We are offering 1,000,000 shares of our
10% Series A Cumulative Redeemable Perpetual Preferred Stock, which we refer to as the Series A Preferred Stock.
Dividends on the Series A Preferred Stock
are cumulative from the date of original issue and will be payable on the last day of each calendar month commencing on October
31, 2018 when, as and if declared by our board of directors. Dividends will be payable out of amounts legally available therefor
at a rate equal to 10% per annum per $25.00 of stated liquidation preference per share, or $2.50 per share of Series A Preferred
Stock per year. We will place proceeds equal to one year of dividends into a separate bank account to be used to pay Series A Preferred
Stock dividends.
Commencing on September 30, 2023, we may
redeem, at our option, the Series A Preferred Stock, in whole or in part, at a cash redemption price of $25.00 per share, plus
all accrued and unpaid dividends to, but not including, the redemption date. The Series A Preferred Stock has no stated maturity,
will not be subject to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable for any
of our other securities except under certain limited circumstances.
Holders of the Series A Preferred Stock
generally will have no voting rights except for limited voting rights if dividends payable on the outstanding Series A Preferred
Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods.
Our Common Stock currently trades on the
NYSE American, with the trading symbol “DPW.” There is no trading market for the Series A Preferred Stock. We intend
to apply to list the Series A Preferred Stock on the NYSE American under the symbol “DPWP.”
If we sell all 1,000,000 shares of Series
A Preferred Stock we are offering pursuant to this prospectus supplement, and assuming an offering price of $23.50 per share, we
will receive $23.5 million in gross proceeds and approximately $23 million in net proceeds, after deducting estimated offering
expenses payable by us.
See “Use of Proceeds” in this
prospectus supplement. We have engaged Prime Trust to act as escrow agent in connection with this offering. We expect the Series
A Preferred Stock will be ready for delivery in book-entry form through The Depositary Trust Company on or about October 15, 2018.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus supplement
and the accompanying prospectus, including the documents that we incorporate by reference herein and therein, contain forward-looking
statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act
of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could
be deemed forward-looking statements. These statements are based on our expectations, beliefs, forecasts, intentions and future
strategies and are signified by the words “expects,” “anticipates,” “intends,” “believes”
or similar language. In addition, any statements that refer to projections of our future financial performance, our anticipated
growth, trends in our business and other characterizations of future events or circumstances are forward-looking statements. These
forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict,
including those identified above, under “Risk Factors” and elsewhere in this prospectus supplement. Therefore, actual
results may differ materially and adversely from those expressed in any forward-looking statements. All forward-looking statements
included in this prospectus supplement are based on information available to us on the date of this report and speak only as of
the date hereof.
We disclaim any current
intention to update its “forward-looking statements,” and the estimates and assumptions within them, at any time or
for any reason. In particular, the following factors, among others, could cause actual results to differ materially from those
described in the “forward-looking statements:” (a) our continued operating and net losses in the future; (b) our
need for additional capital for our operations and to fulfill our business plans, (c) dependency on our ability, and the ability
of our contract manufacturers, to timely procure electronic components; (d) the potential ineffectiveness of our strategic focus
on power supply solution competencies; (e) dependency on developer partners for the development of some of our custom design products;
(f) dependency on sales of our legacy products for a meaningful portion of our revenues; (g) the possible failure of our custom
product development efforts to result in products which meet customers’ needs or such customers’ failure to accept
such new products; (h) our ability to attract, retain and motivate key personnel; (i) dependence on a few major customers; (j)
dependence on the electronic equipment industry; (k) reliance on third-party subcontract manufacturers to manufacture certain aspects
of the products sold by us; (l) reduced profitability as a result of increased competition, price erosion and product obsolescence
within the industry; (m) our ability to establish, maintain and expand its OEM relationships and other distribution channels; (n)
our inability to procure necessary key components for its products, or the purchase of excess or the wrong inventory; (o) variations
in operating results from quarter to quarter; (p) dependence on international sales and the impact of certain governmental regulatory
restrictions on such international sales and operations; and other risk factors included in our most recent filings with the SEC,
including, but not limited to, our Forms 10-K, 10-Q and 8-K. All filings are also available on our website at
www.dpwholdings.com
.
PROSPECTUS SUPPLEMENT SUMMARY
This summary does
not contain all the information that you should consider before investing in the securities offered by this prospectus supplement.
You should carefully read the entire prospectus supplement and the accompanying prospectus, including the “Risk Factors”
sections, as well as the financial statements and the other information incorporated by reference herein and the information in
any free writing prospectus that we may authorize for use in connection with this offering before making an investment decision.
Company Overview
We are a growth
company seeking to increase our revenues through acquisitions. Our strategy reflects our management and Board’s current philosophy
which we began implementing upon the change in control that was completed in September 2016. Our acquisition and development target
strategy include companies that have developed a “new way of doing business” in mature, well-developed industries experiencing
changes due to new technology; companies that may become profitable or more profitable through efficiency and reduction of costs;
companies whose business is related to our core business in the commercial and defense industries; and companies that will enhance
our overall revenues. It is our goal to substantially increase our gross revenues in the near future.
We operate as a holding
company with operations conducted primarily through our subsidiaries. We conduct our activities in a manner so as not to be deemed
an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Generally,
this means that we do not invest or intend to invest in securities as our primary business and that no more than 40% of our total
assets will be invested in investment securities as such term is defined in the Investment Company Act.
We
are a diversified holding company owning subsidiaries engaged in the following operating businesses: commercial and defense solutions,
commercial lending, cryptocurrency blockchain mining, advanced textile technology and restaurant operations.
We also maintain
a large investment in Avalanche International, Corp. (“Avalanche”),
which is doing business
as MTIX International.
