,266,000	)
Acquisition of non-controlling interests		-		-		-		-		(1,848,000	)		-			-			(382,000	)		-			(2,230,000	)
Non-controlling interest from AVLP acquisition		-		-		-		-		-			-			-			6,738,000			-			6,738,000
Non-controlling interest from SMC acquisition		-		-		-		-		-			-			-			10,336,000			-			10,336,000
Purchase of treasury stock - Ault Alpha		-		-		-		-		-			-			-			-			(6,467,000	)		(6,467,000	)
Net loss		-		-		-		-		-			(25,764,000	)		-			-			-			(25,764,000	)
Preferred dividends				-		-		-		-			(44,000	)		-			-			-			(44,000	)
Foreign currency translation adjustments		-		-		-		-		-			-			(1,471,000	)		-			-			(1,471,000	)
Net loss attributable to non-controlling interest		-		-		-		-		-			-			-			(321,000	)		-			(321,000	)
Other		-		-		-		-		(1,000	)		2,000			1,000			1,000			-			3,000
BALANCES, June 30, 2022		278,658	$	-		324,440,579	$	324,000	$	549,713,000		$	(200,184,000	)	$	(1,863,000	)	$	18,048,000		$	(20,639,000	)	$	345,399,000

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

~~(Unaudited)~~

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

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Revenue $ 3,220 $ 1,826 $ 6,670 $ 5,603
Cost of revenue 2,124 1,123 4,136 3,526
Gross profit 1,096 703 2,534 2,077

Operating expenses
Engineering and product development 306 147 798 511
Selling and marketing 423 235 1,045 723
General and administrative 1,685 404 4,240 1,115
Total operating expenses 2,414 786 6,083 2,349

Loss from operations (1,318 ) (83 ) (3,549 ) (272 )

Interest (expense) income, net (753 ) 23 (1,367 ) 85

Loss before income taxes (2,071 ) (60 ) (4,916 ) (187 )

Income tax benefit — 22 — 22

Net loss $ (2,071 ) $ (38 ) $ (4,916 ) $ (165 )

Less: Net loss attributable to non-controlling interest 104 — 216 —

Net loss attributable to Digital Power Corp (1,967 ) (38 ) (4,700 ) (165 )

Preferred deemed dividends — — (319 ) —
Preferred dividends (27 ) — (35 ) —

Loss available to common shareholders $ (1,994 ) $ (38 ) $ (5,054 ) $ (165 )

Basic and diluted net loss per common share $ (0.15 ) $ (0.01 ) $ (0.46 ) $ (0.02 )

Basic and diluted weighted average common shares outstanding 13,745,540 6,775,971 10,884,948 6,775,971

Comprehensive Loss
Loss available to common shareholders $ (1,994 ) $ (38 ) $ (5,054 ) $ (165 )
Other comprehensive income (loss)
Change in net foreign currency translation adjustments 42 (55 ) 141 (265 )
Net unrealized loss on securities available-for-sale, net of income taxes (43 ) — (43 ) —
Other comprehensive income (loss) (1 ) (55 ) 98 (265 )
Total Comprehensive loss $ (1,995 ) $ (93 ) $ (4,956 ) $ (430 )

F-4

AULT ALLIANCE, INC. AND SUBSIDIARIES

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

(Unaudited)

Three Months Ended June 30, 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, April 1, 2021		132,040	$	-		49,498,676	$	49,000	$	292,763,000		$	(117,366,000	)	$	(878,000	)	$	1,902,000		$	176,470,000
Stock-based compensation										20,000									545,000			565,000
Sale of common stock		-		-		6,385,425		7,000		19,054,000			-			-			-			19,061,000
Financing cost in connection with sales of common stock		-		-		-		-		(477,000	)		-			-			-			(477,000	)
Issuance of common stock for conversion of convertible notes payable, related party		-		-		275,862		-		400,000			-			-			-			400,000
Comprehensive loss:
Net income		-		-		-		-		-			36,323,000			-			-			36,323,000
Preferred dividends		-		-		-		-		-			(4,000	)		-			-			(4,000	)
Foreign currency translation adjustments		-		-		-		-		-			-			134,000			-			134,000
Net income attributable to non-controlling interest		-		-		-		-		-			-			-			(1,083,000	)		(1,083,000	)
BALANCES, June 30, 2021		132,040	$	-		56,159,963	$	56,000	$	311,760,000		$	(81,047,000	)	$	(744,000	)	$	1,364,000		$	231,389,000

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

F-5

~~DIGITAL POWER CORPORATION~~

AULT ALLIANCE, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Six Months Ended June 30, 2022

															Accumulated
	Series A, B & D								Additional						Other			Non-						Total
	Preferred Stock				Common Stock				Paid-In			Accumulated			Comprehensive			Controlling			Treasury			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Loss			Interest			Stock			Equity
BALANCES, January 1, 2022		132,040	$	-		84,344,607	$	84,000	$	385,644,000		$	(145,600,000	)	$	(106,000	)	$	1,613,000		$	(13,180,000	)	$	228,455,000
Issuance of common stock for restricted stock awards		-		-		441,879		-		-			-			-			-			-			-
Preferred stock issued		146,618		-		-		-		3,666,000			-			-			-			-			3,666,000
Preferred stock offering costs		-		-		-		-		(537,000	)		-			-			-			-			(537,000	)
Stock-based compensation										3,627,000									77,000						3,704,000
Sale of common stock		-		-		239,654,093		240,000		163,186,000			-			-			-			-			163,426,000
Financing cost in connection with sales of common stock		-		-		-		-		(4,024,000	)		-			-			-			-			(4,024,000	)
Acquisition of non-controlling interests		-		-		-		-		(1,848,000	)		-			-			(382,000	)		-			(2,230,000	)
Non-controlling interest from AVLP acquisition		-		-		-		-		-			-			-			6,738,000			-			6,738,000
Non-controlling interest from SMC acquisition		-		-		-		-		-			-			-			10,336,000			-			10,336,000
Purchase of treasury stock - Ault Alpha		-		-		-		-		-			-			-			-			(7,459,000	)		(7,459,000	)
Net loss		-		-		-		-		-			(54,536,000	)		-			-			-			(54,536,000	)
Preferred dividends				-		-		-		-			(49,000	)		-			-			-			(49,000	)
Foreign currency translation adjustments		-		-		-		-		-			-			(1,758,000	)		-			-			(1,758,000	)
Net loss attributable to non-controlling interest		-		-		-		-		-			-			-			(336,000	)		-			(336,000	)
Other		-		-		-		-		(1,000	)		1,000			1,000			2,000			-			3,000
BALANCES, June 30, 2022		278,658	$	-		324,440,579	$	324,000	$	549,713,000		$	(200,184,000	)	$	(1,863,000	)	$	18,048,000		$	(20,639,000	)	$	345,399,000

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

AULT ALLIANCE, INC. AND SUBSIDIARIES

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

(Unaudited)

Six Months Ended June 30, 2021


	Series A & B								Additional						Other			Non-			Total
	Preferred Stock				Common Stock				Paid-In			Accumulated			Comprehensive			Controlling			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Income (Loss)			Interest			Equity

BALANCES, January 1, 2021		132,040	$	—		27,753,562	$	28,000	$	171,396,000		$	(122,329,000	)	$	(785,000	)	$	822,000		$	49,132,000
Stock-based compensation										39,000									545,000			584,000
Sale of common stock		—		—		27,947,325		28,000		144,016,000			—			—			—			144,044,000
Financing cost in connection with sales of common stock		—		—		—		—		(4,541,000	)		—			—			—			(4,541,000	)
Issuance of common stock for conversion of convertible notes payable		—		—		183,214		—		450,000			—			—			—			450,000
Issuance of common stock for conversion of convertible notes payable, related party		—		—		275,862		—		400,000			—			—			—			400,000
Comprehensive loss:
Net income		—		—		—		—		—			41,291,000			—			—			41,291,000
Preferred dividends				—		—		—		—			(9,000	)		—			—			(9,000	)
Foreign currency translation adjustments		—		—		—		—		—			—			41,000			—			41,000
Net income attributable to non—controlling interest		—		—		—		—		—			—			—			(3,000	)		(3,000	)
BALANCES, June 30, 2021		132,040	$	—		56,159,963	$	56,000	$	311,760,000		$	(81,047,000	)	$	(744,000	)	$	1,364,000		$	231,389,000

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

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended June 30,
				2021
	2022			Restated
Cash flows from operating activities:
Net (loss) income	$	(54,872,000	)	$	41,288,000
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		7,129,000			1,093,000
Interest expense – debt discount		26,493,000			40,000
Gain on extinguishment of debt		-			(929,000	)
Change in fair value of warrant liability		24,000			(290,000	)
Accretion of original issue discount on notes receivable – related party		-			(4,000	)
Accretion of original issue discount on notes receivable		(612,000	)		(955,000	)
Increase in accrued interest on notes receivable – related party		(100,000	)		(1,000	)
Stock-based compensation		3,704,000			584,000
Impairment of cryptocurrencies		2,415,000			-
Realized gains on sale of marketable securities		(18,585,000	)		(12,283,000	)
Unrealized losses (gains) on marketable securities		9,669,000			(3,483,000	)
Unrealized losses (gains) on investments in equity securities, related parties		9,048,000			(36,928,000	)
Unrealized gains on equity securities		(17,021,000	)		(1,224,000	)
Loss from investment in unconsolidated entity		924,000			-
Loss on remeasurement of investment in unconsolidated entity		2,700,000			-
Changes in operating assets and liabilities:
Marketable equity securities		50,734,000			(9,616,000	)
Accounts receivable		(2,311,000	)		(887,000	)
Accrued revenue		(7,000	)		78,000
Inventories		(2,646,000	)		485,000
Prepaid expenses and other current assets		2,406,000			(2,537,000	)
Digital currencies		(7,785,000	)		-
Other assets		(384,000	)		(246,000	)
Accounts payable and accrued expenses		4,706,000			83,000
Other current liabilities		-			4,472,000
Lease liabilities		(626,000	)		(439,000	)
Net cash provided by (used in) operating activities		15,003,000			(21,699,000	)

Cash flows from investing activities:
Purchase of property and equipment		(72,779,000	)		(5,590,000	)
Investment in promissory notes and other, related parties		(2,200,000	)		(4,040,000	)
Investments in common stock and warrants, related parties		(4,663,000	)		(16,483,000	)
Investment in real property, related party		-			(2,670,000	)
Proceeds from sale of investment in real property, related party		-			2,670,000
Purchase of SMC, net of cash received		(8,239,000	)		-
Cash received upon acquisition of AVLP		1,245,000			-
Acquisition of non-controlling interests		(2,230,000	)		-
Purchase of marketable equity securities		(1,981,000	)		-
Sales of marketable equity securities		11,733,000			430,000
Investments in loans receivable		(2,728,000	)		-
Principal payments on loans receivable		10,525,000			-
Sale of digital currencies		4,377,000			-
Investments in equity securities		(15,820,000	)		(4,054,000	)
Net cash used in investing activities		(82,760,000	)		(29,737,000	)

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

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

	For the Six Months Ended June 30,
				2021
	2022			Restated
Cash flows from financing activities:
Gross proceeds from sales of common stock	$	163,426,000		$	144,044,000
Financing cost in connection with sales of common stock		(4,024,000	)		(4,541,000	)
Proceeds from sales of preferred stock		3,666,000			-
Financing cost in connection with sales of preferred stock		(537,000	)		-
Proceeds from notes payable		4,945,000			500,000
Repayment of margin accounts		(18,488,000	)		-
Payments on notes payable		(65,999,000	)		(1,917,000	)
Payments of preferred dividends		(49,000	)		(9,000	)
Purchase of treasury stock		(7,459,000	)		-
Payments on revolving credit facilities, net		-			(23,000	)
Net cash provided by financing activities		75,481,000			138,054,000

Effect of exchange rate changes on cash and cash equivalents		(152,000	)		93,000

Net increase in cash and cash equivalents and restricted cash		7,572,000			86,711,000

Cash and cash equivalents and restricted cash at beginning of period		21,233,000			18,680,000

Cash and cash equivalents and restricted cash at end of period	$	28,805,000		$	105,391,000

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	4,104,000		$	658,000

Non-cash investing and financing activities:
Conversion of convertible notes payable into shares of common stock	$	-		$	450,000
Settlement of accounts payable with digital currency	$	413,000		$	119,000
Conversion of investment in unconsolidated entity for acquisition of AVLP	$	23,406,000		$	-
Conversion of convertible notes payable, related party into shares of common stock	$	400,000		$	400,000
Conversion of debt and equity securities to marketable securities	$	24,828,000		$	2,656,000
Conversion of loans receivable to marketable securities	$	3,600,000		$	-
Conversion of interest receivable to marketable securities	$	231,000		$	-
Conversion of loans receivable to debt and equity securities	$	-		$	150,000
Recognition of new operating lease right-of-use assets and lease liabilities	$	2,188,000		$	-

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

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

For the Nine Months Ended September 30,
2017 2016

Cash flows from operating activities:
Net loss $ (4,916 ) $ (165 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation 128 123
Amortization 6 —
Interest expense – debt discount 1,239 —
Accretion of original issue discount on notes receivable – related party (36 ) —
Interest expense on conversion of demand notes to common stock 13 —
Stock-based compensation 1,269 129
Changes in operating assets and liabilities:
Accounts receivable (737 ) 82
Inventories 228 243
Prepaid expenses and other current assets (166 ) (60 )
Other assets (197 ) —
Accounts payable and accrued expenses 2,083 (101 )
Accounts payable, related parties 104 —
Other current liabilities (595 ) (113 )

Net cash (used in) provided by operating activities (1,577 ) 138

Cash flows from investing activities:
Purchase of property and equipment (22 ) (78 )
Purchase of intangible asset (50 ) —
Purchase of Power-Plus (409 ) —
Sale of investment — 90
Investments – related party (2,710 ) —
Investment in real property (300 ) —
Investments – others (25 ) —
Loans to related parties (54 ) —
Loans to third parties (814 ) —

Net cash (used in) provided by investing activities (4,384 ) 12

Cash flows from financing activities:
Gross proceeds from sales of common stock and warrants 745 —
Proceeds from issuance of preferred stock 1,540 —
Financing cost in connection with sales of equity securities (275 ) —
Proceeds from convertible notes payable 1,514 —
Payments on convertible notes payable (157 ) —
Proceeds from notes payable – related party 350 —
Proceeds from notes payable 785 —
Payments on notes payable (30 ) —
Proceeds from advances on future receipts 1,772 —
Payments on advances on future receipts (439 ) —
Payments of preferred dividends (8 ) —
Financing cost in connection with sales of debt securities (122 ) —
Payments on revolving credit facilities, net (481 ) —

Net cash provided by financing activities 5,194 —

Effect of exchange rate changes on cash and cash equivalents 85 (99 )

Net (decrease) increase in cash and cash equivalents (682 ) 51

Cash and cash equivalents at beginning of period 996 1,241

Cash and cash equivalents at end of period $ 314 $ 1,292

F-9

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

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

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

~~U.S. dollars in thousands~~

For the Nine Months Ended September 30,
2017 2016

Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 69 $ -

Non-cash investing and financing activities:
Cancellation of notes payable – related party into shares of common stock $ 100 $ -
Cancellation of notes payable into shares of common stock $ 648 $ -
Cancellation of note payable – related party into series B convertible preferred stock $ 500 $ -
Cancellation of convertible note payable into shares of common stock $ 145 $ -

In connection with the Company's acquisition of Microphase Corporation, equity instruments were issued and liabilities assumed during 2017 as follows:

Fair value of assets acquired $ 7,893
Equity instruments issued (1,451 )
Minority interest (945 )
Liabilities assumed $ 5,497

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

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited~~

~~SEPTEMBER 30, 2017~~

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

1. DESCRIPTION OF BUSINESS

~~Digital Power Corporation ("Digital Power"~~

Ault Alliance, Inc., a Delaware corporation which was then known as BitNile Holdings, Inc. (“BitNile” or the “Company”) was incorporated in ~~1969, under~~September 2017. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary. BitNile was founded by Milton “Todd” Ault, III, its Executive Chairman and is led by Mr. Ault, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General ~~Corporation Law~~Counsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the ~~State~~Company. All major investment and capital allocation decisions are made for the Company by Mr. Ault and the other members of ~~California. Digital Power~~the Executive Committee. The Company has eight reportable segments:

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

Ault Alliance, Inc. (“Ault Alliance”) – commercial lending, activist investing, media, and digital learning;

Gresham Worldwide, Inc. (“GWW”) – defense solutions;

TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions;

The Singing Machine Company, Inc. (“SMC”) – karaoke audio equipment;

Avalanche International Corp. (“Avalanche” or “AVLP”) – advanced textiles processing technology;

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

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

1 A. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

This Amendment amends the Quarterly Report on Form 10-Q of the Company for the six months ended June 30, 2022, that was originally filed with the U.S. Securities and ~~Digital Power Limited ("DP Limited"~~),Exchange Commission on August 22, 2022. This Amendment only corrects an error in classification with respect to changes in fair value of financial instruments issued by a ~~wholly owned subsidiary, located~~related party. The changes in fair value were erroneously recorded in other comprehensive income (loss) and have been reclassified to correct for the error within the statement of operations. The Company has restated its Condensed Consolidated Statements of Operations and Comprehensive Loss, Condensed Consolidated Statements of Changes in Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows to correct this misclassification. Further, this Amendment also includes certain limited modifications to reflect the correct classification in disclosures in the ~~United Kingdom, are currently engaged~~Company’s Note 20 Net (Loss) Income per Share footnote in the ~~design, manufacture~~Company’s Notes to Condensed Consolidated Financial Statements. Finally, the Company has modified its disclosures in Item 4 of Part I to reflect the identification of an additional material weakness.

As a result, the Condensed Consolidated Statements of Operations and ~~sale~~Comprehensive Loss amounts of ~~switching power supplies~~“Change in fair value of equity securities, related party” and ~~converters. On November 30, 2016, Digital Power formed Digital Power Lending, LLC (~~“~~DP Lending”~~),Net unrealized gain on derivative securities of related party” were adjusted pursuant to the schedules below:

Schedule of condensed consolidated statements of operations and comprehensive loss
	For the Three Months Ended
	June 30, 2021
	As Reported			Adjustment			As Restated
Revenue	$	8,564,000		$	-		$	8,564,000
Revenue, cryptocurrency mining, net		291,000						291,000
Revenue, lending and trading activities		53,274,000						53,274,000
Total revenue		62,129,000			-			62,129,000
Cost of revenue		6,278,000						6,278,000
Gross profit		55,851,000			-			55,851,000

Operating expenses
Research and development		531,000						531,000
Selling and marketing		1,505,000						1,505,000
General and administrative		7,992,000						7,992,000
Total operating expenses		10,028,000			-			10,028,000

Income from operations		45,823,000						45,823,000
Other income (expenses)
Interest and other income		14,000						14,000
Change in fair value of equity securities, related party		-			(5,893,000	)		(5,893,000	)
Interest expense		(22,000	)					(22,000	)
Change in fair value of marketable equity securities		(1,915,000	)					(1,915,000	)
Gain on extinguishment of debt		447,000						447,000
Change in fair value of warrant liability		290,000						290,000
Total other expenses, net		(1,186,000	)		(5,893,000	)		(7,079,000	)

Income (loss) before income taxes		44,637,000			(5,893,000	)		38,744,000
Income tax provision		(3,504,000	)					(3,504,000	)
Net income (loss)		41,133,000			(5,893,000	)		35,240,000
Net income attributable to non-controlling interest		1,083,000						1,083,000
Net income (loss) attributable to Ault Alliance, Inc.		42,216,000			(5,893,000	)		36,323,000
Preferred dividends		(4,000	)					(4,000	)
Net income (loss) available to common stockholders	$	42,212,000		$	(5,893,000	)	$	36,319,000

Basic net income (loss) per common share	$	0.83					$	0.72
Diluted net income (loss) per common share	$	0.81					$	0.69

Weighted average basic common shares outstanding		50,783,000						50,783,000
Weighted average diluted common shares outstanding		52,780,000						52,780,000

Comprehensive income
Net income (loss) available to common stockholders	$	42,212,000		$	(5,893,000	)	$	36,319,000
Other comprehensive income (loss)
Foreign currency translation adjustment		134,000						134,000
Net unrealized gain on derivative securities of related party		(5,893,000	)		5,893,000			-
Other comprehensive (loss) income		(5,759,000	)		5,893,000			134,000
Total comprehensive income	$	36,453,000		$	-		$	36,453,000


	For the Six Months Ended
	June 30, 2021
	As Reported			Adjustment			As Restated
Revenue	$	16,469,000		$	-		$	16,469,000
Revenue, cryptocurrency mining, net		421,000						421,000
Revenue, lending and trading activities		58,485,000						58,485,000
Total revenue		75,375,000			-			75,375,000
Cost of revenue		11,386,000						11,386,000
Gross profit		63,989,000			-			63,989,000

Operating expenses
Research and development		1,133,000						1,133,000
Selling and marketing		2,747,000						2,747,000
General and administrative		13,084,000						13,084,000
Total operating expenses		16,964,000			-			16,964,000

Income from operations		47,025,000						47,025,000
Other income (expenses)
Interest and other income		51,000						51,000
Change in fair value of equity securities, related party		-			(2,924,000	)		(2,924,000	)
Interest expense		(337,000	)					(337,000	)
Change in fair value of marketable equity securities		45,000						45,000
Realized gain on marketable securities		397,000						397,000
Gain on extinguishment of debt		929,000						929,000
Change in fair value of warrant liability		(388,000	)					(388,000	)
Total other (expenses) income, net		697,000			(2,924,000	)		(2,227,000	)

Income (loss) before income taxes		47,722,000			(2,924,000	)		44,798,000
Income tax provision		(3,510,000	)					(3,510,000	)
Net income (loss)		44,212,000			(2,924,000	)		41,288,000
Net income attributable to non-controlling interest		3,000						3,000
Net income (loss) attributable to Ault Alliance, Inc.		44,215,000			(2,924,000	)		41,291,000
Preferred dividends		(9,000	)					(9,000	)
Net income (loss) available to common stockholders	$	44,206,000		$	(2,924,000	)	$	41,282,000

Basic net income (loss) per common share	$	0.98					$	0.92
Diluted net income (loss) per common share	$	0.92					$	0.86

Weighted average basic common shares outstanding		45,052,000						45,052,000
Weighted average diluted common shares outstanding		47,574,000						47,574,000

Comprehensive income
Net income (loss) available to common stockholders	$	44,206,000		$	(2,924,000	)	$	41,282,000
Other comprehensive income (loss)
Foreign currency translation adjustment		41,000						41,000
Net unrealized gain on derivative securities of related party		(2,924,000	)		2,924,000			-
Other comprehensive (loss) income		(2,883,000	)		2,924,000			41,000
Total comprehensive income	$	41,323,000		$	-		$	41,323,000

