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 for the year ended December 31, ~~2016,~~2022, as amended, 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

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

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

CURRENT ASSETS

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

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

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

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

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

TOTAL LIABILITIES $ 10,798 $ 1,913

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

~~DIGITAL POWER CORPORATION~~

(Unaudited)


	September 30,		December 31,
	2023		2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	8,736,000	$	7,942,000
Restricted cash		1,903,000		732,000
Cash and marketable securities held in trust account		-		118,193,000
Marketable equity securities		72,000		6,590,000
Accounts receivable		24,651,000		19,322,000
Inventories		22,482,000		22,036,000
Investment in promissory notes and other, related party		3,018,000		2,868,000
Loans receivable, current		1,166,000		7,593,000
Prepaid expenses and other current assets		8,709,000		5,074,000
Current assets of discontinued operations		98,596,000		5,959,000
TOTAL CURRENT ASSETS		169,333,000		196,309,000

Cash and marketable securities held in trust account		2,171,000		-
Intangible assets, net		16,980,000		34,786,000
Goodwill		8,973,000		27,902,000
Property and equipment, net		132,044,000		146,779,000
Right-of-use assets		10,419,000		8,419,000
Investments in common stock, related parties		2,712,000		6,449,000
Investments in other equity securities		26,014,000		42,494,000
Other assets		9,810,000		5,841,000
Noncurrent assets of discontinued operations		-		92,535,000
TOTAL ASSETS	$	378,456,000	$	561,514,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	88,213,000	$	60,780,000
Operating lease liability, current		1,901,000		2,975,000
Notes payable, net		30,255,000		39,621,000
Notes payable, related party		16,225,000		-
Convertible notes payable, current		8,601,000		1,325,000
Redeemable noncontrolling interests in equity of subsidiaries		-		117,993,000
Current liabilities of discontinued operations		69,212,000		2,631,000
TOTAL CURRENT LIABILITIES		214,407,000		225,325,000

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

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)

	September 30,			December 31,
	2023			2022
LONG TERM LIABILITIES
Operating lease liability, non-current		8,697,000			5,836,000
Notes payable		21,211,000			29,831,000
Convertible notes payable		9,453,000			11,451,000
Deferred underwriting commissions of Ault Disruptive Technologies Corporation (“Ault Disruptive”) subsidiary		3,450,000			3,450,000
Noncurrent liabilities of discontinued operations		-			61,633,000

TOTAL LIABILITIES		257,218,000			337,526,000

COMMITMENTS AND CONTINGENCIES

Redeemable noncontrolling interests in equity of subsidiaries		2,179,000			-

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 September 30, 2023 and December 31, 2022 (liquidation preference of $176,000 as of September 30, 2023 and December 31, 2022)		-			-
Series B Convertible Preferred Stock, $10 stated value per share, share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued and outstanding at September 30, 2023 and December 31, 2022 (liquidation preference of $1,190,000 at September 30, 2023 and December 31, 2022)		-			-
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated value per share, $0.001 par value – 2,000,000 shares authorized; shares authorized, 425,197 shares and 172,838 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively (liquidation preference of $10,630,000 and $4,321,000 as of September 30, 2023 and December 31, 2022, respectively)		-			-
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized; 12,379,673 and 1,274,157 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		12,000			1,000
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022		-			-
Additional paid-in capital		589,279,000			565,904,000
Accumulated deficit		(467,088,000	)		(329,078,000	)
Accumulated other comprehensive loss		(2,102,000	)		(1,100,000	)
Treasury stock, at cost		(30,540,000	)		(29,235,000	)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY		89,561,000			206,492,000

Non-controlling interest		29,498,000			17,496,000

TOTAL STOCKHOLDERS’ EQUITY		119,059,000			223,988,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	378,456,000		$	561,514,000

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~~COMPREHENSIVE LOSS

(Unaudited)

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

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

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

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

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

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

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

Income tax benefit — 22 — 22

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

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

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

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

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

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

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

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

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

~~DIGITAL POWER CORPORATION~~


	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Revenue	$	28,164,000		$	27,031,000		$	54,594,000		$	43,539,000
Revenue, cryptocurrency mining		7,558,000			3,874,000			23,273,000			11,398,000
Revenue, crane operations		12,490,000			-			37,726,000			-
Revenue, lending and trading activities		(249,000	)		13,360,000			4,337,000			32,224,000
Total revenue		47,963,000			44,265,000			119,930,000			87,161,000
Cost of revenue, products		20,425,000			20,193,000			39,248,000			30,985,000
Cost of revenue, cryptocurrency mining		10,228,000			5,255,000			28,057,000			12,206,000
Cost of revenue, crane operations		7,642,000			-			22,671,000			-
Cost of revenue, lending and trading activities		-			-			1,180,000			-
Total cost of revenue		38,295,000			25,448,000			91,156,000			43,191,000
Gross profit		9,668,000			18,817,000			28,774,000			43,970,000
Operating expenses
Research and development		1,769,000			521,000			5,415,000			1,945,000
Selling and marketing		8,034,000			7,428,000			26,405,000			20,888,000
General and administrative		17,760,000			15,362,000			59,540,000			44,357,000
Impairment of goodwill and intangible assets		-			-			35,570,000			-
Impairment of property and equipment		3,895,000			-			3,895,000			-
Impairment of deposit due to vendor bankruptcy filing		-			2,000,000			-			2,000,000
Impairment of mined cryptocurrency		113,000			515,000			376,000			2,930,000
Total operating expenses		31,571,000			25,826,000			131,201,000			72,120,000
Loss from operations		(21,903,000	)		(7,009,000	)		(102,427,000	)		(28,150,000	)
Other income (expense):
Interest and other income		309,000			725,000			3,888,000			1,255,000
Interest expense		(4,414,000	)		(2,367,000	)		(30,537,000	)		(32,063,000	)
Loss on extinguishment of debt		(1,546,000	)		-			(1,700,000	)		-
Realized and unrealized (loss) gain on marketable securities		74,000			709,000			(170,000	)		1,016,000
Loss from investment in unconsolidated entity		-			-			-			(924,000	)
Impairment of equity securities		-			-			(9,555,000	)		-
(Loss) gain on the sale of fixed assets		(33,000	)		-			2,728,000			-
Change in fair value of warrant liability		(562,000	)		(3,000	)		2,655,000			(27,000	)
Total other expense, net		(6,172,000	)		(936,000	)		(32,691,000	)		(30,743,000	)
Loss before income taxes		(28,075,000	)		(7,945,000	)		(135,118,000	)		(58,893,000	)
Income tax (benefit) provision		(565,000	)		144,000			540,000			361,000
Net loss from continuing operations		(27,510,000	)		(8,089,000	)		(135,658,000	)		(59,254,000	)
Net (loss) income from discontinued operations		(929,000	)		93,000			(5,862,000	)		(3,614,000	)
Net loss		(28,439,000	)		(7,996,000	)		(141,520,000	)		(62,868,000	)
Net loss attributable to non-controlling interest		6,668,000			725,000			10,420,000			1,061,000
Net loss attributable to Ault Alliance, Inc.		(21,771,000	)		(7,271,000	)		(131,100,000	)		(61,807,000	)
Preferred dividends		(413,000	)		(190,000	)		(963,000	)		(239,000	)
Net loss available to common stockholders	$	(22,184,000	)	$	(7,461,000	)	$	(132,063,000	)	$	(62,046,000	)

Basic and diluted net income (loss) per common share:
Continuing operations	$	(3.80	)	$	(7.71	)	$	(47.66	)	$	(77.70	)
Discontinued operations		(0.17	)		0.10			(2.21	)		(4.81	)
Net loss per common share	$	(3.97	)	$	(7.61	)	$	(49.87	)	$	(82.51	)

Weighted average basic and diluted common shares outstanding		5,587,000			980,000			2,648,000			752,000

Comprehensive loss
Net loss available to common stockholders	$	(22,184,000	)	$	(7,461,000	)	$	(132,063,000	)	$	(62,046,000	)
Foreign currency translation adjustment		(651,000	)		306,000			(1,001,000	)		(1,452,000	)
Other comprehensive loss		(651,000	)		306,000			(1,001,000	)		(1,452,000	)
Total comprehensive loss	$	(22,835,000	)	$	(7,155,000	)	$	(133,064,000	)	$	(63,498,000	)

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

AULT ALLIANCE, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended September 30, 2023


																Accumulated
	Series A, B & D									Additional						Other			Non-						Total
	Preferred Stock				Common Stock					Paid-In			Accumulated			Comprehensive			Controlling			Treasury			Stockholders’
	Shares		Amount		Shares		Amount			Capital			Deficit			Loss			Interest			Stock			Equity
BALANCES, July 1, 2023		557,237	$	-		1,526,411	$	2,000		$	573,386,000		$	(444,371,000	)	$	(1,450,000	)	$	23,853,000		$	(29,919,000	)	$	121,501,000
Stock-based compensation		-		-		-		-			959,000			-			-			1,622,000			-			2,581,000
Issuance of common stock for cash		-		-		10,707,601		11,000			20,404,000			-			-			-			-			20,415,000
Financing cost in connection with sales of common stock		-		-		-		-			(715,000	)		-			-			-			-			(715,000	)
Issuance of common stock for conversion of preferred stock liabilities		-		-		105,909		-			584,000			-			-			-			-			584,000
Common stock issued in connection with issuance of notes payable		-		-		39,752		-			162,000			-			-			-			-			162,000
Remeasurement of Ault Disruptive subsidiary temporary equity		-		-		-		-			-			(530,000	)		-			-			-			(530,000	)
Increase in ownership interest of subsidiary		-		-		-		-			-			-			-			(352,000	)		-			(352,000	)
Sale of subsidiary stock to non-controlling interests		-		-		-		-			-			-			-			343,000			-			343,000
Purchase of treasury stock - Ault Alpha LP (“Ault Alpha”)		-		-		-		-			-			-			-			-			(621,000	)		(621,000	)
Net loss		-		-		-		-			-			(21,771,000	)		-			-			-			(21,771,000	)
Preferred dividends		-		-		-		-			-			(413,000	)		-			-			-			(413,000	)
Foreign currency translation adjustments		-		-		-		-			-			-			(651,000	)		-			-			(651,000	)
Net loss attributable to non-controlling interest		-		-		-		-			-			-			-			(6,668,000	)		-			(6,668,000	)
Distribution of securities of Imperalis Holding Corp., d/b/a TurnOnGreen, Inc. (“TurnOnGreen”) to Ault Alliance stockholders ($1.44 per share)		-		-		-		-			(5,500,000	)		-			-			10,700,000			-			5,200,000
Other		-		-		-		(1,000	)		(1,000	)		(3,000	)		(1,000	)		-			-			(6,000	)
BALANCES, September 30, 2023		557,237	$	-		12,379,673	$	12,000		$	589,279,000		$	(467,088,000	)	$	(2,102,000	)	$	29,498,000		$	(30,540,000	)	$	119,059,000

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 September 30, 2022

	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, July 1, 2022		278,658	$	-		1,081,469	$	1,000	$	550,036,000		$	(200,184,000	)	$	(1,863,000	)	$	18,048,000		$	(20,639,000	)	$	345,399,000
Preferred stock issued		8,310		-		-		-		207,000			-			-			-			-			207,000
Preferred stock offering costs		-		-		-		-		(65,000	)		-			-			-			-			(65,000	)
Stock-based compensation		-		-		-		-		1,563,000			-			-			479,000			-			2,042,000
Issuance of Gresham Worldwide, Inc. common stock for acquisition of Giga-tronics Incorporated (“GIGA”)		-		-		-		-		1,669,000			-			-			-			-			1,669,000
Issuance of common stock for cash		-		-		56,688		-		4,557,000			-			-			-			-			4,557,000
Financing cost in connection with sales of common stock		-		-		-		-		(79,000	)		-			-			-			-			(79,000	)
Increase in ownership interest of subsidiary		-		-		-		-		(132,000	)		-			-			(1,539,000	)		-			(1,671,000	)
Non-controlling interest from GIGA acquisition		-		-		-		-		-			-			-			2,735,000			-			2,735,000
Purchase of treasury stock - Ault Alpha		-		-		-		-		-			-			-			-			(8,148,000	)		(8,148,000	)
Net loss		-		-		-		-		-			(7,271,000	)		-			-			-			(7,271,000	)
Preferred dividends		-		-		-		-		-			(190,000	)		-			-			-			(190,000	)
Foreign currency translation adjustments		-		-		-		-		-			-			306,000			-			-			306,000
Net loss attributable to non-controlling interest		-		-		-		-		-			-			-			(725,000	)		-			(725,000	)
Other		-		-		-		-		2,000			(2,000	)		-			(2,000	)		(1,000	)		(3,000	)
BALANCES, September 30, 2022		286,968	$	-		1,138,157	$	1,000	$	557,758,000		$	(207,647,000	)	$	(1,557,000	)	$	18,996,000		$	(28,788,000	)	$	338,763,000

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)

Nine Months Ended September 30, 2023

	Series A, B & D								Additional						Other			Non-						Total
	Preferred Stock				Common Stock				Paid-In			Accumulated			Comprehensive			Controlling			Treasury			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Loss			Interest			Stock			Equity
BALANCES, January 1, 2023		304,878	$	-		1,274,157	$	1,000	$	565,904,000		$	(329,078,000	)	$	(1,100,000	)	$	17,496,000		$	(29,235,000	)	$	223,988,000
Issuance of common stock for restricted stock awards		-		-		4,974		-		-			-			-			-			-			-
Preferred stock issued for cash		252,359		-		-		-		6,309,000			-			-			-			-			6,309,000
Preferred stock offering costs		-		-		-		-		(3,431,000	)		-			-			-			-			(3,431,000	)
Stock-based compensation										5,642,000			-			-			3,546,000			-			9,188,000
Issuance of common stock for cash		-		-		10,917,388		11,000		25,316,000			-			-			-			-			25,327,000
Financing cost in connection with sales of common stock		-		-		-		-		(847,000	)		-			-			-			-			(847,000	)
Issuance of common stock for conversion of preferred stock liabilities		-		-		143,402		-		912,000			-			-			-			-			912,000
Common stock issued in connection with issuance of notes payable		-		-		39,752		-		162,000			-			-			-			-			162,000
Remeasurement of Ault Disruptive subsidiary temporary equity		-		-		-		-		-			(5,945,000	)		-			-			-			(5,945,000	)
Increase in ownership interest of subsidiary		-		-		-		-		13,000			-			-			(1,597,000	)		-			(1,584,000	)
Non-controlling position at RiskOn International, Inc. (“ROI”) subsidiary acquired		-		-		-		-		-			-			-			6,357,000			-			6,357,000
Sale of subsidiary stock to non-controlling interests		-		-		-		-		-			-			-			3,915,000			-			3,915,000
Distribution to Circle 8 Crane Services, LLC (“Circle 8”) non-controlling interest		-		-		-		-		-			-			-			(500,000	)		-			(500,000	)
Purchase of treasury stock - Ault Alpha		-		-		-		-		-			-			-			-			(1,306,000	)		(1,306,000	)
Net loss		-		-		-		-		-			(131,100,000	)		-			-			-			(131,100,000	)
Preferred dividends				-		-		-		-			(963,000	)		-			-			-			(963,000	)
Foreign currency translation adjustments		-		-		-		-		-			-			(1,001,000	)		-			-			(1,001,000	)
Net loss attributable to non-controlling interest		-		-		-		-		-			-			-			(10,420,000	)		-			(10,420,000	)
Distribution of securities of TurnOnGreen to Ault Alliance stockholders ($2.02 per share)		-		-		-		-		(10,700,000	)		-			-			10,700,000			-			-
Other		-		-		-		-		(1,000	)		(2,000	)		(1,000	)		1,000			1,000			(2,000	)
BALANCES, September 30, 2023		557,237	$	-		12,379,673	$	12,000	$	589,279,000		$	(467,088,000	)	$	(2,102,000	)	$	29,498,000		$	(30,540,000	)	$	119,059,000

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)

Nine Months Ended September 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	$	-		281,149	$	-	$	385,728,000		$	(145,600,000	)	$	(106,000	)	$	1,613,000		$	(13,180,000	)	$	228,455,000
Issuance of common stock for restricted stock awards		-		-		1,473		-		-			-			-			-			-			-
Preferred stock issued for cash		154,928		-		-		-		3,873,000			-			-			-			-			3,873,000
Preferred stock offering costs		-		-		-		-		(602,000	)		-			-			-			-			(602,000	)
Stock-based compensation										5,190,000			-			-			556,000			-			5,746,000
Issuance of Gresham Worldwide, Inc. common stock for acquisition of GIGA		-		-		-		-		1,669,000			-			-			-			-			1,669,000
Issuance of common stock for cash		-		-		855,535		1,000		167,982,000			-			-			-			-			167,983,000
Financing cost in connection with sales of common stock		-		-		-		-		(4,103,000	)		-			-			-			-			(4,103,000	)
Increase in ownership interest of subsidiary		-		-		-		-		(1,980,000	)		-			-			(1,921,000	)		-			(3,901,000	)
Non-controlling interest from AVLP acquisition		-		-		-		-		-			-			-			6,738,000			-			6,738,000
Non-controlling interest from SMC acquisition		-		-		-		-		-			-			-			10,336,000			-			10,336,000
Non-controlling interest from GIGA acquisition		-		-		-		-		-			-			-			2,735,000			-			2,735,000
Purchase of treasury stock - Ault Alpha		-		-		-		-		-			-			-			-			(15,607,000	)		(15,607,000	)
Net loss		-		-		-		-		-			(61,807,000	)		-			-			-			(61,807,000	)
Preferred dividends				-		-		-		-			(239,000	)		-			-			-			(239,000	)
Foreign currency translation adjustments		-		-		-		-		-			-			(1,452,000	)		-			-			(1,452,000	)
Net loss attributable to non-controlling interest		-		-		-		-		-			-			-			(1,061,000	)		-			(1,061,000	)
Other		-		-		-		-		1,000			(1,000	)		1,000			-			(1,000	)		-
BALANCES, September 30, 2022		286,968	$	-		1,138,157	$	1,000	$	557,758,000		$	(207,647,000	)	$	(1,557,000	)	$	18,996,000		$	(28,788,000	)	$	338,763,000