Originally, we
were primarily a solution-driven organization that designed, developed, manufactured and sold high-grade customized and flexible
power system solutions for the medical, military, telecom and industrial markets. Although we are actively seeking 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 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, DPW Holdings 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 range in duration from six months to three years, DP Lending operates under California Finance
Lending License #60DBO-77905.
On June 2, 2017, DPW
Holdings purchased 56.4% of the outstanding equity interests of Microphase Corporation (“Microphase”). Microphase is
a design-to-manufacture original equipment manufacturer (“OEM”) industry leader delivering world-class radio frequency
(“RF”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector
logarithmic video amplifiers (“DLVA”) to the military, aerospace and telecommunications industries. Microphase is headquartered
in Shelton, Connecticut.
On April 25, 2017,
DPW Holdings formed Coolisys Technologies, Inc. (“Coolisys”), a wholly-owned subsidiary. We intend to operate our existing
businesses in the customized and flexible power system solutions in Coolisys and as such we plan to reorganize Digital Power North
American operations, Digital Power Ltd. (“Gresham Power”), and Microphase Corporation into subsidiaries of Coolisys.
DP Limited will continue to primarily serve the European markets.
Further,
on September 1, 2017, Coolisys acquired all of the outstanding membership interests in Power-Plus Technical Distributors, LLC,
a California limited liability company (“Power-Plus”). Power-Plus is an industrial distributor of value added power
supply solutions, UPS systems, fans, filters, line cords, and other power-related components. In addition to its current business,
Power-Plus will serve as an extended sales organization for our overall flexible power system solutions. As a result of the acquisition,
Power Plus Technical Distributors has become a subsidiary of Coolisys.
On December 28, 2017,
at the Annual Meeting of Shareholders of DPW Holdings, Inc., then known as Digital Power Corporation, our shareholders approved
a number of proposals, including our reincorporation from California to Delaware (“Reincorporation”). The effective
date of the Reincorporation was December 29, 2017. Upon consummation of the Reincorporation, we continued our daily business
operations as they were conducted by our predecessor, Digital Power Corporation, immediately prior to the Reincorporation and the
officers and directors of our predecessor became our officers and directors, except that Milton C. Ault III became our Chief Executive
Officer but Amos Kohn remained as our President. The Reincorporation did not affect any of our material contracts with any third
parties, and our rights and obligations under such material contractual arrangements continue to be our rights and obligations
after the Reincorporation. The Reincorporation did not result in any change in our headquarters, business, jobs, management, location
of any of our offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs
incident to the Reincorporation).
On December 31, 2017,
CooliSys entered into a Share Purchase Agreement (the “Enertec Agreement”) with Micronet Enertec Technologies, Inc.
(“MICT”), a Delaware corporation, Enertec Management Ltd., an Israeli corporation and wholly owned subsidiary of MICT
(“EML” and, together with MICT, the “Seller Parties”), and Enertec Systems 2001 Ltd. (“Enertec”),
an Israeli corporation and wholly owned subsidiary of EML, pursuant to which Coolisys would acquire Enertec, subject to the terms
and conditions set forth in the Enertec Agreement. The purchase price consisted of a cash payment of $5,250,000 and the assumption
of $4,000,000 in Enertec’s liabilities, with the cash portion to be adjusted for any increase or decrease of the $4,000,000
in liabilities. Enertec designs, develops, manufactures, and supplies various customized military computer-based systems for missile
defense systems, command and control equipment, and other various weapon systems. Enertec also develops and manufactures specialized
electronic systems, including fully-automated testing equipment for cardiovascular medical calibration devices, for the healthcare
industry. On May 23, 2018, Coolisys acquired Enertec subject to the terms and conditions set forth in the Enertec Agreement (the
“Acquisition”) for an aggregate purchase price of $5,250,000, which includes a deduction of (i) a closing debt of $288,438
in excess of the Allowed Company Debt to be assumed by us (as defined in the Enertec Agreement) of $4,000,000 and (ii) $189,041
in Intercompany Accounts (as defined in the Enertec Agreement) for a total cash payment of $4,772,521.
In
January 2018, we formed Super Crypto Mining, Inc. (“SC Mining”), a wholly-owned subsidiary. SC Mining was established
to operate our newly formed cryptocurrency business, which is pursuing a variety of digital currency. We are mining the top three
cryptocurrencies, Bitcoin, Litecoin and Ethereum, for our own account.
On
January 23, 2018, we reached preliminary agreement on the terms to govern the acceptance of delivery of the purchase order conveying
to us the right to acquire 1,000 Antminer S9s (the “Bitmain Miners”) manufactured by Bitmain Technologies, Inc. (the
“Bitmain”), in connection with our cryptocurrency mining operations, or crypto mining. Pursuant to a purchase order
delivered on behalf of Bitmain to us, on January 31, 2018 we paid approximately $5,000,000 to Bitmain for the Bitmain Miners.
We received delivery of the Bitmain Miners on February 1, 2018.
On
January 23, 2018, we entered into a securities purchase agreement with an institutional investor to sell, for an aggregate purchase
price of $1,000,000, a 10% senior convertible promissory note (the “Note”) with an aggregate principal face amount
of $1,250,000, a warrant to purchase an aggregate of 625,000 shares of our common stock and 543,478 shares of our common stock.
The transactions contemplated by the Securities Purchase Agreement closed on February 8, 2018. The Note is convertible into
625,000 shares of our common stock, a conversion price of $2.00 per share, subject to adjustment. The exercise price of the warrant
to purchase 625,000 shares of our common stock is $2.20 per share, subject to adjustment. On February 9, 2018, in addition to the
543,478 shares of common stock provided for pursuant to the Securities Purchase Agreement, we issued to the investor an aggregate
of 691,942 shares of our common stock upon the conversion of the entire outstanding principal and accrued interest on the Note
of $1,383,884.