The Condensed Consolidated Statements of Changes in Stockholders’ Equity amounts of “Accumulated deficit” and “Accumulated other comprehensive loss” were adjusted pursuant to the schedules below:

Schedule of condensed consolidated statements of changes in stockholders’ equity
	January 1, 2021
	As Reported			Adjustment			As Restated
STOCKHOLDERS’ EQUITY
Common stock	$	28,000		$	-		$	28,000
Additional paid-in capital		171,396,000						171,396,000
Accumulated deficit		(121,396,000	)		(933,000	)		(122,329,000	)
Accumulated other comprehensive loss		(1,718,000	)		933,000			(785,000	)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY		48,310,000			-			48,310,000

Non-controlling interest		822,000						822,000

TOTAL STOCKHOLDERS’ EQUITY	$	49,132,000		$	-		$	49,132,000


	April 1, 2021
		As Reported			Adjustment			As Restated
STOCKHOLDERS’ EQUITY
Common stock	$	49,000		$	-		$	49,000
Additional paid-in capital		292,763,000						292,763,000
Accumulated deficit		(119,402,000	)		2,036,000			(117,366,000	)
Accumulated other comprehensive loss		1,158,000			(2,036,000	)		(878,000	)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY		174,568,000			-			174,568,000

Non-controlling interest		1,902,000						1,902,000

TOTAL STOCKHOLDERS’ EQUITY	$	176,470,000		$	-		$	176,470,000


	June 30, 2021
		As Reported			Adjustment			As Restated
STOCKHOLDERS’ EQUITY
Common stock	$	56,000		$	-		$	56,000
Additional paid-in capital		311,760,000						311,760,000
Accumulated deficit		(77,190,000	)		(3,857,000	)		(81,047,000	)
Accumulated other comprehensive loss		(4,601,000	)		3,857,000			(744,000	)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY		230,025,000			-			230,025,000

Non-controlling interest		1,364,000						1,364,000

TOTAL STOCKHOLDERS’ EQUITY	$	231,389,000		$	-		$	231,389,000

Further, the reclassification also resulted in a corresponding decrease in net income and a decrease in unrealized gains on ~~April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”). Both DP Lending and Coolisys are wholly-owned subsidiaries. DP Lending is engaged~~equity securities, related party within net cash used in ~~providing commercial loans to companies throughout the United States to provide them with~~ operating ~~capital to finance the growth of their businesses. The loans will primarily be short-term, ranging from six to twelve months. The Company intends to operate its existing businesses~~activities, as reflected in the customized and flexible power system solutions for the medical, military, telecom and industrial markets, other than the European markets which are primarily served by DP Limited, in Coolisys. On June 2, 2017, Digital Power ~~purchased 56.4%~~Company’s Condensed Consolidated Statements of ~~the outstanding equity interests of Microphase Corporation, a Delaware corporation (the~~ ~~“Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) delivering radio frequency (“RF”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector logarithmic video amplifiers (“DLVA”) to the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut.~~ ~~Further, on September 1, 2017, Coolisys acquired all of the outstanding membership interests in Power-Plus Technical Distributors, LLC, a California limited liability company (“Power-Plus”~~). Power-Plus is an industrial distributor of value added power supply solutions, UPS systems, fans, filters, line cords, and other power-related components. The Company’s results of operations include the results of Microphase and Power-Plus from their respective acquisition dates forward. ~~Digital Power, DP Limited, Microphase, Coolisys, Power-Plus and DP Lending (collectively, the~~ ~~“Company”) has two reportable geographic segments - North America (sales through Digital Power, Microphase, Coolisys, Power-Plus and DP Lending) and Europe (sales through DP Limited).~~

Cash Flows, as follows:

Schedule of condensed consolidated statements of cash flows
	For the Six Months Ended
	June 30, 2021
	As Reported			Adjustment			As Restated
Cash flows from operating activities:
Net income	$	44,212,000		$	(2,924,000	)	$	41,288,000
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		1,093,000						1,093,000
Interest expense – debt discount		40,000						40,000
Gain on extinguishment of debt		(929,000	)					(929,000	)
Change in fair value of warrant liability		(290,000	)					(290,000	)
Accretion of original issue discount on notes receivable – related party		(4,000	)					(4,000	)
Accretion of original issue discount on notes receivable		(955,000	)					(955,000	)
Increase in accrued interest on notes receivable – related party		(1,000	)					(1,000	)
Stock-based compensation		584,000						584,000
Realized gains on sale of marketable securities		(12,283,000	)					(12,283,000	)
Unrealized losses (gains) on marketable securities		(3,483,000	)					(3,483,000	)
Unrealized losses (gains) on equity securities, related parties		(39,852,000	)		2,924,000			(36,928,000	)
Unrealized gains on equity securities		(1,224,000	)					(1,224,000	)
Changes in operating assets and liabilities:
Marketable equity securities		(9,616,000	)					(9,616,000	)
Accounts receivable		(887,000	)					(887,000	)
Accrued revenue		78,000						78,000
Inventories		485,000						485,000
Prepaid expenses and other current assets		(2,537,000	)					(2,537,000	)
Other assets		(246,000	)					(246,000	)
Accounts payable and accrued expenses		83,000						83,000
Other current liabilities		4,472,000						4,472,000
Lease liabilities		(439,000	)					(439,000	)
Net cash used in operating activities	$	(21,699,000	)	$	-		$	(21,699,000	)

2. LIQUIDITY ~~GOING CONCERN~~ AND ~~MANAGEMENT’S PLANS~~

FINANCIAL CONDITION

As of ~~September~~June 30, ~~2017,~~2022, the Company had cash and cash equivalents of ~~$314, an accumulated deficit of $17,212~~$24.1 million and ~~a negative~~ working capital of ~~$4,174.~~$51.4 million. The ~~Company has incurred recurring losses and reported losses for the three and nine months ended September 30, 2017, totaled $1,967 and $4,700, respectively. In the past, the~~ Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below, the Company continues to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:

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

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

On March 15, 2017, the Company entered into a subscription agreement with one investor for the sale of 500,000 shares of common stock at $0.60 per share for the aggregate purchase price of $300 (See Note 14).

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

On March 20, 2017, the Company issued $250 in demand promissory note to one of the Company's shareholders (See Note 14). This $250 demand promissory note was converted in shares of the Series B Preferred Stock for the benefit of Philou.

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

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

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

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

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

~~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).

~~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~~believes 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~~current 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~~on hand 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~~operating and capital requirements for at least the ~~Company’s ability to continue as a going concern. The accompanying~~next twelve months from the date these financial statements ~~do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.~~

~~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~~

are issued.

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~~the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from ~~our~~the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, filed with the Securities and Exchange Commission (the “SEC”) on April ~~10, 2017.~~15, 2022. The condensed consolidated balance sheet as of December 31, ~~2016~~2021 was derived from the Company’s audited ~~2016~~2021 financial statements contained in the above referenced Form 10-K. Results of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, 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 transactions2022.

Significant Accounting Policies

Other than as noted below, there have been ~~eliminated 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 extent to which fair value has been below cost basis, the financial condition of the issuer and anyno material changes thereto, and the Company’s intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recovery of the investment’s amortized cost basis. Equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments), as described in ASC No. 325-20. Additionally, the investment in debt securities of AVLP qualifies for application of the fair value option in accordance with ASC No. 825.

~~Revenue Recognition~~

~~The Company generates revenues from the sale of its products through a direct and indirect sales force. Revenues from products are recognized in accordance with ASC No. 605,~~ ~~Revenue Recognition~~, when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller's price to the buyer is fixed or determinable, no further obligation exists and collectability is reasonably assured. Generally, the Company does not grant a right of return. However, certain distributors are allowed, in the six months after the initial stock purchase, to rotate stock that has not been sold for other products. Revenues subject to stock rotation rights are deferred until the products are sold to the end customer or until the rotation rights expire. Service revenues are deferred and recognized on a straight-line basis over the term of the service agreement. Service revenues are immaterial in proportion to the Company's revenues.

~~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~~

significant accounting policies previously disclosed in the 2021 Annual Report.

Business Combination

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~~allocates the purchase price of an acquired business to ~~stock-based payments is recorded over~~ the ~~requisite service period~~tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the ~~grant date fair value~~acquisition date. Any excess 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 thepurchase 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~~over the fair value of the ~~equity instruments issued~~net assets acquired is ~~determined~~recorded as goodwill. Acquired customer relations, technology, tradenames and know how are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the ~~earlier~~acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of ~~(i)~~the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date ~~at which a commitment for performance by~~of acquisition.

If the ~~consultant or vendor~~business combination is ~~reached or (ii)~~achieved in stages, the acquisition date ~~at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair~~carrying value of the acquirer’s previously held equity ~~instrument~~interest in the acquirer is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized ~~over~~in profit or loss.

Reclassifications

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

Recent Accounting Standards

In May 2021, the ~~consulting agreement.~~

~~Convertible Instruments~~

Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The guidance became effective for the Company on January 1, 2022. The Company ~~accounts~~adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its unaudited condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” (“ASU No. 2016-13”) to improve information on credit losses for ~~hybrid contracts~~financial assets and net investment in leases 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-measuredaccounted for at fair value ~~under otherwise applicable GAAP~~through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with ~~changes in fair value reported in earnings as they occur and (c)~~ a ~~separate instrument~~methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with ~~the same terms as the embedded derivative instrument would be considered a derivative instrument.~~

~~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.

early adoption permitted. The Company ~~accounts for convertible instruments, when the Company has determined~~does not expect that the ~~embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC No. 470-20,~~ ~~Debt~~adoption of this standard will have a significant impact on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (~~“ASC No. 470-20”~~ (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). 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~~ASU simplifies accounting for convertible instruments ~~(when~~by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Effective January 1, 2022, the Company ~~has determined that~~early adopted ASU 2020-06 using the ~~embedded conversion options should~~modified retrospective approach, which resulted in no impact on its condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be ~~bifurcated from their host instruments)~~recognized and measured by the acquirer on the acquisition date in accordance with ~~ASC No. 815.~~

~~Comprehensive Loss~~

Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company ~~reports comprehensive loss~~is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832),” which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an issuer’s financial statements. The amendments in ~~accordance with ASC No. 220,~~ ~~Comprehensive Income. This statement establishes standards~~this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company expects that this guidance will not have a significant impact on its condensed consolidated financial statements.

4. REVENUE DISAGGREGATION

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the ~~reporting~~three and ~~presentation~~six months ended June 30, 2022 and 2021. 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 consisted 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.

~~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~~following for the ~~sale of an asset or paid to transfer a liability in an orderly transaction between market participants as~~three months ended June 30, 2022:

Schedule of disaggregated revenues
	Three months ended June 30, 2022
	GWW		TurnOnGreen		Ault Alliance		BNI		AGREE		Total
Primary Geographical Markets
North America	$	1,111,000	$	822,000	$	12,000	$	4,248,000	$	4,598,000	$	10,791,000
Europe		2,540,000		28,000		-		-		-		2,568,000
Middle East and other		2,852,000		212,000		-		-		-		3,064,000
Revenue from contracts with customers		6,503,000		1,062,000		12,000		4,248,000		4,598,000		16,423,000
Revenue, lending and trading activities (North America)		-		-		943,000		-		-		943,000
Total revenue	$	6,503,000	$	1,062,000	$	955,000	$	4,248,000	$	4,598,000	$	17,366,000

Major Goods or Services
RF/microwave filters		559,000		-		-		-		-		559,000
Detector logarithmic video amplifiers		692,000		-		-		-		-		692,000
Power supply units		1,698,000		1,016,000		-		-		-		2,714,000
Power supply systems		609,000		-		-		-		-		609,000
Healthcare diagnostic systems		1,992,000		-		-		-		-		1,992,000
Electric vehicle chargers		-		46,000		-		-		-		46,000
Defense systems		953,000		-		-		-		-		953,000
Digital currency mining		-		-		-		3,976,000		-		3,976,000
Hotel operations		-		-		-		-		4,598,000		4,598,000
Other		-		-		12,000		272,000		-		284,000
Revenue from contracts with customers		6,503,000		1,062,000		12,000		4,248,000		4,598,000		16,423,000
Revenue, lending and trading activities		-		-		943,000		-		-		943,000
Total revenue	$	6,503,000	$	1,062,000	$	955,000	$	4,248,000	$	4,598,000	$	17,366,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	3,601,000	$	1,062,000	$	12,000	$	4,248,000	$	4,598,000	$	13,521,000
Services transferred over time		2,902,000		-		-		-		-		2,902,000
Revenue from contracts with customers	$	6,503,000	$	1,062,000	$	12,000	$	4,248,000	$	4,598,000	$	16,423,000

The Company’s disaggregated revenues consisted of the ~~measurement date.~~

following for the six months ended June 30, 2022:

	Six months ended June 30, 2022
	GWW		TurnOnGreen		Ault Alliance		BNI		AGREE		Total
Primary Geographical Markets
North America	$	2,622,000	$	1,834,000	$	19,000	$	8,074,000	$	7,296,000	$	19,845,000
Europe		4,719,000		47,000		-		-		-		4,766,000
Middle East and other		6,407,000		310,000		-		-		-		6,717,000
Revenue from contracts with customers		13,748,000		2,191,000		19,000		8,074,000		7,296,000		31,328,000
Revenue, lending and trading activities (North America)		-		-		18,864,000		-		-		18,864,000
Total revenue	$	13,748,000	$	2,191,000	$	18,883,000	$	8,074,000	$	7,296,000	$	50,192,000

Major Goods or Services
RF/microwave filters		2,070,000		-		-		-		-		2,070,000
Detector logarithmic video amplifiers		692,000		-		-		-		-		692,000
Power supply units		4,129,000		2,112,000		-		-		-		6,241,000
Power supply systems		657,000		-		-		-		-		657,000
Healthcare diagnostic systems		1,992,000		-		-		-		-		1,992,000
Electric vehicle chargers		-		79,000		-		-		-		79,000
Defense systems		4,208,000		-		-		-		-		4,208,000
Digital currency mining		-		-		-		7,524,000		-		7,524,000
Hotel operations		-		-		-		-		7,296,000		7,296,000
Other		-		-		19,000		550,000		-		569,000
Revenue from contracts with customers		13,748,000		2,191,000		19,000		8,074,000		7,296,000		31,328,000
Revenue, lending and trading activities		-		-		18,864,000		-		-		18,864,000
Total revenue	$	13,748,000	$	2,191,000	$	18,883,000	$	8,074,000	$	7,296,000	$	50,192,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	7,113,000	$	2,191,000	$	19,000	$	8,074,000	$	7,296,000	$	24,693,000
Services transferred over time		6,635,000		-		-		-		-		6,635,000
Revenue from contracts with customers	$	13,748,000	$	2,191,000	$	19,000	$	8,074,000	$	7,296,000	$	31,328,000

The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independentCompany’s disaggregated revenues consisted of the ~~Company. Unobservable inputs are inputs that reflect~~following for the three months ended June 30, 2021:

	Three months ended June 30, 2021
	GWW		TurnOnGreen		Ault Alliance		Total
Primary Geographical Markets
North America	$	2,140,000	$	1,289,000	$	550,000	$	3,979,000
Europe		1,842,000		453,000		-		2,295,000
Middle East and other		2,493,000		88,000		-		2,581,000
Revenue from contracts with customers		6,475,000		1,830,000		550,000		8,855,000
Revenue, lending and trading activities (North America)		-		-		53,274,000		53,274,000
Total revenue	$	6,475,000	$	1,830,000	$	53,824,000	$	62,129,000

Major Goods
RF/microwave filters	$	1,076,000	$	-	$	-	$	1,076,000
Detector logarithmic video amplifiers		73,000		-		-		73,000
Power supply units		240,000		1,830,000		-		2,070,000
Power supply systems		2,475,000		-		-		2,475,000
Healthcare diagnostic systems		228,000		-		-		228,000
Defense systems		2,383,000		-		-		2,383,000
Digital currency mining		-		-		291,000		291,000
Other		-		-		259,000		259,000
Revenue from contracts with customers		6,475,000		1,830,000		550,000		8,855,000
Revenue, lending and trading activities		-		-		53,274,000		53,274,000
Total revenue	$	6,475,000	$	1,830,000	$	53,824,000	$	62,129,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	3,863,000	$	1,830,000	$	550,000	$	6,243,000
Services transferred over time		2,612,000		-		-		2,612,000
Revenue from contracts with customers	$	6,475,000	$	1,830,000	$	550,000	$	8,855,000

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~~disaggregated revenues consisted of the ~~assets or liabilities~~. ~~Level 2 inputs also include quoted prices that were adjusted for security-specific restrictions which are compared to output from internally developed models such as a discounted cash flow models.~~

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

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, trade receivables and trade receivable – related party, investments, notes receivable, trade payables and trade payables – related party approximate their fair value due to the short-term maturities of such instruments.

As of September 30, 2017 and December 31, 2016, the fair value of the Company’s investments were $3,782 and $1,036, respectively, and were concentrated in debt and equity securities of AVLP, a related party (See Note 4), which are classified as available-for-sale investments. At September 30, 2017, the Company's investment in AVLP is comprised of convertible promissory notes of $3,670, net of unamortized discount, and marketable equity securities of $112. At December 31, 2016, the Company's investment in AVLP is comprised of convertible promissory notes of $952, net of unamortized discount, and marketable equity securities of $84. For investments in marketable equity securities, the Company took into consideration general market conditions, the duration and extent to which the fair value is below cost, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. As a result of this analysis, the Company has determined that its cost basis in AVLP equitable securities approximates the current fair value.

Consistent with the guidance at ASC No. 835, the Company’s presumption is that the fair value of its convertible promissory notes in AVLP have a present value equivalent to the cash proceeds exchanged. Further, the discount shall be reported in the balance sheet as a direct deduction from the face amount of the convertible promissory notes. Thus, the Company has determined that the amortized cost of its convertible promissory notes approximates fair value and are subject to a periodic impairment review. The interest income, including amortization of the discount arising at acquisition,following for the convertible promissory notes are included in earnings. In the future, if the Company does not expect to recover the entire amortized cost basis, the Company shall recognize other-than-temporary impairments in other comprehensive income (loss).

During 2017, the Company purchased at the market shares of common stock of three companies for a total cost of $25. In accordance with ASC No. 320-10, these investments are accounted for pursuant to the fair value method based upon the closing market prices of common stock for these three companies at Septembersix months ended June 30, ~~2017.~~

~~The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.~~ 2021:

	Six months ended June 30, 2021
	GWW		TurnOnGreen		Ault Alliance		Total
Primary Geographical Markets
North America	$	4,029,000	$	2,497,000	$	852,000	$	7,378,000
Europe		3,752,000		562,000		-		4,314,000
Middle East and other		5,044,000		154,000		-		5,198,000
Revenue from contracts with customers		12,825,000		3,213,000		852,000		16,890,000
Revenue, lending and trading activities (North America)		-		-		58,485,000		58,485,000
Total revenue	$	12,825,000	$	3,213,000	$	59,337,000	$	75,375,000

Major Goods
RF/microwave filters	$	2,291,000	$	-	$	-	$	2,291,000
Detector logarithmic video amplifiers		144,000		-		-		144,000
Power supply units		478,000		3,213,000		-		3,691,000
Power supply systems		4,708,000		-		-		4,708,000
Healthcare diagnostic systems		413,000		-		-		413,000
Defense systems		4,791,000		-		-		4,791,000
Digital currency mining		-		-		421,000		421,000
Other		-		-		431,000		431,000
Revenue from contracts with customers		2,825,000		3,213,000		852,000		16,890,000
Revenue, lending and trading activities		-		-		58,485,000		58,485,000
Total revenue	$	12,825,000	$	3,213,000	$	59,337,000	$	75,375,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	7,621,000	$	3,213,000	$	852,000	$	11,686,000
Services transferred over time		5,204,000		-		-		5,204,000
Revenue from contracts with customers	$	12,825,000	$	3,213,000	$	852,000	$	16,890,000

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Fair Value Measurement at September 30, 2017
Total Level 1 Level 2 Level 3
Investments – AVLP – a related party $ 3,782 $ 112 $ 3,670 $ —

Investments in other companies $ 25 $ 25 $ — $ —

Fair Value Measurement at December 31, 2016
Total Level 1 Level 2 Level 3
Investments – AVLP – a related party $ 1,036 $ 84 $ 952 $ —

~~We assess~~

Schedule of financial instrument measured at fair value
	Fair Value Measurement at June 30, 2022
	Total		Level 1		Level 2		Level 3
Investment in term promissory note of Ault & Company, Inc. (“Ault & Company”) and other – a related party	$	2,770,000	$	-	$	-	$	2,770,000
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party		8,845,000		8,845,000		-		-
Investments in marketable equity securities		17,467,000		17,467,000		-		-
Cash and marketable securities held in trust account		116,895,000		116,895,000		-		-
Investments in other equity securities		804,000		-		-		804,000
Total assets measured at fair value	$	146,781,000	$	143,207,000	$	-	$	3,574,000

	Fair Value Measurement at December 31, 2021
	Total		Level 1		Level 2		Level 3
Investment in term promissory note of Ault & Company and other – a related party	$	2,842,000	$	-	$	-	$	2,842,000
Investment in common stock of Alzamend – a related party		13,230,000		13,230,000		-		-
Investments in marketable equity securities		40,380,000		40,380,000		-		-
Cash and marketable securities held in trust account		116,725,000		116,725,000		-		-
Investments in other equity securities		9,215,000		-		-		9,215,000
Total assets measured at fair value	$	182,392,000	$	170,335,000	$	-	$	12,057,000

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

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

The following table summarizes the changes in investments in other equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the six months ended June 30, 2022:

Schedule of other equity securities measured and carried at fair value
	Investments in other equity securities
Balance at January 1, 2022	$	9,215,000
Investment in preferred stock		2,550,000
Change in fair value of warrants		13,867,000
Conversion to marketable securities		(24,828,000	)
Balance at June 30, 2022	$	804,000

See Note 11 for the changes in investments in Ault & Company measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) during the three and six months ended June 30, 2022.

Other equity securities also include investments in entities that do not have a readily determinable fair value and do not report net asset value per share. These investments are accounted for using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments. Observable price changes result from, among other things, equity transactions for the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. For these transactions to be considered observable price changes of the same issuer, the Company evaluates whether these transactions have similar rights and obligations, including voting rights, distribution preferences, conversion rights, and other factors, to the investments the Company holds. Any investments adjusted to their fair value by applying the measurement alternative are disclosed as nonrecurring fair value measurements, including the level in the fair value hierarchy that was used. As of June 30, 2022 and December 31, 2021, investments in other equity securities valued using a measurement alternative of $37.7 million and $21.3 million, respectively, are included in other equity securities in the accompanying condensed consolidated balance sheets.

The following table presents information on the assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021. These investments were not measured due to an observable price change or impairment during the six months ended June 30, 2022.