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 Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(141,520,000	)	$	(62,868,000	)
Net loss from discontinued operations		(5,862,000	)		(3,614,000	)
Net loss from continuing operations		(135,658,000	)		(59,254,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		20,808,000			8,298,000
Amortization of debt discount		22,463,000			26,665,000
Amortization of right-of-use assets		2,142,000			1,193,000
Impairment of goodwill and intangible assets		35,570,000			-
Impairment of property and equipment		3,895,000			-
Stock-based compensation		9,188,000			5,746,000
Impairment of deposit due to vendor bankruptcy filing		-			2,000,000
Gain on the sale of fixed assets		(2,728,000	)		-
Impairment of equity securities		11,555,000			-
Impairment of cryptocurrencies		376,000			2,930,000
Realized gain on the sale of cryptocurrencies		(404,000	)		(829,000	)
Revenue, cryptocurrency mining		(23,273,000	)		(11,398,000	)
Realized losses on sale of marketable securities		(33,140,000	)		(19,194,000	)
Unrealized (gains) losses on marketable securities		(2,554,000	)		16,937,000
Unrealized losses on investments in common stock, related parties		3,752,000			5,676,000
Unrealized gains on equity securities		-			(32,949,000	)
Income from cash held in trust		(2,561,000	)		-
Loss from investment in unconsolidated entity		-			924,000
Loss on remeasurement of investment in unconsolidated entity		-			2,700,000
Provision for loan losses		1,180,000			-
Change in the fair value of warrant liability		(2,655,000	)		(917,000	)
Other		1,550,000			(766,000	)
Changes in operating assets and liabilities:
Proceeds from the sale of cryptocurrencies		21,330,000			8,952,000
Marketable equity securities		71,159,000			68,532,000
Accounts receivable		(5,582,000	)		(3,022,000	)
Inventories		(456,000	)		(5,867,000	)
Prepaid expenses and other current assets		(1,530,000	)		1,599,000
Other assets		(3,969,000	)		(2,944,000	)
Accounts payable and accrued expenses		13,527,000			7,528,000
Lease liabilities		(2,511,000	)		(1,334,000	)
Net cash provided by operating activities from continuing operations		1,474,000			21,206,000
Net cash (used in) provided by operating activities from discontinued operations		(3,632,000	)		683,000
Net cash (used in) provided by operating activities		(2,158,000	)		21,889,000
Cash flows from investing activities:
Purchase of property and equipment		(8,734,000	)		(80,058,000	)
Investment in promissory notes and other, related parties		-			(2,200,000	)
Investments in common stock and warrants, related parties		-			(4,840,000	)
Purchase of SMC, net of cash received		-			(8,239,000	)
Purchase of GIGA, net of cash received		-			(3,687,000	)
Cash received upon acquisition of AVLP		-			1,245,000
Acquisition of non-controlling interests		(1,584,000	)		(3,901,000	)
Purchase of marketable equity securities		-			(1,981,000	)
Sales of marketable equity securities		-			11,748,000
Investments in loans receivable		(182,000	)		(7,081,000	)
Principal payments on loans receivable		-			10,525,000
Investments in equity securities		(10,702,000	)		(22,449,000	)
Proceeds from the sale of fixed assets		4,515,000			-
Other		(79,000	)		-
Net cash used in investing activities from continuing operations		(16,766,000	)		(110,918,000	)
Net cash used in investing activities from discontinued operations		(6,103,000	)		(4,442,000	)
Net cash used in investing activities		(22,869,000	)		(115,360,000	)

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)

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

For the Nine Months Ended September 30,
2017 2016

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

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

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

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

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

Net cash provided by financing activities 5,194 —

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

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

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

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

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

~~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~~

	For the Nine Months Ended September 30,
	2023			2022
Cash flows from financing activities:
Gross proceeds from sales of common stock	$	25,327,000		$	167,983,000
Financing cost in connection with sales of common stock		(847,000	)		(4,103,000	)
Proceeds from sales of preferred stock		6,309,000			3,873,000
Financing cost in connection with sales of preferred stock		(3,431,000	)		(602,000	)
Proceeds from subsidiaries’ sale of stock to non-controlling interests		3,915,000			-
Distribution to Circle 8 non-controlling interest		(500,000	)		-
Proceeds from notes payable		40,406,000			15,268,000
Repayment of margin accounts		(767,000	)		(16,111,000	)
Payments on notes payable		(58,068,000	)		(67,698,000	)
Payments of preferred dividends		(963,000	)		(239,000	)
Purchase of treasury stock		(1,306,000	)		(15,607,000	)
Proceeds from sales of convertible notes		9,169,000			-
Payments on convertible notes		(660,000	)		-
Net cash provided by financing activities from continuing operations		18,584,000			82,764,000
Net cash provided by financing activities from discontinued operations		5,189,000			3,297,000
Net cash provided by financing activities		23,773,000			86,061,000

Effect of exchange rate changes on cash and cash equivalents		(311,000	)		920,000

Net decrease in cash and cash equivalents and restricted cash		(1,565,000	)		(6,490,000	)

Cash and cash equivalents and restricted cash at beginning of period		14,055,000			21,233,000

Cash and cash equivalents and restricted cash at end of period		12,490,000			14,743,000
Less cash and cash equivalents and restricted cash of discontinued operations at end of period		(1,851,000)			(6,154,000)
Cash and cash equivalents and restricted cash of continuing operations at end of period	$	10,639,000		$	8,589,000

Supplemental disclosures of cash flow information:
Cash paid during the period for interest – continuing operations	$	3,990,000		$	1,438,000
Cash paid during the period for interest – discontinued operations	$	5,513,000		$	3,764,000

Non-cash investing and financing activities:
Settlement of accounts payable with digital currency	$	20,000		$	417,000
Conversion of investment in unconsolidated entity for acquisition of AVLP	$	-		$	20,706,000
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	$	23,703,000		$	40,324,000
Conversion of loans receivable to marketable securities	$	5,430,000		$	3,650,000
Conversion of interest receivable to marketable securities	$	-		$	250,000
Recognition of new operating lease right-of-use assets and lease liabilities	$	3,952,000		$	2,188,000
Remeasurement of Ault Disruptive temporary equity	$	5,945,000		$	-
Preferred stock exchanged for notes payable	$	9,224,000		$	-
Notes payable exchanged for convertible notes payable	$	2,200,000		$	-
Notes payable exchanged for notes payable, related party	$	11,645,000		$	-
Redeemable noncontrolling interests in equity of subsidiaries paid with cash and marketable securities held in trust account	$	120,064,000		$	-
Dividend paid in TurnOnGreen common stock in additional paid-in capital	$	10,700,000		$	-

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

1. DESCRIPTION OF BUSINESS

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

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

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

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

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

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

Sentinum, Inc. (“Sentinum”) – cryptocurrency mining operations and colocation and hosting services for the emerging artificial intelligence ecosystems and other industries;

GIGA – defense industry;

TurnOnGreen – commercial electronics solutions;

RiskOn International, Inc., formerly BitNile Metaverse, Inc. (“ROI”) – immersive metaverse platform; and

Ault Disruptive – a special purpose acquisition company.

Reverse Stock Split

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

Reverse Split.

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

FINANCIAL CONDITION

As of September 30, ~~2017,~~2023, the Company had cash and cash equivalents of ~~$314, an accumulated deficit of $17,212 and a~~$8.7 million, negative working capital of ~~$4,174.~~$45.1 million and a history of net operating losses. 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).

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

The ~~accompanying~~condensed consolidated financial statements do not include any adjustments that might ~~become~~be necessary ~~should~~if the Company beis unable to continue as a going concern.

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

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

~~SEPTEMBER~~ Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

In making this assessment management performed a comprehensive analysis of the Company’s current circumstances, including its financial position, cash flow and cash usage forecasts, as well as obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources beyond the Company’s direct control that management expects to be available within the next 12 months.

Management expects that the Company’s existing cash and cash equivalents, accounts receivable and marketable securities as of September 30, ~~2017~~

~~U.S. dollars~~2023, will not be sufficient to enable the Company to fund its anticipated level of operations through one year from the date these financial statements are issued. Management anticipates raising additional capital through the private and public sales of the Company’s equity or debt securities and selling its marketable securities and digital currencies, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurances that financing will be available to the Company when needed in ~~thousands, except share and per share data~~

order to allow the Company to continue its operations, or if available, on terms acceptable to the Company. If the Company does not raise sufficient capital in a timely manner, among other things, the Company may be forced to scale back its operations or cease operations altogether.

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“(“GAAP”). The Company has made estimates and judgments affecting the amounts reported in ~~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 amended Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2016,~~2022 (the “2022 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on ~~April 10, 2017.~~May 22, 2023. The condensed consolidated balance sheet as of December 31, ~~2016~~2022 was derived from the Company’s audited ~~2016~~2022 financial statements contained in the above referenced ~~Form 10-K.~~2022 Annual Report. Results of the three and nine months ended September 30, ~~2017,~~2023, are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2017.~~

~~Principles of Consolidation~~

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

Significant Accounting Policies

Other than as noted below, there have been ~~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 2022 Annual Report.

Revenue Recognition – Bitcoin Mining

The Company ~~accounts for stock-based compensation~~recognizes revenue from Bitcoin mining under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in ~~accordance with ASC No. 718,~~ ~~Compensation – Stock Compensation~~ (~~"ASC No. 718"). Under ASC No. 718, compensation expense related~~an amount that reflects the consideration to ~~stock-based payments is recorded over~~which the requisite service period based on the grant date fair value of the awards. Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

~~The Company’s accounting policy for equity instruments issued~~company expects to ~~consultants and vendors~~be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer;

Step 2: Identify the performance obligations in the contract;

Step 3: Determine the transaction price;

Step 4: Allocate the transaction price to the performance obligations in the contract; and

Step 5: Recognize revenue when the company satisfies a performance obligation.

The Company has entered into a digital asset mining pool by executing a contract with a mining pool operator to provide computing power to the mining pool. The Company’s customer, as defined in ASC 606-10-20, is the mining pool operator with which the Company has agreed to the terms of service and user service agreement. The Company supplies computing power, in exchange for consideration, to the pool operator who in turn provides transaction verification services ~~follows~~to third parties via a mining pool that includes other participants.

The Company’s enforceable right to compensation begins only when, and lasts as long as, the ~~provisions~~Company provides computing power to the mining pool operator and is created as power is provided over time. The only consideration due to the Company relates to the provision of ~~ASC No. 505-50,~~ ~~Equity Based Payments~~computing power. The contracts are terminable at any time by and at no cost to ~~Non-Employees. Accordingly,~~ the ~~measurement date for~~Company, and by the pool operator. Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. Providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators.

The transaction consideration the Company receives, if any, is non-cash consideration in the form of Bitcoin. Changes in the fair value of the ~~equity instruments issued~~non-cash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and are therefore not included in revenue. The mining pool operator charges fees to cover the costs of maintaining the pool and are deducted from amounts the Company may otherwise earn and are treated as a reduction to the consideration received. Fees fluctuate and historically have been approximately 0.3% per reward earned, on average.

In exchange for providing computing power, the Company is entitled to a Full-Pay-Per-Share payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided by the Company to the mining pool as a percentage of total network hash rate, and other inputs. The Company is entitled to consideration even if a block is not successfully placed by the mining pool operator. The contract is in effect until terminated by either party.

All consideration pursuant to this arrangement is variable. It is not probable that a significant reversal of cumulative revenue will occur and the Company is able to calculate the payout based on the contractual formula, non-cash revenue is estimated and recognized based on the spot price of the Company’s principal market for Bitcoin at the inception of each contract, which is determined to be daily. Non-cash consideration is measured at fair value at contract inception. Fair value of the crypto asset consideration is determined using the spot price of the Company’s principal market for Bitcoin at the ~~earlier~~beginning of ~~(i)~~ the ~~date~~contract period. This amount is estimated and recognized in revenue upon inception, which is when hash rate is provided.

There is no significant financing component in these transactions.

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

Preferred Stock Liabilities

The Company follows ASC 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for the Preferred Shares (as defined in Note 17). ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics:

A fixed monetary amount known at inception;

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

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

The number of shares delivered is determined on the basis of (1) the fixed monetary amount determined as the stated value and (2) the current stock price at ~~which a commitment for performance by~~settlement, so that the ~~consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the~~aggregate fair value of the ~~equity instrument is recognized over~~shares delivered equals the ~~term of the consulting agreement.~~

~~Convertible Instruments~~

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

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

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

~~SEPTEMBER 30, 2017~~

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

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC No. 470-20, ~~Debt with Conversion and Other Options~~ (~~“ASC No. 470-20”~~). Under ASC No. 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fairmonetary value of the ~~underlying common stock at~~obligation, which is fixed or predominantly fixed. Accordingly, the ~~commitment date of the note transaction~~holder is not significantly exposed to gains and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC No. 815.

~~Comprehensive Loss~~

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

~~Fair value of Financial Instruments~~

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

The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

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

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

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

~~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~~equity shares. Instead, the Company is using its own equity shares as currency to settle a monetary obligation.

Discontinued operations

The Company records discontinued operations when the disposal of a separately identified business unit constitutes a strategic shift in the Company’s operations, as defined in ASC Topic 205-20, Discontinued Operations (“ASC Topic 205-20”).

Reclassifications

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

Recently Adopted Accounting Standards

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

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and ~~extent~~Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to ~~which~~be recognized and measured by the ~~fair value~~acquirer on the acquisition date in accordance with 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 ~~below cost,~~effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

4. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Presentation of AGREE Operations

In September 2023, the Company committed to a plan for its wholly owned subsidiary AGREE to list for sale its four recently renovated Midwest hotels, the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford. The decision to sell the hotels follows the decision to also list the multifamily development site in St. Petersburg, Florida and is driven by the Company’s ~~ability~~desire to focus on its core businesses, Energy, Fintech and ~~intent to hold~~Sentinum. The Company’s real estate properties, which include both hotels and land are currently listed for sale.

In connection with the ~~investment~~planned sale of AGREE assets, the Company concluded that the net assets of AGREE met the criteria for classification as held for sale. In addition, the proposed sale represents a ~~sufficient period of time to allow for recovery of value in~~strategic shift that will have a significant effect on the ~~foreseeable future.~~Company’s operations and financial results. As a result, ~~of this analysis,~~ the Company has ~~determined that its cost basis in AVLP equitable securities approximates~~presented the ~~current fair value.~~

~~Consistent with the guidance at ASC No. 835, the Company’s presumption is that the fair value~~results of ~~its convertible promissory notes in AVLP have a present value equivalent to the~~operations, cash ~~proceeds exchanged. Further, the discount shall be reported~~flows and financial position of AGREE as discontinued operations in the ~~balance sheet~~accompanying consolidated financial statements and notes for all periods presented.

As of September 30, 2023, the Company expects the planned sale of AGREE assets to close within one year and, as a ~~direct deduction from the face amount of the convertible promissory notes. Thus,~~result, the Company has ~~determined that~~classified the ~~amortized cost~~total assets and total liabilities associated with AGREE as current in the consolidated balance sheets as of September 30, 2023.

The following table presents the assets and liabilities of AGREE operations:

Schedule of assets and liabilities of agree operations
	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	1,851,000	$	2,550,000
Restricted cash		-		2,831,000
Accounts receivable		256,000		264,000
Inventories		51,000		44,000
Prepaid expenses and other current assets		262,000		270,000
Total current assets		2,420,000		5,959,000
Property and equipment, net		96,176,000		92,535,000
Total assets		98,596,000		98,494,000
Accounts payable and accrued expenses		2,097,000		2,631,000
Total current liabilities		2,097,000		2,631,000
Notes payable		67,115,000		61,633,000
Total liabilities		69,212,000		64,264,000
Net assets of discontinued operations	$	29,384,000	$	34,230,000

A disposal group classified as held for sale shall be measured at the lower of its ~~convertible promissory notes approximates~~carrying amount or fair value ~~and are subject~~less costs to ~~a periodic~~sell. No impairment ~~review. The interest income, including amortization~~was recognized up reclassification of the ~~discount arising at acquisition,~~disposal group as held for sale.