On January 25, 2018,
we issued two 5% promissory notes (collectively, the “Notes”), each in the principal face amount of $2,500,000 for
an aggregate debt of $5,000,000 to two institutional investors. The entire unpaid balance of the principal and accrued interest
on each of the Notes is due and payable on February 23, 2018, subject to a 30-day extension available to us.
The
proceeds from these two
promissory notes were used to purchase
1,000 Antminer S9s
(“Miners”) manufactured by Bitmain Technologies, Inc. in connection with our crypto mining operations. Between March
23 and March 27, 2018, we paid the entire outstanding principal and accrued interest on the Notes of $5,101,127.
On
February 20, 2018, we issued a promissory note in the principal face amount of $900,000 to an accredited investor. This promissory
note
included an original issue discount (“OID”) of $150,000 resulting in net proceeds of $750,000.
The
principal and OID on this note was due and payable on March 22, 2018. On March 23, 2018, we entered into a new promissory note
in the principal amount of $1,750,000 for a term of two months, subject to our ability to prepay within one month.
The interest
rate payable on this new promissory note shall be twenty percent per thirty calendar days, payable in a lump sum on the maturity
date.
We also issued to the lender a warrant to purchase 1,250,000 shares of our common stock
at an exercise price of $1.15 per share, pursuant to a consulting agreement.
The principal amount of the new promissory
note consisted of net proceeds of $1,000,000 and the cancellation of the principal of $750,000 from the February 20, 2018 promissory
note. The interest on the February 20, 2018 note in the amount of $150,000 was paid to the lender prior to entering into the new
promissory note. On April 23, 2018, we paid
the entire outstanding principal and accrued
interest on the new promissory note of $2,100,000
.
On
February 26, 2018, we issued a 10% promissory note in the principal face amount of $330,000 to an accredited investor. This promissory
note
included an OID of $30,000 resulting in net proceeds to us of $300,000.
The principal
and accrued interest on this note is due and payable on April 12, 2018, subject to a 30-day extension available to us. This 10%
promissory note was paid on April 27, 2018
On February 27, 2018,
we entered into a Sales Agreement with H.C. Wainwright & Co., LLC (“HCW”) to sell shares of common stock having
an aggregate offering price of up to $50,000,000 (the “Shares”) from time to time, through an “at the market
offering” program (the “ATM Offering”) under which HCW will act as sales agent. The offer and sale of the Shares
will be made pursuant to our effective “shelf” registration statement on Form S-3 and an accompanying base prospectus
contained therein (Registration Statement No. 333-222132) filed with the SEC on December 18, 2017, amended on January 8, 2018,
and declared effective by the SEC on January 11, 2018, and a prospectus supplement related to the ATM Offering, dated February
27, 2018. Subject to the terms and conditions of the Sales Agreement, HCW will use its commercially reasonable efforts to sell
the Shares, based upon our instructions, consistent with its normal trading and sales practices and applicable state and federal
laws, rules and regulations and rules of the NYSE American. We will pay to HCW a commission in an amount equal to 5.0% of the gross
sales price per Share sold through the ATM Offering as sales agent under the Sales Agreement. In addition, we have agreed to reimburse
HCW for certain expenses it incurs in the performance of its obligations under the Sales Agreement up to a maximum of $60,000 and
$5,000 each calendar quarter. We sent HCW a notice terminating the Sales Agreement on September 13, 2018, which termination will
take effect on September 23, 2018.
On March
8, 2018, SC Mining, entered into an Asset Purchase Agreement (the “APA”) with Blockchain Mining Supply & Services
Ltd. (“BMSS”). Pursuant to the APA, SC Mining has agreed to acquire 1,100 Antminer S9s (the “BMSS Miners”)
manufactured by Bitmain, in connection with SC Mining’s mining operations, from BMSS. Pursuant to the APA, SC Mining will
pay an aggregate of $3,272,500 to BMSS for the BMSS Miners, of which we have paid $1,718,125. We intend to fund the remaining balance
of $1,554,375, or approximately 48% of the aggregate purchase price, though the proceeds derived from our Series A Preferred Stock
described in this Prospectus Supplement.
On March 22, 2018,
SC Mining entered into a Master Services Agreement with a U.S. based entity, whereby SC Mining secured the right to 25 megawatts
of power in support of SC Mining’s operations.
On
March 23, 2018, we entered into a securities purchase agreement to sell and issue a 12% promissory note and a warrant to purchase
300,000 shares of common stock to an accredited investor
if the promissory note is paid in
full on or before May 23, 2018, or up to 450,000 shares of common stock, if the promissory note is paid by June 22, 2018.
The
promissory note was issued with a 10% OID. The promissory note is in the principal amount of $1,000,000 and was sold for $900,000,
bears interest at 12% simple interest on the principal amount, and is due on June 22, 2018. Interest only payments are due, in
arrears, on a monthly basis commencing on April 23, 2018. The exercise price of the warrant is $1.15 per share. The promissory
note is unsecured by any of our assets but is guaranteed by our Chief Executive Officer.
On
March 27, 2018, we issued a 10% promissory note in the principal face amount of $200,000 to an accredited investor
.
The
principal and accrued interest on this note was due and payable on March 29, 2018. Between March 29 and April 24, 2018, we paid
the entire outstanding principal on this 10% promissory note of $200,000.