Schedule of investments not measured
	Fair Value Measurement Using
	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of June 30, 2022
Investments in other equity securities that do not report net asset value	$	37,691,000	$	-	$	-	$	37,691,000

	Fair Value Measurement Using
	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of December 31, 2021
Investments in other equity securities that do not report net asset value	$	21,241,000	$	-	$	-	$	21,241,000

6. MARKETABLE EQUITY SECURITIES

Marketable equity securities with readily determinable market prices consisted of the following as of June 30, 2022 and December 31, 2021:

Schedule of marketable equity securities
	Marketable equity securities at June 30, 2022
			Gross unrealized		Gross unrealized
	Cost		gains		losses			Fair value
Common shares	$	26,063,000	$	481,000	$	(9,077,000	)	$	17,467,000

	Marketable equity securities at December 31, 2021
			Gross unrealized		Gross unrealized
	Cost		gains		losses			Fair value
Common shares	$	53,475,000	$	32,000	$	(13,127,000	)	$	40,380,000

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

·F-20

~~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.~~

~~DIGITAL POWER CORPORATION~~

7. PROPERTY AND ~~SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER~~EQUIPMENT, NET

At June 30, ~~2017~~

~~U.S. dollars~~2022 and December 31, 2021, property and equipment consisted of:

Schedule of property and equipment
	June 30, 2022			December 31, 2021
Cryptocurrency machines and related equipment	$	76,963,000		$	10,763,000
Computer, software and related equipment		18,697,000			8,884,000
Office furniture and equipment		2,585,000			702,000
Land		25,696,000			25,696,000
Building and improvements		70,926,000			68,959,000
		194,867,000			115,004,000
Accumulated depreciation and amortization		(10,403,000	)		(5,096,000	)
Property and equipment placed in service, net		184,464,000			109,908,000
Deposits on cryptocurrency machines		61,523,000			64,117,000
Property and equipment, net	$	245,987,000		$	174,025,000

For the six months ended June 30, 2022 and 2021, depreciation expense amounted to $6.3 million and $0.4 million, respectively.

8. BUSINESS COMBINATIONS

Overview of AVLP Acquisition

On June 1, 2022, the Company converted the principal amount under the convertible promissory notes issued to it by AVLP and accrued but unpaid interest into common stock of AVLP. The Company converted $20.0 million in ~~thousands, except~~principal and $5.9 million of accrued interest receivable at a conversion price of $0.50 per share and ~~per share data~~

~~Debt Discounts~~

received 51,889,168 shares of common stock increasing its common stock ownership of AVLP from less than 20% to approximately 92%.

Prior to the conversion of the convertible promissory notes, the Company accounted for its investment in AVLP as an investment in an unconsolidated entity under the equity method of accounting. In connection with the conversion of the convertible promissory notes, the Company’s consolidated financial statements now include all of the accounts of AVLP, and any significant intercompany balances and transactions have been eliminated in consolidation.

The consideration transferred for the Company’s approximate 92% ownership interest in connection with this acquisition aggregated $20.7 million, which represented the fair value of the Company’s holdings in AVLP immediately prior to conversion. The carrying amount of the Company’s holdings in AVLP immediately prior to conversion was $23.4 million, resulting in a $2.7 million loss for the related remeasurement, which was recognized in interest and other income. The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the acquisition date. The goodwill resulting from this acquisition is not tax deductible.

The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

Schedule of preliminary allocation
	Preliminary allocation
Total purchase consideration	$	20,706,000
Fair value of non-controlling interest		6,706,000
Total consideration	$	27,412,000

Identifiable net liabilities assumed:
Cash	$	1,245,000
Prepaid expenses and other current assets		55,000
Property and equipment		5,057,000
Note receivable		800,000
Accounts payable and accrued expenses		(6,935,000	)
Convertible notes payable, principal		(9,734,000	)
Fair value of embedded derivative		(1,226,000	)
Fair value of bifurcated conversion option		(4,425,000	)
Fair value of bifurcated put option		(200,000	)
Net liabilities assumed		(15,363,000	)
Goodwill	$	42,775,000

The Company consolidates the results of AVLP on a one-month lag, therefore the statements of operations do not include results for AVLP for the three and six months ended June 30, 2022.

Overview of SMC Acquisition

Beginning in June 2022, the Company, through its subsidiary Digital Power Lending, LLC (“DP Lending”), began making open market purchases of SMC common stock. These purchases granted the Company a greater than 20% effective ownership on June 9, 2022, and subsequently, on June 15, 2022, the Company owned more than 50% of the issued and outstanding common stock of SMC. The Company’s ownership of SMC stands at 51.6% as of June 30, 2022.

As of June 15, 2022 (“Acquisition Date”), the purchase price of the common stock acquired totaled $7.4 million and on June 15, 2022 a $3.1 million gain was recognized in interest and other income for the remeasurement of the Company’s previously held ownership interest to $10.5 million, based on the trading price of SMC common stock. The Company also recognized non-controlling interest at fair value as of the Acquisition Date in the amount of $10.3 million.

The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed, is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the Acquisition Date. The goodwill resulting from this acquisition is not tax deductible.

The Company consolidates the results of SMC on a one-quarter lag as it enables the Company to report its quarterly results independent from the timing of when SMC reports its results, therefore the statements of operations do not include results for SMC for the three and six months ended June 30, 2022.

The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

Schedule of assets acquired and liabilities assumed
	Preliminary Allocation
Total purchase consideration	$	10,517,000
Fair value of non-controlling interest		10,336,000
Total consideration	$	20,853,000

Identifiable net assets acquired:
Cash	$	2,278,000
Accounts receivable		9,891,000
Prepaid expenses and other current assets		673,000
Inventories		12,840,000
Property and equipment, net		529,000
Right-of-use assets		1,073,000
Other assets		83,000
Intangible assets:
Trade names-estimated useful life of 19 years		2,470,000
Customer relationships-estimated useful life of 16 years		1,380,000
Proprietary technology-estimated useful life of 3 years		600,000
Accounts payable and accrued expenses		(10,052,000	)
Notes payable		(2,972,000	)
Lease liabilities		(1,124,000	)
Net assets acquired		17,669,000
Goodwill	$	3,184,000

Unaudited Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2022 have been prepared as if the SMC acquisition had occurred on January 1, 2022.

Schedule of pro forma consolidated results of operations
	Three Months Ended			Six Months Ended
	June 30, 2022			June 30, 2022
Total revenues	$	29,058,000		$	64,717,000
Net loss attributable to BitNile Holdings, Inc.	$	(26,206,000	)	$	(56,531,000	)

The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

9. GOODWILL

The Company’s goodwill increased due to the acquisition of controlling interests in AVLP on June 1, 2022 and SMC on June 15, 2022. The following table summarizes the changes in the Company’s goodwill for the six months ended June 30, 2022:

Schedule of goodwill
	Goodwill
Balance as of January 1, 2022	$	10,090,000
Acquisition of AVLP		42,775,000
Acquisition of SMC		3,184,000
Effect of exchange rate changes		(727,000	)
Balance as of June 30, 2022	$	55,322,000

10. INCREASE IN OWNERSHIP INTEREST OF SUBSIDIARIES

On May 12, 2022, BNI closed a $1.8 million membership interest purchase agreement whereby BNI acquired the 30% minority interest of Alliance Cloud Services, LLC (“ACS”) which BNI did not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI. ACS owns and operates the Company’s Michigan data center, where BNI conducts the Company’s Bitcoin mining operations.

Between June 15, 2022 and June 30, 2022, DP Lending increased the Company’s ownership interest in SMC through the open market purchase of approximately 55,000 shares for $430,000.

11. INVESTMENTS – RELATED PARTIES

Investments in Alzamend and Ault & Company at June 30, 2022 and December 31, 2021, were comprised of the following:

Investment in Promissory Notes, Related Parties

Schedule of investment
	Interest	Due	June 30,		December 31,
	rate	date	2022		2021
Investment in promissory note of Ault & Company	8%	December 31, 2022	$	2,500,000	$	2,500,000
Accrued interest receivable, Ault & Company				270,000		170,000
Other				-		172,000
Total investment in promissory note, related party			$	2,770,000	$	2,842,000

Investment in Common Stock and Options, Related Parties

	June 30,		December 31,
	2022		2021
Investment in common stock and options of Alzamend	$	8,845,000	$	13,230,000

The following table summarizes the changes in the Company’s investments in Alzamend and Ault & Company during the six months ended June 30, 2022:

Schedule of investments in Alzamend and Ault
	Investment in warrants and common stock of Alzamend			Investment in promissory notes of Ault & Company
Balance at January 1, 2022	$	13,230,000		$	2,842,000
Investment in common stock and options of Alzamend		4,663,000			-
Unrealized loss in common stock of Alzamend		(9,048,000	)		-
Amortization of related party investment		-			(173,000	)
Accrued interest		-			101,000
Balance at June 30, 2022	$	8,845,000		$	2,770,000

Investments in Alzamend Common Stock

The following table summarizes the changes in the Company’s investments in Alzamend common stock during the six months ended June 30, 2022:

Schedule of investments in Alzamend common stock
	Shares of		Per Share		Investment in
	Common Stock		Price		Common Stock
Balance at January 1, 2022		6,947,000	$	1.90	$	13,230,000
March 9, 2021 securities purchase agreement^*		2,667,000	$	1.50		4,000,000
Open market purchases after initial public offering		618,000	$	1.07		663,000
Unrealized loss in common stock of Alzamend						(9,048,000	)
Balance at June 30, 2022		10,232,000	$	0.86	$	8,845,000

Pursuant to the March 9, 2021 securities purchase agreement, in aggregate, Alzamend 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 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. As of December 31, 2021, DP Lending funded $6.0 million, including the conversion of notes and advances of $0.8 million, and the remaining $4.0 million was funded upon Alzamend achieving certain milestones during the three months ended June 30, 2022.

12. INVESTMENT IN UNCONSOLIDATED ENTITY – AVLP

Equity Investments in Unconsolidated Entity – AVLP

The Company converted its AVLP convertible promissory note on June 1, 2022 as part of the acquisition of AVLP (see Note 8). Equity investments in the then unconsolidated entity, AVLP, at December 31, 2021, were comprised of the following:

Investment in Promissory Notes

Schedule of convertible promissory note
	Interest rate	Due date	December 31, 2021
Investment in convertible promissory note	12%	2022-2026	$	17,799,000
Investment in promissory note – Alpha Fund	8%	June 30, 2022		3,600,000
Accrued interest receivable				2,092,000
Other				600,000
Total investment in promissory notes, gross				24,091,000
Less: provision for loan losses				(2,000,000	)
Total investment in promissory note			$	22,091,000

The following table summarizes the changes in the Company’s equity investments in the then unconsolidated entity, AVLP, during the six months ended June 30, 2022:

Schedule ofchanges in the equity investments
	Investment in			Investment in
	warrants and			promissory notes			Total
	common stock			and advances			investment
Balance at January 1, 2022	$	39,000		$	22,091,000		$	22,130,000
Investment in convertible promissory notes		-			2,200,000			2,200,000
Loss from equity investment		(39,000	)		(885,000	)		(924,000	)
Accrued interest		-			143,000			143,000
Loss on remeasurement upon conversion		-			(2,700,000	)		(2,700,000	)
Conversion of AVLP convertible promissory notes		-			(17,040,000	)		(17,040,000	)
Elimination of intercompany debt after conversion		-			(3,809,000	)		(3,809,000	)
Balance at June 30, 2022	$	-		$	-		$	-

13. CONSOLIDATED VARIABLE INTEREST ENTITY - ALPHA FUND

Alpha Fund – Consolidated Variable Interest Entity

As of June 30, 2022 and December 31, 2021, the Company held an investment in Ault Alpha LP (“Alpha Fund”). Alpha Fund operates as a private investment fund. The general partner of Alpha Fund, Ault Alpha GP LLC (“Alpha GP”) is owned by Ault Capital Management LLC (the “Investment Manager”), which also acts as the investment manager to Alpha Fund. The Investment Manager is owned by Ault & Company. Messrs. Ault, Horne, Nisser and Cragun, who serve as executive officers and/or directors of the Company, are executive officers of the Investment Manager, and Messrs. Ault, Horne and Nisser are executive officers and directors of Ault & Company.

As of June 30, 2022, DP Lending subscribed for $25 million or 100% of the limited partnership interests in Alpha Fund, the full amount of which was funded, an increase of $8 million from the $17 million subscribed and funded as of December 31, 2021. These investments are subject to a rolling five-year lock-up period, provided that after three years, Alpha GP will waive 24 months of the lock-up period upon receipt of written notice from an executive officer of the Company that a withdrawal of capital is required to prevent a going concern opinion from the Company’s auditors, under the terms of Alpha Fund’s partnership agreement and side letter entered into between the Company and Alpha Fund.

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

Investments by Alpha Fund – Treasury Stock

As of June 30, 2022, Alpha Fund owned 22,225,000 shares of the Company’s common stock and 53,033 shares of the Company’s 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”), accounted for as treasury stock as of June 30, 2022.

14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Other current liabilities at June 30, 2022 and December 31, 2021 consisted of:

Schedule of other current liabilities
	June 30,		December 31,
	2022		2021
Accounts payable	$	18,348,000	$	6,902,000
Accrued payroll and payroll taxes		6,540,000		5,027,000
Financial instrument liabilities		934,000		4,249,000
Accrued legal		1,787,000		2,637,000
Interest payable		3,680,000		187,000
Other accrued expenses		12,236,000		3,753,000
Total	$	43,525,000	$	22,755,000

Financial Instruments

Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. In prior years, the Company granted certain warrants that resulted in these warrants accounted for as a financial instrument and being re-measured every reporting period with the change in value reported in the statement of operations.

The financial instruments were valued using a variety of pricing models with the following valuation assumptions:

Schedule of Financial Instrument
	June 30, 2022	December 31, 2021
Contractually stipulated stock price	$2.50	$2.50
Exercise price	$2.50	$2.50
Contractually defined remaining term	5.0	5.0
Contractually defined volatility	135%	135%
Dividend yield	0%	0%
Risk-free interest rate	3.0%	1.3%

Per the terms of the warrant agreements underlying the financial instruments, the value to the warrant holders is defined within the agreement based on a stock price, contractual term, volatility factor and dividend rate as defined in the warrant agreement, and not indexed to the company’s stock, resulting in the financial instrument accounting. The risk-free interest rate was based on rates established by the Federal Reserve Bank.

The following table sets forth a summary of the changes in the estimated fair value of the financial instruments during the six months ended June 30, 2022 and 2021:

Schedule of fair value of the financial instruments
	June 30, 2022			June 30, 2021
Beginning balance	$	4,249,000		$	4,192,000
Change in fair value		24,000			388,000
Extinguishment		(3,339,000	)		-
Ending balance	$	934,000		$	4,580,000

15. NOTES PAYABLE

Notes payable at June 30, 2022 and December 31, 2021, were comprised of the following.

Schedule of notes payable
	Interest rate	Due date	June 30, 2022			December 31, 2021
Short-term notes payable	12.0%	Aug. – Nov. 2022	$	92,000		$	118,000
10% original issue discount senior secured notes				-			65,972,000
AGREE Madison secured construction loans	7.0%	January 1, 2025		55,055,000			55,055,000
SMC line of credit	15.5%	June 11, 2023		2,500,000			-
SMC installment notes	7.6%	June 18, 2024		195,000			-
SMC notes payable	6.0%	Sep. 2024 – Feb. 2025		353,000			-
XBTO Trading note payable	12.5%	December 30, 2023		4,000,000			-
Short-term bank line of credit	3.9%	Renews monthly		1,736,000			960,000
Total notes payable			$	63,931,000		$	122,105,000
Less:
Unamortized debt discounts				(1,044,000	)		(27,496,000	)
Total notes payable, net			$	62,887,000		$	94,609,000
Less: current portion				(7,340,000	)		(39,554,000	)
Notes payable – long-term portion			$	55,547,000		$	55,055,000

SMC Debt Security Interest

The SMC debt is secured by a perfected security interest in all SMC assets including a first-priority security interest in SMC accounts receivable and inventory.

Amortization of Debt Discount of Secured Promissory Notes

On December 30, 2021, the Company entered into a securities purchase agreement with certain accredited investors providing for the issuance of:

secured promissory notes (the “Secured Promissory Notes”) that bear interest at 8% per annum with an aggregate principal face amount of approximately $66 million including a 10% original issue discount;

five-year warrants to purchase an aggregate of 14,095,350 shares of the Company’s common stock at an exercise price of $2.50, subject to adjustment; and

five-year warrants to purchase an aggregate of 1,942,508 shares of common stock (the “Class B Warrant Shares”) at an exercise price of $2.50 per share, subject to adjustment. The Class B Warrant Shares are deemed to be a derivative instrument.

As of December 31, 2021, unamortized debt discount ~~according~~on the Secured Promissory Notes related to ~~ASC No. 470-20,~~ ~~Debt with Conversion~~the original issue discount and ~~Other Options. Debt discounts are amortized through periodic charges to interest expense over the term~~estimated fair value of the ~~related financial instrument using the effective interest method.~~ warrants totaled $26.3 million.

During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2022, the Secured Promissory Notes were repaid and the Company ~~recorded amortization~~fully amortized the related debt discount of ~~debt discounts~~$26.3 million, which is included within interest expense on the condensed consolidated statements of ~~$652~~operations.

16. CONVERTIBLE NOTES

Convertible notes payable at June 30, 2022 and ~~$1,239,~~December 31, 2021, were comprised of the following:

Schedule of convertible notes payable
	Conversion price per share	Interest rate	Due date	June 30, 2022			December 31, 2021
Convertible promissory note	$4.00	4%	May 10, 2024	$	660,000		$	660,000
AVLP convertible promissory notes	$0.35 (AVLP stock)	15%	August 22, 2025		9,911,000			-
Fair value of embedded derivative					1,226,000			-
Fair value of bifurcated conversion option					4,425,000			-
Fair value of bifurcated put option					200,000			-
Less: unamortized debt discounts					(329,000	)		(192,000	)
Total convertible notes payable, net of financing cost				$	16,093,000		$	468,000
Less: current portion					(1,884,000	)		-
Total convertible notes payable, net of financing cost, long term				$	14,209,000		$	468,000

AVLP convertible promissory notes

The AVLP convertible notes payable are due and payable on August 22, 2025, with interest at 7% per annum. At the election of the holders, outstanding principal and accrued but unpaid interest under the notes are convertible into shares of AVLP’s common stock at a conversion price equal to either (i) if the aggregate market capital of AVLP on the date of conversion (the “Market Cap”) is $35 million or less, at a 25% discount to the market price, or (ii) if the Market Cap is greater than $35 million, at a 25% discount to the market price, provided that such discount shall be increased by dividing it by the quotient that shall be obtained by dividing $35 million by the Market Cap at the time of conversion, provided, however, any increase in the discount to the market price shall not result in a discount that is greater than a 75% discount (the “Conversion Price”). Notwithstanding the foregoing, in no event shall the Conversion Price be less than $0.35.

17. 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 one of the Company’s subsidiaries, filed a Complaint (the “Complaint”) in the United States District Court for the Southern District of New York against the Company and the Company’s 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 the Company and its 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, the Company and its subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against the Company, 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 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 to be completed by March 4, 2021. In connection therewith, the Court also denied the defendants’ motion to dismiss without prejudice.

On June 2, 2021, the Company and its subsidiary filed a motion to dismiss the Amended Complaint in its entirety as against the Company, and the promissory estoppel claim as against the subsidiary.

On August 8, 2022, the Court issued an Order denying the motion to dismiss, in its entirety.

The deadline for the Company and its subsidiaries to file an Answer to the Amended Complaint is September 2, 2022.

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 amount of the unpaid portion of the purchase agreement, which is included in accounts payable and accrued expenses. An unfavorable outcome may have a material adverse effect on the Company’s 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 the Company and the Company’s 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 the Company, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and the Company, 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 to deliver unrestricted shares of 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, the Company and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.

On July 28, 2021, the Court conducted oral argument in connection with the motion to dismiss. During the oral argument, the Court informed the parties that the Court was dismissing the fraud claim, in its entirety, and provided Plaintiffs an opportunity to amend their fraud claim within sixty days of the date of the oral argument. The Court reserved decision on the other causes of action.

On December 14, 2021, the Court entered a decision and order in connection with the motion to dismiss whereby the Court dismissed Plaintiff’s causes of action for specific performance, conversion, permanent injunction, and reiterated its prior determination that the fraud claim was also dismissed. The Court denied the motion to dismiss in connection with the other causes of action asserted in the complaint.

On January 26, 2022, the Company and Mr. Ault filed an answer to the complaint and asserted numerous affirmative defenses.

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 the Company’s business, financial condition and results of operations.

Subpoena

The Company and certain affiliates and related parties have received several subpoenas from the SEC for the production of documents and testimony. The Company is fully cooperating with this non-public, fact-finding inquiry and management believes that the Company has operated its business in compliance with all applicable laws. The subpoenas expressly provide that the inquiry is not to be construed as an indication by the SEC or its staff that any violations of the federal securities laws have occurred, nor should they 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. The Company is regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.

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

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

18. STOCKHOLDERS’ EQUITY

2022 Issuances

2022 ATM Offering – Common Stock

On February 25, 2022, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets, LLC (“Ascendiant Capital”) to sell shares of common stock having an aggregate offering price of up to $200 million from time to time, through an “at the market offering” program (the “2022 Common ATM Offering”). As of June 30, 2022, the Company had sold an aggregate of 239.7 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $163.4 million.

Public Offering of Series D Preferred Stock

The Company has designated 2,000,000 shares of preferred stock, par value $0.001 per share, of the Company as the Series D Preferred Stock.

On June 3, 2022, the Company announced the closing of its public offering of 144,000 shares of its Series D Preferred Stock at a price to the public of $25.00 per share. Gross proceeds from the offering were approximately $3.6 million, before deducting offering expenses. Net proceeds to the Company, after payment of commissions, non-accountable fees and offering expenses were $3.1 million.

2022 ATM Offering – Preferred Stock

On June 14, 2022, the Company entered into an At-The-Market equity offering program with Ascendiant Capital under which it may sell, from time to time, shares of its Series D Preferred Stock for aggregate gross proceeds of up to $46,400,000 (the “2022 Preferred ATM Offering”). As of June 30, 2022, the Company had sold an aggregate of 2,618 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of $57,000.

19. INCOME TAXES

The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes. The Company’s effective tax rate (“ETR”) from continuing operations was 0.4% and (7.4%) for the six months ended June 30, 2022 and 2021, respectively. The Company ~~did not recognize any debt discount during~~an income tax provision of $0.2 million and $3.5 million for the six months ended June 30, 2022 and 2021, respectively. The difference between the ETR and federal statutory rate of 21% is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes and changes in valuation allowance.