The following table presents the results of AGREE operations:

Schedule of estimated costs to sell and expected
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Revenue, hotel and real estate operations	$	5,404,000		$	5,513,000		$	12,031,000		$	12,809,000
Cost of revenue, hotel operations		3,278,000			3,230,000			9,086,000			8,350,000
Gross profit		2,126,000			2,283,000			2,945,000			4,459,000
General and administrative		1,076,000			585,000			3,294,000			4,309,000
Total operating expenses		1,076,000			585,000			3,294,000			4,309,000
Income (loss) from operations		1,050,000			1,698,000			(349,000	)		150,000
Interest expense		(1,979,000	)		(1,605,000	)		(5,513,000	)		(3,764,000	)
Net (loss) income from discontinued operations	$	(929,000	)	$	93,000		$	(5,862,000	)	$	(3,614,000	)

5. REVENUE DISAGGREGATION

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the ~~convertible promissory notes are~~three and nine months ended September 30, 2023 and 2022. Revenues from lending and trading activities included in ~~earnings. 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 the ~~future, if~~following for 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 atmonths ended September 30, ~~2017.~~

2023 (excludes Ault Disruptive, as that segment has no revenue):

Schedule of disaggregated revenues
	GIGA		TurnOn Green		Fintech			Sentinum		SMC		ROI		Energy		Total
Primary Geographical Markets
North America	$	3,711,000	$	1,075,000	$	-		$	7,891,000	$	15,931,000	$	18,000	$	12,929,000	$	41,555,000
Europe		2,521,000		66,000		-			-		-		-		2,000		2,589,000
Middle East and other		4,043,000		25,000		-			-		-		-		-		4,068,000
Revenue from contracts with customers		10,275,000		1,166,000		-			7,891,000		15,931,000		18,000		12,931,000		48,212,000
Revenue, lending and trading activities (North America)		-		-		(249,000	)		-		-		-		-		(249,000	)
Total revenue	$	10,275,000	$	1,166,000	$	(249,000	)	$	7,891,000	$	15,931,000	$	18,000	$	12,931,000	$	47,963,000

Major Goods or Services
Radio frequency/microwave filters	$	2,201,000	$	-	$	-		$	-	$	-	$	-	$	-	$	2,201,000
Power supply units & systems		2,316,000		1,074,000		-			-		-		-		-		3,390,000
Healthcare diagnostic systems		1,243,000		-		-			-		-		-		-		1,243,000
Defense systems		4,155,000		-		-			-		-		-		-		4,155,000
Digital currency mining		-		-		-			7,558,000		-		-		-		7,558,000
Karaoke machines and related consumer goods		-		-		-			-		15,931,000		-		-		15,931,000
Crane rental		-		-		-			-		-		-		12,490,000		12,490,000
Other		360,000		92,000		-			333,000		-		18,000		441,000		1,244,000
Revenue from contracts with customers		10,275,000		1,166,000		-			7,891,000		15,931,000		18,000		12,931,000		48,212,000
Revenue, lending and trading activities		-		-		(249,000	)		-		-		-		-		(249,000	)
Total revenue	$	10,275,000	$	1,166,000	$	(249,000	)	$	7,891,000	$	15,931,000	$	18,000	$	12,931,000	$	47,963,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	5,391,000	$	1,162,000	$	-		$	7,891,000	$	15,931,000	$	18,000	$	441,000	$	30,834,000
Services transferred over time		4,884,000		4,000		-			-		-		-		12,490,000		17,378,000
Revenue from contracts with customers	$	10,275,000	$	1,166,000	$	-		$	7,891,000	$	15,931,000	$	18,000	$	12,931,000	$	48,212,000

The ~~categorization~~Company’s disaggregated revenues consisted of ~~a financial instrument within~~ the ~~valuation hierarchy is based upon~~following for the ~~lowest level~~nine months ended September 30, 2023 (excludes Ault Disruptive, as that segment has no revenue):

	GIGA		TurnOn Green		Fintech		Sentinum		SMC		ROI		Energy		Total
Primary Geographical Markets
North America	$	8,901,000	$	2,401,000	$	-	$	24,389,000	$	21,939,000	$	63,000	$	38,604,000	$	96,297,000
Europe		7,232,000		77,000		-		-		-		-		109,000		7,418,000
Middle East and other		11,590,000		288,000		-		-		-		-		-		11,878,000
Revenue from contracts with customers		27,723,000		2,766,000		-		24,389,000		21,939,000		63,000		38,713,000		115,593,000
Revenue, lending and trading activities (North America)		-		-		4,337,000		-		-		-		-		4,337,000
Total revenue	$	27,723,000	$	2,766,000	$	4,337,000	$	24,389,000	$	21,939,000	$	63,000	$	38,713,000	$	119,930,000

Major Goods or Services
Radio frequency/microwave filters	$	5,420,000	$	-	$	-	$	-	$	-	$	-	$	-	$	5,420,000
Power supply units & systems		6,994,000		2,544,000		-		-		-		-		-		9,538,000
Healthcare diagnostic systems		3,481,000		-		-		-		-		-		-		3,481,000
Defense systems		10,719,000		-		-		-		-		-		-		10,719,000
Digital currency mining		-		-		-		23,273,000		-		-		-		23,273,000
Karaoke machines and related consumer goods		-		-		-		-		21,939,000		-		-		21,939,000
Crane rental		-		-		-		-		-		-		37,726,000		37,726,000
Other		1,109,000		222,000		-		1,116,000		-		63,000		987,000		3,497,000
Revenue from contracts with customers		27,723,000		2,766,000		-		24,389,000		21,939,000		63,000		38,713,000		115,593,000
Revenue, lending and trading activities		-		-		4,337,000		-		-		-		-		4,337,000
Total revenue	$	27,723,000	$	2,766,000	$	4,337,000	$	24,389,000	$	21,939,000	$	63,000	$	38,713,000	$	119,930,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	15,517,000	$	2,755,000	$	-	$	24,389,000	$	21,939,000	$	63,000	$	987,000	$	65,650,000
Services transferred over time		12,206,000		11,000		-		-		-		-		37,726,000		49,943,000
Revenue from contracts with customers	$	27,723,000	$	2,766,000	$	-	$	24,389,000	$	21,939,000	$	63,000	$	38,713,000	$	115,593,000

The Company’s disaggregated revenues consisted of ~~input~~the following for the three months ended September 30, 2022 (excludes Ault Disruptive, as that ~~is significant to~~segment has no revenue):

	GIGA		TurnOn Green		Fintech		SMC		Sentinum		Total
Primary Geographical Markets
North America	$	2,472,000	$	1,428,000	$	-	$	16,138,000	$	4,146,000	$	24,184,000
Europe		2,288,000		32,000		201,000		306,000		-		2,827,000
Middle East and other		3,022,000		202,000		-		670,000		-		3,894,000
Revenue from contracts with customers		7,782,000		1,662,000		201,000		17,114,000		4,146,000		30,905,000
Revenue, lending and trading activities (North America)		-		-		13,360,000		-		-		13,360,000
Total revenue	$	7,782,000	$	1,662,000	$	13,561,000	$	17,114,000	$	4,146,000	$	44,265,000

Major Goods or Services
Power supply units	$	2,799,000	$	1,480,000	$	-	$	-	$	-	$	4,279,000
Digital currency mining, net		-		-		-		-		3,874,000		3,874,000
Karaoke machines and related		-		-		-		17,114,000		-		17,114,000
Other		4,983,000		182,000		201,000		-		272,000		5,638,000
Revenue from contracts with customers		7,782,000		1,662,000		201,000		17,114,000		4,146,000		30,905,000
Revenue, lending and trading activities		-		-		13,360,000		-		-		13,360,000
Total revenue	$	7,782,000	$	1,662,000	$	13,561,000	$	17,114,000	$	4,146,000	$	44,265,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	5,821,000	$	1,662,000	$	201,000	$	17,114,000	$	4,146,000	$	28,944,000
Services transferred over time		1,961,000		-		-		-		-		1,961,000
Revenue from contracts with customers	$	7,782,000	$	1,662,000	$	201,000	$	17,114,000	$	4,146,000	$	30,905,000

The Company’s disaggregated revenues consisted of the ~~fair value measurement.~~ following for the nine months ended September 30, 2022:

	GIGA		TurnOn Green		Fintech		SMC		Sentinum		Total
Primary Geographical Markets
North America	$	5,094,000	$	3,262,000	$	19,000	$	16,138,000	$	12,220,000	$	36,733,000
Europe		7,007,000		79,000		201,000		306,000		-		7,593,000
Middle East and other		9,429,000		512,000		-		670,000		-		10,611,000
Revenue from contracts with customers		21,530,000		3,853,000		220,000		17,114,000		12,220,000		54,937,000
Revenue, lending and trading activities (North America)		-		-		32,224,000		-		-		32,224,000
Total revenue	$	21,530,000	$	3,853,000	$	32,444,000	$	17,114,000	$	12,220,000	$	87,161,000

Major Goods or Services
Power supply units	$	6,928,000	$	3,592,000	$	-	$	-	$	-	$	10,520,000
Healthcare diagnostic systems		2,285,000		-		-		-		-		2,285,000
Defense systems		6,842,000		-		-		-		-		6,842,000
Digital currency mining		-		-		-		-		11,398,000		11,398,000
Karaoke machines and related		-		-		-		17,114,000		-		17,114,000
Other		5,475,000		261,000		220,000		-		822,000		6,778,000
Revenue from contracts with customers		21,530,000		3,853,000		220,000		17,114,000		12,220,000		54,937,000
Revenue, lending and trading activities		-		-		32,224,000		-		-		32,224,000
Total revenue	$	21,530,000	$	3,853,000	$	32,444,000	$	17,114,000	$	12,220,000	$	87,161,000

Timing of Revenue Recognition
Goods transferred at a point in time	$	12,934,000	$	3,853,000	$	220,000	$	17,114,000	$	12,220,000	$	46,341,000
Services transferred over time		8,596,000		-		-		-		-		8,596,000
Revenue from contracts with customers	$	21,530,000	$	3,853,000	$	220,000	$	17,114,000	$	12,220,000	$	54,937,000

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

~~We assess~~

Fair value, assets measured on recurring basis
	Fair Value Measurement at September 30, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party	$	2,712,000	$	2,712,000	$	-	$	-
Investments in marketable equity securities		72,000		72,000		-		-
Cash and marketable securities held in trust account		2,171,000		2,171,000		-		-
Total assets measured at fair value	$	4,955,000	$	4,955,000	$	-	$	-

Liabilities:
Warrant and embedded conversion feature liabilities	$	832,000	$	-	$	-	$	832,000
Convertible promissory notes		18,054,000		-		-		18,054,000
Total liabilities measured at fair value	$	18,886,000	$	-	$	-	$	18,886,000

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

Liabilities:
Warrant and embedded conversion feature liabilities	$	2,967,000	$	-	$	-	$	2,967,000
Convertible promissory notes		12,776,000		-		-		12,776,000
Total liabilities measured at fair value	$	15,743,000	$	-	$	-	$	15,743,000

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:~~

~~Level 1 – inputs include quoted~~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 ~~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 AND SUBSIDIARY~~

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

~~SEPTEMBER 30, 2017~~

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

~~Debt Discounts~~

~~The Company accounts for debt discount according to ASC No. 470-20,~~ ~~Debt with Conversion and Other Options. Debt discounts are amortized through periodic charges to interest expense over the term~~ of the ~~related financial instrument using~~issuer’s securities and liquidity risks.

The following table summarizes the ~~effective interest method. During~~changes in investments in other equity securities measured and carried at fair value on a recurring basis with the ~~three and~~use of significant unobservable inputs (Level 3) for the nine months ended September 30, ~~2017, the Company recorded amortization of debt discounts of $652 and $1,239, respectively. The Company did not recognize any debt discount~~2023 (no changes during the three months ended September 30, 2023):

Schedule of investments
	Investments in other equity securities
Balance at January 1, 2023	$	13,340,000
Conversion to Level 1 marketable securities		(13,340,000	)
Balance at September 30, 2023	$	-

Equity Investments for Which Measurement Alternative Has Been Selected

As of September 30, 2023 and December 31, 2022, the Company held equity investments in other securities, which consisted of investments in preferred stock, valued at $26.0 million and $29.2 million, respectively, that were valued using a measurement alternative. These investments are included in other equity securities in the accompanying condensed consolidated balance sheets.

Measurement Alternative Impairment

The Company has made cumulative downward adjustments for impairments for equity securities that do not have readily determinable fair values as of September 30, 2023, totaling $11.6 million. Approximately $9.6 million of these adjustments have been reflected in other income (expense) and $2.0 million of these adjustments related to Fintech lending operations and have been recorded against revenue from lending and trading activities on the consolidated statement of operations and comprehensive loss.

7. Marketable EQUITY Securities

Marketable equity securities with readily determinable market prices consisted of the following as of September 30, 2023 and December 31, 2022:

Schedule of marketable securities
	Marketable equity securities at September 30, 2023
			Gross unrealized		Gross unrealized
	Cost		gains		losses			Fair value
Common shares	$	5,133,000	$	26,000	$	(5,087,000	)	$	72,000

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

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

8. DIGITAL CURRENCIES

The following table presents the activities of the digital currencies (included in prepaid expenses and other current assets) for the nine months ended September 30, ~~2016.~~

~~Net Loss~~2023 and 2022:

Schedule of activities of the digital currencies
	Digital Currencies
Balance at January 1, 2023	$	554,000
Additions of mined digital currencies		21,103,000
Payments to vendors		(20,000	)
Impairment of mined cryptocurrency		(376,000	)
Sale of digital currencies		(21,330,000	)
Realized gain on sale of digital currencies		404,000
Balance at September 30, 2023	$	335,000

	Digital Currencies
Balance at January 1, 2022	$	2,165,000
Additions of mined digital currencies		11,398,000
Payments to vendors		(418,000	)
Impairment of mined cryptocurrency		(2,930,000	)
Sale of digital currencies		(8,952,000	)
Realized gain on sale of digital currencies		829,000
Balance at September 30, 2022	$	2,092,000

9. PROPERTY AND EQUIPMENT, NET

At September 30, 2023 and December 31, 2022, property and equipment consisted of:

Schedule of property and equipment
	September 30, 2023			December 31, 2022
Building and improvements	$	11,796,000		$	10,428,000
Bitcoin mining equipment		50,640,000			42,438,000
Crane rental equipment		34,341,000			32,453,000
Land		2,692,000			2,567,000
Computer, software and related equipment		23,517,000			23,168,000
Aircraft		15,983,000			15,983,000
Vehicles		4,797,000			3,314,000
Office furniture and equipment		682,000			610,000
Oil and natural gas properties, unproved properties		3,878,000			972,000
		148,326,000			131,933,000
Accumulated depreciation and amortization		(25,726,000	)		(5,882,000	)
Property and equipment placed in service, net		122,600,000			126,051,000
Construction in progress AVLP equipment		9,444,000			9,400,000
Deposits on cryptocurrency machines		-			11,328,000
Property and equipment, net	$	132,044,000		$	146,779,000

Summary of depreciation expense:

Schedule of depreciation
	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Depreciation expense	$	7,805,000	$	2,779,000	$	20,047,000	$	7,742,000

10. INTANGIBLE ASSETS, NET

At September 30, 2023 and December 31, 2022, intangible assets consisted of:

Schedule of intangible asset
	Useful Life	September 30, 2023			December 31, 2022
Definite-lived intangible assets:
Developed technology	3-8 years	$	7,984,000		$	24,584,000
Customer list	8-10 years		5,755,000			5,865,000
Trade names	5-10 years		3,916,000			4,316,000
Domain name and other intangible assets	5 years		580,000			630,000
			18,235,000			35,395,000
Accumulated amortization			(2,753,000	)		(2,102,000	)
Total definite-lived intangible assets		$	15,482,000		$	33,786,000

Indefinite-lived intangible assets:
Trade name and trademark	Indefinite life		1,498,000			1,493,000
Total intangible assets, net		$	16,980,000		$	34,786,000

Certain of the Company’s trade names and trademarks were determined to have an indefinite life. The remaining definite-lived intangible assets are primarily being amortized on a straight-line basis over their estimated useful lives.

Schedule of indefinite-lived intangible assets
	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Amortization expense	$	254,000	$	223,000	$	761,000	$	381,000

As of September 30, 2023, intangible assets subject to amortization have an average remaining useful life of 9.5 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.

Schedule of estimated amortization expense
2023	$	507,000
2024		2,026,000
2025		1,926,000
2026		1,826,000
2027		1,826,000
Thereafter		7,371,000
	$	15,482,000

Impairment of AVLP Intangible Assets

Due to indicators of impairment, AVLP intangible assets were tested for impairment as of June 30, 2023. Based on internally developed forecasts of undiscounted expected future cash flows, it was determined that the carrying amount of the assets were not recoverable and, based on an assessment of the fair value of the assets, impairment of $17.0 million was recognized as a non-cash impairment charge during the nine months ended September 30, 2023.

The tradenames and patents/developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach whereby estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates of 18% for patents and developed technology and 0.25% for trademarks. The resulting net annual royalty payments are then discounted to present value using a discount factor of 25.7%.

11. GOODWILL

The following table summarizes the changes in the Company’s goodwill for the nine months ended September 30, 2023:

Schedule of goodwill
	Goodwill
Balance as of January 1, 2023	$	27,902,000
Acquisition of ROI		17,000
Impairment of goodwill		(18,570,000	)
Effect of exchange rate changes		(376,000	)
Balance as of September 30, 2023	$	8,973,000

Impairment of AVLP Goodwill

The Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. The Company performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators of impairment related to certain unforeseen business developments and changes in financial projections.

The valuation of the AVLP reporting unit was determined using a market and income approach methodology of valuation. The income approach was based on the projected cash flows discounted to their present value using discount rates that, in the Company’s judgment, consider the timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of capital analysis. The market approach utilized the guideline public company method.

The results of the quantitative test indicated that the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment charge during the nine months ended September 30, 2023.

12. CONSOLIDATED VARIABLE INTEREST ENTITY - SMC

During the quarter ended September 30, 2023, the Company’s voting interest in SMC was less than 50%. As a result, the Company assessed its interest in SMC under the Variable Interest Entity Model. As a result of that assessment, the Company consolidates SMC as a variable interest entity (a “VIE”) due to the Company’s significant level of influence and control of SMC, the size of its investment, and its ability to participate in policy making decisions. As a result, the Company is considered the primary beneficiary of the VIE.

13. BUSINESS COMBINATION

ROI Acquisition

On March 6, 2023, the Company closed a Share Exchange Agreement (the “Agreement”) with ROI and sold to ROI all of the outstanding shares of capital stock of the Company’s subsidiary, BitNile.com, Inc. (“BitNile.com”) as well as RiskOn360, Inc. (formerly Ault Iconic, Inc.) and the securities of Earnity, Inc. (“Earnity”) beneficially owned by BitNile.com as of the date of the Agreement (the “Transaction”). As consideration for the acquisition, ROI issued shares of preferred stock convertible into common stock of ROI representing approximately 73.2% of ROI’s outstanding common stock. Pending approval of the transaction by the Nasdaq Stock Market and ROI’s shareholders, the preferred stock combined are subject to a 19.99% beneficial ownership limitation. The Transaction benefits the Company as ROI is a publicly traded company and provides BitNile.com access to capital markets as the primary focus for ROI to fund the expected growth of the ROI metaverse platform.

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

The Company consolidates ROI as a VIE due to its significant level of influence and control of ROI, the size of its investment, and its ability to participate in policy making decisions. The Company is considered the primary beneficiary of the VIE.