On
April 16, 2018, we entered into securities purchase agreements with three institutional investors to sell, for an aggregate purchase
price of $1,550,000, 12% secured convertible promissory notes (“Convertible Notes”) with an aggregate principal face
amount of $1,722,222, warrants to purchase an aggregate of 993,588 shares of our common stock, and an aggregate of 200,926
shares of our common stock. The Convertible Notes bear simple interest at 12% on the principal amount with a guarantee of interest
during the initial six months in the amount of $103,333. Subject to certain beneficial ownership limitations and an event of default
having occurred and not been cured, the investors may convert the principal amount of the Convertible Notes and accrued interest
earned thereon into shares of our common Stock at $0.70 per share, subject to adjustment for customary stock splits, stock dividends,
combinations or similar events. Beginning on May 16, 2018, we are required to make six monthly cash payments in the aggregate amount
of $304,259 until the Convertible Notes are satisfied in full, which is to occur on October 16, 2018. The warrants entitle the
holders to purchase, in the aggregate, up to 993,588 shares of our common stock at an exercise price of $1.30 per share for a period
of five years subject to certain beneficial ownership limitations. In connection with these three securities purchase agreements,
we entered into security agreements pursuant to which we granted to each investor a security interest in, among others, SC Mining’s
accounts, chattel paper, documents, equipment, general intangibles, instruments and inventory, and all proceeds, as set forth in
the security agreements. On August 31, 2018, we paid the entire outstanding principal on these Convertible Notes.
On June 8, 2018, we
entered into a limited partnership agreement, in which we agreed to become a limited partner in the partnership (the “
NY
Partnership
”). The NY Partnership is a limited partner in the partnership that is responsible for the construction and
related activities of a hotel in New York City. In connection with this transaction, we agreed to finance a portion of the capital
required by the NY Partnership. We have invested $1,720,000 in the NY Partnership. Subject to the occurrence of certain events
and other conditions over which we have no control, we are required to make monthly capital contributions of $500,000 every thirty
days until our commitment is funded in full, which is expected to occur in January 2020. If we fail to make a monthly contribution
when due, then the other entities affiliated with the NY Partnership could potentially have the right to acquire fifty percent
(50%) of the capital contributions that we will have made to the NY Partnership at that time.
On
August 16, 2018, we entered into a securities purchase agreement with certain institutional investors providing for the issuance
of (i) secured promissory notes in the aggregate principal face amount of $1,212,000 due February 15, 2019, at an interest rate
of eight percent (8%) per annum for which we received an aggregate of $1,010,000 and (ii) an aggregate of 400,000 shares of common
stock to be issued by us, subject to approval of the NYSE American. We agreed that the 400,000 shares of common stock shall be
registered under the Securities Act of 1933, as amended, within fourteen (14) days after the date that the Securities and Exchange
Commission shall have declared our presently filed registration statement on Form S-3 (File No. 333-226301) effective.
Convertible
Notes Issued to an Institutional Investor
On
May 15, 2018 (the “May Closing Date”), we entered into a securities purchase agreement with an institutional investor
(the “Investor”) providing for the issuance of (i) a Senior Secured Convertible Promissory Note (the “May Convertible
Note”) with a principal face amount of $6,000,000 which May Convertible Note was, subject to adjustment, convertible into
6,000,000 shares (the “May Conversion Shares”) of our common stock at $0.75 per share; (ii) a five-year warrant to
purchase 1,111,111 shares of our common stock (the “Series A Warrant Shares”) at an exercise price of $1.35 (the “Series
A Warrant”); (iii) a five-year warrant to purchase 1,724,138 shares of the Company’s Class B common stock (the “Series
B Warrant Shares” and with the Series A Warrant Shares, the “Warrant Shares”) at an exercise price of $0.87 per
share (the “Series B Warrant” and together with the Series A Warrant, the “Warrants”); and (iv) 344,828
shares of our common stock (the “Commitment Shares”). The May Convertible Note matures on November 15, 2018.
Pursuant to an amendment dated as of the July Closing Date to the registration rights agreement entered into with the Investor
on the May Closing Date, we agreed to file a registration statement on Form S-3 to register the May Conversion Shares within twenty-one
(21) days of the July Closing Date. We may prepay the full outstanding principal and accrued and unpaid interest at any time without
penalty. Pursuant to an amendment dated as of the August Closing Date to the May Convertible Note issued to the Investor on the
May Closing Date, we reduced the conversion price to $0.40 from $0.75 (resulting in the number of May Conversion Shares increasing
to 15,000,000, extended the maturity date from November 15, 2018 to October 31, 2019 and amended the amortization schedule to provide
for 14 monthly payments until the maturity date.
On July 2, 2018 (the
“July Closing Date”), we entered into a securities purchase agreement with the Investor providing for the issuance
of (i) a Senior Secured Convertible Promissory Note (the “July Convertible Note” and with the May Convertible Note,
the “Convertible Notes”) with a principal face amount of $1,000,000 which July Convertible Note was, subject to adjustment,
convertible into 1,333,333 shares (the “July Conversion Shares”) of our common stock at $0.75 per share, (ii) an additional
400,000 Commitment Shares to be issued in connection with the May Convertible Note. The July Convertible Note matures on January
1, 2019 (the “Maturity Date”). Pursuant to a registration rights agreement entered into with the Investor on the July
Closing Date, we agreed to file a registration statement on Form S-3 to register the July Conversion Shares within twenty-one (21)
days of the Closing Date. We may prepay the full outstanding principal and accrued and unpaid interest at any time by paying additional
amounts on the principal and interest then outstanding. Pursuant to an amendment dated as of the August Closing Date to the July
Convertible Note issued to the Investor on the July Closing Date, we reduced the conversion price to $0.40 from $0.75 (resulting
in the number of July Conversion Shares increasing to 2,500,000. The July Conversion Shares will not be issued to the Investor
until we shall have obtained approval of the NYSE American and our stockholders for the foregoing transactions.
On
August 31, 2018 (the “August Closing Date”), we entered into a Securities Purchase Agreement (the “Agreement”)
with the Investor providing for the issuance of a Senior Secured Convertible Promissory Note (the “August Convertible Note”)
with a principal face amount of $2,000,000, which August Convertible Note is, subject to adjustment, convertible into 5,000,000
shares (the “July Conversion Shares”) of our common stock at $0.40 per share. Pursuant to a registration rights agreement
entered into with the Investor on the Closing Date, we agreed to file a registration statement on Form S-3 to register the August
Conversion Shares within twenty-one (21) days of the Closing Date, which date was amended on August 31, 2018 to state that the
filing date for such registration statement is 21 days after the above referenced registration statement relating to the Convertible
Notes has been declared effective. The August Conversion Shares will not be issued to the Investor until we shall have obtained
approval of the NYSE American and our stockholders for the foregoing transactions. We may prepay the full outstanding principal
and accrued and unpaid interest at any time by paying additional amounts on the principal and interest then outstanding.