20. NET (LOSS) INCOME PER SHARE

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

~~Net Loss per Share~~

~~Net~~2022, 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 and six months ended June 30, 2022, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for ~~all periods presented. The Company has included 317,460 warrants, with an exercise price of $.01, in its earnings per share calculation~~the period. Anti-dilutive securities, which are convertible into or exercisable for the ~~three and nine months ended September 30, 2017. Anti-dilutive securities~~Company’s common stock, consisted of the following at ~~September~~June 30,

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

~~At September 30, 2017, the 20,887,906 of potential~~ 2022:

Net Loss Per Share
	June 30, 2022
Stock options		6,396,000
Restricted stock grants		2,085,000
Warrants		18,493,000
Convertible notes		165,000
Convertible preferred stock		2,000
Total		27,141,000

Basic and diluted net income per common stock equivalents included 6,926,095 in warrants, convertible notes and preferred stock in which the holders are contractually prohibited from exercising or converting the warrants, convertible notes and preferred stock into shares of the Company’s common stock. The restriction shall remain until shareholder approval is received.

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

~~Recently Issued Accounting Standards~~

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

~~4. INVESTMENTS – RELATED PARTIES~~

~~Investments in AVLP at September 30, 2017, and December 31, 2016, are comprised of the following:~~

September 30, December 31,
2017 2016
Investment in convertible promissory note of AVLP $ 3,797 $ 997
Investment in common stock of AVLP 112 84
Total investment in AVLP P – Gross 3,909 1,081
Less: original issue discount (127 ) (45 )
Total investment in AVLP P – Net $ 3,782 $ 1,036

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

During the year ended December 31, 2016, the Company made a strategic decision to invest in AVLP, a related party controlled by Philou, an existing majority stockholder. The Company’s investments in AVLP primarily consist of convertible promissory notes and shares of common stock of AVLP.

~~On October 5, 2016, November 30, 2016, and February 22, 2017, the Company entered into three 12% Convertible Promissory Notes with AVLP (the~~ ~~"AVLP Notes"~~) in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in net loans to AVLP of $1,500 and an original issue discount of $75. The AVLP notes accrued interest at 12% per annum and were due on or before two years from the origination dates of each note. The Company had the right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at approximately $0.74536 per share. ~~Subject to adjustment,~~ ~~the~~ ~~AVLP~~ ~~Notes, inclusive of the original issue discount, were convertible into 2,113,086 shares of the Company’s common stock~~. ~~During the period from March 29, 2017 to August 16, 2017, the Company funded $1,809 in excess of the $1,500 net loan amount required pursuant to the terms of the AVLP Notes~~

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

The Warrant entitles the Company to purchase up to 6,948,800 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The exercise price of $0.50 is subject to adjustment for customary stock splits, stock dividends, combinations or similar events. The Warrant may be exercised for cash or on a cashless basis.

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

The Company has classified the AVLP Notes as Available-for-Sale securities, subject to the guidance in ASC No. 320. The Company elected to apply the Fair Value Option Subsections of Subtopic 320-10 and 825-10 to the AVLP Notes. At September 30, 2017, the closing market price of AVLP’s common Stock was $0.64. Subsequent to quarter-end, the closing market price of AVLP’s common stock was in the range of $0.51 and $ 0.85 and due to the illiquidity and significant volatility of AVLP’s common stock, the Company has determined that its cost basis in AVLP common stock approximates the current fair value.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~The Company has concluded that indicators of impairment, including those described in ASC No. 320-10-35-27, do not currently exist for the Company’s investment in debt and equity securities of AVLP.~~

~~5. ACQUISITIONS~~

~~Microphase Corporation~~

~~On April 28, 2017, the Company entered into a Share Exchange Agreement (the~~ ~~“Share Exchange Agreement”) with Microphase; Microphase Holding Company LLC, a limited liability company organized under the laws of Connecticut (“MHC”), Ergul Family Limited Partnership, a partnership organized under the laws of Connecticut (“EFLP”) RCKJ Trust, a trust organized under the laws of New Jersey (“RCKJ”~~ ~~and with MHC and EFLP, the~~ ~~“Significant Stockholders”) and those additional persons who have executed the Agreement (collectively, the~~ ~~“Minority Stockholders”~~ ~~and with the Significant Stockholders, the~~ ~~“Stockholders”). Upon the terms and subject to the conditions set forth in the Agreement, the Company acquired 1,603,434 shares (the~~ ~~“Subject Shares”) of the issued and outstanding common stock of Microphase (the~~ ~~“MPC Common Stock”), from the Stockholders in exchange (the~~ ~~“Exchange”) for the issuance by the Company of 1,842,448 shares of Digital Power common stock (“Common Stock”) and 378,776 shares of Digital Power Series D Preferred Stock (collectively, the~~ ~~“Exchange Shares”), which shares of Digital Power Series D Preferred Stock are, subject to shareholder approval, convertible into an aggregate of 757,552 shares of Common Stock and warrants (the~~ ~~“Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of Common Stock (the~~ ~~“Warrant Shares”). The Exchange Shares and the Exchange Warrants are at times collectively referred to herein as the~~ ~~“Exchange Securities.”~~ ~~At the time of the closing of the acquisition the Exchange Shares constituted~~ ~~56.4% of the outstanding equity interests of Microphase Corporation~~. ~~The operating results of Microphase from the closing date of the acquisition, June 2, 2017, through September 30, 2017, are included in the consolidated financial statements.~~

At closing, the purchase price of Digital Power’s 56.4% interest in Microphase was determined to be $1,451, comprised of the Exchange Shares, valued at $1,222 based on the closing price of the Company’s common stock on June 2, 2017, and the Exchange warrants, valued at $229. ~~The Company computed the fair value of these warrants using the Black-Scholes option pricing model.~~

~~Power-Plus Technical Distributors~~

~~On August 3, 2017, Coolisys entered into a Securities Purchase Agreement (the~~ ~~“Purchase Agreement”~~) to acquire all the outstanding membership Interests of Power-Plus. Power-Plus is an industrial distributor of value added power supply solutions, UPS systems, fans, filters, line cords, and other power-related components. On September 1, 2017, Coolisys completed the acquisition.

Under the terms of the Agreement, Coolisys Technologies acquired all the membership Interests of Power-Plus for a price of $850, which was reduced by certain debts of Power-Plus in the amount of $186. The purchase price of $664 will be paid by (i) a two-year promissory note in the amount of $255,000 payable in 24 monthly installments; and (ii) cash at closing of $409 resulting in a net purchase price of $664.

~~The acquisition of Microphase and Power-Plus is being accounted for under the purchase method of accounting in accordance with ASC No. 805,~~ ~~Business Combinations~~. Under the purchase method, assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill is recorded to the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired less liabilities assumed at the date of acquisition.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~Upon initial measurement, components of the purchase price are as follows:~~

Microphase

Power-Plus

Cash and cash equivalents $ 11 $ 27
Accounts receivable 439 235
Inventories 667 241
Prepaid expenses and other current assets 139 2
Restricted cash 100 —
Intangible assets 95 250
Property and equipment 93 23
Other investments 303 —
Deposits and loans 44 —
Accounts payable and accrued expenses (1,680 ) (392 )
Revolving credit facility (880 ) (210 )
Notes payable (2,204 ) —
Notes payable, related parties (406 ) —
Other current liabilities (327 ) —
Net liabilities assumed/assets acquired (3,606 ) 176
Goodwill and other intangibles 6,002 488
Non-controlling interest (945 ) —
Purchase price $ 1,451 $ 664

The following pro forma data summarizes the results of operations for the periods indicated as if the Microphase and Power-Plus acquisitions had been completed as of the beginning of each period presented. The pro forma data gives effect to actual operating results prior to the acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of each period presented or that may be obtained in future periods:

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Revenue $ 3,583 $ 3,751 $ 10,329 $ 12,692

Net loss $ (2,277 ) $ (711 ) $ (4,820 ) $ (1,742 )

Less: Net loss attributable to non-controlling interest 103 290 103 714

Net loss attributable to Digital Power Corp $ (2,144 ) $ (421 ) $ (4,717 ) $ (1,028 )

Preferred deemed dividends — — (319 ) —
Preferred dividends (27 ) — (35 ) —

Loss available to common shareholders $ (2,171 ) $ (421 ) $ (5,071 ) $ (1,028 )

Basic and diluted net loss per common share $ (0.14 ) $ (0.05 ) $ (0.40 ) $ (0.12 )

Basic and diluted weighted average common shares
outstanding
15,587,988 8,618,419 12,727,396 8,618,419

Comprehensive Loss
Loss available to common shareholders $ (2,171 ) $ (421 ) $ (5,071 ) $ (1,028 )
Other comprehensive income (loss)
Change in net foreign currency translation adjustments 42 (55 ) 141 (265 )
Net unrealized gain (loss) on securities available-for-
sale, net of income taxes
(43 ) 186 (43 ) 204
Other comprehensive income (loss) (1 ) 131 98 (61 )
Total Comprehensive loss $ (2,172 ) $ (290 ) $ (4,973 ) $ (1,089 )

~~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

~~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.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~A summary of option activity under the Company's stock option plans as of September 30, 2017, and changes during the nine months ended are as follows:~~

Outstanding Options
Weighted
Weighted Average
Shares Average Remaining Aggregate
Available Number Exercise Contractual Intrinsic
for Grant of Shares Price Life (years) Value

December 31, 2016 3,247,630 2,331,000 $ 0.83 9.08 $ 0
Restricted stock awards (1,336,798 )
Grants (510,000 ) 560,000 $ 0.61

September 30, 2017 1,350,832 2,891,000 $ 0.81 8.50 $ 0

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 30, 2017, $0.55 and the exercise price, multiplied by the number of in-the-money-options).

As of September 30, 2017, there was $425 of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Company's stock option plans. That cost is expected to be recognized over a weighted average period of 2.3 years.

~~7. WARRANTS~~

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

~~(i)~~

~~On April 17, 2017, the Company issued warrants to purchase 166,668 shares of common stock, at an exercise price of $0.90 per share of common stock,~~ ~~in connection with the issuance of two 7% convertible notes in the aggregate principal amount of $250. On July 25, 2017, the Company agreed to~~ ~~reduce the exercise price of warrants to purchase 83,334 shares of common stock from $0.90 per share to $0.55 per share and on July 28, 2017, the Company~~ ~~issued a new warrant to purchase 83,334 shares of common stock at $0.55 per share and cancelled the prior warrant to purchase 83,334 shares of common stock at $0.90 per share (See Note 12).~~

~~(ii)~~

On July 25, 2017, we issued warrants to purchase an aggregate of 163,636 shares of the Company’s common stock at an exercise price equal to $0.55 per share in connection with a private placement agreement under which we issued and sold 272,727 shares of common stock to the investor at $0.55 per share for an aggregate purchase price of $150. At that time, we also issued warrants to purchase 109,090 shares of the Company’s common stock at an exercise price equal to $0.75 per share to two investors that purchased shares of our common stock at $0.55 per share pursuant to subscription agreements (See Note 14).

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~(iii)~~

On July 28, 2017, we entered into an exchange agreement related to a 7% Convertible Note in the principal amount of $125 in which we exchanged the 7% Convertible Note for three new promissory notes in the principal amounts of $110,000 due August 1, 2017; $35,000 due August 1, 2017; and $34,000 due August 8, 2017 (individually an Exchange Note and collectively the Exchange Notes). Concurrent with entering into the exchange agreement, the investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110,000. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110,000. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share (See Note 12).

~~(iv)~~

On August 3, 2017, we issued warrants to purchase an aggregate of 666,666 shares of the Company’s common stock at an exercise price equal to $0.70 per share in connection with the issuance of a 12% Convertible Promissory Note in the aggregate principal amount of $400 (See Note 12).

~~(v)~~

On August 10, 2017, we issued warrants to purchase an aggregate of 1,475,000 shares of the Company’s common stock at an exercise price equal to $0.66 per share in connection with the issuance of 10% Convertible Promissory Notes in the aggregate principal amount of $880 (See Note 12).

~~(vi)~~

~~On August 23, 2017, the Company issued~~ ~~warrants to purchase 272,727 shares of common stock at an exercise price equal to $0.65 per share in connection with~~ ~~entering into securities purchase agreements to issue and sell 272,727 shares of common stock at to the investors at $0.55 per share for an aggregate purchase price of $150. The common stock has yet to be issued and is subject to approval from the NYSE American prior to issuance, which had not been received at September 30, 2017.~~

~~The following table summarizes information about common stock warrants outstanding at September 30, 2017:~~

Outstanding Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
$0.01 317,460 9.09 $ 0.01 79,364 $ 0.01
$0.55 450,304 5.05 $ 0.55 — —
$0.65 272,727 2.90 $ 0.65 — —
$0.66 1,475,000 4.86 $ 0.66 1,475,000 $ 0.66
$0.70 2,428,571 4.92 $ 0.70 690,476 $ 0.70
$0.72 182,003 4.72 $ 0.72 — —
$0.75 244,999 4.69 $ 0.75 — —
$0.80 1,415,128 2.55 $ 0.80 1,166,666 $ 0.80
$0.90 445,002 3.05 $ 0.90 265,000 $ 0.90
$1.00 2,002,005 4.68 $ 1.00 — —
$1.10 1,000,000 2.67 $ 1.10 — —

$0.01 - 1.10 10,233,199 4.26 $ 0.79 3,676,506 $ 0.32

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

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

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

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

~~8. ADVANCES ON FUTURE RECEIPTS~~

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

~~9. REVOLVING CREDIT FACILITY~~

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

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

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

~~10. NOTES PAYABLE~~

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

September 30,
2017
10% short-term promissory notes ^(a)
$ 705
Notes payable to Lucosky Brookman, LLP ^(b)
450
Notes payable to Wells Fargo ^(c)
304
Note payable to Department of Economic and
Community Development ^(d)
298
Note payable to People's United Bank ^{( e)}
19
Power-Plus Credit Facilities ^(f)
182
Note payable to Power-Plus Member ^(g)
255
Other short-term notes payable ^(h)
55
Total notes payable 2,268
Less: current portion (1,609 )
Notes payable – long-term portion $ 659

~~(a)~~

In December 2016, Microphase issued $705 in 10% short-term promissory notes to nineteen accredited investors which, after deducting $71 of placement fees to its selling agent, Spartan Capital Securities, LLC (~~“Spartan”), resulted in $634 in net proceeds to Microphase (the~~ ~~“10% Short-Term Notes”). The 10% Short-Term Notes are due one year from the date of issuance. The amount due pursuant to the 10% Short-Term Notes is equal to the entire original principal amount multiplied by 125% (the~~ ~~“Loan Premium”~~) plus accrued interest. During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $19 and $25, respectively, of interest on these 10% short-term promissory notes. Concurrently, Microphase entered into a one-year agreement with Spartan for investment banking services which provided for: (i) $120 of consulting fees that were paid in cash from the proceeds of the 10% Short-Term Notes; and (ii) if Microphase completes an initial public offering, $90 payable in shares of Microphase common stock. As of September 30, 2017, accrued interest on the 10% Short-Term Notes was $237.

~~(b)~~

On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450 8% promissory note with a maturity date of November 25, 2017 to Lucosky Brookman, LLP (the ~~“Lucosky Note”). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of redeemable convertible Series E preferred stock (the~~ ~~“Series E Preferred Stock”) with a stated value of $45 per share as an alternative to providing a guarantee for the amount of the Lucosky Note.~~ The Company, at its option, may redeem for cash, in whole or in part, at any time and from time to time, the shares of Series E Preferred Stock at the time outstanding, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company shall be credited against the Lucosky Note. ~~During the three months ended September 30, 2017 and the period June 3, 2017 to September 30, 2017, Microphase incurred $3 and $6, respectively, of interest on~~ ~~the Lucosky Note.~~ ~~As of September 30, 2017, accrued interest on the~~ ~~Lucosky Note~~ ~~was $6.~~

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~(c)~~

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

~~(d)~~

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

~~(e)~~

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

~~(f)~~

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

~~(g)~~

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

~~(h)~~

Between May 5, 2017 and September 30, 2017, the Company received additional short-term loans of $215 from five accredited investors, of which $75 was from the Company’s corporate counsel, a related party. As additional consideration, the investors received five-year warrants to purchase 224,371 shares of common stock at a weighted average exercise price of $0.77 per share. The warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of these warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. During the quarter ended June 30, 2017, the Company recorded debt discount in the amount of $95 based on the estimated fair value of these warrants. The Company computed the fair value of these warrants using the Black-Scholes option pricing model. As a result of the short-term feature of these loans and advances, the debt discount was amortized as non-cash interest expense upon issuance of the warrants using the effective interest method.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

During June 2017, the holders of $55 of these short-term loans agreed to cancel their notes for the purchase of 100,001 shares of the Company’s common stock at a price of $0.55 per share. An additional $75 in short-term loans from the Company’s corporate counsel was converted into the Company’s equity securities; $52 was converted into one of the Series C Units and $23 was converted into the Company’s common stock. The Company did not record any additional interest expense as a result of the extinguishment of $130 in short-term loans since the carrying amount of the short-term loans was equivalent to ~~the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of~~ ~~extinguishment. During the three months ended September 30, 2017, the Company also repaid $30 in short-term loans.~~

~~Other Notes Payable~~

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

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

On March 28, 2017, the Company issued $270 in demand promissory notes to several investors. These demand promissory notes accrued interest at the rate of 6% per annum. The Company received gross proceeds of $220 on March 31, 2017. The remaining balance of $50 was received on April 3, 2017. On April 5, 2017, the Company canceled these promissory notes by issuing to the investors 360,000 shares of common stock, at $0.75 per share, and warrants to purchase 180,002 shares of common stock at $0.90 per share. During the quarter ended June 30, 2017, the Company recorded additional interest expense of $109 as a result of the extinguishment of the $270 in demand promissory notes based on the difference of the carrying amount of the demand promissory notes and ~~the fair value of the consideration transferred, which was determined from the closing price of the Company’s common stock on the date of~~ ~~extinguishment~~.

~~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.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

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

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

~~The beneficial conversion feature (“BCF”) embedded in the~~ ~~Convertible Note~~ ~~is accounted for under ASC No.~~ ~~470, De~~bt. At issuance, the estimated fair value of the BCF totaled $187. The Company, however, is prohibited from issuing shares of common stock pursuant to the Convertible Note unless stockholder approval of such issuance of securities is obtained as required by applicable NYSE MKT listing rules. The Company has not yet received stockholder approval of such share issuances. The fair value of the BCF was allocated from the net proceeds of the ~~Convertible Note~~ ~~and, upon stockholder approval, if received, will be amortized to interest expense over the term of the~~ ~~Convertible Note~~ using the effective interest method. The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the Convertible Note. In aggregate, the Company recorded debt discount in the amount of $207 based on the relative fair values of the 666,666 warrants and OID of $40. During the three and nine months ended September 30, 2017, non-cash interest expense of $37 was recorded from the amortization of debt discounts.

~~10% Convertible secured note~~

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.

~~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~~2021 are calculated 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~~.

~~DIGITAL POWER CORPORATION~~follows:

Schedule of basic and diluted net income per common share
	For the Three Months Ended June 30, 2021
	Income			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Net income attributable to BitNile Holdings	$	36,323,000
Less: Preferred stock dividends		(4,000	)

Basic earnings per share
Net income available to common stockholders		36,319,000			50,783,000	$	0.72

Effect of dilutive securities
Stock options		—			292,000
Warrants		290,000			1,540,000
4% convertible notes		7,000			165,000

Diluted earnings per share
Income available to common stockholders plus assumed conversions	$	36,616,000			52,780,000	$	0.69

	For the Six Months Ended June 30, 2021
	Income			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Net income attributable to BitNile Holdings	$	41,291,000
Less: Preferred stock dividends		(9,000	)

Basic earnings per share
Net income available to common stockholders		41,282,000			45,052,000	$	0.92

Effect of dilutive securities
Stock options		—			422,000
Warrants		(388,000	)		1,935,000
4% convertible notes		13,000			165,000

Diluted earnings per share
Income available to common stockholders plus assumed conversions	$	40,907,000			47,574,000	$	0.86

21. SEGMENT AND ~~SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

The Company ~~did not record any additional interest expense~~had six reportable segments as ~~a result~~ of ~~the extinguishment since the carrying amount of the convertible notes was equivalent to~~ ~~the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of~~ ~~extinguishment~~.

As additional consideration, the investor received a five-year warrant to purchase 160,000 shares of common stock at an exercise price of $0.80 per share. The warrants are exercisable commencing six months after the issuance date. The exercise price of the warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The warrants may be exercised for cash or on a cashless basis. The Company computed the fair value of these warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $25 based on the estimated fair value of the warrants.

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

~~13. CONVERTIBLE NOTE – RELATED PARTY~~

~~Convertible notes – related party at September 30, 2017,~~2022 and ~~December 31, 2016, are comprised of the following:~~

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

~~On October 21, 2016, the Company entered into a 12% convertible secured note (the~~ ~~“Convertible Note”) in the principal amount of $530. The Convertible Note included an original issue discount (“OID”~~) of $30 resulting in net proceeds to the Company of $500. Additionally, the Convertible Note accrues interest at 12% simple interest on the principal amount, is secured by all the assets of the Company, and is due on October 20, 2019. Interest only payments are due on a quarterly basis and the principal may be converted into shares of the Company’s common stock at $0.55 per share. Subject to certain beneficial ownership limitations, the noteholder may convert the principal amount of the Convertible Note at any time into common stock. The conversion price of the Convertible Note is subject to adjustment for customary stock splits, stock dividends, combinations or other standard anti-dilution events.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

The Convertible Note contains standard and customary events of default including, but not limited to, failure to make payments when due under the Convertible Note agreement and bankruptcy or insolvency of the Company. Upon 30 days’ notice, the Company has the right to prepay the Convertible Note. In addition, provided that the closing price for a share of the Company’s common stock exceeds $3.00 per share for 30 consecutive trading days, the Company has the right to compel the noteholder to convert the principal amount into shares of common stock at the contractual conversion price.

As additional consideration, the investor received a three-year warrant to purchase 265,000 shares of common stock, at an exercise price of $0.80 per share, and a three-year warrant to purchase 265,000 shares of common stock, at an exercise price of $0.90 per share (collectively the ~~“Convertible Note Warrants”~~). The Convertible Note Warrants are exercisable commencing six months after the issuance date and are subject to certain beneficial ownership limitations. The exercise price of the Convertible Note Warrants is subject to adjustment for customary stock splits, stock dividends, combinations and other standard anti-dilution events. The Convertible Note Warrants may be exercised for cash or on a cashless basis. The Convertible Note Warrants have a call feature that permits the Company to force redemption at $0.001 per share in the event the closing price for a share of the Company’s common stock exceeds $3.00 for 30 consecutive trading days. ~~The Company computed the fair value of the~~ ~~Convertible Note~~ Warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $159 based on the estimated fair value of the Convertible Note Warrants.