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

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

The preliminary purchase price allocation is as follows:

Schedule of recognized identified assets acquired and liabilities assumed
	Preliminary Allocation
Fair value of Company interest	$	287,000
Fair value of non-controlling interest		6,357,000
Total consideration	$	6,644,000

Identifiable net assets acquired:
Cash	$	67,000
Investment in equity securities		8,076,000
Prepaid expenses and other current assets		172,000
Property and equipment, net		4,109,000
Right-of-use assets		339,000
Accounts payable and accrued expenses		(5,790,000	)
Lease liabilities		(346,000	)
Net assets acquired		6,627,000
Goodwill	$	17,000

14. INVESTMENTS – RELATED PARTIES

Investments in Alzamend and Ault & Company, Inc. (“Ault & Company”) at September 30, 2023 and December 31, 2022, were comprised of the following:

Investment in Promissory Notes, Related Parties – Ault & Company

Schedule of investment
	Interest		September 30,		December 31,
	rate	Due Date	2023		2022
Investment in promissory note of Ault & Company	8%	December 31, 2023	$	2,500,000	$	2,500,000
Accrued interest receivable, Ault & Company				518,000		368,000
Total investment in promissory note, related party			$	3,018,000	$	2,868,000

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

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Interest income, related party	$	50,000	$	50,000	$	150,000	$	150,000

Investment in Common Stock, Related Parties – Alzamend

Schedule of investment in common stock
	Investments in common stock, related parties at September 30, 2023
	Cost		Gross unrealized losses			Fair value
Common shares	$	24,688,000	$	(21,976,000	)	$	2,712,000

	Investments in common stock, related parties at December 31, 2022
	Cost		Gross unrealized losses			Fair value
Common shares	$	24,673,000	$	(18,224,000	)	$	6,449,000

The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended September 30, 2023 and 2022:

Schedule of investment in warrants and common stock
	For the Three Months Ended September 30,
	2023			2022
Balance at July 1	$	5,836,000		$	8,845,000
Investment in common stock of Alzamend		-			177,000
Unrealized gain (loss) in common stock of Alzamend		(3,124,000	)		3,372,000
Balance at September 30	$	2,712,000		$	12,394,000

The following table summarizes the changes in the Company’s investments in Alzamend common stock during the nine months ended September 30, 2023 and 2022:

	For the Nine Months Ended September 30,
	2023			2022
Balance at January 1	$	6,449,000		$	13,230,000
Investment in common stock of Alzamend		15,000			4,840,000
Unrealized loss in common stock of Alzamend		(3,752,000	)		(5,676,000	)
Balance at September 30	$	2,712,000		$	12,394,000

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

15. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Other current liabilities at September 30, 2023 and December 31, 2022 consisted of:

Schedule of other current liabilities
	September 30,		December 31,
	2023		2022
Accounts payable	$	36,883,000	$	20,027,000
Accrued payroll and payroll taxes		12,420,000		9,789,000
Financial instrument liabilities		863,000		651,000
Interest payable		3,946,000		3,207,000
Accrued legal		4,390,000		3,168,000
Accrued lender profit participation rights		2,497,000		6,000,000
Related party advances		68,000		352,000
Other accrued expenses		27,146,000		17,586,000
	$	88,213,000	$	60,780,000

16. DIVIDEND PAYABLE IN TURNONGREEN COMMON STOCK

During the nine months ended September 30, 2023, the Company, in connection with a planned distribution of its holdings of TurnOnGreen, distributed to its stockholders 115.1 million shares of TurnOnGreen common stock and warrants to purchase 115.1 million shares of TurnOnGreen common stock, which resulted in an adjustment to additional paid in capital and increase to non-controlling interest of $10.7 million based on the recorded value of the Company’s holdings in TurnOnGreen at the record dates of the distributions.

17. PREFERRED STOCK LIABILITY

March 28, 2023 Security Purchase Agreement

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

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

During the nine months ended September 30, 2023, the Investors converted 1,000 shares of Series F Preferred Stock and 6,756 shares of Series G Preferred Stock into an aggregate of 143,402 shares of the Company’s common stock. During the nine months ended September 30, 2023, the Company recorded a loss of $0.3 million on the conversions of Series F Preferred Stock and Series G Preferred Stock.

Exchange of Preferred Shares for Secured Debt and Assignment of Secured Note

In August 2023, the Company and the Investors entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the Investors exchanged 83,000 shares of Series E Convertible Stock and 9,244 shares of Series G Convertible Stock as well as their demand notes (the “Demand Notes”) with each Demand Note having a principal outstanding amount of approximately $0.8 million for two new 10% Secured OID Promissory Notes (the “Exchange Notes”), each with a principal face amount of $5.3 million, for an aggregate of amount owed of $10.5 million (the “Principal Amount”). The Company recorded a loss on extinguishment of debt of $1.5 million related to the transaction based on the difference between the carrying amount of the preferred stock liability and the value of the Exchange Notes.

Concurrent with the Exchange Agreement, the Company assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from the Company, the Company issued a 10% demand promissory note in the principal face amount of $10.5 million to Ault & Company. The Company and Milton “Todd” Ault, III, the Company’s Executive Chairman, entered into guaranty agreements with the Investors guaranteeing Ault & Company’s repayment of the Exchange Notes.

Certificates of Elimination of Series E Preferred Stock, Series F Preferred Stock, and the Series G Preferred Stock

On August 17, 2023, the Company filed certificates of elimination with respect to the Company’s Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock.

18. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY LIABILITY

The Company records redeemable noncontrolling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. As of September 30, 2023, the carrying amount of the redeemable noncontrolling interest in equity of subsidiaries was recorded at its redemption value of $2.2 million. In June 2023, approximately 11.3 million shares of Ault Disruptive common stock were redeemed at a redemption price of $10.61 per ~~Share~~

share, for an aggregate redemption amount of $120.0 million.

The following table summarizes the changes in the Company’s redeemable noncontrolling interests in equity of subsidiaries during the nine months ended September 30, 2023:


Redeemable noncontrolling interests in equity of subsidiaries as of December 31, 2022	$	117,993,000
Redemption of ADRT common stock		(120,064,000	)
Remeasurement of carrying value to redemption value		4,250,000
Redeemable noncontrolling interests in equity of subsidiaries as of September 30, 2023	$	2,179,000

19. NOTES PAYABLE

Notes payable at September 30, 2023 and December 31, 2022, were comprised of the following:

Schedule of notes payable
	Collateral	Guarantors	Interest rate	Due date	September 30, 2023			December 31, 2022
Circle 8 revolving credit facility	Circle 8 cranes	-	8.4%	December 16, 2025	$	16,960,000		$	14,724,000
8.5% secured promissory notes	Deposit accounts, 19,389 Antminers, BNI Montana assets, Circle 8 membership interests, Florida property, Michigan property, aircraft	Ault & Company, Ault Lending, Sentinum, Alliance Cloud Services, Inc., Ault Aviation, LLC, Third Avenue Apartments LLC, BNI Montana, LLC, Milton C. Ault, III	8.5%	May 7, 2024		22,749,000			17,389,000
16% promissory notes	-	Ault & Company, Sentinum, Ault Lending, Milton C. Ault, III	16.0%	December 16, 2023		2,662,000			17,456,000
Circle 8 equipment financing notes	Circle 8 equipment	-	7.2%	Various dates from March 15, 2024 to November 15, 2026		7,375,000			10,677,000
3% secured promissory notes	-	-	3.0%	N/A		-			5,672,000
8% demand loans	-	-	8.0%	Upon demand		1,800,000			-
Short-term bank credit facilities	-	-	5.7%	Renews monthly		2,056,000			1,702,000
XBTO note payable	2,482 Antminers	-	12.5%	December 30, 2023		1,087,000			2,749,000
10% secured promissory notes	-	-	10.0%	N/A		-			8,789,000
SMC line of credit	SMC assets	-	8.0%	October 14, 2025		-			1,761,000
Other ($0.4 million in default)	-	-				400,000			858,000
Total notes payable	-	-			$	55,089,000		$	81,777,000
Less:	-	-
Unamortized debt discounts	-	-				(3,623,000	)		(12,325,000	)
Total notes payable, net	-	-			$	51,466,000		$	69,452,000
Less: current portion	-	-				(30,255,000	)		(39,621,000	)
Notes payable – long-term portion	-	-			$	21,211,000		$	29,831,000

Notes Payable Maturities

The contractual maturities of the Company’s notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of September 30, 2023 were:

Schedule of maturities
Year
2023	$	12,546,000
2024		23,405,000
2025		18,697,000
2026		441,000
	$	55,089,000

Interest Expense

Schedule of interest expense
	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Contractual interest expense	$	3,262,000	$	2,263,000	$	5,002,000	$	4,373,000
Forbearance fees		518,000		-		7,319,000		1,203,000
Amortization of debt discount		634,000		104,000		18,216,000		26,487,000
Total interest expense	$	4,414,000	$	2,367,000	$	30,537,000	$	32,063,000

Amendment to 8.5% Secured Promissory Notes

On July 19, 2023, the Company and certain of its subsidiaries entered into an amendment agreement with the institutional investors and increased the principal balance of the secured promissory notes by an additional $8.8 million. The net proceeds to the Company from the amendment agreement were $7.5 million.

10% Secured Promissory Notes

The 10% secured promissory notes were retired in March 2023 and converted into the Preferred Shares, as described in Note 17 – Preferred Stock Liability.

20. NOTES PAYABLE, RELATED PARTY

Notes payable, related party at September 30, 2023 and December 31, 2022, were comprised of the following:

Schedule of notes payable related party
	Interest rate			Due date	September 30, 2023		December 31, 2022
Loan agreement		9.5	%	Upon demand	$	4,580,000	$	-
12% demand promissory note		12.0	%	Upon demand		1,100,000		-
10% demand promissory note		10.0	%	Upon demand		10,545,000		-
Total notes payable, related party					$	16,225,000	$	-

Ault & Company Loan Agreement

On June 8, 2023, the Company entered into a loan agreement with Ault & Company as lender. The loan agreement provides for an unsecured, non-revolving credit facility in an aggregate principal amount of up to $10 million. All loans under the loan agreement are due within five business days after request by Ault & Company. Ault & Company is not obligated to make any further advances under the loan agreement after December 8, 2023. Advances under the loan agreement bear interest at the rate of 9.5% per annum and may be repaid at any time without penalty or premium. As of September 30, 2023, $4.6 million has been advanced under the loan agreement.

In August 2023, Ault & Company assumed $11.6 million of secured promissory notes previously issued by the Company for which the Company has issued term notes to Ault & Company in the same amount. One term note has a principal amount of $1.1 million and bears interest at 12% and the second term note has a principal amount of $10.5 million and bears interest at 10%.

Summary of interest expense, related party, recorded within interest expense on the condensed consolidated statement of operations:

Schedule of interest expense, related party
	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Interest expense, related party	$	287,000	$	-	$	292,000	$	-

21. CONVERTIBLE NOTES

Convertible notes payable at September 30, 2023 and December 31, 2022, were comprised of the following:

Schedule of convertible notes payable
	Conversion price per share	Interest rate	Due date	September 30, 2023			December 31, 2022
Convertible promissory note	$4.00	4%	May 10, 2024	$	-		$	660,000
Convertible promissory note - OID only	90% of 5-day VWAP	OID Only	September 28, 2024		2,200,000			-
AVLP convertible promissory notes	$0.35 (AVLP stock)	7%	August 22, 2025		9,911,000			9,911,000
GIGA senior secured convertible notes - in default	$0.25 (GIGA stock)	18%	October 11, 2023		2,317,000			-
ROI senior secured convertible notes	$3.28 (ROI stock)	OID Only	April 27, 2024		6,875,000			-
Fair value of embedded conversion options					528,000			2,316,000
Total convertible notes payable				$	21,831,000		$	12,887,000
Less: unamortized debt discounts					(3,777,000	)		(111,000	)
Total convertible notes payable, net of financing cost, long term				$	18,054,000		$	12,776,000
Less: current portion					(8,601,000	)		(1,325,000	)
Convertible notes payable, net of financing cost – long-term portion				$	9,453,000		$	11,451,000

The contractual maturities of the Company’s convertible notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of September 30, 2023 were:

Schedule of contractual maturities
Year	Principal
2023	$	2,317,000
2024		9,075,000
2025		10,439,000
	$	21,831,000

Significant inputs associated with the embedded conversion options include:

Schedule of weighted average assumptions
	September 30, 2023	December 31, 2022			At Inception
Contractual term in years	0.6 – 2.0		2.7			1.0
Volatility	75% – 140%		82	%		111	%
Dividend yield	0%		0	%		0	%
Risk-free interest rate	4.6% – 5.3%		4.0	%		3.5	%

Activity related to the embedded conversion option derivative liabilities for the nine months ended September 30, 2023 was as follows:

Schedule of derivative liabilities
Balance as of December 31, 2022	$	2,316,000
Fair value of embedded conversion options issued		1,652,000
Change in fair value		(3,440,000	)
Ending balance as of September 30, 2023	$	528,000

22. COMMITMENTS AND CONTINGENCIES

Contingencies

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.

As of September 30, 2023, the Company had accrued $4.4 million as a loss contingency related to litigation matters.

23. STOCKHOLDERS’ EQUITY

2023 Issuances

2022 Common ATM Offering

On February 25, 2022, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets, LLC (“Ascendiant Capital”) to sell shares of common stock having an aggregate offering price of up to $200 million from time to time, through an “at the market offering” program (the “2022 Common ATM Offering”). During the three months ended March 31, 2023, the Company sold an aggregate of 0.1 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $4.2 million. Effective March 17, 2023, the 2022 Common ATM Offering was terminated.

2022 Preferred ATM Offering

On June 14, 2022, the Company entered into an At-The-Market sales agreement with Ascendiant Capital under which it may sell, from time to time, shares of its Series D Preferred Stock for aggregate gross proceeds of up to $46.4 million (the “2022 Preferred ATM Offering”). During the nine months ended September 30, 2023, the Company sold an aggregate of 252,359 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $2.9 million. Effective June 16, 2023, the 2022 Preferred ATM Offering was terminated.

2023 ATM Offering – Common Stock

On June 9, 2023, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital to sell shares of common stock having an aggregate offering price of up to $10 million from time to time, through an “at the market offering” program (the “2023 Common ATM Offering”). On July 13, 2023 and September 8, 2023, the sales agreement was amended increasing the size of the 2023 ATM Offering to $20 million and $50 million, respectively. During the nine months ended September 30, 2023, the Company sold an aggregate of 10.8 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $21.2 million.

Issuance of Common Stock Upon Conversion of Preferred Stock

During the nine months ended September 30, 2023, the Investors converted 1,000 shares of Series F Preferred Stock and 6,756 shares of Series G Preferred Stock into an aggregate of 143,402 shares of the Company’s common stock. A loss on extinguishment of $0.3 million was recognized on the issuance of common stock based on the fair value of the Company’s common stock at the date of the conversions.

Issuance of Common Stock for Restricted Stock Awards

During the nine months ended September 30, 2023, the Company issued 4,974 shares of common stock upon vesting of restricted stock awards.

Proceeds from Subsidiaries’ Sale of Stock to Non-Controlling Interests

During the nine months ended September 30, 2023, SMC and ROI sold an aggregate of $2.3 million of common stock pursuant to their respective at-the-market issuance sales agreements.

24. 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 (2.0%) and 1.8% for the three months ended September 30, 2023 and 2022, respectively, and 0.4% and 0.6% for the nine months ended September 30, 2023 and 2022, respectively. The Company recorded income tax (benefit) provision of ($0.6) million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.5 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively. The difference between the ETR and federal statutory rate of 21% is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes and changes in valuation allowance.

25. NET LOSS PER SHARE

Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. ~~The Company has included 317,460 warrants, with an exercise price of $.01, in its earnings per share calculation~~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 30, 2023 and 2022:

Schedule of anti-dilutive securities
	September 30,
	2023		2022
Stock options		19,000		21,000
Restricted stock grants		-		7,000
Warrants		52,000		62,000
Convertible notes		-		1,000
Total		71,000		91,000

F-28

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

At September 30, 2017, the 20,887,906 of potential common stock equivalents included 6,926,095 in warrants, convertible notes and preferred stock in which the holders are contractually prohibited from exercising or converting the warrants, convertible notes and preferred stock into shares of the Company’s common stock. The restriction shall remain until shareholder approval is received.

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

~~Recently Issued Accounting Standards~~

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

~~4. INVESTMENTS – RELATED PARTIES~~

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

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

~~DIGITAL POWER CORPORATION~~

26. SEGMENT AND ~~SUBSIDIARY~~

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

~~SEPTEMBER 30, 2017~~

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

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

~~On October 5, 2016, November 30, 2016, and February 22, 2017, the Company entered into three 12% Convertible Promissory Notes with AVLP (the~~ ~~"AVLP Notes"~~) in the principal amount of $525 each. The AVLP Notes included a 5% original issue discount, resulting in net loans to AVLP of $1,500 and an original issue discount of $75. The AVLP notes accrued interest at 12% per annum and were due on or before two years from the origination dates of each note. CUSTOMERS INFORMATION

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

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~~reportable segments 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~~2023 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~~six 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 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 AND SUBSIDIARY~~

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

~~SEPTEMBER 30, 2017~~

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

On April 26, 2017, the Company entered into a 7% convertible note in the aggregate principal amount of $104. On June 28, 2017, the noteholder converted the outstanding balance into 189,091 shares of the Company’s common stock~~. The Company did not record any additional interest expense as a result of the extinguishment since the carrying amount of the convertible notes was equivalent to~~ ~~the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of~~ ~~extinguishment~~.

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

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

~~13. CONVERTIBLE NOTE – RELATED PARTY~~

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

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

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

~~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 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;~~2022; see Note 1 for a brief description of the Company’s business.