Advances on
Future Receipts
During
the quarter ended March 31, 2018, we entered into a total of nine Agreements for the Purchase and Sale of Future Receipts (collectively,
the “Agreements on Future Receipts”) pursuant to which we sold up to $5,768,900 in our “future receipts”
for a purchase price in the amount of $4,100,000. The term “future receipts” means cash, check, ACH, credit card, debit
card, bank card, charge card or other form of monetary payment. The Agreements on future receipts have been personally guaranteed
by our Chief Executive Officer and in one instance has also been guaranteed by Philou Ventures, LLC (“Philou”). The
terms of the Agreements on future receipts are reflected below.
On January 10, 2018,
we entered into two Agreements for the Purchase and Sale of Future Receipts (together, the “Agreements”) with TVT Capital
LLC (“TVT”), pursuant to which Agreements we sold up to (i) $476,000 in our future receipts for a purchase price of
$350,000 (“Agreement No. 1”) and (ii) $1,700,000 in our future receipts for a purchase price of $1,250,000 (“Agreement
No. 2”). Under the terms of Agreement No. 1, we are obligated to pay $9,445 on a weekly basis until the purchase price of
$350,000 has been paid in full. In connection with entering into Agreement No. 1, we paid a $10,500 origination fee. Under the
terms of Agreement No. 2, we are obligated to pay $33,730 on a weekly basis until the purchase price of $1,250,000 has been paid
in full. In connection with entering into Agreement No. 2, we paid a $37,500 origination fee.
On January 18,
2018, we entered into a Future Receivables Sale Agreement with Libertas Funding LLC (“Libertas”), pursuant to which
we sold the rights of up to $594,000 in our future receivables for a purchase price of $400,000 (“Agreement No. 3”).
In connection with entering into Agreement No. 3, we paid a $12,000 origination fee. Under the terms of Agreement No. 3, beginning
in April 2018, we are obligated to pay $56,191 on a weekly basis until the purchase price of $594,000 has been paid in full.
On
January 25, 2018, we entered into two agreements for the Purchase and Sale of Future Receipts with TVT, pursuant to which we sold
up to (i) $562,125 in future receipts of our company to TVT for a purchase price of $375,000 (“Agreement No. 4”) and
(ii) $337,275 in our future receipts for a purchase price of $225,000 (“Agreement No. 5”). Under the terms of Agreement
No. 4, we are obligated to pay $22,310 on a weekly basis until the purchase amount of $562,125 has been paid in full. In connection
with entering into Agreement No. 4, we paid an origination fee in the amount of $13,545. Agreement No. 4 also includes
a warrant to purchase 56,250 shares of our common stock at an exercise price of $2.25 per share and a warrant to purchase 37,500
shares of our common stock at an exercise price of $2.50 per share. Under the terms of Agreement No. 5, we are obligated to pay
$13,385 on a weekly basis until the purchase amount of $337,275 has been paid in full. In connection with entering into Agreement
No.5, we paid an origination fee in the amount of $6,750. Agreement No. 5 also includes warrants to purchase 56,250 shares of our
common stock at an exercise price of $2.25 per share.
On
January 25, 2018, we entered into a Future Receivables Sale Agreement with Libertas, pursuant to which we sold up to $148,500 in
our future receivables to Libertas for a purchase price of $100,000 (“Agreement No. 6”). We are obligated to pay $14,048
on a weekly basis until the purchase amount of $148,500 has been paid in full. In connection with entering into Agreement No. 6,
Libertas received an additional discount for due diligence in the amount of $3,000. Agreement No. 6 also includes warrants to purchase
125,000 shares of our common stock at an exercise price of $2.50 per share. Agreement No. 6 has been guaranteed by Philou.
On
March 23, 2018, we entered into two agreements for the purchase and sale of future receipts with C6 Capital, LLC (“C6”),
pursuant to which we sold up to (i) $979,300 in future receipts of our company to TVT for a purchase price of $700,000 (“Agreement
No. 7”) and (ii) $419,700 in future receipts of our company for a purchase price of $300,000 (“Agreement No. 8”).
Under the terms of Agreement No. 7, we are obligated to pay $25,770 on a weekly basis until the purchase amount of $979,300 has
been paid in full. In connection with entering into Agreement No.7, we paid an origination fee in the amount of $14,000. Under
the terms of Agreement No. 8, we are obligated to pay $11,045 on a weekly basis until the purchase amount of $419,700 has been
paid in full. In connection with entering into Agreement No.8, we paid an origination fee in the amount of $6,000.
On
March 27, 2018, we entered into a future receivables sale agreement with Libertas, pursuant to which we sold up to $552,000 in
future receivables to Libertas for a purchase price of $400,000. In connection with entering into this agreement, we paid an origination
fee in the amount of $12,000. Under the terms of Agreement No. 9, we are obligated to pay $13,143 on a weekly basis until the purchase
amount of $552,000 has been paid in full. As additional consideration, we also issued to Libertas 150,000 shares of our common
stock.
Related Party
Transactions
On
March 9, 2017, we entered into a Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Philou, pursuant
to which Philou Ventures may invest up to $5,000,000 in us through the purchase of Series B Preferred Stock (“Preferred Stock”)
over a term of 36 months. On March 24, 2017,
Philou Ventures made an initial purchase of
25,000 shares of Preferred Stock pursuant to the Purchase Agreement in consideration of cancellation of Company debt of $250,000
due to MCKEA
Holdings LLC (“MCKEA”)
, an affiliate of Philou. Since March
24, 2017, Philou has purchased an additional 100,000 shares of Preferred Stock pursuant to the terms of the Purchase Agreement,
the most recent purchase having occurred on April 24, 2018 for the purchase of 25,000 shares of Preferred Stock.