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

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

~~14. STOCKHOLDERS’ EQUITY~~

~~Preferred Stock~~

~~The Company is authorized to issue 2,000,000 shares of Preferred Stock with no par value. The Board of Directors has designated 500,000 shares of its Preferred Stock as~~ ~~Series A cumulative Redeemable Convertible Preferred shares (the~~ ~~“Series A Preferred Stock”), 500,000 shares as Series B~~ ~~Convertible Preferred Stock (the~~ ~~“Series B Preferred Stock”), 460,000~~ ~~shares as Series C~~ ~~Convertible Preferred Stock (the~~ ~~“Series C Preferred Stock”), 378,776~~ ~~shares as Series D~~ ~~Convertible Preferred Stock (the~~ ~~“Series D Preferred Stock”), and 10,000~~ ~~shares as Series E~~ ~~Convertible Preferred Stock (the~~ ~~“Series E Preferred Stock”~~). The rights, preferences, privileges and restrictions on the remaining authorized 151,224 shares of Preferred Stock have not been determined. The Company’s Board of Directors is authorized to create a new series of preferred shares and determine the number of shares, as well as the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred shares. As of September 30, 2017, there were 100,000 shares of Series B Preferred Stock, 455,002 shares of Series C Preferred Stock, 378,776 shares of Series D Preferred Stock, 10,000 shares of Series E Preferred Stock issued and outstanding and no other shares of Preferred Stock were issued or outstanding. As of December 31, 2016, there were no shares of Preferred Stock issued or outstanding.

~~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~~.

~~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.~~

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

In the event the Company shall liquidate, dissolve or wind up, the holders of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the Common Stock, the Company’s Series A Preferred Stock, or to the holders of any other junior series of preferred stock, by reason of their ownership thereof and subject to the rights of the Company’s Series B Preferred Stock, Series C Preferred Stock and any other class or series of Company stock subsequently issued that ranks senior to the Series D Preferred Stock, an amount per share in cash or equivalent value in securities or other consideration equal to its Stated Value of $0.01 per share.

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

~~Series E Preferred Stock~~

On June 2, 2017, pursuant to the terms of the Share Exchange Agreement and in consideration of legal services, Microphase issued a $450 8% promissory note with a maturity date of November 25, 2017 to an unsecured creditor, Lucosky Brookman, LLP (the ~~“Lucosky Note”). In conjunction with the issuance of the Lucosky Note, the Company issued Lucosky Brookman 10,000 shares of Series E Preferred Stock,~~ ~~no par value per share,~~ ~~with a stated value~~ ~~equal to forty-five dollars ($45.00) per share~~. The Company, at its option, may redeem for cash, in whole or in part, at any time and from time to time, the shares of Series E Preferred Stock at the time outstanding, upon written notice to the holder of the shares, at a cash redemption price equal to $45 multiplied by the number of shares being redeemed. Any such optional redemption by the Company shall be credited against the Lucosky Note.

In the event the Company shall liquidate, dissolve or wind up, the holders of Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the DPW Common Stock, the Company’s Series A Preferred Stock, or to the holders of any other junior series of preferred stock, by reason of their ownership thereof and subject to the rights of the Company’s Series B Preferred Stock, Series C Preferred Stock and any other class or series of Company stock subsequently issued that ranks senior to the Series E Preferred Stock an amount per share in cash or equivalent value in securities or other consideration equal to $0.01 per share. The holders of Series E Preferred Stock shall not be entitled to receive dividends and shall have no voting rights except as otherwise required by law. Subject to the shareholders of DPW Common Stock of the Company approving the conversion of the Series E Preferred Stock into shares of Common Stock in connection with the acquisition of MPC Common Stock and for purposes of compliance with Rule 713 of the NYSE MKT, then each share of Series E Preferred Stock may be converted into sixty (60) shares of DPW Common Stock, for an aggregate of 600,000 shares of DPW Common Stock.

~~Common Stock~~

Common stock confers upon the holders the rights to receive notice to participate and vote in the general meeting of shareholders of the Company, to receive dividends, if and when declared, and to participate in a distribution of surplus of assets upon liquidation of the Company.

~~On November 15, 2016, the Company entered into subscription agreements (the~~ ~~“2016 Subscription Agreements”~~) with nine accredited investors. Pursuant to the terms of the 2016 Subscription Agreements, the Company sold 901,666 units at $0.60 for an aggregate purchase price of approximately $541. Each unit consists of one share of common stock and one warrant to purchase one share of common stock (the “Nov. 2016 Warrants”) at an exercise price of $0.80.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

The 2016 Subscription Agreement provides that, until November 15, 2017, investors who purchased at least $100,000 have the right to participate in the purchase of up to 50% of the securities offered by the Company in any future financing transactions, with limited exceptions.

The Nov. 2016 Warrants entitle the holders to purchase, in the aggregate, up to 901,666 shares of Common Stock at an exercise price of $0.80 per share for a period of three years. The Nov. 2016 Warrants are exercisable upon the six-month anniversary of the issuance date. The exercise price of the Nov. 2016 Warrants is subject to adjustment for stock splits, stock dividends, combinations and other standard anti-dilution events. The Nov. 2016 Warrants may be exercised for cash or, upon the failure to maintain an effective registration statement, on a cashless basis.

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

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

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

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

~~Between May 9, 2017 and June 18, 2017, the Company issued an aggregate of 956,153 shares of its common stock as payment for services to its consultant.~~ ~~The shares were valued at $498, an average of $0.52 per share.~~

~~On June 28, 2017, the Company issued 189,091 shares of its common stock, at a price of $0.55 per share, for the cancellation of a 7% convertible promissory note in the principal amount of $104.~~

~~On June 28, 2017, the holders of $55 of in short-term loans agreed to cancel their notes for the purchase of 100,001 shares of the Digital Power’s common stock at a price of $0.55 per share.~~

On July 7, 2017, the Company entered into an asset purchase agreement to acquire the intellectual property of Coolisys.com, consisting of the common law rights associated with the trademarks and name as well as the domain name and content of ~~www.Coolisys.com. The aggregate purchase price of $81 was comprised of 50,000 shares of common stock, valued at $31~~ ~~based on the closing price of the Common Stock on the date of the acquisition,~~ ~~and cash of $50.~~

In a concurrent private placement, we sold to the institutional investor warrants to purchase an aggregate of 163,636 shares of the Company’s common stock at an exercise price equal to $0.55 per share.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

Concurrent with entering into this exchange agreement, the institutional investor entered into a subscription agreement under which we issued and sold in a registered direct offering 200,000 shares of common stock at $0.55 per share for an aggregate purchase price of $110. The 200,000 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $110. In addition, in a concurrent private placement, the institutional investor entered into a separate securities purchase agreement under which we issued and sold 63,600 shares of common stock at $0.55 per share for an aggregate of purchase price of $35. The 63,600 shares of common stock were purchased through the cancellation of the Exchange Note in the principal amount of $35. Further, we issued a warrant to purchase 120,000 shares of common stock at $0.55 per share.

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

~~15. RELATED PARTY TRANSACTION~~

~~In anticipation of the acquisition of MTIX Ltd., an advanced materials and processing technology company located in Huddersfield, West Yorkshire, UK (“MTIX”~~) by AVLP and the expectation of future business generated by the Company from a strategic investment into AVLP, the Company entered into the AVLP Notes, three 12% Convertible Promissory Notes agreements in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in net loans to AVLP of $1,500 and an original issue discount of $75. The AVLP notes accrued interest at 12% per annum and were due on or before two years from the origination dates of each note. The Company had the right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at approximately $0.74536 per share. ~~Subject to adjustment,~~ ~~the~~ ~~AVLP~~ ~~Notes, inclusive of the original issue discount, were convertible into 2,113,086 shares of the Company’s common stock~~. ~~During the period from March 29, 2017 to August 16, 2017, the Company funded $1,809 in excess of the $1,500 net loan amount required pursuant to the terms of the AVLP Notes~~.

~~On September 6, 2017, the Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”~~) with an effective date of August 21, 2017 pursuant to which the Company provided Avalanche a non-revolving credit facility of up to $5,000, inclusive of prior amounts loaned to AVLP, for a period ending on August 21, 2019, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. In consideration of entering into the AVLP Loan Agreement, the Company and AVLP cancelled the AVLP Notes and consolidated the AVLP Notes and prior advances and issued a new Convertible Promissory Note in the aggregate principal amount of $3,474 (the ~~“New Note”~~) that is convertible into shares of AVLP at a conversion price of $0.50 per share. The New Note is due in two years and accrues interest at 12% per annum on the principal amount. Prior interest accrued under the AVLP Notes and advances will continue to be an obligation of AVLP. The New Note contains standard events of defaults. In addition, concurrent to issuing the New Note, AVLP issued to the Company a five-year Warrant to purchase 6,948,800 shares of AVLP Common Stock at $0.50 per share. Future advances under the AVLP Loan Agreement, if any, will be evidenced by a convertible promissory containing a conversion price feature at $0.50 per share and warrant with an exercise price of $0.50 per share. Further, under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP. (See Note 4).

~~During the nine months ended September 30, 2017,~~ ~~the Company invested $2,682 pursuant to~~ ~~the AVLP Loan Agreement and acquired 71,746 shares of AVLP common stock in the open market for $28.~~

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~During the three months ended December 31, 2016, the Company invested $950 pursuant to~~ ~~the AVLP Loan Agreement and acquired~~ ~~250,900 shares of AVLP common stock in the open market for $85.~~

Philou is AVLP’s controlling shareholder. Mr. Ault is Chairman of AVLP’s Board of Directors and the Executive Chairman of the Company’s Board of Directors. Mr. William B. Horne is the Chief Financial Officer of AVLP and also the audit committee chairman of the Company.

~~On October 24, 2016, AVLP entered into a letter of intent to acquire MTIX and made an initial payment of $50 towards the purchase.~~ ~~On August 22, 2017, pursuant to the terms of a Share Exchange Agreement dated~~ as of ~~March 3, 2017, and as amended on July 13, 2017 and August 21, 2017 (the~~ ~~“Exchange Agreement”) with MTIX Limited, a company formed under the laws of England and Wales (“MTIX”) and the three (3) shareholders of MTIX (the “Sellers”), AVLP completed its acquisition of MTIX.~~ ~~Upon the terms and subject to the conditions set forth in the Exchange Agreement, AVLP acquired MTIX from the Sellers through the transfer of all issued and outstanding ordinary shares of MTIX (the~~ ~~“MTIX Shares”) by the Sellers to AVLP in exchange (the~~ ~~“Exchange”) for the issuance by AVLP of: (a) 7% secured convertible promissory notes (individually, a~~ ~~“Note”~~ ~~and collectively, the~~ ~~“Notes”~~) in the aggregate principal face amount of $9,500 to the Sellers in pro rata amounts commensurate with their current respective ownership percentages of MTIX’s ordinary shares, (b) (i) $500 in cash, $50, of which was paid on October 26, 2016, and (ii) 100,000 shares of AVLP’s newly designated shares of Class B Convertible Preferred Stock (the ~~“Class B Shares”) to the principal shareholder of MTIX (the~~ ~~“Majority Shareholder”~~).

On the closing date, the fully-diluted AVLP shares shall be approximately 52 million shares of common stock, assuming that (i) the MTIX promissory notes are convertible into shares of AVLP common stock at a conversion price of $0.50 per share, (ii) the shares of AVLP Class B Convertible Preferred Stock are convertible into shares of AVLP common stock at a conversion rate of $0.50 per share and (iii) the issuance of stock options to purchase an aggregate of 531,919 shares of AVLP common stock to the members of the MTIX management group.

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

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.

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

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.~~

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER~~June 30, ~~2017~~

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

~~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.~~

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

~~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 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.

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).~~

Between July 6, 2017 and September 30, 2017, Milton C. Ault, III, the Company’s Executive Chairman, personally guaranteed the repayment of (i) $2,585 to TVT Capital, (ii) $400 from the sale of the Convertible Note and (iii) $880 from the sale of the Convertible Notes. These personal guarantees were necessary to facilitate the consummation of these financing transactions. Mr. Ault’s payment obligations would be triggered if the Company failed to perform under these financing obligations. Our board of directors has agreed to compensate Mr. Ault for his personal guarantees. The amount of annual compensation for each of these guarantees, which will be in the form of non-cash compensation, is approximately 2% of the amount of the obligation.

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.~~

~~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.~~

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

~~16. SEGMENT, CUSTOMERS AND GEOGRAPHICAL INFORMATION~~

~~The Company has two reportable geographic segments;~~2021; 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

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER 30, 2017~~

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

Three months ended 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

~~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:~~

~~The following table provides the percentage of total revenues 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 % $ — —

~~Revenue from Customer A and B were 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 of the Company’s product lines are as follows:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016

Revenues:
Commercial products $ 1,342 $ 1,505 $ 3,362 $ 3,971
Defense products 1,878 321 3,308 1,632
Total revenues $ 3,220 $ 1,826 $ 6,670 $ 5,603

~~Financial data relating to geographic areas:~~

~~The Company’s total revenues are attributed to geographic areas based on the location. The following table presents total revenues~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022:

Schedule of operating segments

	Three Months Ended June 30, 2022
	GWW			TurnOnGreen			Ault Alliance			BNI			AGREE			Ault Disruptive			Holding Company			Total
Revenue	$	6,503,000		$	1,062,000		$	12,000		$	-		$	-		$	-		$	-		$	7,577,000
Revenue, cryptocurrency mining		-			-			-			3,976,000			-			-			-			3,976,000
Revenue, commercial real estate leases		-			-			-			272,000			-			-			-			272,000
Revenue, lending and trading activities		-			-			943,000			-			-			-			-			943,000
Revenue, hotel operations		-			-			-			-			4,598,000			-			-			4,598,000
Total revenues	$	6,503,000		$	1,062,000		$	955,000		$	4,248,000		$	4,598,000		$	-		$	-		$	17,366,000

Depreciation and amortization expense	$	298,000		$	4,000		$	34,000		$	2,613,000		$	827,000		$	-		$	711,000		$	4,487,000

Loss from operations	$	(1,076,000	)	$	(445,000	)	$	(11,486,000	)	$	(3,454,000	)	$	(166,000	)	$	(489,000	)	$	(6,603,000	)	$	(23,719,000	)

Capital expenditures for the three months ended June 30, 2022	$	156,000		$	50,000		$	761,000		$	36,397,000		$	(15,000	)	$	-		$	71,000		$	37,420,000


	Six Months Ended June 30, 2022
	GWW			TurnOnGreen			Ault Alliance		BNI			AGREE			Ault Disruptive			Holding Company			Total
Revenue	$	13,749,000		$	2,191,000		$	19,000	$	-		$	-		$	-		$	-		$	15,959,000
Revenue, cryptocurrency mining		-			-			-		7,524,000			-			-			-			7,524,000
Revenue, commercial real estate leases		-			-			-		549,000			-			-			-			549,000
Revenue, lending and trading activities		-			-			18,864,000		-			-			-			-			18,864,000
Revenue, hotel operations		-			-			-		-			7,296,000			-			-			7,296,000
Total revenues	$	13,749,000		$	2,191,000		$	18,883,000	$	8,073,000		$	7,296,000		$	-		$	-		$	50,192,000

Depreciation and amortization expense	$	519,000		$	10,000		$	68,000	$	4,140,000		$	1,655,000		$	-		$	53,000		$	6,445,000

Income (loss) from operations	$	(1,220,000	)	$	(1,620,000	)	$	426,000	$	(3,817,000	)	$	(1,548,000	)	$	(786,000	)	$	(14,124,000	)	$	(22,689,000	)

Capital expenditures for the six months ended June 30, 2022	$	285,000		$	125,000		$	849,000	$	71,384,000		$	19,000		$	-		$	117,000		$	72,779,000

AVLP and ~~2016. Other than as shown, no foreign country contributed materially~~SMC Segment Information

The AVLP and SMC acquisitions were completed in June 2022. The results of operations were not material to ~~revenues or long-lived~~the Company’s consolidated results of operations for the three and six months ended June 30, 2022. As of June 30, 2022, identifiable assets for ~~these periods:~~

~~DIGITAL POWER CORPORATION~~AVLP and SMC were $49.9 million and $35.0 million, respectively.

Segment information for the three and six months ended June 30, 2021:


	Three Months Ended June 30, 2021
	GWW			TurnOnGreen		Ault Alliance		BNI			AGREE		Ault Disruptive			Holding Company			Total
Revenue	$	6,475,000		$	1,831,000	$	50,000	$	-		$	-	$	-		$	-		$	8,356,000
Revenue, cryptocurrency mining		-			-		-		291,000			-		-			-			291,000
Revenue, commercial real estate leases		-			-		-		208,000			-		-			-			208,000
Revenue, lending and trading activities		-			-		53,274,000		-			-		-			-			53,274,000
Revenue, hotel operations		-			-		-		-			-		-			-			-
Total revenues	$	6,475,000		$	1,831,000	$	53,324,000	$	499,000		$	-	$	-		$	-		$	62,129,000

Depreciation and amortization expense	$	213,000		$	6,000	$	27,000	$	111,000		$	-	$	-		$	13,000		$	370,000

Income (loss) from operations	$	(1,000,000	)	$	117,000	$	49,375,000	$	(197,000	)	$	-	$	(118,000	)	$	(2,354,000	)	$	45,823,000

Capital expenditures for the three months ended June 30, 2021	$	474,000		$	-	$	12,000	$	650,000		$	-	$	-		$	105,000		$	1,241,000


	Six Months Ended June 30, 2021
	GWW			TurnOnGreen			Ault Alliance		BNI			AGREE		Ault Disruptive			Holding Company			Total
Revenue	$	12,826,000		$	3,213,000		$	126,000	$	-		$	-	$	-		$	-		$	16,165,000
Revenue, cryptocurrency mining		-			-			-		421,000			-		-			-			421,000
Revenue, commercial real estate leases		-			-			-		304,000			-		-			-			304,000
Revenue, lending and trading activities		-			-			58,485,000					-		-			-			58,485,000
Revenue, hotel operations		-			-								-		-			-			-
Total revenues	$	12,826,000		$	3,213,000		$	58,611,000	$	725,000		$	-	$	-		$	-		$	75,375,000

Depreciation and amortization expense	$	428,000		$	13,000		$	28,000	$	152,000		$	-	$	-		$	16,000		$	637,000

Income (loss) from operations	$	(788,000	)	$	(83,000	)	$	53,781,000	$	(500,000	)	$	-	$	(188,000	)	$	(5,197,000	)	$	47,025,000

Capital expenditures for the six months ended June 30, 2021	$	566,000		$	-		$	285,000	$	4,634,000		$	-	$	-		$	105,000		$	5,590,000

22. CONCENTRATIONS OF CREDIT AND ~~SUBSIDIARY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)~~

~~SEPTEMBER~~REVENUE RISK

Accounts receivable are concentrated with certain large customers. At June 30, ~~2017~~

~~U.S. dollars~~2022, approximately 38% of accounts receivable were due from two customers 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.~~ North America, each of which individually accounted for over 10% of consolidated accounts receivable.

For the three months ended June 30, 2022, one customer represented 13% of consolidated revenues.

23. SUBSEQUENT EVENTS

~~In accordance with FASB ASC 855-10,~~

2022 Common ATM Offering

During the period between July 1, 2022 through August 18, 2022, 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 75,000~~sold an aggregate of 6.5 million shares of common stock ~~and warrants~~pursuant to ~~purchase 75,000 shares~~the 2022 Common ATM Offering for gross proceeds of ~~common stock at $0.60 per share to Ault & Company for $50. Mr. Ault is~~$2.1 million.

2022 Preferred ATM Offering

During the ~~Chairman and majority shareholder of Ault & Company.~~

~~On October~~period between July 1, 2022 through August 18, ~~2017,~~2022, the Company entered into subscription agreements with five investors, under which we agreed to issue and sell in the aggregate 452,239 shares of common stock to the investors at $0.67 per share for an aggregate purchase price of $303. $75 of the purchase price was paid in cash and $228 was paid through the cancellation of debt incurred by the Company, of which $93 was from a related party.

On November 7, 2017, the Company entered into subscription agreements with investors under which the Company agreed to issue and sell 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~~sold an aggregate of ~~490,000~~6,866 shares of ~~its common stock as payment~~Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for ~~services to its consultant.~~ ~~The shares were valued at $265,~~gross proceeds of $126,000.

Investments in Alpha Fund

During the period between July 1, 2022 through August 18, 2022, DP Lending purchased an ~~average~~additional $6.5 million of ~~$0.54 per share.~~

~~Advance on Future Receipts~~

limited partnership interests in Alpha Fund. As of August 18, 2022, DP Lending had subscribed for $31.5 million of limited partnership interests.

Formation of Ault Energy

On ~~October 17, 2017,~~July 11, 2022, the Company ~~and Microphase, entered into~~announced the formation of Ault Energy, LLC (“Ault Energy”), as 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~~indirect wholly-owned subsidiary of the Company through Ault Alliance. Ault Energy will partner with White River Holdings Corp. (“White River”), a wholly owned subsidiary of Ecoark Holdings, Inc. (“Ecoark”), on drilling projects across 30,000 acres in Texas, Louisiana and ~~Microphase for $600. Under~~Mississippi. Ault Energy, as DP Lending’s designee, has the ~~terms~~right to purchase up to 25%, or such higher percentages at the discretion of White River, in various drilling projects of White River. In August 2022, Ault Energy committed to purchasing 40% of the ~~agreement,~~first drilling project offered, at a cost to Ault Energy of approximately $1 million.

F-33

Note Purchase Agreement

On August 10, 2022, the Company, through its BNI 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.

~~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~~DP Lending subsidiaries, entered into a ~~Securities Purchase Agreement (the~~ ~~“Nov. Purchase Agreement”) with an institutional investor (the~~ ~~“Purchaser”), pursuant to which~~note purchase agreement providing for the ~~Company has agreed, upon the terms and subject to the conditions~~issuance 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~~secured promissory notes with an aggregate principal face amount of ~~$1,089 (the~~ ~~“Second Convertible Debenture”~~,$11,000,000 and ~~together with the First Convertible Debenture, the~~ ~~“Convertible Debentures”~~)an interest rate of 10%. The purchase price (proceeds to the Company) for the secured promissory notes was $10.0 million. The secured promissory notes have a security interest in marketable securities, investments and certain Bitcoin mining equipment. The secured promissory notes are further secured by a guaranty provided by the Company, ~~and~~as well as by Milton C. Ault, 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 resaleExecutive Chairman of the ~~Restricted Shares and shares of common stock underlying the First Convertible Debenture, and shareholder approval~~Company.