The following data presents the revenues, expenditures and other operating data of the ~~Company’s geographic~~Company and its operating segments for the three and ~~presented in accordance~~nine months ended September 30, 2023:

Schedule of operating segments
	Nine Months Ended September 30, 2023
	GIGA			TurnOn Green			Fintech		Sentinum			Ault Disruptive			SMC			Energy			ROI			Holding Co.			Total
Revenue	$	27,723,000		$	2,766,000		$	-	$	1,116,000		$	-		$	21,939,000		$	987,000		$	63,000		$	-		$	54,594,000
Revenue, cryptocurrency mining		-			-			-		23,273,000			-			-			-			-			-			23,273,000
Revenue, lending and trading activities		-			-			4,337,000		-			-			-			-			-			-			4,337,000
Revenue, crane operations		-			-			-		-			-			-			37,726,000			-			-			37,726,000
Total revenues	$	27,723,000		$	2,766,000		$	4,337,000	$	24,389,000		$	-		$	21,939,000		$	38,713,000		$	63,000		$	-		$	119,930,000

Depreciation and amortization expense	$	852,000		$	68,000		$	-	$	14,362,000		$	-		$	779,000		$	3,053,000		$	152,000		$	1,542,000		$	20,808,000

Income (loss) from operations	$	(5,620,000	)	$	(4,067,000	)	$	1,091,000	$	(4,363,000	)	$	(1,052,000	)	$	(4,598,000	)	$	(30,216,000	)	$	(33,590,000	)	$	(20,012,000	)	$	(102,427,000	)

Capital expenditures for the nine months ended September 30, 2023	$	410,000		$	131,000		$	-	$	1,426,000		$	-		$	383,000		$	12,471,000		$	407,000		$	2,906,000		$	18,134,000

Segment identifiable assets as of September 30, 2023	$	36,917,000		$	5,461,000		$	24,727,000	$	63,327,000		$	2,465,000		$	36,653,000		$	73,447,000		$	10,939,000		$	25,924,000			279,860,000
Assets of discontinued operations																												98,596,000
Total identifiable assets as of September 30, 2023																											$	378,456,000


	Three Months Ended September 30, 2023
	GIGA			TurnOn Green			Fintech			Sentinum			Ault Disruptive			SMC		Energy		ROI			Holding Co.			Total
Revenue	$	10,275,000		$	1,166,000		$	-		$	333,000		$	-		$	15,931,000	$	441,000	$	18,000		$	-		$	28,164,000
Revenue, cryptocurrency mining		-			-			-			7,558,000			-			-		-		-			-			7,558,000
Revenue, lending and trading activities		-			-			(249,000	)		-			-			-		-		-			-			(249,000	)
Revenue, crane operations		-			-			-			-			-			-		12,490,000		-			-			12,490,000
Total revenues	$	10,275,000		$	1,166,000		$	(249,000	)	$	7,891,000		$	-		$	15,931,000	$	12,931,000	$	18,000		$	-		$	47,963,000

Depreciation and amortization expense	$	286,000		$	24,000		$	-		$	5,792,000		$	-		$	338,000	$	1,073,000	$	32,000		$	514,000		$	8,059,000

Income (loss) from operations	$	(503,000	)	$	(1,498,000	)	$	(1,039,000	)	$	(2,661,000	)	$	(214,000	)	$	181,000	$	2,505,000	$	(13,315,000	)	$	(5,359,000	)	$	(21,903,000	)

Capital expenditures for the three months ended September 30, 2023	$	275,000		$	121,000		$	-		$	261,000		$	-		$	199,000	$	11,135,000	$	-		$	314,000		$	12,305,000

Identifiable assets as of September 30, 2023	$	36,917,000		$	5,461,000		$	24,727,000		$	63,327,000		$	2,465,000		$	36,653,000	$	73,447,000	$	10,939,000		$	25,924,000			279,860,000
Assets of discontinued operations																											98,596,000
Total identifiable assets as of September 30, 2023																										$	378,456,000

Segment information for the three and nine months ended September 30, 2022:


	Nine Months Ended September 30, 2022
	GIGA			TurnOn Green			Fintech		Sentinum			Ault Disruptive			SMC		Holding Company			Total
Revenue	$	21,530,000		$	3,853,000		$	220,000	$	822,000		$	-		$	17,114,000	$	-		$	43,539,000
Revenue, cryptocurrency mining		-			-			-		11,398,000			-			-		-			11,398,000
Revenue, lending and trading activities		-			-			32,224,000		-			-			-		-			32,224,000
Total revenues	$	21,530,000		$	3,853,000		$	32,444,000	$	12,220,000		$	-		$	17,114,000	$	-		$	87,161,000

Depreciation and amortization expense	$	1,259,000		$	403,000		$	240,000	$	6,949,000		$	-		$	166,000	$	474,000		$	9,491,000

Income (loss) from operations	$	(1,881,000	)	$	(2,577,000	)	$	4,212,000	$	(8,139,000	)	$	(1,100,000	)	$	597,000	$	(19,262,000	)	$	(28,150,000	)

Capital expenditures for the nine months ended September 30, 2022	$	612,000		$	176,000		$	1,739,000	$	77,299,000		$	-		$	66,000	$	166,000		$	80,058,000


	Three Months Ended September 30, 2022
	GIGA			TurnOn Green			Fintech		Sentinum			Ault Disruptive			SMC		Holding Company			Total
Revenue	$	7,781,000		$	1,662,000		$	201,000	$	273,000		$	-		$	17,114,000	$	-		$	27,031,000
Revenue, cryptocurrency mining		-			-			-		3,874,000			-			-		-			3,874,000
Revenue, lending and trading activities		-			-			13,360,000		-			-			-		-			13,360,000
Total revenues	$	7,781,000		$	1,662,000		$	13,561,000	$	4,147,000		$	-		$	17,114,000	$	-		$	44,265,000

Depreciation and amortization expense	$	740,000		$	393,000		$	172,000	$	2,809,000		$	-		$	166,000	$	(264,000	)	$	4,016,000

Income (loss) from operations	$	(661,000	)	$	(957,000	)	$	3,786,000	$	(4,322,000	)	$	(314,000	)	$	597,000	$	(5,138,000	)	$	(7,009,000	)

Capital expenditures for the three months ended September 30, 2022	$	327,000		$	51,000		$	890,000	$	5,915,000		$	-		$	66,000	$	47,000		$	7,296,000

27. CONCENTRATIONS OF CREDIT AND REVENUE RISK

The following table summarizes accounts receivable that are concentrated 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~~certain large customers as of September 30, ~~2017~~

~~U.S. dollars in thousands, except share~~2023 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:~~

December 31, 2022:

Schedule of concentrations of credit risk
	September 30, 2023			December 31, 2022
Customer A		*			13	%
Customer B		18	%		14	%

The following table provides the percentage of total revenues attributable to ~~a single customer~~customers 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~~

	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022
Customer V (Mining Pool Operator)	*	*	10%	*
Customer W (Mining Pool Operator)	13%	*	*	*
Customer X	12%	17%	*	*
Customer Y	*	11%	*	*
Customer Z	*	*	*	10%

Less than 10%

28. SUBSEQUENT EVENTS

2023 Common ATM Offering

During the period between October 1, 2023 through November 17, 2023, the Company sold an aggregate of 54.2 million shares of common stock pursuant to ~~Digital Power and revenue from Customer C attributable to DP Limited.~~

~~For~~ the ~~three and nine months ended September 30, 2017 and 2016, total revenues from external customers divided on the basis~~2023 Common ATM Offering for gross proceeds of $10.0 million.

Note Conversions

In October 2023, an investor converted $0.5 million in principal of a convertible note into 2.1 million shares of the Company’s ~~product lines are as follows:~~

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

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

~~Financial data relating to geographic areas:~~

The Company’s total revenues are attributed to geographic areas based on the location. The following table presents total revenues for the three and nine months ended September 30, 2017 and 2016. Other than as shown, no foreign country contributed materially to revenues or long-lived assets for these periods:

~~DIGITAL POWER CORPORATION AND SUBSIDIARY~~

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

~~SEPTEMBER 30, 2017~~

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

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

Revenues:
North America $ 2,671 $ 1,125 $ 4,746 $ 3,128
Europe 342 314 1,244 1,548
South Korea 3 196 223 499
Other 204 191 457 428
Total revenues $ 3,220 $ 1,826 $ 6,670 $ 5,603

~~17. SUBSEQUENT EVENTS~~

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

~~Common Stock~~

common stock.

Senior Secured Convertible Note, Related Party

On October ~~4, 2017,~~13, 2023 (the “Closing Date”), the Company entered into a ~~Securities Purchase Agreement to sell 75,000 shares of common stock and warrants to~~note purchase ~~75,000 shares of common stock at $0.60 per share to~~agreement with Ault & Company, ~~for $50. Mr. Ault is the Chairman and majority shareholder of Ault & Company.~~

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

On November 7, 2017, the Company entered into subscription agreements with investors under which the Company agreed to issue and sell in the aggregate 725,000 shares of common stock to the investors at $0.60 per share for an aggregate purchase price of $435. $180 of the aggregate purchase price was paid in cash and $255 was paid through the cancellation of debt incurred by the Company.

~~October 3, 2017, the Company issued an aggregate of 490,000 shares of its common stock as payment for services to its consultant.~~ ~~The shares were valued at $265, an average of $0.54 per share.~~

~~Advance on Future Receipts~~

On October 17, 2017, the Company and Microphase, entered into an Agreement for the Purchase and Sale of Future Receipts with TVT Capital LLC pursuant to which the Company and Microphase collectively sold in the aggregate $834 in Future Receipts of the Company and Microphase for $600. Under the terms of the agreement, the Company and Microphase will be obligated to pay $21 in the aggregate on a weekly basis until the purchase price of $834, has been paid in full. In connection with entering into the agreement, the Company and Microphase collectively paid a $30 origination fee. In addition, the purchase price of $834 has been personally guaranteed by Milton Ault, III, the Company’s Executive Chairman.

~~On November 1, 2017, the Company and Libertas Funding LLC (“Libertas”~~), entered into an Agreement for the Purchase and Sale of Future Receivables pursuant to which the Company and Libertas collectively sold the rights of up to $594 in future receipts of the Company for $400. If the Company pays Libertas by January 3, 2018, the purchased amount will be discounted to $497. Until that date, no specific payment schedules are required. After January 3, 2018, if the Company has not paid the $497, the Company agrees to pay the aggregate of $594 in future receipts under the following terms. The Company will be obligated to pay $25 on a weekly basis until the purchased price of $594 has been paid in full. In conjunction with this agreement, the Company also issued warrants to purchase an aggregate of 200,000 shares of the Company’s Common Stock at $0.725 per share. The purchase price of $400 has been personally guaranteed by Philou and by Milton and Kristine Ault, directors of the Company.

~~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~~the Purchaser (i) a senior secured convertible promissory note 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 aggregateprincipal face amount of ~~$223 under the following terms. The Company will be obligated~~$17,519,832 (the “Note”) and warrants (the “Warrants”) 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~~for a total purchase price of ~~$150 has been personally guaranteed~~up to $17,519,832 (the “Transaction”).

The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by ~~Mr. Ault.~~

~~Convertible Debentures~~

~~On November 2, 2017, Digital Power entered into a Securities Purchase Agreement (the~~ ~~“Nov. Purchase Agreement”) with an institutional investor (the~~ ~~“Purchaser”~~),Ault & Company to the Company since June 8, 2023 pursuant to ~~which~~the loan agreement; (ii) cancellation of $11.6 million of term loans made by the Company ~~has agreed, upon~~to Ault & Company in exchange for Ault & Company assuming liability for the ~~terms~~payment of $11.6 million of secured notes; and ~~subject~~(iii) the retirement of $1.25 million stated value of 125,000 shares of the Company’s Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to the ~~conditions of the Nov. Purchase Agreement, to issue and sell to the Purchaser (i) at the first closing, 300,000 shares of restricted common stock of the Company (the~~ ~~“Restricted Shares”) and a 10% Original Issue Discount Convertible Debenture for a purchase price of $1,010 with~~Company.

The Note has a principal face amount of ~~$1,111~~$17,519,832 and has a maturity date of October 12, 2028 (the ~~“First Convertible Debenture”~~“Maturity Date”) ~~and (ii)~~. The Note bears interest at the ~~second closing, an additional 10% Original Issue Discount Convertible Debenture for an aggregate purchase price~~rate of ~~$990 with an aggregate principal face amount of $1,089 (the~~ ~~“Second Convertible Debenture”, and together with~~10% per annum. Interest is payable, at the ~~First Convertible Debenture, the~~ ~~“Convertible Debentures”~~). The Company and the Purchaser consummated the first closing on November 2, 2017. The second closing, if any, shall occur only at both parties’ mutual agreement at any time following the Company’s registration for resale of the Restricted Shares andPurchaser’s option, in cash or shares of ~~common stock underlying~~Common Stock at the ~~First Convertible Debenture, and shareholder approval~~applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault & Company has the option, on not less than 10 calendar days’ notice to the Company, to require payment of ~~the transactions contemplated by the Purchase Agreement~~accrued but unpaid interest on a monthly basis in ~~accordance with Section 713 of the NYSE American Company Guide.~~

~~10% Original Issue Discount Convertible Debentures~~

arrears.

The ~~Convertible Debentures have a term of eight months, bear interest at 5% per year and the principal of the Convertible Debentures and interest earned thereon may be converted~~Note is convertible into shares of common stock at ~~$0.60~~a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to ~~adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. In~~adjustment in the event ~~that the Company consummates any debt or equity financing with gross proceeds to the Company equal to or greater than $7,500, then the Company shall prepay to the holder in cash 110%~~ of the outstanding principal amounts of the Convertible Debentures and any accrued and unpaid interest if the closing of such transaction occurs within ninety days from the original issue date of a debenture, and the Company shall prepay to the holder in cash 115% of the outstanding principal amounts of the Convertible Debentures and any accrued and unpaid interest if the closing of such transaction occurs between 91 days from the original issue date and the maturity date of the Convertible Debenture. The Company has the option to prepay all amounts owed under the Convertible Debentures in cash at a rate of 110% within 90 days from the original issue date and 115% from 91 days from the original issue date through the maturity date.

~~Registration Rights Agreement~~

~~In connection with the Nov. Purchase Agreement, the Company entered into a registration rights agreement (the~~ ~~“Registration Rights Agreement”) with the Purchaser, pursuant to which the Company has agreed to file a registration statement with the Securities and Exchange Commission covering the Restricted Shares and the shares~~an issuance of common stock underlying the First Convertible Debenture within 30 days of the first closing and the shares of common stock underlying the Second Convertible Debenture within 30 days of the second closing. The Company has agreed to use its best efforts to have the registration statement declared effective within 60 days of each closing date. If the Company is unable to meet its obligations under the Registration Rights Agreement, on each such date of failure or breach and on each monthly anniversary thereof if not cured by such date, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1% of the subscription amount paid pursuant to the Purchase Agreement. Subsequent to the 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~~price per share ~~data~~

~~Warrant Issued to Financial Advisor~~

~~In connection with~~lower than 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 forConversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The ~~Warrant~~Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.

The Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the Closing Date. The exercise price of the Warrants is ~~exercisable at any time commencing six months from~~$0.1837, which is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.

In addition, the Company and various subsidiaries of the Company granted Ault & Company a senior security interest in substantially all of their assets as collateral for the repayment of the Note, which is subordinated to the security interest granted to the holders of the outstanding secured promissory notes.

Series C Preferred Purchase Agreement, Related Party

On November 6, 2023, the Company entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which the Company agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may be tendered for cancellation. The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of ~~issuance through five years from~~ the ~~date~~Agreement, are subject to various customary closing conditions as well as regulatory and stockholder approval. In addition to customary closing conditions, the closing of ~~issuance.~~the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The ~~Warrant~~SPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date 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 rightsextended by Ault & Company for a period of ~~five years from~~90 days as set forth in the ~~date of issue.~~

~~Loan and Security~~SPA.

Series D Preferred Purchase Agreement, ~~with I.AM, Inc.~~

Related Party

On November ~~1, 2017,~~15, 2023, the Company purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by the Company to ROI between January 1, 2023 and ~~I.AM, Inc. (“I.AM”) entered~~November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible into a ~~Loan and Security Agreement (“Loan Agreement”) pursuant to which~~number of shares of ROI’s common stock determined by dividing the ~~Company will provide I.AM a non-revolving credit facility~~stated value by $0.51, or an aggregate of ~~up to $1,300, for a period ending on September 25, 2022,~~29.6 million shares of ROI common stock, subject to ~~the terms and conditions stated~~adjustment in the ~~Loan Agreement, including that~~event of an issuance of ROI common stock at a price per share lower than the ~~Company having available funds~~conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders are entitled to ~~grant such credit. Advances on the credit facility accrue~~receive dividends at a rate of ~~6.0%~~10% per annum from issuance until November 14, 2033.

In addition, for as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain from the Company consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.

Payment of Related Party Advances

On October 5, 2023, William B. Horne, the Company’s Chief Executive Officer, loaned the Company $262,500, including a $12,500 original issue discount. On October 12, 2023, the loan was repaid.

On October 10, 2023, ROI repaid $52,000 of advances payable to Mr. Horne, the Company’s Chief Executive Officer and director of ROI.

Eco Pack Acquisition

On November 10, 2023, the Company’s wholly owned subsidiary, Eco Pack Technologies, Inc., completed the acquisition of an 80% ownership interest in Eco Pack Technologies Limited, a company incorporated in England and Wales. As of the closing date, the total consideration paid amounted to $0.8 million. Additionally, the Company is committed to providing approximately $2.5 million in further funding over the next two years.

Deficiency Letter from the NYSE American

On November 13, 2023, the Company received a deficiency letter (the “Letter”) from the NYSE American LLC (the “NYSE American” or the “Exchange”) indicating that the Company is not in compliance with the Exchange’s continued listing standard set forth in Section 1003(f)(v) of the NYSE American Company Guide (the “Company Guide”) because the shares of common stock of the Company (the “Common Stock”) for a substantial period of time have been selling at a low price per share, which the Exchange determined to be a 30-trading day average price of less than $0.20 per share. The Letter has no immediate effect on the ~~outstanding daily balance.~~listing or trading of the Company’s Common Stock and the Common Stock will continue to trade on the NYSE American under the symbol “AULT”. Additionally, the Letter does not result in the immediate delisting of the Common Stock from the NYSE American.

Pursuant to Section 1003(f)(v) of the Company Guide, the NYSE American staff determined that the Company’s continued listing is predicated on it demonstrating sustained price improvement within a reasonable period of time or effecting a reverse stock split of its common stock, which the staff determined to be no later than May 13, 2024. The ~~Loan Agreement~~Company intends to regain compliance with the NYSE American’s continued listing standards by undertaking a measure or measures that are in the best interests of the Company and its stockholders.

The Company intends to closely monitor the price of its common stock and consider available options if the Common Stock does not trade at a consistent level likely to result in the Company regaining compliance by May 13, 2024. The Company’s receipt of the Letter does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange Commission. The Company is ~~secured by~~actively engaged in discussions with the ~~assets of I.AM’s membership interests in three restaurant LLCs.~~

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

Exchange and is developing plans to regain compliance with the NYSE American’s continued listing standards within the cure period.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

~~GENERAL~~

~~We are~~subsidiaries and strategic investments, we own and operate a ~~growth company seeking~~data center at which we mine Bitcoin and offer colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provide mission-critical products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, we own and operate hotels and extend credit to ~~increase our revenues~~select entrepreneurial businesses through ~~acquisitions. Our strategy reflects our management~~a licensed lending subsidiary.