On
October 5, 2016, November 30, 2016, and February 22, 2017, we entered into three 12% Convertible Promissory Notes with Avalanche
in the principal amount of $525,000 each (the “AVLP Notes”). The AVLP Notes included a 5% original issue discount,
resulting in net loans to Avalanche of $1,500,000 and an original issue discount of $75,000. During the period from March 29, 2017
to August 16, 2017, we funded $1,809,000 in excess of the $1,500,000 net loan amount required pursuant to the terms of the AVLP
Notes.
In
March 2017, Avalanche contractually acquired the rights to MTIX Limited (“MTIX”), an English company that owns the
proprietary rights for the development of a cost effective and environmentally friendly material synthesis technology for textile
applications. On March 15, 2017, we announced that we had entered into a $50 million purchase order with MTIX to manufacture, install
and service fabric treatment machines that utilize the MLSE™ system. No assurance can be given that MTIX will order $50 million
in fabric machines which are the subject of the purchase order.
On
September 6, 2017, we and Avalanche entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective
date of August 21, 2017 pursuant to which we will provide Avalanche a non-revolving credit facility of up to $5 million,
inclusive of prior amounts loaned to Avalanche, for a period ending on August 21, 2019. In consideration of entering into the AVLP
Loan Agreement, we and Avalanche cancelled the AVLP Notes and consolidated the AVLP Notes and prior advances totaling $3,309,000
plus original issue discount of $165,000 and issued a new Convertible Promissory Note in the aggregate principal amount of $3,474,000
(the “New Note”) that is convertible into shares of Avalanche at a conversion price of $0.50 per share. Future advances
under the AVLP Loan Agreement, which totaled $2,061,820 at June 30, 2018, are evidenced by a convertible promissory note containing
a conversion price feature of $0.50 per share and warrant with an exercise price of $0.50 per share.
In October 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 at $0.60
per share for an aggregate purchase price of $45,000. These shares and warrants were issued on May 8, 2018.
Milton
C. Ault, III and William Horne, two of our directors and officers, are directors of Avalanche. In addition, based on Avalanche’s
Form 10-K for the year ended November 30, 2016, Philou is the largest shareholder of Avalanche. Philou is our largest shareholder,
and Kristine L. Ault, the spouse of Milton C. Ault, was until recently the manager for Philou. Presently, Ault & Company, Inc.
is the manager of Philou; its chief executive officer is Milton C. Ault. Kristine L. Ault is also the managing member of MCKEA,
which in turn, is the member of Philou. Ms. Ault resigned from our board of directors on January 23, 2018.
Corporate Information
Our corporate name
is DPW Holdings, Inc. for both legal and commercial purposes. We are located at 201 Shipyard Way, Newport Beach, California, 92663
(telephone number (949) 444-5464. Our website address is
www.dpwholdings.com
. The information on our website does not constitute
part of this prospectus supplement. We have included our website address as a factual reference and do not intend it to be an active
link to our website.
THE OFFERING
The following summary contains basic
terms about this offering and the Series A Preferred Stock and is not intended to be complete. It may not contain all of the information
that is important to you. For a more complete description of the terms of the Series A Preferred Stock, see “Description
of the Series A Preferred Stock.”
Issuer:
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DPW Holdings, Inc.
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Securities Offered:
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1,000,000 shares of 10% Series A Cumulative
Redeemable Perpetual Preferred Stock (the “
Series A Preferred Stock
”).
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Offering Price:
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$23.50 per share of Series A Preferred
Stock.
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Dividends:
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Holders of the Series A Preferred Stock
will be entitled to receive cumulative cash dividends at a rate of 10% per annum of the $25.00 per share liquidation preference
(equivalent to $2.50 per annum per share).
Dividends will be payable monthly on the
last day of each month commencing on October 31, 2018 when, as and if declared by our board of directors (each, a “dividend
payment date”), provided that if any dividend payment date is not a business day, then the dividend that would otherwise
have been payable on that dividend payment date may be paid on the next succeeding business day without adjustment in the amount
of the dividend. Dividends will be payable to holders of record as they appear in our stock records for the Series A Preferred
Stock at the close of business on the corresponding record date, which shall be the last day of the calendar month, whether or
not a business day, in which the applicable dividend payment date falls (each, a “dividend record date”). As a result,
holders of shares of Series A Preferred Stock will not be entitled to receive dividends on a dividend payment date if such shares
were not issued and outstanding on the applicable dividend record date.
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No Maturity, Sinking Fund or
Mandatory Redemption:
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The Series A Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption. Shares of the Series A Preferred Stock will remain
outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem
the Series A Preferred Stock.
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Optional Redemption:
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The Series A Preferred Stock is not redeemable
by us prior to September 30, 2023. On and after September 30, 2023, we may, at our option, redeem the Series A Preferred Stock,
in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated
and unpaid dividends to, but not including, the redemption date. Please see the section entitled “Description of the Series
A Preferred Stock — Redemption — Optional Redemption.”
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Special Optional Redemption:
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Upon the occurrence of a Change of Control,
we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which
such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends
to, but not including, the redemption date.
A “
Change of Control
”
is deemed to occur when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:
(i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3)
of the “Exchange Act (other than Philou Ventures, LLC (“
Philou
”), a significant stockholder of the Company
and an affiliate of Milton C. Ault, III the chairman of our board of directors and our chief executive officer, and any “person”
or “group” under Section 13(d)(3) of the Exchange Act that is an affiliate of Philou, or any trust, partnership, corporate
or other entity affiliated with any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase, merger
or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that
person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors
(except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and (ii) following
the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class
of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American or the
NASDAQ Stock Market (“
NASDAQ
”), or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE American or NASDAQ.