The maturity date of the ~~transactions contemplated by~~secured promissory notes is August 10, 2023. The Company is required to make monthly payment (principal and interest) of $1,000,000 on the ~~Purchase Agreement~~tenth calendar day of each month, starting 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~~September 2022. After six 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~~may elect to ~~the Company equal to or greater than $7,500, then the Company shall prepay to the holder~~pay a forbearance fee of $250,000 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 datelieu 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 andmonthly payment, which would extend the maturity date of the ~~Convertible Debenture. The~~related secured promissory notes.

Hosting Agreement

On August 15, 2022, 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~~its BNI subsidiary, entered into a ~~registration rights~~hosting agreement ~~(the~~ ~~“Registration Rights Agreement”~~with Compute North LLC (“Compute North”) ~~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 curedhost 6,500 S19j Pro Antminers owned 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 90^th 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).

~~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 rightsBNI for a period of five ~~years from the date of issue.~~

~~Loan and Security Agreement with I.AM, Inc.~~

~~On November 1, 2017, the~~years. The Company ~~and I.AM, Inc. (“I.AM”) entered into~~granted Compute North 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~~continuing first-position security interest in the ~~Loan Agreement, including that~~hosted miners, as collateral for the ~~Company having available funds to grant such credit. Advances on~~Company’s obligations under 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.~~

hosting agreement.

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

In this quarterly report, the “Company,” ~~“Digital Power,~~“BitNile,” “we,” “us” and “our” refer to ~~Digital Power Corporation,~~Ault Alliance, Inc., a ~~California~~Delaware corporation which was then known as BitNile Holdings, Inc. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly and majority owned subsidiaries and strategic investments, we own and operate a data center at which we mine Bitcoin, and provide mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. In addition, we own and operate hotels and extends credit to select entrepreneurial businesses through a licensed lending subsidiary.

Recent Events and Developments

On February 4, 2022, we and our ~~wholly-owned~~wholly owned subsidiary Ault Alliance, Inc. (“Ault Alliance”) entered into a securities purchase agreement providing for our purchase of BitNile, Inc. (“BNI”) from Ault Alliance. As a result of this transaction, both BNI and Ault Alliance are each stand-alone wholly owned subsidiaries ~~Coolisys Technologies, Inc., Power-Plus Technical Distributors,~~of ours.

On February 10, 2022, consistent with our objective to have BNI operate the entirety of our business that relates to cryptocurrencies, Ault Alliance assigned the entirety of its interest in Alliance Cloud Services, LLC ~~Digital Power Lending,~~(“ACS”) to BNI.

On February 25, 2022, we entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets, LLC ~~Digital Power Limited~~(“Ascendiant Capital”) to sell shares of common stock having an aggregate offering price of up to $200 million from time to time, through an “at the market offering” program (the “2022 Common ATM Offering”). As of June 30, 2022, we had sold an aggregate of 239.7 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $163.4 million.

On March 20, 2022, we and our majority owned subsidiary ~~Microphase~~Imperalis Holding Corp. (“IMHC”) entered into a securities purchase agreement (the “Agreement”) with TurnOnGreen, Inc. (“TurnOnGreen”), a wholly owned subsidiary of ours. According to the Agreement, we will (i) deliver to IMHC all of the outstanding shares of common stock of TurnOnGreen that we own, and (ii) forgive and eliminate the intracompany accounts between us and TurnOnGreen evidencing historical equity investments made by us in TurnOnGreen, in the approximate amount of $25 million, in consideration for the issuance by IMHC to us (the “Transaction”) of an aggregate of 25,000 newly designated shares of Series A Preferred Stock (the “IMHC Preferred Stock”), with each such share having a stated value of $1,000. The closing of the Transaction is subject to our delivery to IMHC of audited financial statements of TurnOnGreen and other customary closing conditions. Immediately following the completion of the Transaction, TurnOnGreen will be a wholly-owned subsidiary of IMHC. The parties to the Agreement have agreed that, upon completion of the Transaction, IMHC will change its name to TurnOnGreen, Inc., and, through an upstream merger whereby the current TurnOnGreen shall cease to exist, IMHC shall own TurnOnGreen’s two operating subsidiaries, TOG Technologies Inc. and Digital Power Corporation.

~~GENERAL~~

~~We are~~ Following the closing of the Transaction, IMHC will dissolve its dormant subsidiary.

On March 30, 2022, we fully paid our $66 million senior secured notes (the “Senior Notes”) and accrued interest. The 10% original issuance discount promissory notes were sold in December 2021 and were due and payable on March 31, 2022.

On April 22, 2022, Ault Alliance entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with EYP Group Holdings, Inc. and each of its subsidiaries and affiliates listed on the signature page to the Asset Purchase Agreement (collectively, “EYP”), pursuant to which Ault Alliance agreed to purchase substantially all of the assets of EYP (such assets, the “Assets,” and such transaction, the “Asset Purchase”). On April 24, 2022, EYP filed a ~~growth company seeking~~voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Bankruptcy Court has permitted joint administration of the Chapter 11 cases under the caption “In re EYP Group Holdings, Inc., et al.”, Case No. 22-10367 (MFW) (the “Chapter 11 Cases”).

Under the Asset Purchase Agreement, Ault Alliance or its designee(s), upon the closing of the transactions contemplated thereby, were to ~~increase our revenues~~purchase the Assets and assume certain of EYP’s obligations associated with the purchased Assets through ~~acquisitions. Our strategy reflects our management~~a supervised sale under Section 363 of the Bankruptcy Code. Ault Alliance’s stalking horse bid is based on an enterprise value of approximately $67.7 million, which includes the purchase price for the Assets under the Asset Purchase Agreement of $62.5 million, as adjusted by a closing working capital adjustment (the “Purchase Price”), plus Ault Alliance’s assumption of certain liabilities. The Purchase Price would be paid in cash, less the outstanding amount of the DIP Loans and ~~Board’s current philosophy~~the senior secured loans previously issued by Ault Alliance to EYP, in an approximate aggregate amount of $11.8 million, and less the amount of certain liabilities assumed by Ault Alliance. The Asset Purchase Agreement required the Asset Purchase to close by June 30, 2022. Consummation of the Asset Purchase was subject to Bankruptcy Court approved bidding procedures, higher and better offers made in the auction by other potential bidders, approval of the highest bidder by the Bankruptcy Court and customary closing conditions. On July 7, 2022, we announced that ~~occurred~~Ault Alliance did not acquire the assets of EYP as a result of a ~~change~~higher bidder. Ault Alliance lent $8.0 million to EYP and earned $4.7 million in ~~control completed in September 2016. Our acquisition~~interest, penalties and ~~development target strategy includes companies that have developed a “new way~~break-up fees from October 2021 through June 2022. The principal amount of ~~doing business” in mature, well-developed industries experiencing changes due to new technology; companies that may become profitable or more profitable through efficiency~~the loans, interest, penalties and reduction of costs; companies that are related to our core business in the commercial and defense industries; and companies that will enhance our overall revenues. It is our goal to substantially increase our gross revenues in the near future.

Webreak-up fees, were originally a solution-driven organization that designs, develops, manufactures and sells high-grade customized and flexible power system solutions for the medical, military, telecom and industrial markets. Although we intend to seek growth through acquisitions, we will continue to focusfully repaid on high-grade and custom product designs for the commercial, medical and military/defense markets, where customers demand high density, high efficiency and ruggedized products to meet the harshest and/or military mission critical operating conditions.

~~We have operations located in Europe through our wholly-owned subsidiary, Digital Power Limited ("DP Limited"), Salisbury, England, which operates under the brand 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.

June 30, 2022.

On ~~November 30, 2016, Digital Power formed~~April 26, 2022, Digital Power Lending, LLC (“(“DP Lending”) made an additional $4 million investment in Alzamend Neuro, Inc. (“Alzamend”), a ~~wholly-owned subsidiary.~~related party and early clinical-stage biopharmaceutical company focused on developing novel products for the treatment of neurodegenerative diseases and psychiatric disorders. During 2021, DP Lending entered into a securities purchase agreement (the “SPA”) with Alzamend to invest $10 million in Alzamend common stock and warrants, subject to the achievement of certain milestones. DP Lending had previously funded $6 million pursuant to the terms of the SPA and the achievement of 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 AL001. On April 26, 2022, DP Lending funded the remaining amount due to achievement of the final milestone, the receipt of the full data set from Alzamend’s Phase 1 clinical trial for AL001. DP Lending retains the option to acquire an additional 6,666,667 shares of Alzamend common stock and warrants to purchase another 3,333,334 such shares for an aggregate of $10 million.

On May 12, 2022, BNI closed a $1.8 million membership interest purchase agreement whereby BNI acquired the 30% minority interest of ACS which BNI did not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI. ACS owns and operates our Michigan data center, where BNI conducts our Bitcoin mining operations.

On May 26, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative of the several underwriters named therein (collectively, the “Underwriters”), relating to a firm commitment public offering of 123,423 newly issued shares of our 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”) at a public offering price of $25.00 per share.

On June 1, 2022, we and the Underwriters mutually agreed to increase the size of the offering of our Series D Preferred Stock from 123,423 shares to 144,000 shares. Thus, we and the Underwriters agreed to terminate the Underwriting Agreement and entered into a side letter to terminate such Underwriting Agreement (the “Side Letter”). Following the execution of the Side Letter, on June 1, 2022, we entered into a new underwriting agreement (the “New Underwriting Agreement”) with the Underwriters, relating to a firm commitment public offering of 144,000 newly issued shares of our Series D Preferred Stock at a public offering price of $25.00 per share. On June 3, 2022, we closed the offering of the sale of the 144,000 shares of our Series D Preferred Stock for gross proceeds of approximately $3.6 million, before deducting offering expenses. Net proceeds to us, after payment of commissions, non-accountable fees and offering expenses, were approximately $3.1 million.

On June 14, 2022, we entered into an At-The-Market issuance sales agreement with Ascendiant Capital to sell shares of Series D Preferred Stock having an aggregate offering price of up to $46.4 million from time to time, through an “at the market offering” program (the “2022 Preferred ATM Offering”). As of June 30, 2022, we had sold an aggregate of 2,618 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of $57,000.

On June 1, 2022, we converted our convertible promissory notes of Avalanche International Corp. (“AVLP”) and accrued interest into common stock of AVLP. We converted $20.0 million principal and $5.9 million of accrued interest receivable at a conversion price of $0.50 per share and received 51,889,168 shares of common stock increasing our common stock ownership of AVLP from less than 20% to approximately 92%.

Beginning in June 2022, we, through DP Lending, began making open market purchases of The Singing Machine Company, Inc. (“SMC”) common stock and on June 15, 2022, we owned more than 50% of the issued and outstanding common stock of SMC. As of June 15, 2022, the purchase price of the common stock acquired totaled $7.4 million and on June 15, 2022 a $3.1 million gain was recognized in interest and other income for the remeasurement of our previously held ownership interest to $10.5 million, based on the trading price of SMC common stock.

On August 10, 2022, BNI and DP Lending entered into a Note Purchase Agreement (the “NPA”) with two accredited investors (the “Investors”) providing for the issuance of Secured Promissory Notes (individually, a “Note” and collectively, the “Notes”) with an aggregate principal face amount of $11,000,000. The Notes have a principal face amount of $11,000,000 and bear interest at 10% per annum, payable monthly in arrears, pursuant to the terms of the Notes. The maturity date of the Notes is ~~engaged~~August 10, 2023. BNI is required to make an aggregate monthly payment (a “Monthly Payment”) of $1,000,000 on the tenth calendar day of each month, starting in September 2022. The Monthly Payment includes principal and interest pursuant to the amortization table set forth in the Notes. After BNI makes the first six Monthly Payments, BNI may elect to pay a forbearance fee of $125,000 to an Investor, or an aggregate of $250,000 to the two Investors (each, a “Monthly Forbearance”) in lieu of a Monthly Payment, which Monthly Forbearance would extend the maturity date of such Notes by one month, provided that BNI may not elect to make a Monthly Forbearance in consecutive months. BNI may prepay the full outstanding principal and accrued but unpaid interest at any time, provided that if BNI prepays the Notes, BNI is required to pay the Investors the amount of interest that would have accrued from the date of prepayment until the first anniversary of the issuance date of the Notes. The purchase price for the Notes was $10 million.

Pursuant to the NPA, BNI, DP Lending and Helios Funds LLC, as the collateral agent on behalf of the Investors (the “Agent”) entered into a security agreement (the “Security Agreement”), pursuant to which (i) DP Lending granted to the Investors a security interest in marketable securities, investments and other property having a value of $10 million in a DP Lending brokerage account and (ii) BNI granted to the Investors a security interest in 4,000 S19 Pro Antminers (the “Miners”), provided that the number of Miners would be reduced to 2,000 after BNI makes the third Monthly Payment (as defined below), as set forth in the Security Agreement. In addition, pursuant to a subsidiary guaranty, DP Lending jointly and severally agreed to guarantee and act as surety for BNI’s obligation to repay the Notes. The Notes are further secured by a guaranty we provided.

On August 15, 2022, BNI entered into a Master Agreement (the “Master Agreement”) and Order Form (the “Order Form” and together with the Master Agreement, the “Hosting Documents”) with Compute North LLC (“Compute North”) providing ~~commercial loans~~for the hosting by Compute North of Bitcoin miners owned by BNI. Pursuant to the Hosting Documents, Compute North will host 6,500 S19j Pro Antminers (the “Hosted Miners”) owned by BNI for a period of five (5) years (the “Term”). BNI agreed to pay a fee for the Hosted Miners (the “Monthly Service Fee”), together with a monthly package fee per Hosted Miner. The Monthly Service Fee is payable based on the actual hashrate performance of the Hosted Miners, of which 70% of the anticipated Monthly Service Fee is payable in advance, and the remaining Monthly Service Fee, if any, will be invoiced in arrears.

Under the Master Agreement, BNI granted Compute North a continuing first-position security interest in the Hosted Miners, as collateral for BNI’s obligations under the Hosting Documents. Upon an event of default (as defined in the Master Agreement) by BNI, Compute North has the right to terminate the Hosting Documents and BNI is obligated to pay to Compute North all amounts then due under the Hosting Documents, together with a fee as liquidated damages, equal to the amount of fees that BNI would have been required to pay through the end of the Term.

General

As a holding company, our business objective is designed to increase stockholder value. Under the strategy we have adopted, we are focused on managing and financially supporting our existing subsidiaries and partner companies, ~~throughout~~with the ~~United States~~goal of pursuing monetization opportunities and maximizing the value returned to ~~provide them~~stockholders. 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 stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations and working capital needs.

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

In recent years, we have provided capital and relevant expertise to ~~finance~~fuel the growth of ~~their businesses. The loans will primarily be short-term, ranging from six to twelve months.~~

~~On June 2, 2017, Digital Power~~ ~~purchased 56.4% of the outstanding equity interests of Microphase Corporation (the~~ ~~“Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) industry leader delivering world-class radio frequency (“RF”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector logarithmic video amplifiers (“DLVA”) to the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut.~~

~~On April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”), a wholly-owned subsidiary. The Company intends to operate its existing~~ businesses in ~~the customized~~defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and ~~flexible power system solutions for the medical, military, telecom~~textiles. 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.

management support.

We are a ~~California~~Delaware corporation ~~formed in 1969 and~~with our corporate office located ~~in the heart of the Silicon Valley~~ at ~~48430 Lakeview Blvd, Fremont, California 94538-3158.~~11411 Southern Highlands Pkwy, Suite 240, Las Vegas, NV 89141. Our phone number is ~~510-657-2635~~949-444-5464 and our website address is ~~www.digipwr.com.~~

~~RESULTS OF OPERATIONS~~

~~THREE MONTHS ENDED SEPTEMBER~~www.bitnile.com.

Results of Operations

Results of Operations for the Three Months Ended June 30, ~~2017 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016~~

~~Revenues~~

~~Our revenues increased by $1,394 or 76% to $3,220~~2022 and 2021

The following table summarizes the results of our operations for the three months ended ~~September~~June 30, ~~2017, from $1,826~~2022 and 2021.

	For the Three Months Ended June 30,
	2022			2021

Revenue	$	7,849,000		$	8,564,000
Revenue, cryptocurrency mining		3,976,000			291,000
Revenue, hotel operations		4,598,000			-
Revenue, lending and trading activities		943,000			53,274,000
Total revenue		17,366,000			62,129,000
Cost of revenue		12,369,000			6,278,000
Gross profit		4,997,000			55,851,000

Total operating expenses		28,716,000			10,028,000
(Loss) income from operations		(23,719,000	)		45,823,000
Interest and other income		81,000			14,000
Change in fair value of equity securities, related party		-			(5,893,000	)
Interest expense		(2,031,000	)		(22,000	)
Change in fair value of marketable equity securities		241,000			(1,915,000	)
Realized loss on marketable securities		(43,000	)		-
Loss from investment in unconsolidated entity		(391,000	)		-
Gain on extinguishment of debt		-			447,000
Change in fair value of warrant liability		(6,000	)		290,000
(Loss) income before income taxes		(25,868,000	)		38,744,000
Income tax (provision) benefit		(217,000	)		(3,504,000	)
Net (loss) income		(26,085,000	)		35,240,000
Net loss attributable to non-controlling interest		321,000			1,083,000
Net (loss) income attributable to Ault Alliance, Inc.		(25,764,000	)		36,323,000
Preferred dividends		(44,000	)		(4,000	)
Net (loss) income available to common stockholders	$	(25,808,000	)	$	36,319,000

Comprehensive (loss) income
Net (loss) income available to common stockholders	$	(25,808,000	)	$	36,319,000
Other comprehensive income (loss)
Foreign currency translation adjustment		(1,471,000	)		134,000
Other comprehensive loss		(1,471,000	)		134,000
Total comprehensive (loss) income	$	(27,279,000	)	$	36,453,000

Revenues

Revenues by segment for the three months ended ~~September~~June 30, ~~2016. The increase in revenue was primarily~~2022 and 2021 are as follows:

	For the Three Months Ended June 30,				Increase
	2022		2021		(Decrease)			%
GWW	$	6,503,000	$	6,475,000	$	28,000			0	%
TurnOnGreen		1,062,000		1,831,000		(769,000	)		-42	%
BNI
Revenue, cryptocurrency mining		3,976,000		291,000		3,685,000			1266	%
Revenue, commercial real estate leases		272,000		185,000		87,000			47	%
Ault Global Real Estate Equities, Inc. (“AGREE”)		4,598,000		-		4,598,000			—
Ault Alliance:
Revenue, lending and trading activities		943,000		53,274,000		(52,331,000	)		-98	%
Other		12,000		73,000		(61,000	)		-84	%
Total revenue	$	17,366,000	$	62,129,000	$	(44,763,000	)		-72	%

Our revenues decreased by $44.8 million, or 72%, to $17.4 million for the three months ended June 30, 2022, from $62.1 million for the three months ended June 30, 2021.

GWW

GWW revenues were flat at $6.5 million for both the three months ended June 30, 2022 and 2021.

TurnOnGreen

TurnOnGreen revenues for the three months ended June 30, 2022 of $1.1 million declined $0.8 million, or 42%, from $1.8 million for the three months ended June 30, 2021, due to supply chain challenges.

The current supply chain crisis in the global economy has led to delivery delays and shortages of certain electronic components and associated raw materials that TurnOnGreen uses in its products. Should this supply chain crisis continue throughout 2022, it will likely extend TurnOnGreen’s production time periods and delay the timing of revenue recognition. TurnOnGreen cannot predict if or when circumstances may change, nor can it predict the amount by which bookings or shipments may change.

BNI

Revenues from BNI’s cryptocurrency mining operations were $4.0 million for the three months ended June 30, 2022, compared to $0.3 million for three months ended June 30, 2021. During 2021, we purchased Bitcoin mining equipment and increased our ~~acquisition~~cryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations was based on several factors, which positively affected the number of ~~56.4%~~ active miners we operated, including the market prices of digital currencies, and favorable power costs available at our Michigan data center.

AGREE

AGREE revenues were $4.6 million for the ~~outstanding equity interests~~three months ended June 30, 2022 compared to $0 for the three months ended June 30, 2021. On December 22, 2021, AGREE acquired four hotel properties for $71.3 million, consisting of ~~Microphase~~ ona 136-room Courtyard by Marriott, a 133-room Hilton Garden Inn and a 122-room Residence Inn by Marriott in Middleton, WI, as well as a 135-room Hilton Garden Inn in Rockford, IL.

Ault Alliance

Revenues from our lending and trading activities decreased to $0.9 million for the three months ended June ~~2, 2017, combined with~~30, 2022, from $53.3 million for the three months ended June 30, 2021, which is attributable to significant unrealized gains in the prior year period and unrealized losses in the current year period from our ~~acquisition~~investment portfolio. During the three months ended June 30, 2021, DP Lending generated significant income from appreciation of ~~all~~investments in marketable securities as well as shares of ~~the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase~~common stock underlying convertible notes and ~~Power-Plus~~warrants issued to DP Lending in certain financing transactions. Revenue from lending and trading activities during the three months ended ~~September~~June 30, ~~2017, were $1,340~~2021 included an approximate $40 million unrealized gain from our investment in Alzamend. Under its business model, DP Lending also generates revenue through origination fees charged to borrowers and ~~$224, respectively. Excluding revenues that were~~interest generated byfrom each loan.

Revenues from our ~~recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 from~~trading activities during the three months ended ~~September~~June 30, ~~2016.~~

~~Revenues~~2022 included net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our ~~U.S. operations increased by 130.5%~~periodic earnings.

Gross Margins

Gross margins decreased to ~~$2,877~~28.8% for the three months ended ~~September~~June 30, ~~2017, from $1,248~~2022, compared to 89.9% for the three months ended ~~September~~June 30, ~~2016.~~ ~~As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of Microphase~~2021. Our gross margins have typically ranged between 30% and ~~Power-Plus. If we had not closed~~35%, with slight variations depending on ~~these acquisition, then revenues from our U.S. operations would have been $1,313, an increase of 5.2%. The increase in revenues from our U.S. operations is attributed to~~ the ~~recognition of $109 in revenue from the MLSE $50 million purchase order contract which was offset by a slight decrease in sales~~overall composition of our ~~legacy products. The recognition~~revenue.

Our gross margins of ~~revenue from the MLSE contract~~28.8% recognized during the three months ended ~~September~~June 30, ~~2017, represents~~2022 were impacted by the ~~first revenues recognized from this contract, which is expected to extend over several years.~~

~~Revenues~~favorable margins from our ~~European operation~~lending and trading activities and modest margins on cryptocurrency mining operations due to the decline in ~~Gresham, U.K. (“DP Limited”) decreased by $235 to $343~~the price of Bitcoin. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross margins for the three months ended ~~September~~June 30, ~~2017, from $578~~2022 and 2021, would have been 33.1% and 30.0%, respectively, consistent with our historical range.