Recent Events and ~~Board’s current philosophy that occurred as~~Developments

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

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

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

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

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

~~On June 2, 2017, Digital Power~~ ~~purchased 56.4%~~Earnity beneficially owned by BitNile.com (which represented approximately 19.9% of the outstanding equity securities of Earnity as of the date of the Agreement), in exchange for the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of ROI to be issued to our company (the “Series B Preferred”), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of ROI to be issued to the to the Minority Shareholders (the “Series C Preferred,” and together with the Series B Preferred, the “Preferred Stock”). The Series B Preferred and the Series C Preferred each have a stated value of $10,000 per share (the “Stated Value”), for a combined stated value of the Preferred Stock to be issued by ROI of $100 million, and subject to adjustment, are convertible into an aggregate of 13.3 million shares of common stock of ROI (the “ROI Common Stock”). ROI received approval of the Series A Convertible Preferred Stock transaction by its’s shareholders and the Nasdaq Stock Market to exceed the 19.9% beneficial ownership limitation.

Pursuant to the Certificates of Designations of the Rights, Preferences and Limitations of the Series B Preferred and the Series C Preferred (collectively, the “Preferred Stock Certificates”), each share of Preferred Stock will be convertible into a number of shares of ROI Common Stock determined by dividing the Stated Value by $7.50 (the “Conversion Price”), or 1,333 shares of ROI Common Stock. The Conversion Price will be subject to certain adjustments, including potential downward adjustment if ROI closes a qualified financing resulting in at least $25 million in gross proceeds at a price per share that is lower than the Conversion Price then in effect. The holders of Preferred Stock will be entitled to receive dividends at a rate of 5% of the Stated Value per annum from issuance until February 7, 2033 (the “Dividend Term”). During the first two years of the Dividend Term, dividends will be payable in additional shares of Preferred Stock rather than cash, and thereafter dividends will be payable in either additional shares of Preferred Stock or cash as each holder may elect. If ROI fails to make a dividend payment as required by the Preferred Stock Certificates, the dividend rate will be increased to 12% for as long as such default remains ongoing and uncured. Each share of Preferred Stock will also have an $11,000 liquidation preference in the event of a liquidation, change of control event, dissolution or winding up of ROI, and will rank senior to all other capital stock of ROI with respect thereto, except that the Series B Preferred and Series C Preferred shall rank pari passu. Each share of Series B Preferred was originally entitled to vote with the ROI Common Stock at a rate of 10 votes per share of Common Stock into which the Series B Preferred is convertible, but that provision was subsequently eliminated. Other than certain rights granted to the Company relating to amendments or waiver of various negative covenants, the terms, rights, preferences and limitations of the Preferred Stock Certificates are essentially identical. The Agreement closed on March 6, 2023.

On March 28, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain sophisticated investors (the “Investors”), pursuant to which we agreed to issue and sell, in a private placement, an aggregate of 100,000 shares of our preferred stock, with each such share having a stated value of $100.00 and consisting of (i) 83,000 shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”), (ii) 1,000 shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and (iii) 16,000 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and collectively, the “Preferred Shares”).

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

On April 6, 2023, we issued a term note with a principal amount of $1.1 million, bearing an interest rate of 12% (the “Term Note”). The Term Note was issued at a discount, with net proceeds to us amounting to $1.0 million. The Term Note was scheduled to mature on June 5, 2023. We exercised the option to extend the maturity date by one month, by paying a $30,000 extension fee. Ault & Company guaranteed repayment of the Term Note.

On May 1, 2023, we entered into a securities purchase agreement (the “Series C Agreement”) with Ault & Company, pursuant to which we agreed to sell to Ault & Company up to 40,000 shares of Series C convertible preferred stock and warrants to purchase up to 1.3 million shares of common stock for a total purchase price of up to $40 million. The consummation of the transactions contemplated by the Series C Agreement are subject to various customary closing conditions and the receipt of certain third party consents. In addition to customary closing conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company of financing in an amount sufficient to consummate the transaction, in whole or in part. The Series C Agreement contains customary termination provisions for Ault & Company under certain circumstances, and the Series C Agreement shall automatically terminate if the closing has not occurred prior to May 31, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the Series C Agreement.

Our stockholders approved, at a special meeting of our stockholders called for such purpose, an amendment (the “Amendment”) to our certificate of incorporation to authorize a reverse split of our common stock (the “Reverse Split”). The Investors agreed in the Purchase Agreement to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the Preferred Shares until after the Reverse Split. Pursuant to the certificate of designation of the Series E Preferred Stock, the shares of Series E Preferred Stock have the right to vote on such Amendment on an as converted to common stock basis. In addition, pursuant to the certificate of designation of the Series F Preferred Stock, the shares of Series F Preferred Stock have the right to vote on such Amendment. Each Investor has separately agreed to vote the shares of the Series E Preferred Stock in favor of the Amendment and that the shares of the Series F Preferred Stock shall automatically be voted in a manner that “mirrors” the proportions on which the shares of our common stock and Series E Preferred Stock are voted on the Amendment. The Amendment requires the approval of the majority of the votes associated with our outstanding capital stock entitled to vote on the proposal. Because the Series F Preferred Stock will automatically and without further action of the purchaser be voted in a manner that “mirrors” the proportions on which the shares of common stock and Series E Preferred Stock are voted on the Reverse Split, abstentions by common stockholders will not have any effect on the votes cast by the holders of the Series F Preferred Stock. The Series G Preferred Stock does not carry any voting rights, except as required by law or expressly provided by its certificate of designation.

On June 8, 2023, we entered into a loan agreement with Ault & Company as lender. The loan agreement provides for an unsecured, non-revolving credit facility in an aggregate principal amount of up to $10 million. All loans under the loan agreement are due within five business days after request by Ault & Company and Ault & Company is not obligated to make any further advances under the loan agreement after December 8, 2023. Advances under the loan agreement bear interest at the rate of 9.5% per annum and may be repaid at any time without penalty or premium. As of the date of this report, $4.7 million has been advanced under the loan agreement and not repaid.

On June 9, 2023, we entered into an At-the-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, as sales agent (“Ascendiant Capital”) to sell shares of our common stock having an aggregate offering price of up to $10,000,000 (the “Shares”) from time to time, through an “at the market offering” (the “2023 Common ATM Offering”). On July 12, 2023, we and Ascendiant Capital entered into an amendment to the At-The-Market issuance sales agreement to increase the size of the 2023 Common ATM Offering from $10.0 million to $20.0 million. Through August 14, 2023, we have sold an aggregate of 3.8 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $16.1 million.

On June 26, 2023, we established a record date for our initial distribution of TurnOnGreen securities. Stockholders as of this date were entitled to 40 shares of TurnOnGreen common stock, along with warrants to purchase 40 shares of TurnOnGreen common stock (the “TurnOnGreen Securities”) for every share of our common stock they held on the record date. The initial distribution was finalized in July 2023. We distributed 58.7 million TurnOnGreen Securities in the first distribution.

On July 24, 2023, we established a record date for our second partial distribution of TurnOnGreen Securities. Stockholders as of this date were entitled to 15 shares of TurnOnGreen Securities for every share of the Company’s common stock they held on the record date. The second distribution was finalized on August 7, 2023, whereby we relinquished control of voting interests of ~~Microphase Corporation~~TurnOnGreen. We distributed 56.4 million TurnOnGreen Securities in the second distribution.

On July 19, 2023 we along with certain of our subsidiaries entered into a First Amendment and Joinder to Loan and Guarantee Agreement (the ~~“Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”~~“Amendment”) ~~industry leader delivering world-class radio frequency (“RF”~~with the institutional investors pursuant to which the (i) Loan and Guarantee Agreement, dated November 7, 2022, entered into between us and the institutional investors (the “Loan Agreement”) and ~~microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies~~(ii) Security Agreement, dated November 7, 2022, entered into between the institutional investors and ~~detector logarithmic video amplifiers (“DLVA”~~Sentinum (the “Security Agreement”) was amended. Pursuant to the Amendment, we borrowed an additional $8.8 million. The net proceeds of the additional loan amount were $7.5 million.

Effective August 3, 2023, we and the Investors entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the Investors exchanged all of their Preferred Shares as well as their demand notes (the “Demand Notes”) issued to the Investors by us on or about May 20, 2023, with each Demand Note having a principal outstanding amount of approximately $0.8 million for two new 10% Secured OID Promissory Notes (the “Exchange Notes”), each with a principal face amount of $5.3 million, for an aggregate of amount owed of $10.5 million (the “Principal Amount”). We and Milton “Todd” Ault, III, our Executive Chairman, entered into guaranty agreements with the Investors guaranteeing repayment by Ault & Company, Inc., a related party (“Ault & Company”) of the Exchange Notes.

Effective as of August 3, 2023, we assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from us, we issued a 10% demand promissory note in the principal face amount of $10.5 million (the “First A&C Demand Note”) to Ault & Company.

Effective as of August 10, 2023, we assigned the ~~military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut.~~

~~On April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”),~~Term Note to Ault & Company. As consideration for Ault & Company assuming the Term Note from us, we issued a ~~wholly-owned subsidiary. The Company intends to operate its existing businesses~~12% demand promissory note in the ~~customized~~principal face amount of $1.1 million (the “Second Demand Note”) to Ault & Company.

On October 13, 2023 (the “Closing Date”), we entered into a note purchase agreement with Ault & Company, pursuant to which we sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”) and ~~flexible power system solutions~~warrants (the “Warrants”) to purchase shares of our common stock for a total purchase price of up to $17.5 million (the “Transaction”).

The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to us since June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by us to Ault & Company in exchange for Ault & Company assuming liability for the ~~medical, military, telecom~~payment of $11.6 million of secured notes; and ~~industrial markets, other~~(iii) the retirement of $1.25 million stated value of 125,000 shares of our Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to us.

The Note has a principal face amount of $17.5 million and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note bears interest at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at the applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault & Company has the option, on not less than 10 calendar days’ notice to us, to require payment of accrued but unpaid interest on a monthly basis in arrears.

The Note is convertible into shares of common stock at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the ~~European markets~~Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.

The Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the Closing Date. The exercise price of the Warrants is $0.1837, which ~~are primarily served by DP Limited,~~is subject to adjustment in ~~Coolisys.~~

~~Further, on September 1, 2017, Coolisys acquired~~the event of customary stock splits, stock dividends, combinations or similar events.

In addition, we and various of our subsidiaries granted Ault & Company a senior security interest in substantially all of our assets as collateral for the repayment of the Note, which is subordinated to the security interest granted to the holders of the outstanding ~~membership interests~~secured promissory notes.

On November 6, 2023, we entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which we agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may be tendered for cancellation. The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock and the exercise of the warrants in ~~Power-Plus Technical Distributors, LLC, a California limited liability company (“Power-Plus”~~). ~~Power-Plus is~~ an ~~industrial distributor~~aggregate number in excess of ~~value added power supply solutions, UPS systems, fans, filters, line cords,~~19.99% on the execution date of the Agreement, are subject to various customary closing conditions as well as regulatory and ~~other power-related components.~~stockholder approval. In addition to customary closing conditions, the closing of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The SPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the SPA.

On November 15, 2023, we purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by us to ROI between January 1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033. In addition, for as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain our consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.

Presentation of AGREE as Discontinued Operations

In September 2023, we committed to a plan for our wholly owned subsidiary AGREE to list for sale its ~~current~~four recently renovated Midwest hotels, the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford. The decision to sell the hotels follows the decision to also list the multifamily development site in St. Petersburg, Florida and is driven by our desire to focus on our core businesses, Energy, Fintech and Sentinum. We plan to use the proceeds from the sales of the hotel properties to pay off debt and commit more capital to our core businesses. Our real estate properties, which include both hotels and land are currently listed for sale.

In connection with the planned sale of AGREE assets, we concluded that the net assets of AGREE met the criteria for classification as held for sale. In addition, the proposed sale represents a strategic shift that will have a major effect on our operations and financial results. As a result, we have presented the results of operations, cash flows and financial position of AGREE as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.

General

As a holding company, our business ~~Power-Plus~~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, with the goal of pursuing monetization opportunities and maximizing the value returned to stockholders. We have, are and will ~~serve~~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 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) initiatives 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 fuel the growth of businesses in metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. We have provided capital to subsidiaries as well as partner companies in which we have an ~~extended sales organization for the Company’s overall flexible power system solutions.~~

equity interest or may be actively involved, influencing development through board representation and 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.ault.com.

Results of Operations

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

~~Revenues~~

~~Our revenues increased by $1,394 or 76% to $3,220~~2023 and 2022

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

	For the Three Months Ended September 30,
	2023			2022

Revenue	$	28,164,000		$	27,031,000
Revenue, cryptocurrency mining		7,558,000			3,874,000
Revenue, crane operations		12,490,000			-
Revenue, lending and trading activities		(249,000	)		13,360,000
Total revenue		47,963,000			44,265,000
Cost of revenue, products		20,425,000			20,193,000
Cost of revenue, cryptocurrency mining		10,228,000			5,255,000
Cost of revenue, crane operations		7,642,000			-
Total cost of revenue		38,295,000			25,448,000
Gross profit		9,668,000			18,817,000
Total operating expenses		31,571,000			25,826,000
Loss from operations		(21,903,000	)		(7,009,000	)
Other income (expense):
Interest and other income		309,000			725,000
Interest expense		(4,414,000	)		(2,367,000	)
Loss on extinguishment of debt		(1,546,000	)		-
Realized and unrealized gain on marketable securities		74,000			709,000
Loss on the sale of fixed assets		(33,000	)		-
Change in fair value of warrant liability		(562,000	)		(3,000	)
Total other expense, net		(6,172,000	)		(936,000	)
Loss before income taxes		(28,075,000	)		(7,945,000	)
Income tax (benefit) provision		(565,000	)		144,000
Net loss from continuing operations		(27,510,000	)		(8,089,000	)
Net income (loss) from discontinued operations		(929,000	)		93,000
Net loss		(28,439,000	)		(7,996,000	)
Net loss attributable to non-controlling interest		6,668,000			725,000
Net loss attributable to Ault Alliance, Inc.		(21,771,000	)		(7,271,000	)
Preferred dividends		(413,000	)		(190,000	)
Net loss available to common stockholders	$	(22,184,000	)	$	(7,461,000	)
Comprehensive loss
Net loss available to common stockholders	$	(22,184,000	)	$	(7,461,000	)
Other comprehensive loss
Foreign currency translation adjustment		(651,000	)		306,000
Other comprehensive loss		(651,000	)		306,000
Total comprehensive loss	$	(22,835,000	)	$	(7,155,000	)

Revenues

Revenues by segment for the three months ended September 30, ~~2016. The increase in revenue was primarily due~~2023 and 2022 were as follows:

	For the Three Months Ended September 30,					Increase
	2023			2022		(Decrease)			%
GIGA	$	10,275,000		$	7,781,000	$	2,493,000			32	%
TurnOnGreen		1,166,000			1,662,000		(496,000	)		-30	%
SMC		15,931,000			17,114,000		(1,183,000	)		-7	%
Sentinum
Revenue, cryptocurrency mining		7,558,000			3,874,000		3,684,000			95	%
Revenue, commercial real estate leases		333,000			273,000		61,000			22	%
Fintech:
Revenue, lending and trading activities		(249,000	)		13,360,000		(13,609,000	)		-102	%
Other		18,000			201,000		(183,000	)		-91	%
Energy		12,931,000			-		12,931,000			—
Total revenue	$	47,963,000		$	44,265,000	$	3,698,000			8	%

GIGA

GIGA revenues were up $2.5 million for the three months ended September 30, 2023, including $0.4 million growth attributable to our acquisition of ~~56.4%~~ Giga-tronics Incorporated on September 8, 2022. Continued conflicts and tensions worldwide are driving defense-related investments in force protection technologies at GIGA across the United States, U.K., Europe, Asia, and the Middle East. Additionally, demand for key electronics solutions, particularly for customers in medicine and telecommunications, accelerated in the three months ended September 30, 2023.

TurnOnGreen

TurnOnGreen revenues were down $0.5 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022 due to the cancellation of large projects that contributed to revenue in 2022.

SMC

SMC revenues decreased by $1.2 million primarily due to timing of shipments to a large customer.

Sentinum

Revenues from Sentinum’s cryptocurrency mining operations increased $3.7 million as we increased our cryptocurrency mining activities from the prior period, and further increased by a 32% increase in the average Bitcoin price, partially offset an 84% increase in the average Bitcoin mining difficulty level in the current year period.

Fintech

Revenues from our lending and trading activities were negative $0.2 million. Revenue from lending and trading activities for the three months ended September 30, 2023 included an approximate $3.0 million unrealized losses from our investment in Alzamend, partially offset by realized gains from our investment portfolio for the three months ended September 30, 2023. During the three months ended September 30, 2022, Ault Lending generated income from appreciation of investments in marketable securities as well as shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions. Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.

Revenues from our trading activities for the three months ended September 30, 2023 included net losses on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.

Energy

Energy revenues increased by $12.9 million for the three months ended September 30, 2023, due to the acquisition of the ~~outstanding equity interests~~Circle 8 crane operations in December 2022.

Gross Margins

Gross margins decreased to 20% for the three months ended September 30, 2023, compared to 43% for the three months ended September 30, 2022. Our gross margins of ~~Microphase~~ ~~on June 2, 2017, combined with our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus~~21% recognized during the three months ended September 30, ~~2017,~~2023 were ~~$1,340 and $224, respectively. Excluding revenues that were generated~~negatively impacted by ~~our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 from the three months ended September 30, 2016.~~

~~Revenues~~unfavorable margins from our ~~U.S.~~lending and trading activities and negative margins from our Sentinum cryptocurrency mining segment due to the significant increase in Bitcoin mining difficulty level. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, ~~increased by 130.5% to $2,877~~our adjusted gross margins for the three months ended September 30, ~~2017, from $1,248~~2023 and 2022 would have been 31% and 25%, respectively.

Research and Development

Research and development expenses increased by $1.2 million for the three months ended September 30, ~~2016.~~ ~~As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of Microphase~~2023, due to expenditures related to development work on ROI’s BitNile metaverse platform.