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Liquidation Preference:
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If we liquidate, dissolve or wind up, holders
of the Series A Preferred Stock will have the right to receive $25.00 per share, plus any accumulated and unpaid dividends to,
but not including, the date of payment, before any payment is made to the holders of our common stock. Please see the section entitled
“Description of the Series A Pref
erred
Stock — Liquidation Preference.”
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Ranking:
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The Series A Preferred Stock will rank,
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding
up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities
referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that
those equity securities rank on a parity with the Series A Preferred Stock with respect to rights to the payment of dividends and
the distribution of assets upon our liquidation, dissolution or winding up; (3) junior to the Series B Convertible Preferred Stock
and all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series
A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution
or winding up; and (4) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into
our common stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests
held by others in) our existing subsidiaries and any future subsidiaries. Please see the section entitled “Description of
the Series A Preferred Stock — Ranking.”
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Limited Voting Rights:
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Holders of Series A Preferred Stock will
generally have no voting rights. However, if we do not pay dividends on the Series A Preferred Stock for eighteen or more monthly
dividend periods (whether or not consecutive), the holders of the Series A Preferred Stock (voting separately as a class with the
holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been conferred and
are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election referred to below)
will be entitled to vote for the election of two additional directors to serve on our board of directors until we pay, or declare
and set aside funds for the payment of, all dividends that we owe on the Series A Preferred Stock, subject to certain limitations
described in the section entitled “Description of the Series A Preferred Stock — Voting Rights.” In addition,
the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock is required at
any time for us to authorize or issue any class or series of our capital stock ranking senior to the Series A Preferred Stock with
respect to the payment of dividends or the distribution of assets on liquidation, dissolution or winding up, to amend any provision
of our certificate of incorporation so as to materially and adversely affect any rights of the Series A Preferred Stock. If any
such amendments to our certificate of incorporation would be material and adverse to holders of the Series A Preferred Stock and
any other series of parity preferred stock upon which similar voting rights have been conferred and are exercisable, a vote of
at least two-thirds of the outstanding shares of Series A Preferred Stock and the shares of the other applicable series materially
and adversely affected, voting together as a class, would be required. Please see the section entitled “Description of the
Series A Preferred Stock — Voting Rights.”
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Information Rights:
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During any period in which we are not subject
to Section 13 or 15(d) of the Exchange Act and any shares of Series A Preferred Stock are outstanding, we will use our best efforts
to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders of Series A Preferred Stock, as their
names and addresses appear on our record books and without cost to such holders, copies of the Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act if we were subject thereto (other than any exhibits that would not have been required) and (ii) promptly, upon request, supply
copies of such reports to any holders or prospective holder of Series A Preferred Stock, subject to certain exceptions described
in this prospectus supplement. We will use our best efforts to mail (or otherwise provide) the information to the holders of the
Series A Preferred Stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form 10-Q, as the
case may be, in respect of such information would have been required to be filed with the SEC, if we were subject to Section 13
or 15(d) of the Exchange Act, in each case, based on the dates on which we would be required to file such periodic reports if we
were a “non-accelerated filer” within the meaning of the Exchange Act.
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Listing:
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Our common stock is listed on the NYSE
American under the symbol “DPW.” We intend to apply to list the Series A Preferred Stock on the NYSE American under
the symbol “DPWP.” However, this is not an underwritten offering and no entity has advised us that it intends to make
a market in the Series A Preferred Stock.
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Use of Proceeds:
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We plan to use the net proceeds from this
offering for acquisitions (we have not entered into any agreement or commitment with respect to any acquisitions or investments
at this time), investments in debt or equity securities (including real estate), repayment of existing indebtedness, to fund organic
growth initiatives and general corporate purposes. We will place proceeds equal to one year of dividends ($2.5 million based on
an offering of $25 million of Series A Preferred) into a separate bank account to be used to pay Series A Preferred Stock dividends.
Please see the section entitled “Use of Proceeds.”
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Risk Factors:
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Please read the section entitled “Risk
Factors” beginning on page 12 for a discussion of some of the factors you should carefully consider before deciding to invest
in our Series A Preferred Stock.
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Transfer Agent:
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The registrar, transfer agent and dividend
and redemption price disbursing agent in respect of the Series A Preferred Stock will be Computershare Trust Company, N.A..
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Material U.S. Federal Income
Tax:
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Considerations for a discussion of the
federal income tax consequences of purchasing, owning and disposing of the Series A Preferred Stock, please see the section entitled
“Material U.S. Federal Income Tax Considerations.” You should consult your tax advisor with respect to the U.S. federal
income tax consequences of owning the Series A Preferred Stock in light of your own particular situation and with respect to any
tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction.
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Book Entry and Form:
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The Series A Preferred Stock will be represented by one or more global certificates in definitive, fully registered form deposited with a custodian for, and registered in the name of, a nominee of The Depository Trust Company (“
DTC
”).
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RISK FACTORS
An investment in our securities involves
a high degree of risk. You should carefully consider the risks and uncertainties described in this prospectus supplement and the
documents incorporated by reference into this prospectus supplement. The risks and uncertainties described in this prospectus supplement
are not the only ones we face. Additional risks and uncertainties that we do not presently know about or that we currently believe
are not material may also adversely affect our business, business prospects, results of operations or financial condition. If any
of the risks and uncertainties described in this prospectus supplement or the documents incorporated by reference into this prospectus
supplement actually occurs, then our business, results of operations and financial condition could be adversely affected in a material
way. This could cause the market price of the Series A Preferred Stock to decline, perhaps significantly, and you may lose part
or all of your investment.
Risks Related to this Offering and Ownership
of Shares of Our Series A Preferred Stock
The Series A Preferred Stock
ranks junior to all of our indebtedness and other liabilities.