Research and Development

Research and development expenses increased by $0.2 million to $0.7 million for the three months ended ~~September~~June 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%~~2022, from $0.5 million for the three months ended ~~September~~June 30, ~~2016.~~2021. The ~~decrease~~increase in ~~gross margins was mainly attributable~~research and development expenses is due to the decrease in sales from our European operations combined with slightly lower margins of 34.5% generated by our Microphase and Power-Plus subsidiaries. As the Company integrates its recent acquisitions of Microphase and Power-Plus, it expects that gross margins from its U.S. based operations will be fairly consistent among the three companies.

~~Engineering and Product Development~~

~~Engineering and~~ product development efforts at TurnOnGreen.

Selling and Marketing

Selling and marketing expenses ~~increased by $159 to $306~~were $7.0 million for the three months ended ~~September~~June 30, ~~2017 from $147~~2022, compared to $1.5 million for the three months ended ~~September~~June 30, ~~2016.~~2021, an increase of $5.5 million, or 364%. The increase ~~is partly attributed to our acquisition~~was the result of ~~Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarily~~$3.7 million higher marketing costs at Ault Alliance, including $2.4 million related to an advertising sponsorship agreement as well as increases in sales and marketing personnel and consultants.

General and Administrative

General and administrative expenses were $19.0 million for the three months ended June 30, 2022, compared to $8.0 million for the three months ended June 30, 2021, an increase of $11.0 million, or 138%. General and administrative expenses increased from the comparative prior period, mainly due to:

increased costs of $2.6 million related to the Michigan data center, operated by ACS;

$2.5 million increase in the accrual of a performance bonus related to realized gains on trading activities during the period;

general and administrative costs of $1.9 million from our hotel operations, which were acquired in December 2021;

higher salaries of $1.3 million and audit fees of $1.0 million;

non-cash stock compensation costs of $1.0 million; and

increased legal fees of $0.9 million, in part related to the efforts to acquire EYP.

Loss From Operations

We recorded a loss from operations of $23.7 million for the three months ended June 30, 2022, compared to a gain of $45.8 million for the three months ended June 30, 2021. The decrease in operating income is attributable primarily to the decrease in unrealized gains from trading activities from the prior year period, combined with an increase in ~~direct manpower cost~~operating expenses.

Interest and Other Income

Interest and other income was $81,000 for the three months ended June 30, 2022 compared to $14,000 for the three months ended June 30, 2021. Other income for the three months ended June 30, 2022 included a $2.8 million gain related to remeasurement of our previously held ownership interest of SMC prior to the June 15, 2022 acquisition, based on the trading price of SMC common stock. In addition, other income for the three months ended June 30, 2022 included a $2.7 million loss related to remeasurement of our previously held ownership interest of AVLP prior to the June 1, 2022 acquisition.

Change in fair value of equity securities, related party

Change in fair value of equity securities, related party resulting from the ~~addition~~warrant securities that we received as a result of our investment in AVLP was nil for the three months ended June 30, 2022, compared to a ~~new Head~~loss of ~~Engineering~~$5.9 million for the three months ended June 30, 2021.

Interest Expense

Interest expense was $2.0 million for the three months ended June 30, 2022, compared to $22,000 for the three months ended June 30, 2021. The increase in interest expense is due primarily to interest on the $55.1 million construction loans related to the December 2021 acquisition of hotel properties.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability was a loss of $6,000 for the three months ended June 30, 2022, compared to a gain of $0.3 million for the three months ended June 30, 2021. During the three months ended June 30, 2021, the fair value of the warrants that were issued during 2021 in a series of debt financings decreased by $0.3 million. The fair value of warrant liabilities is re-measured at each financial reporting period and ~~Technology,~~immediately before exercise, with any changes in fair value recorded as change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive (loss) income.

Change in Fair Value of Marketable Equity Securities

Change in fair value of marketable equity securities was a ~~highly-compensated position~~gain of $0.2 million for the three months ended June 30, 2022, compared to a loss of $1.9 million for the three months ended June 30, 2021. The loss generated in the prior year period related to an investment in marketable securities held by Microphase Corporation (“Microphase”), a majority owned subsidiary of GWW, that was ~~created during~~fully sold in the fourth quarter of ~~2016.~~2021.

Realized Loss on Marketable Securities

Realized loss on marketable securities was $43,000 for the three months ended June 30, 2022, compared to $0 for the three months ended June 30, 2021. Realized loss for the three months ended June 30, 2022 included losses from Alpha Fund, which began operations in October 2021.

Loss From Investment in Unconsolidated Entity

Loss from investment in unconsolidated entity was $0.4 million for the three months ended June 30, 2022, compared to $0 for the three months ended June 30, 2021, representing our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.

Gain on Extinguishment of Debt

Gain on extinguishment of debt was $0 for the three months ended June 30, 2022, compared to a gain of $0.4 million for the three months ended June 30, 2021. On May 20, 2021, Microphase received forgiveness of its Paycheck Protection Program loan in the principal amount of $0.4 million.

Net (Loss) Income

For the foregoing reasons, our net loss for the three months ended June 30, 2022 was $25.8 million, compared to net income of $36.3 million for the three months ended June 30, 2021.

Other Comprehensive Loss

Other comprehensive loss was $1.5 million for the three months ended June 30, 2022, compared to other comprehensive income of $0.1 million for the three months ended June 30, 2021. Other comprehensive loss for the three months ended June 30, 2022 and 2021 was attributable to foreign currency translation adjustments between our functional currency, the U.S. Dollar, and the British Pound and Israeli Shekel.

Results of Operations for the Six Months Ended June 30, 2022 and 2021

The following table summarizes the results of our operations for the six months ended June 30, 2022 and 2021.

	For the Six Months Ended June 30,
	2022			2021

Revenue	$	16,508,000		$	16,469,000
Revenue, cryptocurrency mining		7,524,000			421,000
Revenue, hotel operations		7,296,000			-
Revenue, lending and trading activities		18,864,000			58,485,000
Total revenue		50,192,000			75,375,000
Cost of revenue		22,863,000			11,386,000
Gross profit		27,329,000			63,989,000

Total operating expenses		50,018,000			16,964,000

(Loss) income from operations		(22,689,000	)		47,025,000
Interest and other income		530,000			51,000
Change in fair value of equity securities, related party		-			(2,924,000	)
Interest expense		(31,855,000	)		(337,000	)
Change in fair value of marketable equity securities		241,000			45,000
Realized gain on marketable securities		66,000			397,000
Loss from investment in unconsolidated entity		(924,000	)		-
Gain on extinguishment of debt		-			929,000
Change in fair value of warrant liability		(24,000	)		(388,000	)

(Loss) income before income taxes		(54,655,000	)		44,798,000
Income tax (provision) benefit		(217,000	)		(3,510,000	)
Net (loss) income		(54,872,000	)		41,288,000
Net loss attributable to non-controlling interest		336,000			3,000
Net (loss) income attributable to Ault Alliance, Inc.		(54,536,000	)		41,291,000
Preferred dividends		(49,000	)		(9,000	)
Net (loss) income available to common stockholders	$	(54,585,000	)	$	41,282,000

Comprehensive (loss) income
Net (loss) income available to common stockholders	$	(54,585,000	)	$	41,282,000
Other comprehensive income (loss)
Foreign currency translation adjustment		(1,758,000	)		41,000
Other comprehensive loss		(1,758,000	)		(2,883,000	)
Total comprehensive (loss) income	$	(56,343,000	)	$	41,323,000

Revenues

Revenues by segment for the six months ended June 30, 2022 and 2021 are as follows:

	For the Six Months Ended June 30,				Increase
	2022		2021		(Decrease)			%
GWW	$	13,748,000	$	12,825,000	$	923,000			7	%
TurnOnGreen		2,191,000		3,213,000		(1,022,000	)		-32	%
BNI
Revenue, cryptocurrency mining		7,524,000		421,000		7,103,000			1687	%
Revenue, commercial real estate leases		550,000		281,000		269,000			96	%
AGREE		7,296,000		-		7,296,000			—
Ault Alliance:
Revenue, lending and trading activities		18,864,000		58,485,000		(39,621,000	)		-68	%
Other		19,000		150,000		(131,000	)		-87	%
Total revenue	$	50,192,000	$	75,375,000	$	(25,183,000	)		-33	%

Our revenues decreased by $25.2 million, or 33%, to $50.2 million for the six months ended June 30, 2022, from $75.4 million for the six months ended June 30, 2021.

GWW

GWW revenues increased by $0.9 million, or 7%, to $13.7 million for the six months ended June 30, 2022, from $12.8 million for the six months ended June 30, 2021. The increase in revenue from our GWW segment for customized solutions for the military markets reflects higher revenues from Enertec Systems 2001 Ltd., a GWW subsidiary, which primarily consisted of revenue recognized over time, grew to $6.2 million for the six months ended June 30, 2022, an increase of $1.3 million, or 27%, from $4.9 million in the prior-year period.

TurnOnGreen

TurnOnGreen revenues for the six months ended June 30, 2022 of $2.2 million declined $1.0 million, or 32%, from $3.2 million for the six months ended June 30, 2021, due to supply chain challenges.

BNI

Revenues from BNI’s cryptocurrency mining operations were $7.5 million for the six months ended June 30, 2022, compared to $0.4 million for six months ended June 30, 2021. During 2021, we purchased Bitcoin mining equipment and increased our cryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations in 2022 was based on several factors, which positively affected the number of active miners we operated, including the market prices of digital currencies, and favorable power costs available at our Michigan data center.

AGREE

AGREE revenues were $7.3 million for the six months ended June 30, 2022 compared to $0 for the six months ended June 30, 2021. On December 22, 2021, AGREE acquired four hotel properties for $71.3 million, consisting of a 136-room Courtyard by Marriott, a 133-room Hilton Garden Inn and a 122-room Residence Inn by Marriott in Middleton, WI, as well as a 135-room Hilton Garden Inn in Rockford, IL.

Ault Alliance

Revenues from our lending and trading activities decreased to $18.9 million for the six months ended June 30, 2022, from $58.5 million for the six months ended June 30, 2021, which is attributable to significant unrealized gains in the prior year period and unrealized losses in the current year period from our investment portfolio. During the six months ended June 30, 2021, DP Lending generated significant income from appreciation of investments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to DP Lending in certain financing transactions. Revenue from lending and trading activities during the six months ended June 30, 2021 included an approximate $40 million unrealized gain from our investment in Alzamend. Under its business model, DP Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.

Revenues from our trading activities during the six months ended June 30, 2022 included significant net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.

Gross Margins

Gross margins decreased to 54.4% for the six months ended June 30, 2022, compared to 84.9% for the six months ended June 30, 2021. Our gross margins have typically ranged between 30% and 35%, with slight variations depending on the overall composition of our revenue.

Our gross margins of 54.4% recognized during the six months ended June 30, 2022 were impacted by the favorable margins from our lending and trading activities and modest margins on cryptocurrency mining operations due to the decline in the price of Bitcoin. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross margins for the six months ended June 30, 2022 and 2021 would have been 31.4% and 33.2%, respectively, consistent with our historical range.

Research and Development

Research and development expenses increased by $0.3 million to $1.4 million for the six months ended June 30, 2022, from $1.1 million for the six months ended June 30, 2021. The increase in research and development expenses was due to product development efforts at TurnOnGreen and GWW.

Selling and Marketing

Selling and marketing expenses were ~~$423~~$13.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2022, compared to ~~$235~~$2.7 million for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~$188. Our acquisition~~$10.7 million, or 390%. The increase was the result of ~~Microphase~~$8.2 million higher advertising and ~~Power-Plus accounted for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed~~promotion costs at Ault Alliance, including $6.4 million related to an advertising sponsorship agreement as well as a $1.4 million increase in ~~personnel costs directly attributed to~~ sales and marketing personnel and a $0.4 million increase in consulting expense. The increase is also attributable to a $0.4 million increase in costs incurred at ~~the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented~~TurnOnGreen to grow 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 mattersinfrastructure related to our restructuring and expansion. As such, during the three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter, was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.

electric vehicle charger products.

General and Administrative

General and administrative expenses were ~~$1,685~~$32.7 million for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2022, compared to ~~$404~~$13.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~$1,281. Our acquisition of Microphase accounted for $410 of the increase in general~~$19.6 million, or 150%. General and administrative ~~expenses. The adjusted increase of $871~~expenses increased from the comparative prior period, ~~was~~ mainly due to:

general and administrative costs of $3.7 million from our hotel operations, which were acquired in December 2021;

non-cash stock compensation costs of $3.6 million;

$2.5 million increase in the accrual of a performance bonus related to realized gains on trading activities during the period;

higher salaries of $1.8 million and audit fees of $1.3 million;

increased costs of $1.5 million related to the Michigan data center, operated by ACS; and

increased legal fees of $1.5 million, in part related to the efforts to acquire EYP.

(Loss) Income From Operations

We recorded a loss from operations of $22.7 million for the six months ended June 30, 2022, compared to ~~higher stock based compensation expenses,~~a gain of $47.0 million for the six months ended June 30, 2021. The decrease in operating income is attributable primarily to the decrease in unrealized gains from trading activities from the prior year period, combined with an increase in ~~legal~~operating expenses.

Interest and ~~audit costs, an increase in investor relationship costs~~Other Income

Interest and ~~hiring of additional consultants~~other income was $0.5 million for the six months ended June 30, 2022 compared to ~~build an infrastructure in anticipation~~$51,000 for the six months ended June 30, 2021. Other income for the six months ended June 30, 2022 included a $2.8 million gain related to remeasurement of our ~~future growth and~~previously held ownership interest of SMC prior to the ~~allocation~~June 15, 2022 acquisition, based on the trading price of SMC common stock. In addition, other income for the six months ended June 30, 2022 included a $2.7 million loss related to remeasurement of our ~~Chief Executive Officer’s salary~~previously held ownership interest of AVLP prior to ~~general and administrative expense. The remaining increase~~the June 1, 2022 acquisition.

Change in ~~general and administrative expenses is due~~fair value of equity securities, related party

Change in fair value of equity securities, related party resulting from the warrant securities that we received as a result of our investment in AVLP was nil for the six months ended June 30, 2022, compared to ~~various costs, none~~a loss of ~~which are significant individually.~~

In aggregate, we incurred $517 of stock-based compensation during the three months ended September 30, 2017. Of this amount, $365 was from issuances of equity based awards pursuant to our Plans and $152 was from stock, options and warrants which were issued outside the Plans. It has been our policy to allocate the majority of stock based compensation to general and administrative expense. During the three months ended September 30, 2016 and 2017, and inclusive of equity based awards issued outside the Plans, we recorded $35 and $311, respectively, of stock-based compensation in general and administrative expense.

We experienced an aggregate increase of $168 in audit and legal fees due to an overall increase in the operations conducted and the level of complexity and significant number of the transactions entered into during the three months ended September 30, 2017.

Beginning during the quarter ended December 31, 2016, we spent significant effort on expanding our investor base and on hiring additional consultants to assist building an infrastructure to support our anticipated growth. As a result, we experienced an increase of $220 in costs attributed to investor relations and other consulting fees.

Finally, during the three months ended September 30, 2016, our Chief Executive Officer’s salary was reflected in selling and marketing expenses. As discussed above, our current practice is to record the salary and benefits of our Chief Executive Officer to general and administrative expense.

$2.9 million for the six months ended June 30, 2021.

Interest ~~(expense) income, net~~

Expense

Interest expense ~~net~~ was ~~$753~~$31.9 million for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~income of $23~~$0.3 million for the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2021. The increase in interest expense ~~for~~relates primarily to the ~~three months ended September 30, 2017 is primarily related to~~$66.0 million of Senior Notes issued in December 2021, which were fully paid in March 2022. Interest expense from these Senior Notes included the amortization of debt discount ~~in the aggregate amount~~ of ~~$669, resulting~~$26.3 million from the issuance of warrants, a non-cash charge, and original issue discount, in ~~conjunction~~connection with ~~the sale of debt and equity instruments of $3,452. During the three months ended September 30, 2017, as a result of~~ these ~~issuances, non-cash interest expense of $669 was recorded from~~Senior Notes. In addition, the ~~amortization of debt discount and debt financing costs. The remaining~~ increase in interest expense ~~net, was~~is due, in part, to ~~an increase in~~interest on the amount of the Company’s total borrowings. At September 30, 2017, the outstanding balance of the Company’s convertible notes payable and notes payable was $3,458. Conversely, at September 30, 2016, the Company did not have any outstanding convertible notes payable or notes payable. Interest expense was partially offset by interest income and the accretion of original issue discount pursuant$55.1 million construction loans related to the ~~Loan and Security Agreement~~ ~~entered into on~~ ~~September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”~~) December 2021 acquisition of ~~$141.~~

~~Operating Loss~~

~~The Company recorded an operating~~hotel properties.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability was a loss of ~~$1,318~~$24,000 for the ~~three~~six months ended ~~September~~June 30, ~~2017 compared to an operating loss of $83 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 $2,071 for the three months ended September 30, 2017~~2022, compared to a loss of $0.4 million for the six months ended June 30, 2021. During the six months ended June 30, 2021, the fair value of the warrants that were issued during 2021 in a series of debt financings increased by $0.4 million. The fair value of warrant liabilities 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 warrant liability in the condensed consolidated statements of operations and comprehensive (loss) income.

Change in Fair Value of Marketable Equity Securities

Change in fair value of marketable equity securities was a gain of $0.2 million for the six months ended June 30, 2022, compared to a gain of $45,000 for the six months ended June 30, 2021. The loss generated in the prior year period relates to an investment in marketable securities held by Microphase that was fully sold in the fourth quarter of 2021.

Realized Gain on Marketable Securities

Realized gain on marketable securities was $0.1 million for the six months ended June 30, 2022, compared to $0.4 million for the six months ended June 30, 2021. Realized gains in the prior year period relates to realized gains from an investment in marketable securities held by Microphase, a portion of which was sold during the six months ended June 30, 2021.

Loss From Investment in Unconsolidated Entity

Loss from investment in unconsolidated entity was $0.9 million for the six months ended June 30, 2022, compared to $3,000 for the six months ended June 30, 2021, representing our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.

Gain on Extinguishment of Debt

Gain on extinguishment of debt was $0 for the six months ended June 30, 2022, compared to a gain of $0.9 million for the six months ended June 30, 2021. The prior year gain on extinguishment of debt represents forgiveness of Paycheck Protection Program loans.

Net (Loss) Income

For the foregoing reasons, our net loss ~~of $38~~ for the ~~three~~six months ended ~~September~~June 30, ~~2016 as a result~~2022 was $54.6 million, compared to net income of $41.3 million for the ~~aforementioned changes. After taking into consideration~~six months ended June 30, 2021.

Other Comprehensive (Loss) Income

Other comprehensive loss was $1.8 million for the six months ended June 30, 2022, compared to other comprehensive income of $41,000 for the six months ended June 30, 2021. Other comprehensive loss for the six months ended June 30, 2022 and 2021 was attributable to foreign currency translation adjustments between our functional currency, the ~~non-controlling interest of the minority shareholders of Microphase, the net loss attributable to the Company was $1,967~~U.S. Dollar, 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 for the nine 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~~Israeli Shekel.

Liquidity and Capital Resources

On June 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.

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

~~General and Administrative~~

General and administrative expenses were $4,240 for the nine months ended September 30, 2017 compared to $1,115 for the nine months ended September 30, 2016, an increase of $3,125. Our acquisition of Microphase accounted for $577 of the increase in general and administrative expenses. The adjusted increase of $2,548 from the comparative prior period was mainly due to higher stock based compensation expenses, an increase in legal and audit costs, an increase in investor relationship costs and hiring of additional consultants to build an infrastructure in anticipation of our future growth and the allocation of our Chief Executive Officer’s salary to general and administrative expense. The remaining increase in general and administrative expenses is due to various costs, none of which are significant individually.

In aggregate, we incurred $1,269 of stock-based compensation during the nine months ended September 30, 2017. Of this amount, $1,061 was from issuances of equity based awards pursuant to our Plans and $208 was from stock, options and warrants which were issued outside the Plans. It has been our policy to allocate the majority of stock based compensation to general and administrative expense. During the nine months ended September 30, 2016 and 2017, and inclusive of equity based awards issued outside the Plans, we recorded $108 and $980, respectively, of stock-based compensation in general and administrative expense.

We experienced an aggregate increase of $486 in audit and legal fees due to an overall increase in the operations conducted and the level of complexity and significant number of the transactions entered into during the nine months ended September 30, 2017.

Beginning during the quarter ended December 31, 2016, we spent significant effort on expanding our investor base and on hiring additional consultants to assist building an infrastructure to support our anticipated growth. As a result, we experienced an increase of $589 in costs attributed to investor relations and other consulting fees.

Finally, during the nine months ended September 30, 2016, our Chief Executive Officer’s salary was reflected in selling and marketing expenses. As discussed above, our current practice is to record the salary and benefits of our Chief Executive Officer to general and administrative expense.

~~Interest (expense) income, net~~

Interest expense, net was $1,367 for the nine months ended September 30, 2017 compared to income of $85 for the nine months ended September 30, 2016. The increase in interest expense for the nine months ended September 30, 2017 is primarily related to debt discount, in the aggregate amount of $1,269, resulting from the issuance of warrants in conjunction with the sale of debt and equity instruments of $6,706. During the nine months ended September 30, 2017, as a result of these issuances, non-cash interest expense of $1,269 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increase in the amount of the Company’s total borrowings. Interest expense was partially offset by interest income and the accretion of original issue discount on the AVLP Loan Agreement of $242.

~~Operating Loss~~

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

~~Net Loss~~

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

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~On September 30, 2017,~~2022, we had cash and cash equivalents of ~~$314.~~$24.1 million (excluding restricted cash of $4.7 million). This compares ~~with~~to cash and cash equivalents of ~~$996~~$15.9 million (excluding restricted cash of $5.3 million) at December 31, ~~2016.~~2021. The ~~decrease~~increase 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 the sale of common and preferred stock, as well as proceeds from notes payable and cash provided by operating activities, partially offset by the payment of debt and purchases of property and equipment.

Net cash provided by operating activities totaled $15.0 million for the six months ended June 30, 2022 compared to net cash used in operating activities ~~totaled $1,577~~of $21.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, compared to~~2021. Cash provided by operating activities for the six months ended June 30, 2022 included $50.7 million net cash provided by ~~operating~~marketable securities from 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 compared~~related to the ~~nine months ended September 30, 2016 was mainly due to the September 30, 2017 nine months loss~~operations of ~~$4,916. The net loss was~~DP Lending, partially offset by ~~non-cash charges, the amortization of debt discount of $1,239~~operating losses and ~~stock-based compensation of $1,269, an increase~~changes in ~~accounts payable and accrued expenses of $2,083 and decreases in our accounts receivable of $737 and other current liabilities of $595.~~

working capital.