Selling and ~~Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operations would have been $1,313,~~Marketing

Selling and marketing expenses were $8.0 million for the three months ended September 30, 2023, compared to $7.4 million for the three months ended September 30, 2022, an increase of ~~5.2%~~$0.6 million, or 8%. The increase ~~in revenues from our U.S. operations is attributed~~was primarily the result of higher advertising and promotion costs related to ~~the recognition of $109 in revenue from the MLSE $50 million purchase order contract which was~~ROI’s BitNile metaverse platform, partially offset by a ~~slight decrease~~decline in ~~sales~~employee related costs and consulting expenses.

General and Administrative

General and administrative expenses were $17.8 million for the three months ended September 30, 2023, compared to $15.4 million for the three months ended September 30, 2022, an increase of ~~our legacy products. The recognition of revenue~~$2.4 million, or 16%. General and administrative expenses increased from the ~~MLSE contract~~comparative prior period, mainly due to increases from new acquisitions:

general and administrative costs of $2.2 million from ROI, which was acquired in March 2023;

general and administrative costs of $2.0 million from Circle 8, which was acquired in December 2022; and

general and administrative costs of $0.7 million from GIGA, which was acquired in September 2022.

The increases above were partially offset by a $2.4 million decrease performance bonus related to realized gains on trading activities.

Impairment of Property and Equipment

During the three months ended September 30, 2023, we recognized an impairment charge of $3.9 million related to property and equipment at ROI’s Agora and Bitstream Bitcoin mining operations as they have been unable to commence Bitcoin mining operations, either for themselves or from others through hosting arrangements.

Impairment of Deposit Due to Vendor Bankruptcy Filing

During the three months ended September 30, 2022, Compute North Holdings, Inc. (along with its affiliated debtors, collectively, “Compute North”), filed for chapter 11 bankruptcy protection. We had a deposit of approximately $2.0 million with Compute North for services yet to be performed by Compute North. We assessed this financial exposure and recorded an impairment of the deposit totaling $2.0 million during the three months ended September 30, ~~2017, represents the first revenues recognized from this contract, which is expected to extend over several years.~~

~~Revenues from our European operation in Gresham, U.K. (“DP Limited”) decreased by $235 to $343~~2022.

Impairment of Mined Cryptocurrency

Impairment of mined cryptocurrency for the three months ended September 30, ~~2017, from $578~~2023 and 2022 was $0.1 million and $0.5 million, respectively. Impairment losses are attributable to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods. The impairment of mined cryptocurrency for the three months ended September 30, ~~2016, a decrease~~2023 is lower than the comparable prior year period as the average amount 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~~digital currency held decreased ~~to 34.0% for~~during the three months ended September 30, ~~2017 compared to 38.5%~~2023 as we generally sold our mined digital currency the next business day.

Other Expense, Net

Other expense, net was $6.2 million for the three months ended September 30, ~~2016. The decrease in gross margins was mainly attributable~~2023, compared to the decrease in sales from our European operations combined with slightly lower margins of 34.5% generated by our Microphase and Power-Plus subsidiaries. As the Company integrates its recent acquisitions of Microphase and Power-Plus, it expects that gross margins from its U.S. based operations will be fairly consistent among the three companies.

~~Engineering and Product Development~~

~~Engineering and product development expenses increased by $159 to $306~~$0.9 million for the three months ended September 30, ~~2017 from $147~~2022.

Interest and other income was $0.3 million for the three months ended September 30, ~~2016. The increase is partly attributed~~2023, compared to our acquisition of Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarily related to an increase in direct manpower cost from the addition of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.

~~Selling and Marketing~~

~~Selling and marketing expenses were $423~~$0.7 million for the three months ended September 30, ~~2017 compared~~2022. The decrease in interest and other income is primarily due to ~~$235~~the decline in ADRT’s cash and marketable securities held in the trust account as a result of redemptions that occurred in June 2023.

Interest expense was $4.4 million for the three months ended September 30, ~~2016, an increase of $188. Our acquisition of Microphase and Power-Plus accounted~~2023, compared to $2.4 million for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed to an increase in personnel costs directly attributed to sales and marketing personnel at the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the three months ended September 30, ~~2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses~~2022. Interest expense increased due to ~~the significant amount~~higher levels 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,borrowing 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 attributed2023 as compared to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.

~~General and Administrative~~

~~General and administrative expenses were $1,685 for~~ the three months ended September 30, 2017 compared to $404 for the three months ended September 30, 2016, an increase of $1,281. Our acquisition of Microphase accounted for $410 of the increase in general and administrative expenses. The adjusted increase of $871 from the comparative prior period was mainly due to higher stock based compensation expenses, an increase in legal and audit costs, an increase in investor relationship costs and hiring of additional consultants to build an infrastructure in anticipation of our future growth and the allocation of our Chief Executive Officer’s salary to general and administrative expense. The remaining increase in general and administrative expenses is due to various costs, none of which are significant individually.

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

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

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

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

2023. Interest ~~(expense) income, net~~

~~Interest expense, net was $753 for the three months ended September 30, 2017 compared to income of $23 for the three months ended September 30, 2016. The increase in interest~~ expense for the three months ended September 30, ~~2017 is primarily related to debt discount, in the aggregate amount~~2023 included contractual interest of $669, resulting from the issuance of warrants in conjunction 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 the$3.3 million, amortization of debt discount of $0.6 million, and ~~debt financing costs. The remaining increase in interest expense, net, was due to an increase in the amount~~forbearance and extension fees 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.$0.5 million. Interest expense ~~was partially offset by interest income and the accretion of original issue discount pursuant to the~~ ~~Loan and Security Agreement~~ ~~entered into on~~ ~~September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”~~) ~~of $141.~~

~~Operating Loss~~

~~The Company recorded an operating loss of $1,318~~ for the three months ended September 30, ~~2017 compared to an operating~~2022 consisted primarily of contractual interest.

The $1.5 million loss on extinguishment of ~~$83~~debt for the three months ended September 30, ~~2016.~~2023 related to the August 2023 exchange of preferred stock liabilities for secured notes. The ~~increase in operating loss is mostly attributable~~preferred stock liabilities were remeasured from their fair value prior to the ~~increase~~exchange to the fair value of ~~general and administrative expenses.~~

~~Net Loss~~

the secured notes at the date of the exchange.

Income Tax (Benefit) Provision

Benefit from income taxes was $0.6 million during the three months ended September 30, 2023 compared to a provision of $0.1 million during the three months ended September 30, 2022. The ~~Company recorded a net loss of $2,071~~effective income tax benefit rate was 2.0% for the three months ended September 30, ~~2017~~2023 as compared to a ~~net loss~~provision of ~~$38~~1.8% for the three months ended September 30, ~~2016 as a result~~2022.

Results of Operations for the ~~aforementioned changes. After taking into consideration~~Nine Months Ended September 30, 2023 and 2022

The following table summarizes the ~~loss attributable to the non-controlling interest~~results of ~~the minority shareholders of Microphase, the net loss attributable to the Company was $1,967 and 38 respectively.~~

~~NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2016~~

~~Revenues~~

~~Our revenues increased by $1,067 or 19% to $6,670~~our operations for the nine months ended September 30, ~~2017, from $5,603~~2023 and 2022.

	For the Nine Months Ended September 30,
	2023			2022

Revenue	$	54,594,000		$	43,539,000
Revenue, cryptocurrency mining		23,273,000			11,398,000
Revenue, crane operations		37,726,000			-
Revenue, lending and trading activities		4,337,000			32,224,000
Total revenue		119,930,000			87,161,000
Cost of revenue, products		39,248,000			30,985,000
Cost of revenue, cryptocurrency mining		28,057,000			12,206,000
Cost of revenue, crane operations		22,671,000			-
Cost of revenue, lending and trading activities		1,180,000			-
Total cost of revenue		91,156,000			43,191,000
Gross profit		28,774,000			43,970,000
Total operating expenses		131,201,000			72,120,000
Loss from operations		(102,427,000	)		(28,150,000	)
Other income (expense):
Interest and other income		3,888,000			1,255,000
Interest expense		(30,537,000	)		(32,063,000	)
Loss on extinguishment of debt		(1,700,000	)		-
Realized and unrealized (loss) gain on marketable securities		(170,000	)		1,016,000
Loss from investment in unconsolidated entity		-			(924,000	)
Impairment of equity securities		(9,555,000	)		-
(Loss) gain on the sale of fixed assets		2,728,000			-
Change in fair value of warrant liability		2,655,000			(27,000	)
Total other expense, net		(32,691,000	)		(30,743,000	)
Loss before income taxes		(135,118,000	)		(58,893,000	)
Income tax provision		540,000			361,000
Net loss from continuing operations		(135,658,000	)		(59,254,000	)
Net income (loss) from discontinued operations		(5,862,000	)		(3,614,000	)
Net loss		(141,520,000	)		(62,868,000	)
Net loss attributable to non-controlling interest		10,420,000			1,061,000
Net loss attributable to Ault Alliance, Inc.		(131,100,000	)		(61,807,000	)
Preferred dividends		(963,000	)		(239,000	)
Net loss available to common stockholders	$	(132,063,000	)	$	(62,046,000	)
Comprehensive loss
Net loss available to common stockholders	$	(132,063,000	)	$	(62,046,000	)
Other comprehensive loss
Foreign currency translation adjustment		(1,001,000	)		(1,452,000	)
Other comprehensive loss		(1,001,000	)		(1,452,000	)
Total comprehensive loss	$	(133,064,000	)	$	(63,498,000	)

Revenues

Revenues by segment for the nine months ended September 30, ~~2016.~~ 2023 and 2022 were as follows:

	For the Nine Months Ended September 30,				Increase
	2023		2022		(Decrease)			%
GIGA	$	27,723,000	$	21,530,000	$	6,193,000			29	%
TurnOnGreen		2,766,000		3,853,000		(1,087,000	)		-28	%
SMC		21,939,000		17,114,000		4,825,000			28	%
Sentinum
Revenue, cryptocurrency mining		23,273,000		11,398,000		11,875,000			104	%
Revenue, commercial real estate leases		1,116,000		822,000		294,000			36	%
Fintech:
Revenue, lending and trading activities		4,337,000		32,224,000		(27,887,000	)		-87	%
Other		63,000		220,000		(157,000	)		-71	%
Energy		38,713,000		-		38,713,000			—
Total revenue	$	119,930,000	$	87,161,000	$	32,769,000			38	%

GIGA

The $6.2 million increase in our GIGA segment revenue ~~was primarily due~~for the nine months ended September 30, 2023 included $1.6 million attributable to our acquisition of ~~56.4%~~ Giga-tronics Incorporated on September 8, 2022. Continued conflicts and tensions worldwide are driving defense-related investments in force protection technologies at GIGA across the United States, UK, Europe, Asia, and the Middle East. Additionally, demand for key electronics solutions, particularly for customers in medicine and telecommunications, accelerated in the nine months ended September 30, 2023.

TurnOnGreen

TurnOnGreen revenues were down $1.1 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to the cancellation of large projects that contributed to revenue in 2022.

SMC

SMC revenues increased by $4.8 million primarily due to the acquisition of SMC in June 2022.

Sentinum

Revenues from Sentinum’s cryptocurrency mining operations increased $11.9 million as we increased our cryptocurrency mining activities from the prior period, partially offset by 17% lower average Bitcoin prices and a 66% increase in average Bitcoin mining difficulty level in the current year period.

Fintech

Revenues from our lending and trading activities were $4.3 million due to realized gains for the nine months ended September 30, 2023 from our investment portfolio. During the nine months ended September 30, 2022, Ault Lending generated income from realized gains from investments in marketable securities as well as shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions. Revenue from lending and trading activities for the nine months ended September 30, 2023 included an approximate $3.6 million unrealized loss from our investment in Alzamend. Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.

Revenues from our trading activities for the nine months ended September 30, 2023 included net losses on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.

Energy

Energy revenues increased by $38.7 million for the nine months ended September 30, 2023, due to the acquisition of the ~~outstanding equity interests~~Circle 8 crane operations in December 2022.

Gross Margins

Gross margins decreased to 24% for the nine months ended September 30, 2023, compared to 50% for the nine months ended September 30, 2022. Our gross margins of ~~Microphase~~ ~~on June 2, 2017, combined with our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus~~24% recognized during the nine months ended September 30, ~~2017,~~2023 were ~~$1,563 and $224, respectively. Excluding revenues that were generated~~impacted by negative margins from 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~~Sentinum cryptocurrency mining segment due to ~~a decrease~~the decline in ~~revenues~~the price of Bitcoin coupled with an increase in Bitcoin mining difficulty level, offset by favorable margins from our ~~European operations.~~

~~Revenues~~lending and trading activities as compared to other segments. Excluding the effects of margin from our ~~U.S.~~lending and trading activities and cryptocurrency mining operations, ~~increased by $1,798, or 52.8%, to $5,206~~our adjusted gross margins for the nine months ended September 30, ~~2017, from $3,408~~2023 and 2022 would have been 32% and 29%, respectively.

Research and Development

Research and development expenses increased by $3.5 million 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~~2023, primarily due to expenditures related to development work on ROI’s BitNile metaverse platform.

Selling 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 $50Marketing

Selling and marketing expenses were $26.4 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~~2023, compared to $20.9 million for the nine months ended September 30, ~~2016, a decrease~~2022, an increase of ~~33.3%~~$5.5 million, or 26%. The ~~decrease~~increase was ~~primarily~~the result of $6.4 million higher advertising and promotion costs related to ROI’s BitNile metaverse platform, partially offset by a $2.6 million decline in employee related costs and consulting expenses. The increase is also attributable to ~~a decrease of military and commercial products~~$1.5 million increases in sales and ~~the impact of a weakening of the British Pound~~marketing costs from SMC, which was acquired in June 2022.

General and Euro against the USD. The decline in commercial product sales was mainly attributed to standard commodity products. The decline in military product sales was attributed to technical changes in the design of one of our development contracts.

~~Gross Margins~~

~~Gross margins increased to 38.0% for the nine months September 30, 2017 compared to 37.1%~~Administrative

General and administrative expenses were $59.5 million for the nine months ended September 30, ~~2016. The increase in gross margins was mainly attributable~~2023, compared 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~~$44.4 million for the nine months ended September 30, ~~2017~~2022, an increase of $15.2 million, or 34%. General and administrative expenses increased from ~~$511~~the comparative prior period, mainly due to increases from new acquisitions:

general and administrative costs of $8.4 million from Circle 8, which was acquired in December 2022;

general and administrative costs of $5.3 million from SMC, which was acquired in June 2022;

general and administrative costs of $5.3 million from ROI, which was acquired in March 2023;

general and administrative costs of $4.3 million from GIGA, which was acquired in September 2022; and

general and administrative costs of $1.2 million from AVLP, which was acquired in June 2022.

The increases above were partially offset by the following decreases in general and administrative expenses:

$6.5 million lower performance bonus related to realized gains on trading activities; and

$2.4 million lower corporate legal fees.

Impairment of AVLP Goodwill and Intangible Assets

Goodwill

We test the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. We performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators of impairment related to certain unforeseen business developments and changes in financial projections.

The valuation of the AVLP reporting unit was determined using a market and income approach methodology of valuation.

The income approach was based on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of capital analysis. The market approach utilized the guideline public company method.

The results of the quantitative test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment charge during the nine months ended September 30, 2023.

Intangible Assets

The tradenames and patents/developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates of 18% for patents and developed technology and 0.25% for trademarks. The resulting net annual royalty payments are then discounted to present value using a discount factor of 25.7%.

Impairment of Property and Equipment

During the nine months ended September 30, 2023, we recognized an impairment charge of $3.9 million related to property and equipment at ROI’s Agora and Bitstream Bitcoin mining operations as they have been unable to commence Bitcoin mining operations, either for themselves or from others through hosting arrangements.

Impairment of Deposit Due to Vendor Bankruptcy Filing

During the nine months ended September 30, 2022, Compute North filed for chapter 11 bankruptcy protection. We had a deposit of approximately $2.0 million with Compute North for services yet to be performed by Compute North. We assessed this financial exposure and recorded an impairment of the deposit totaling $2.0 million during the nine months ended September 30, 2022.

Impairment of Mined Cryptocurrency

Impairment of mined cryptocurrency for the nine months ended September 30, ~~2016.~~2023 and 2022 was $0.4 million and $2.9 million, respectively. Impairment losses are attributable to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods. The ~~increase is partly attributed to our acquisition~~impairment 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~~mined cryptocurrency for the nine months ended September 30, ~~2017 compared to $723~~2023 is lower than the comparable prior year period as the average amount of digital currency held decreased during the first half of 2023 as we generally sold our mined digital currency the next business day.

Other Expense, Net

Other expense, net was $32.7 million 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 attributed2023, compared 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~~$30.7 million for the nine months ended September 30, ~~2017 compared to $1,115~~2022.

Interest and other income was $3.9 million 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 due2023, compared 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~~$1.3 million for the nine months ended September 30, ~~2017 compared~~2022. The increase in interest and other income is primarily due to higher interest rates resulting in higher income from ADRT’s cash and marketable securities held in the trust account as a result of ~~$85~~redemptions that occurred in June 2023.

Interest expense was $30.5 million for the nine months ended September 30, ~~2016. The increase in interest~~2023, compared to $32.1 million for the nine months ended September 30, 2022. 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 the2023 included amortization of debt discount of $18.2 million, forbearance and ~~debt financing costs. The remaining increase in~~extension fees of $7.3 million and contractual interest ~~expense, net, was due to an increase in the amount~~ of ~~the Company’s total borrowings.~~$5.0 million. 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~~2022 related primarily to ~~an operating~~amortization of debt discount of $26.4 million, contractual interest of $4.4 million, and forbearance and extension fees of $1.2 million.

The $1.5 million loss on extinguishment of ~~$272~~debt for the nine months ended September 30, ~~2016.~~2023 related to the August 2023 exchange of preferred stock liabilities for secured notes. The ~~increase~~preferred stock liabilities were remeasured from their fair value prior to the exchange to the fair value of the secured notes at the date of the exchange.

Loss from investment 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~~unconsolidated entity was $0 for the nine months ended September 30, ~~2017~~2023, compared to ~~a net loss of $187~~$0.9 million for the nine months ended September 30, ~~2016 as a result~~2022, representing our share of ~~the aforementioned changes. After taking into consideration the loss attributable~~losses from our equity method investment in AVLP prior to the ~~non-controlling interest~~June 1, 2022 acquisition.

Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at September 30, 2023 were $9.6 million.

Income Tax Provision

Provision for income taxes was $0.5 million during the three months ended September 30, 2023 compared to a provision of ~~the minority shareholders of Microphase and an income tax benefit that was recognized~~$0.4 million during the nine months ended September 30, ~~2016,~~2022. The effective income tax provision rate was 0.4% for the ~~net loss attributable~~nine months ended September 30, 2023 as compared to a provision of 0.6% for the ~~Company was $4,700~~nine months ended September 30, 2022.

Liquidity and ~~$165, respectively.~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

Capital Resources

On September 30, ~~2017,~~2023, excluding cash and cash equivalents from discontinued operations, we had cash and cash equivalents of ~~$314. This compares with~~$8.7 million (excluding restricted cash of $1.9 million), compared to cash and cash equivalents of ~~$996~~$7.9 million (excluding restricted cash of $0.7 million) at December 31, ~~2016.~~2022. The ~~decrease~~increase in cash and cash equivalents was primarily due to cash ~~used in~~provided by operating activities and ~~investing activities in excess of funds~~cash provided by financing ~~activities.~~

activities related to the sale of common and preferred stock, as well as proceeds from convertible notes partially offset by the payment of debt, purchases of property and equipment and investments in equity securities.

Net cash used in operating activities totaled ~~$1,577~~$2.2 million for the nine months ended September 30, ~~2017,~~2023, compared to net cash provided by operating activities of ~~$138~~$21.9 million for the nine months ended September 30, ~~2016. During~~2022. Cash used in operating activities for the nine months ended September 30, ~~2017, the decrease in~~2023 included $71.2 million net cash provided by marketable securities from trading activities related to the operations of Ault Lending and $21.3 million proceeds from the sale of cryptocurrencies from our Sentinum Bitcoin mining operations, offset by operating losses and changes in working capital. Net cash used in operating activities ~~compared to~~for the nine months ended September 30, 2016 was mainly due to the September 30, 2017 nine months loss of $4,916. The net loss was partially offset by non-cash charges, the amortization of debt discount of $1,239 and stock-based compensation of $1,269, an increase2023 included $3.6 million cash used in ~~accounts payable and accrued expenses of $2,083 and decreases in our accounts receivable of $737 and other current liabilities of $595.~~

operating activities from discontinued operations.

Net cash used in investing activities was ~~$4,384~~$22.9 million for the nine months ended September 30, ~~2017~~2023, compared to ~~$12~~$115.4 million for the nine months ended September 30, 2022, which included $80.1 million of ~~net~~capital expenditures, primarily for Bitcoin mining equipment. Net cash ~~provided by~~used in investing activities for the nine months ended September 30, ~~2016. The increase of the net usage of cash from investing activities~~2023 was primarily related to ~~the investment in AVLP, loans to third parties~~$8.7 million capital expenditures and the $10.7 million purchase of ~~Power-Plus.~~

equity securities, partially offset by proceeds from the sale of fixed assets of $4.5 million. Net cash used in investing activities for the nine months ended September 30, 2023 included $6.1 million cash used in investing activities from discontinued operations.

Net cash provided by financing activities was ~~$5,194 and nil~~$23.8 million for the nine months ended September 30, ~~2017 and 2016, respectively. The~~2023, compared to net cash provided by financing activities ~~related~~of $86.1 million for the nine months ended September 30, 2022, and primarily reflects the following transactions:

2022 Common ATM Offering – During the nine months ended September 30, 2023, we sold an aggregate of 0.1 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $4.2 million and effective March 17, 2023, the 2022 Common ATM Offering was terminated;

2022 Preferred ATM Offering – During the nine months ended September 30, 2023, we sold an aggregate of 162,175 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $3.0 million and effective June 16, 2023, the 2022 Preferred ATM Offering was terminated;

2023 Common ATM Offering –On June 9, 2023, we entered into the 2023 Common ATM Offering with Ascendiant Capital. During the nine months ended September 30, 2023, we sold an aggregate of 10.8 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $21.2 million;

$58.1 million payments on notes payable, partially offset by $40.6 million proceeds from notes payable; and

$9.2 million proceeds from convertible notes payable, partially offset by $0.7 million payments on convertible notes payable.

Net provided by financing activities for the nine months ended September 30, 2023 included $5.2 million cash provided by financing activities from discontinued operations.

Financing Transactions Subsequent to September 30, 2023

Financing transactions subsequent to September 30, 2023 included the following:

2023 Common ATM Offering

During the period between October 1, 2023 through November 17, 2023, we sold an aggregate of 54.2 million shares of common stock pursuant to the ~~sale~~2023 Common ATM Offering for gross proceeds of ~~1,309,545~~$10.0 million.

Senior Secured Convertible Note, Related Party

On October 13, 2023 (the “Closing Date”), we entered into a note purchase agreement with Ault & Company, pursuant to which we sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”) and warrants (the “Warrants”) to purchase shares of our common stock for a total purchase price of up to $17.5 million (the “Transaction”).

The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to us since June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by us to Ault & Company in exchange for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25 million stated value of 125,000 shares of our Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to us.

The Note is convertible into shares of common stock at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.

The Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the Closing Date. The exercise price of the Warrants is $0.1837, which is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.

Series C Preferred Purchase Agreement, Related Party

On November 6, 2023, we entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which we agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million shares of common stock for ~~net proceeds~~a total purchase price of ~~$672,~~up to $50 million, of which up to $17.5 million of the ~~sale~~Note may be tendered for cancellation. The consummation of ~~Series B and~~the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of the Agreement, are subject to various customary closing conditions as well as regulatory and stockholder approval. In addition to customary closing conditions, the closing of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The SPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the SPA.

Series D Preferred Purchase Agreement, Related Party

On November 15, 2023, we purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price of ~~$1,540, gross proceeds~~$15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by us to ROI between January 1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033. In addition, for as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain our consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.

Critical Accounting Policies

Variable Interest Entities

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

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

The Company evaluates its business relationships with related parties to identify potential VIEs under ASC 810, Consolidation. The Company consolidates VIEs in which it is considered to be the primary beneficiary. Entities are considered to be the primary beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (ii) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Company’s ~~debt financings~~judgment with respect to its level of ~~$2,649, gross proceeds from advances~~influence or control of an entity involves the consideration of various factors including the form of its ownership interest, its representation in the entity’s governance, the size of its investment, estimates of future ~~receipts~~cash flows, its ability to participate in policy making decisions and the rights of ~~$1,772~~the other investors to participate in the decision making process and ~~payments on debt facilities of $626.~~

~~Historically,~~to replace the Company ~~has financed its operations principally through issuances~~as manager and/or liquidate the joint venture, if applicable.

Business Combination

We allocate the purchase price of ~~convertible debt, promissory notes~~an acquired business to the tangible and ~~equity securities. During 2017, as reflected below,~~intangible assets acquired and liabilities assumed based upon their estimated fair values on the ~~Company continues to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:~~

~~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.~~

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

~~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.~~

profit or loss.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Our principal executive officer and principal financial officer, with the assistance of other members of the ~~Company'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~~ ~~and has determined that~~report. Based upon our ~~disclosure controls and procedures were not effective as~~evaluation, each of ~~June 30, 2017 due to certain material weaknesses as described herein.~~

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

~~(i)~~

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

~~(ii)~~

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

~~Planned Remediation~~

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

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

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

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

~~Changes in Internal Controls over Financial Reporting.~~

During the most recent fiscal quarter 2017 there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

~~PART II — OTHER INFORMATION~~

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

~~None~~

~~ITEM 1A.~~

~~RISK FACTORS~~

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

If We Fail to Establish and Maintain an Effective System of Internal Control, We May Not Be Able to Report Our Financial Results Accurately or Prevent Fraud. Any Inability to Report and File Our Financial Results Accurately and Timely Could Harm Our Reputation and Adversely Impact the Trading Price of Our Common Stock.

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have also experienced complications reporting as a result of material weaknesses which resulted in the restatement of our ~~Form 10-Q for the quarterly period ended June 30, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on August 21, 2017, and amended on November 14, 2017. We have carried out an evaluation under the supervision and with the participation of our management, including~~ our principal executive officer and principal financial officer ofhas concluded that the ~~effectiveness of the design and operation of our disclosure controls and procedures~~Company’s internal control over financial reporting was not effective as of the end of the ~~most recent~~ period covered by this ~~report. Based~~Quarterly Report on Form 10-Q because the ~~foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were~~Company has not ~~effective at the reasonable assurance level due to~~yet completed its remediation of the material ~~weaknesses described below.~~

~~A material~~ weakness ~~is a deficiency, or a combination~~previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, the end of ~~deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”~~) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. its most recent fiscal year.

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

weaknesses:

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

2.3.

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

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

~~We have taken steps~~

Planned Remediation

Management continues to work to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding our IT systems and applications. Management will continue to implement measures to remediate ~~some~~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 ~~weaknesses described~~ above, ~~including a greater level of involvement by our Audit Committee. We intend to~~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;

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

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

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

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

Changes in Internal Controls over Financial Reporting.

Except as ~~resources permit.~~

detailed above, during the fiscal quarter ended September 30, 2023, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Litigation Matters

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

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

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

ITEM 1A.

RISK FACTORS

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

From July ~~7, 2017, the Company entered into an asset purchase agreement to acquire the intellectual property of Coolisys.com, in consideration for, in part, 50,000~~1, 2023 through September 30, 2023, Ault Alpha LP purchased 147,000 shares of common stock. Ault Alpha LP may be deemed to be an “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended. The ~~seller of the intellectual property and purchaser of the common stock was an accredited investor.~~

~~On August 16, 2017, the Company approved the issuance and sale of (i) 272,727~~purchases were made through open market transactions.

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs
July 1, 2023 – July 31, 2023		147,000	$	4.22
August 1, 2023 – August 31, 2023		-	$	-
September 1, 2023 – September 30, 2023		-	$	-
Total		147,000	$	4.22		-		-

From July 1, 2023 through September 30, 2023, Ault Alpha LP purchased 9,500 shares of our common stock at a purchase price equal to $0.55 per share and (ii) warrants to purchase up to 272,727 shares of our common stock at $0.65 per share, which become exercisable six months after the issuance date, to two accredited investors for an aggregate purchase price of $150. The shares have yetseries 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.~~

~~In addition, on September 9, 2017, the Company approved the issuance~~Securities Exchange Act of ~~100,000 shares of our common stock to Spartan Capital for capital advisory services. Spartan Capital is an accredited investor.~~1934, as amended. The ~~shares of common stock have yet to be issued by the Company and are subject to approval from the NYSE American prior to issuance.~~

On October 5, 2017, Ault & Company purchased 75,000 shares of our common stock at $0.60 per share and a warrant to purchase up to 75,000 shares of our common stock at $0.60 per share for an aggregate purchase price of $45. These shares and warrants have yet to be issued by the Company and are subject to approval from the NYSE American prior to issuance. Ault & Company is controlled by Mr. Milton Ault, our Executive Chairman.

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

made through open market transactions.

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs
July 1, 2023 – July 31, 2023		9,500	$	15.50
August 1, 2023 – August 31, 2023		-	$	-
September 1, 2023 – September 30, 2023		-	$	-
Total		9,500	$	15.50		-		-

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

~~None~~

Not applicable.

ITEM 5.

OTHER INFORMATION

~~None~~

On November 15, 2023, we filed the certificate of designation of the Series C convertible preferred stock to be issued pursuant to the SPA entered into with Ault & Company on November 6, 2023. As of the date of this filing, no shares of Series C convertible preferred stock have been issued.

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 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.
3.6		Certificate of Elimination of the Series C convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on January 27, 2023 as Exhibit 3.1 thereto.
3.7		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.
3.8		Amended and Restated ~~Articles~~Bylaws, effective as of ~~Incorporation 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.

3.9		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.
3.10		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~~3.11		Certificate of Increase of the Designated Number of Shares of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 10, 2022. Incorporated by reference to the Current Report on Form 8-K filed on June 14, 2022 as Exhibit 3.1 thereto.
3.12		Certificate of Correction to the Certificate of Designation, Rights and Preferences of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 16, 2022. Incorporated by reference to the Current Report on Form 8-K filed on June 17, 2022 as Exhibit 3.1 thereto.
3.13		Certificate of Amendment to ~~Articles~~Certificate of Incorporation (1-for-300 Reverse Stock Split of ~~Digital Power Corporation (Incorporated~~Common Stock), dated May 15, 2023. Incorporated herein by reference to ~~Exhibit 3.2 of~~ the ~~Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 16, 1996)~~
~~3.3~~		~~Certificate of Amendment to Articles of Incorporation of Digital Power Corporation (Incorporated by reference to Exhibit 3.1 of the Company’s current report~~Current Report on Form 8-K filed ~~with the Securities and Exchange Commission~~ on ~~December 9, 2013)~~May 16, 2023 as Exhibit 3.1 thereto.
~~3.4~~3.14		~~Bylaws~~Certificate of ~~Digital Power Corporation (Incorporated~~Elimination of the Series E convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein 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)~~August 18, 2023 as Exhibit 3.1 thereto.
~~3.5~~3.15		Certificate of Elimination of the Series F convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on August 18, 2023 as Exhibit 3.2 thereto.
3.16		Certificate of Elimination of the Series G convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on August 18, 2023 as Exhibit 3.3 thereto.
3.17		Certificate of Elimination of the Series C convertible preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on October 12, 2023 as Exhibit 3.1 thereto.
3.18		Certificate of Designation of Preferences, Rights and Limitations of Series C ~~Certificate of Determination (Incorporated~~Cumulative Preferred Stock, filed November 15, 2023.
10.1		Amendment to At-The-Market Issuance Sales Agreement, dated July 12, 2023, with Ascendiant Capital Markets, LLC. 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)~~July 13, 2023 as Exhibit 10.1 thereto.
~~3.6~~10.2		Form of ~~Series D Certificate of Determination (Incorporated~~First Amendment and Joinder to Loan and Guarantee 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 3, 2017)~~July 20, 2023 as Exhibit 10.1 thereto.
~~3.7~~10.3		Form of ~~Series E Certificate of Determination (Incorporated~~Montana Security Agreement. 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)~~July 20, 2023 as Exhibit 10.2 thereto.
~~10.1~~10.4		~~Preferred Stock Purchase Agreement date March 9, 2017 between Digital Power Corporation, and Philou Ventures, LLC. (Incorporated~~Form of the Circle 8 Pledge. Incorporated by reference to ~~Exhibit 10.1 of~~ the ~~Company’s current report filed~~Current Report on Form 8-K ~~with the Securities and Exchange Commission~~filed on ~~March 9, 2017)~~July 20, 2023 as Exhibit 10.3 thereto.
31.1*10.5		Form of the Florida Mortgage Amendment. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.4 thereto.
10.6		Form of the Michigan Mortgage Amendment. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.5 thereto.
10.7		Form of Exchange Agreement. Incorporated by reference to the Current Report on Form 8-K filed on August 3, 2023 as Exhibit 10.1 thereto.
10.8		Form of Exchange Note. Incorporated by reference to the Current Report on Form 8-K filed on August 3, 2023 as Exhibit 4.1 thereto.
10.9		Form of Amended and Restated Assignment. Incorporated by reference to the Current Report on Form 8-K/A filed on August 16, 2023 as Exhibit 10.2 thereto.
10.10		Form of Guaranty. Incorporated by reference to the Current Report on Form 8-K filed on August 3, 2023 as Exhibit 10.3 thereto.
10.11		Form of Investor Agreement. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 10.1 thereto.
10.12		Form of 7.00% Senior Note due 2024. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 4.1 thereto.

10.13		Form of 8.50% Senior Note due 2026. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 4.2 thereto.
10.14		Form of 10.50% Senior Note due 2028. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 4.3 thereto.
10.15		Amendment to At-The-Market Issuance Sales Agreement, dated September 7, 2023, with Ascendiant Capital Markets, LLC. Incorporated by reference to the Current Report on Form 8-K filed on September 8, 2023 as Exhibit 10.1 thereto.
10.16		Form of Term Note. Incorporated by reference to the Current Report on Form 8-K filed on September 11, 2023 as Exhibit 4.1 thereto.
10.17		Form of Guaranty. Incorporated by reference to the Current Report on Form 8-K filed on September 11, 2023 as Exhibit 10.1 thereto.
10.18		Securities Exchange Agreement, dated September 27, 2023, by and between the Company and the Investor. Incorporated by reference to the Current Report on Form 8-K filed on September 28, 2023 as Exhibit 10.1 thereto.
10.19		Form of Note. Incorporated by reference to the Current Report on Form 8-K filed on September 28, 2023 as Exhibit 4.1 thereto.
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 and contained in Exhibit 101).

_______________________

		~~XBRL Taxonomy Extension Label Linkbase Document~~
101.PRE*	*	Filed herewith.
	**		~~XBRL Taxonomy Extension Presentation Linkbase Document~~Furnished herewith.

~~______________________~~

* 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~~

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)

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 30, ~~2017 (Unaudited)~~2023 and December 31, ~~2016 (Audited)~~ 2022	~~1-2~~F-1

		Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, ~~2017~~2023 and ~~2016 (Unaudited)~~ 2022	3F-3

		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022	F-4

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~ 2023 and ~~2016 (Unaudited)~~ 2022	~~4-5~~F-8

		Notes to ~~Interim~~ Condensed Consolidated Financial Statements ~~(Unaudited)~~	~~6 - 42~~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	5117

	Item 4.		Controls and Procedures	5117

PART II – OTHER INFORMATION

	Item 1.		Legal Proceedings	5219
	Item 1A.		Risk Factors	5219
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	5319
	Item 3.		Defaults Upon Senior Securities	5320
	Item 4.	~~Reserved~~	54
	~~Item 5.~~	~~Other Information~~	54
	~~Item 6.~~	~~Exhibits~~	55
		Mine Safety Disclosures	20
Item 5.		Other Information	20
Item 6.		Exhibits	20

☑x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended September 30, ~~2017~~2023

☐o	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

	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	%	$	—		—

Large accelerated filer ☐
o

Accelerated filer ☐
o

Non-accelerated filer☐
x

~~(Do not check if a smaller reporting company)~~

Smaller reporting company ☑
x

Emerging growth company ☐