Net cash used in investing activities was ~~$4,384~~$82.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022, compared to ~~$12 of net~~$29.7 million for the six months ended June 30, 2021. Net cash ~~provided by~~used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The increase~~2022 included $72.8 million of ~~the net usage of cash from investing activities was~~capital expenditures primarily related to ~~the investment~~Bitcoin mining equipment, $15.8 million for investments in ~~AVLP, loans to third parties~~equity securities and $8.2 million for the purchase of ~~Power-Plus.~~

SMC, net of cash received, partially offset by $11.7 million proceeds from the sale of marketable equity securities, $10.5 million principal payments received on loans receivable and $4.4 million proceeds from the sale of digital currencies.

Net cash provided by financing activities was ~~$5,194 and nil~~$75.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022, compared to $138.1 million for the six months ended June 30, 2021, and ~~2016, respectively. The financing activities related to~~reflects 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.

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

transactions:

In2022 Common ATM Offering – On February ~~2017, the Company issued demand promissory notes and warrants~~25, 2022, we entered into an At-The-Market issuance sales agreement with Ascendiant Capital to ~~purchase 333,333~~sell shares of common stock ~~at $ 0.70 per share for~~having an aggregate ~~proceeds~~offering price of ~~$400. Further in February 2017,~~up to $200 million from time to time, through the ~~holders~~2022 Common ATM Offering. As of ~~$400 in demand promissory notes agreed to extinguish their $400~~June 30, 2022, we had sold an aggregate of ~~debt by cancelling their notes to purchase 666,667~~239.7 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $163.4 million. Net proceeds to us, after payment of commissions, were $159.4 million.

Public Offering of Series D Preferred Stock – On June 3, 2022, we announced the ~~Company~~closing of our public offering of 144,000 shares of our Series D Preferred Stock at ~~$0.60~~a price to the public of $25.00 per share. Gross proceeds from the offering were approximately $3.6 million, before deducting offering expenses. Net proceeds to us, after payment of commissions, non-accountable fees and offering expenses were $3.1 million.

December 2021 Secured Promissory Notes – On ~~March 9, 2017, the Company~~December 30, 2021, we 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.~~

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.~~

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~~with certain accredited investors providing for the issuance 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, bearsSenior Notes that bore 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 $0.558% per ~~share.~~

Margin Accounts Payable – During the year ended December 31, 2021, we entered into leverage agreements on certain brokerage accounts, whereby we borrowed $18.5 million. The margin accounts payable were repaid during the three months ended March 31, 2022.

Purchase of ~~1,475,000~~Treasury Stock – During the six months ended June 30, 2022, Alpha Fund purchased 16.1 million shares of our common ~~stock. The principal of the Convertible Notes~~stock for $6.2 million and ~~interest earned thereon may be converted into~~53,033 shares of ~~common~~our Series D Preferred Stock for $1.3 million, accounted for as treasury stock ~~at $0.60 per share and under the terms~~as 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.June 30, 2022.

We ~~expect~~believe our current cash on hand combined with the proceeds from the 2022 ATM Offering are sufficient to ~~continue to incur losses~~meet our operating and capital requirements for at least the next twelve months from the date the financial statements for the ~~foreseeable future~~six months ended June 30, 2022 are issued.

Critical Accounting Policies

Business Combination

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

~~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~~make significant estimates and assumptions, ~~used~~especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in ~~preparing~~certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. We include the results of operations of the business that we have acquired in our consolidated ~~financial statements. The basis for developing~~results prospectively from the ~~estimates and assumptions within our critical accounting policies~~date of acquisition.

If the business combination is ~~based on historical information and known current trends and factors. The estimates and assumptions~~achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are ~~evaluated on an ongoing basis and actual results have been within our expectations. We have not changed these policies from those previously disclosed~~recognized in ~~our Annual Report.~~

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

profit or loss.

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~~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, each of our principal executive officer and principal financial officer has concluded that the Company’s internal control over financial reporting was not effective as of the 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, 2021, 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, fair value estimates and analysis of financial instruments for proper classification in the consolidated financial statements, in a timely manner. 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. Our primary user access controls (i.e. provisioning, de-provisioning, privileged access and user access reviews) to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not ~~effective as of June 30, 2017 due~~designed and/or implemented effectively. We did not design and/or implement sufficient controls for program change management to certain ~~material weaknesses as described herein.~~

financially relevant systems affecting our processes.

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)~~13

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

~~(ii)~~

~~a lack of segregation of duties to ensure adequate review of financial statement preparation.~~

~~Planned Remediation~~

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

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

~~assists with documentation and implementation of policies and procedures and monitoring of controls,~~

Planned Remediation

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

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

~~reviews all anticipated transactions~~Implementing new applications and systems that are ~~not considered in~~aligned with management’s focus on creating strong internal controls; and

Continuing to increase headcount across the ~~ordinary course of business to assist in the early identification of accounting issues~~Company, with a particular focus on hiring individuals with strong Sarbanes Oxley and ~~ensure that appropriate disclosures are made in the Company’s financial statements.~~internal control backgrounds.

We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures.

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

Despite the existence of these material weaknesses, we believe that the 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 ~~2017~~of 2022, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

~~None~~

~~ITEM 1A.~~

~~RISK FACTORS~~

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 $1.4 million, plus attorneys’ fees and costs.

We believe that these claims are without merit and intend to vigorously defend them.

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 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 which was completed on March 4, 2021. In connection therewith, the Court also denied the previously filed motion to dismiss without prejudice.

On June 2, 2021, we and our subsidiary filed a motion to dismiss (the “Motion to Dismiss”) the Amended Complaint in its entirety as against us, and the promissory estoppel claim as against the subsidiary.

On August 8, 2022, the Court issued an Order denying the Motion to Dismiss, in its entirety.

The deadline for us and our subsidiaries to file an Answer to the Amended Complaint is September 2, 2022.

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 $1.1 million, plus a decree of specific performance directing DPW to deliver unrestricted shares of DPW’s common stock to Gu, plus attorneys’ fees and costs.

We believe that these claims are without merit and intend to vigorously defend them.

On May 4, 2020, we and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice (the “Motion to Dismiss”).

On July 28, 2021, the Court conducted oral argument (the “Oral Argument”), via Microsoft Teams, in connection with the Motion to Dismiss. During the Oral Argument, the Court informed the parties that the Court would be dismissing the fraud claim, in its entirety, and provided Plaintiffs an opportunity to amend their fraud claim within sixty days of the date of the Oral Argument. The Court reserved decision on the other causes of action.

On December 14, 2021, the Court entered a Decision and Order in connection with the Motion to Dismiss (the “Order”) whereby the Court dismissed Plaintiff’s causes of action for specific performance, conversion, permanent injunction, and reiterated its prior determination that the fraud claim was also dismissed. The Court denied the Motion to Dismiss in connection with the other causes of action asserted in the Complaint.

On January 26, 2022, we and Ault filed an Answer to the Complaint and asserted numerous affirmative defenses.

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 and certain affiliates and related parties have received several subpoenas from the SEC for the production of documents and testimony. The Company is fully cooperating with this non-public, fact-finding inquiry and management believes that the Company has operated its business in compliance with all applicable laws. The subpoenas expressly provide 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 they 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

The risks described in Part I, Item 1A, ~~"Risk~~“Risk Factors,"” in our ~~2016~~2021 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 ~~2016~~2021 Annual Report on Form 10-K remains current in all material respects, ~~except~~with the exception that the following section of Risk Factors section of our 2021 Annual Report on Form 10-K is hereby amended and restated in its entirety:

“Risks Related to Related Party Transactions

Avalanche

We have lent a substantial amount of funds to Avalanche, a related party, whose ability to repay us is subject to significant doubt; in addition, we ~~identified~~ ~~material weaknesses in our internal control over financial reporting~~currently beneficially own a significant percentage of Avalanche’s issued and ~~in our disclosure controls~~outstanding shares of common stock, for which there is presently no market.

On September 6, 2017, we entered into a Loan 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 ImpactSecurity Agreement with Avalanche (as amended, 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“AVLP Loan Agreement”) with an effective ~~control environment existed,~~date of August 21, 2017 pursuant to which we provided Avalanche a non-revolving credit facility. The AVLP Loan Agreement was increased to up to $20.0 million in June of 2021 and ~~our business and reputation with investors may be harmed. As~~extended to December 31, 2023. Until recently, we held a ~~result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access~~convertible note issued to ~~capital. We have also experienced complications reporting as a result of material weaknesses which resulted~~us by AVLP in the ~~restatement~~amount of ~~our~~ ~~Form 10-Q~~$20.0 million (the “Prior AVLP Note”).

While Avalanche received funds from a third party in the amount of $2.75 million in early April of 2019 in consideration for its issuance of a convertible promissory note to such third party (the “Third Party Note”), $2.7 million was used to pay an outstanding receivable due us and no amount was used to repay 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 duedebt Avalanche owes us pursuant to the ~~material weaknesses described below.~~

~~A material weakness is~~AVLP Loan Agreement. On October 12, 2021, Ault Alpha, an affiliate of ours, repaid the Third Party Note in full and also acquired a ~~deficiency, or~~warrant to purchase 1.6 million shares of AVLP common stock. In consideration therefor, AVLP issued Ault Alpha a ~~combination~~term note in the principal amount 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~~$3.6 million, which term note had 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 asmaturity date of June 30, ~~2017~~2022.

On June 27, 2022, AVLP exchanged the term note it had issued to Ault Alpha for a 10% senior secured convertible note in the principal face amount of $3,797,260 due June 15, 2024 (the “Ault Alpha Note”). The Ault Alpha Note is convertible, subject to adjustment, at $0.50 per share. AVLP also issued Ault Alpha a warrant to purchase an aggregate of 1,617,647 shares of Avalanche common stock at an exercise price of $0.50. Pursuant to a security agreement entered into by Avalanche and Ault Alpha, as amended by an intercreditor agreement entered into by and among the foregoing parties, our ~~internal controls over financial reporting (“ICFR”) were not effective at~~company and certain other persons, Ault Alpha has a second priority interest in AVLP’s assets securing the ~~reasonable assurance level:~~

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.~~

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~~repayment of the ~~weaknesses described above, including a greater level of involvement by our Audit Committee. We intend to continue to address these weaknesses as resources permit.~~

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Ault Alpha Note.

On July ~~7, 2017,~~11, 2022, AVLP issued us a 10% senior secured convertible note in the ~~Company~~principal face amount of $3,000,000 due July 10, 2024 (the “AVLP Note”). The AVLP Note is convertible, subject to adjustment, at $0.50 per share. AVLP also issued us warrants to purchase an aggregate of 40,998,272 shares of Avalanche common stock at an exercise price of $0.50. Pursuant to a security agreement entered into by Avalanche and Ault Alpha, as amended by an ~~asset purchase~~intercreditor agreement ~~to acquire~~entered into by and among the ~~intellectual property~~foregoing parties, our company and certain other persons, we have a first priority interest in AVLP’s assets securing the repayment of ~~Coolisys.com, in consideration for, in part, 50,000~~the AVLP Note.

On June 1, 2022, we converted the entire principal and accrued interest on the Prior AVLP Note into an aggregate of 51,889,168 shares of common stock of Avalanche, representing approximately 90.2% of Avalanche’s issued and outstanding shares of common stock. ~~The seller of~~There is currently no liquid market for the ~~intellectual property and purchaser of the~~Avalanche 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~~stock. Consequently, even if we were inclined 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. Thesell such shares of common stock on the open market, our ability to do so would be severely limited. Avalanche is not current in its filings with the Commission and is not required to register the shares of its common stock underlying the Prior AVLP Note or any other loan arrangement we have ~~yet~~made with Avalanche described above.

There is some doubt as to whether Avalanche will ever have the ability to repay its debt to us, as well as our ability to sell the shares we beneficially own since at present there is no market for these shares. If we are unable to recoup our investment in Avalanche in the foreseeable future or at all, such failure would have a materially adverse effect on our financial condition and future prospects.

Milton C. Ault, III and William Horne, our Executive Chairman and Chief Executive Officer, respectively, and two of our directors are directors of Avalanche. In addition, Philou is the controlling stockholder of Avalanche.

Milton C. Ault, III and William Horne, our Executive Chairman and Chief Executive Officer, respectively, and two of our directors, are also directors of Avalanche. In addition, Philou is the controlling stockholder of Avalanche. Certain conflicts of interest between us, on the one hand, and Avalanche, on the other hand, may arise relating to commercial or strategic opportunities or initiatives, in addition to the conflicts related to the debt that Avalanche owes us. For example, Messrs. Ault and Horne may find it difficult to determine how to meet their fiduciary duties to us as well as Avalanche, which could result in a less favorable result for us than would be ~~issued by~~ the ~~Company~~case if they were solely directors of our company. Further, even if Messrs. Ault and Horne were able to successfully meet their fiduciary obligations to us and Avalanche, the fact that they are ~~subject~~members of the board of directors of both companies could attenuate their ability to ~~approval from~~focus on our business and best interests, possibly to the ~~NYSE American prior to issuance.~~

~~On October 5, 2017,~~detriment of both companies. Mr. Ault’s control of Philou through Ault & Company only enhances the risk inherent in having Messrs. Ault and Horne serve as directors of both our company and Avalanche.”

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

From April 1, 2022 through June 30, 2022, Ault Alpha LP purchased ~~75,000~~15,125,000 shares of ~~our~~ common stock ~~at $0.60 per share~~ and ~~a warrant to purchase up to 75,000~~10,456 shares of ~~our common stock at $0.60 per share for an aggregate purchase price of $45. These shares and warrants have yet~~Series D Preferred Stock. Ault Alpha LP may be deemed to be ~~issued by~~an “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the ~~Company and are subject to approval from the NYSE American prior to issuance. Ault & Company is controlled by Mr. Milton Ault, our Executive Chairman.~~

Securities Exchange Act of 1934, as amended. The ~~foregoing issuances and sales and~~ purchases were ~~exempt from registration upon reliance of Section 4(a)(2) and Regulation D promulgated thereunder.~~

made through open market transactions.

Common Stock Purchased

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs
April 1, 2022 – April 30, 2022		-		-
May 1, 2022 – May 31, 2022		10,429,605	$	0.34
June 1, 2022 – June 30, 2022		4,695,395	$	0.35
Total		15,125,000	$	0.34		-		-

Series D Preferred Stock Purchased
	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs
April 1, 2022 – April 30, 2022		-		-
May 1, 2022 – May 31, 2022		-		-
June 1, 2022 – June 30, 2022		10,456	$	18.99
Total		10,456	$	18.99		-		-

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

~~None~~

~~ITEM 5.~~

~~OTHER INFORMATION~~

~~None~~

~~ITEM 6.~~

~~EXHIBITS~~

Exhibit Number		Description
~~2.1~~3.1		~~Share Exchange Agreement by~~Form of Certificate of Determination of Preferences, Rights and ~~among Digital Power Corporation, Microphase Corporation, Microphase Holding Company, RCKJ Trust, Ergul Family Limited Partnership, To Hong Yam and Eagle Advisers, LLC,~~Limitations of Series B Convertible Preferred Stock, dated ~~as of April 28, 2017 (Incorporated~~March 3, 2017. Incorporated by reference to ~~Exhibit 2.1 of~~ the ~~Company’s current report filed~~Current Report on Form 8-K ~~with the Securities and Exchange Commission~~filed on ~~May 3, 2017)~~March 9, 2017 as Exhibit 3.1 thereto.
~~3.1~~3.2		Certificate of Incorporation, dated September 22, 2017. Incorporated herein by reference to the Current Report on Form 8-K filed on December 29, 2017 as Exhibit 3.1 thereto.
3.3		Certificate of Designations of Rights and Preferences of 10% Series A Cumulative Redeemable Perpetual Preferred Stock, dated September 13, 2018. Incorporated herein by reference to the Current Report on Form 8-K filed on September 14, 2018 as Exhibit 3.1 thereto.
3.4		Certificate of Amendment to Certificate of Incorporation, dated January 2, 2019. Incorporated by reference to the Current Report on Form 8-K filed on January 3, 2019 as Exhibit 3.1 thereto.
3.5		Certificate 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 on February 28, 2019 as Exhibit 3.1 thereto.
3.6		Certificate of Amendment to Certificate of Incorporation (1-for-20 Reverse Stock Split of Common Stock), dated March 14, 2019. Incorporated herein by reference to the Current Report on Form 8-K filed on March 14, 2019 as Exhibit 3.1 thereto.
3.7		Form of Amended & Restated Certificate of Designations of Rights and Preferences of Series C Convertible Preferred Stock. Incorporated by reference to the Current Report on Form 8-K filed on February 25, 2020 as Exhibit 3.1 thereto.
3.8		Bylaws effective as of August 13, 2020. Incorporated by reference to the Current Report on Form 8-K filed on August 14, 2020 as Exhibit 3.1 thereto.
3.9		Certificate of Ownership and Merger. Incorporated by reference to the Current Report on Form 8-K filed on January 19, 2021 as Exhibit 3.1 thereto.
3.10		Amended and Restated ~~Articles~~Bylaws of ~~Incorporation~~BitNile Holdings, Inc., effective as of ~~Digital Power Corporation (Incorporated~~November 2, 2021. Incorporated by reference to the Current Report on Form 8-K filed on November 3, 2021 as Exhibit 3.1 thereto.
3.11		Certificate of Ownership and Merger, as filed with the Secretary of State of the ~~Company’s~~State of Delaware on December 1, 2021. Incorporated by reference to the Current Report on Form 8-K filed on December 13, 2021 as Exhibit 3.1 thereto.
3.12		Certificate of Designation, Preferences and Rights relating to the 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated May 25, 2022. Incorporated by reference to the Registration Statement on Form ~~SB-2~~8-A filed ~~with the Securities and Exchange Commission~~ on ~~October 16, 1996)~~May 26, 2022 as Exhibit 3.6 thereto.
~~3.2~~3.13		Certificate of ~~Amendment to Articles~~Increase of ~~Incorporation~~the Designated Number of ~~Digital Power Corporation (Incorporated~~Shares of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 10, 2022. Incorporated by reference to ~~Exhibit 3.2 of~~ the ~~Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 16, 1996)~~
~~3.3~~		~~Certificate of Amendment to Articles of Incorporation of Digital Power Corporation (Incorporated by reference to Exhibit 3.1 of the Company’s current report~~Current Report on Form 8-K filed ~~with the Securities and Exchange Commission~~ on ~~December 9, 2013)~~June 14, 2022 as Exhibit 3.1 thereto.
~~3.4~~3.14		~~Bylaws~~Certificate of ~~Digital Power Corporation (Incorporated~~Correction to the Certificate of Designation, Rights and Preferences of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 16, 2022. Incorporated by reference to ~~Exhibit 3.3 of~~ the ~~Company’s Registration Statement~~Current Report on Form ~~SB-2~~8-K filed ~~with the Securities and Exchange Commission~~ on ~~October 16, 1996)~~June 17, 2022 as Exhibit 3.1 thereto.
~~3.5~~10.1		Form of ~~Series C Certificate of Determination (Incorporated~~Asset Purchase Agreement. Incorporated by reference to ~~Exhibit 3.1 of~~ the ~~Company’s current report filed~~Current Report on Form 8-K ~~with the Securities and Exchange Commission~~filed on ~~May 31, 2017)~~April 25, 2022 as Exhibit 10.1 thereto.
~~3.6~~10.2		Form of ~~Series D Certificate of Determination (Incorporated~~Senior Secured Superpriority Debtor-in-Possession Financing Term Sheet. Incorporated by reference to ~~Exhibit 3.1 of~~ the ~~Company’s current report filed~~Current Report on Form 8-K ~~with the Securities and Exchange Commission~~filed on ~~May 3, 2017)~~April 25, 2022 as Exhibit 10.2 thereto.
~~3.7~~10.3		~~Form of Series E Certificate of Determination (Incorporated~~At-The-Market Issuance Sales Agreement, dated June 14, 2022, with Ascendiant Capital Markets, LLC. Incorporated by reference to ~~Exhibit 3.2 of~~ the ~~Company’s current report filed~~Current Report on Form 8-K ~~with the Securities and Exchange Commission~~filed on ~~May 3, 2017)~~June 14, 2022 as Exhibit 10.1 thereto.
~~10.1~~31.1*		Preferred Stock Purchase Agreement date March 9, 2017 between Digital Power Corporation, and Philou Ventures, LLC. (Incorporated by reference to Exhibit 10.1 of the Company’s current report filed on Form 8-K with the Securities and Exchange Commission on March 9, 2017)
31.1*		Certification of Chief Executive ~~and~~Officer 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~~Code.

101.INS***		Inline XBRL Instance ~~Document~~Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH***		Inline XBRL Taxonomy Extension Schema ~~Document~~Document.
101.CAL***		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.
101.DEF**101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB*** 104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Label Linkbase Document~~
101.PRE***		~~XBRL Taxonomy Extension Presentation Linkbase Document~~and contained in Exhibit 101).

~~______________________~~

_________________

* 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.

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~~

April 14, 2023

~~By:~~	~~/s/ Amos Kohn~~	AULT ALLIANCE, INC.
	~~Amos Kohn~~
	~~President,~~	By:	/s/ William B. Horne
			William B. Horne
			Chief Executive ~~and~~ Officer
			(Principal Executive Officer)


		By:	/s/ Kenneth S. Cragun
			Kenneth S. Cragun
			Chief Financial Officer ~~and~~
			(Principal Accounting ~~Officer~~Officer)

~~California~~Delaware	94-1721931
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value	AULT	NYSE American
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share	AULT PRD	NYSE American

			Page
PART I – FINANCIAL INFORMATION

	Item 1.		Financial Statements (Unaudited)	F-1

		Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017 (Unaudited)~~2022 and December 31, ~~2016 (Audited)~~ 2021	~~1-2~~F-1

		Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~(Loss) Income for the three and ~~nine~~ six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016 (Unaudited)~~ 2021	3F-3

		Condensed Consolidated Statements of ~~Cash Flows~~Changes in Stockholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016 (Unaudited)~~ 2021	~~4-5~~F-4

		~~Notes to Interim~~ Condensed Consolidated ~~Financial~~ Statements ~~(Unaudited)~~of Cash Flows for the six months ended June 30, 2022 and 2021	~~6 - 42~~F-8

		Notes to Condensed Consolidated Financial Statements	F-10

Item 2.	~~Management's~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	431

	Item 3.		Quantitative and Qualitative Disclosures about Market Risk	5113

	Item 4.		Controls and Procedures	5113

PART II – OTHER INFORMATION

	Item 1.		Legal Proceedings	5215
	Item 1A.		Risk Factors	5217
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	5318
	Item 3.		Defaults Upon Senior Securities	5318
	Item 4.	~~Reserved~~	54
	~~Item 5.~~	~~Other Information~~	54
	~~Item 6.~~	~~Exhibits~~	55
		Mine Safety Disclosures	18
Item 5.		Other Information	18
Item 6.		Exhibits	19

☑x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended ~~September~~June 30, ~~2017~~ 2022

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

	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

	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	)

	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

	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

	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

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

	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

				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

	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

	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

	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

	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

	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	%	$	—		—

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