In the event of our bankruptcy, liquidation,
dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only
after all of our indebtedness and other liabilities have been paid. The rights of holders of the Series A Preferred Stock to participate
in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series
or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock. Also, the Series A Preferred Stock
effectively ranks junior to all existing and future indebtedness and to the indebtedness and other liabilities of our existing
subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries would be, separate legal entities
and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock. If we are forced
to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series
A Preferred Stock then outstanding. We have incurred and may in the future incur substantial amounts of debt and other obligations
that will rank senior to the Series A Preferred Stock. At June 30, 2018, our total liabilities (excluding contingent consideration,
which is not payable in cash) equaled approximately $21.9 million.
Certain of our existing or future debt
instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred Stock. There can be
no assurance that we will always remain in compliance with any credit agreement we may enter into in the future, and if we default,
we may be contractually prohibited from paying dividends on the Series A Preferred Stock. Also, future offerings of debt or senior
equity securities may adversely affect the market price of the Series A Preferred Stock. If we decide to issue debt or senior equity
securities in the future, it is possible that these securities will be governed by an indenture or other instruments containing
covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the
future may have rights, preferences and privileges more favorable than those of the Series A Preferred Stock and may result in
dilution to owners of the Series A Preferred Stock. We and, indirectly, our shareholders, will bear the cost of issuing and servicing
such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions
and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. The holders
of the Series A Preferred Stock will bear the risk of our future offerings, which may reduce the market price of the Series A Preferred
Stock and will dilute the value of their holdings in us.
There is no existing market
for our Series A Preferred Stock and a trading market that will provide you with adequate liquidity may not develop for our Series
A Preferred Stock.
The Series A Preferred Stock is a new issue
of securities and currently no market exists for the Series A Preferred Stock. We intend to apply to list the Series A Preferred
Stock on the NYSE American under the symbol “DPWP.” However, even if the NYSE American approves our application, a
trading market for the Series A Preferred Stock may never develop or, even if one develops, may not be maintained and may not provide
you with adequate liquidity. The liquidity of any market for the Series A Preferred Stock that may develop will depend on a number
of factors, including prevailing interest rates, our financial condition and operating results, the number of holders of the Series
A Preferred Stock, the market for similar securities and the interest of securities dealers in making a market in the Series A
Preferred Stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading
market in our Series A Preferred Stock, or how liquid that market might be. If an active market does not develop, you may have
difficulty selling your shares of our Series A Preferred Stock. The price of our Series A Preferred Stock was determined by us
and may not be indicative of prices that will prevail in the open market following the completion of this offering.
We may issue additional shares
of Series A Preferred Stock and additional series of preferred stock that rank on parity with the Series A Preferred Stock as to
dividend rights, rights upon liquidation or voting rights.
We are permitted to issue additional shares
of Series A Preferred Stock and additional series of preferred stock that would rank equally to or above the Series A Preferred
Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our certificate
of incorporation and the certificate of designation relating to the Series A Preferred Stock without any vote of the holders of
the Series A Preferred Stock. The issuance of additional shares of Series A Preferred Stock and additional series of preferred
stock could have the effect of reducing the amounts available to the Series A Preferred Stock issued in this offering upon our
liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Series A Preferred Stock
issued in this offering if we do not have sufficient funds to pay dividends on all shares of Series A Preferred Stock outstanding
and other classes or series of stock with equal priority with respect to dividends.
Also, while holders of Series A Preferred
Stock are entitled to limited voting rights, as described in “Description of the Series A Preferred Stock — Voting
Rights,” with respect to the circumstances under which the holders of Series A Preferred Stock are entitled to vote, the
Series A Preferred Stock will vote separately as a class along with all other series of our preferred stock that we may issue upon
which like voting rights have been conferred and are exercisable. As a result, the voting rights of holders of Series A Preferred
Stock may be significantly diluted, and the holders of such other series of preferred stock that we may issue may be able to control
or significantly influence the outcome of any vote.
Future issuances and sales of senior or
pari passu preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for
the Series A Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in
the financial markets at times and prices favorable to us.
Market interest rates may materially
and adversely affect the value of the Series A Preferred Stock.
One of the factors that will influence
the price of the Series A Preferred Stock will be the dividend yield on the Series A Preferred Stock (as a percentage of the market
price of the Series A Preferred Stock) relative to market interest rates. An increase in market interest rates, which are currently
at low levels relative to historical rates, may lead prospective purchasers of the Series A Preferred Stock to expect a higher
dividend yield (and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for
dividend payments). Thus, higher market interest rates could cause the market price of the Series A Preferred Stock to materially
decrease.
We may not be able to pay dividends
on the Series A Preferred Stock.
Our ability to pay cash dividends on the
Series A Preferred Stock will require us to have net profits, positive net assets (total assets less total liabilities) over our
capital, or the ability raise capital in amounts sufficient to pay the dividends as well as being able to pay our debts as they
become due in the usual course of business.
Further, notwithstanding these factors,
we may not have sufficient cash to pay dividends on the Series A Preferred Stock. Our ability to pay dividends may be impaired
if any of the risks described in this prospectus supplement, or documents incorporated by reference in this prospectus supplement,
were to occur. Also, payment of our dividends depends upon our financial condition and other factors as our board of directors
may deem relevant from time to time. We cannot assure you that our businesses will generate sufficient cash flow from operations,
that we will be able to raise additional financing if needed, or that future borrowings will be available to us in an amount sufficient
to enable us to make distributions on our common stock, if any, and preferred stock, including the Series A Preferred Stock to
pay our indebtedness or to fund our other liquidity needs.
Holders of the Series A Preferred
Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to
“qualified dividend income.”
Distributions paid to corporate U.S. holders
of the Series A Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S.
holders of the Series A Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend
income,” if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. We do
not currently have accumulated earnings and profits. Additionally, we may not have sufficient current earnings and profits during
future fiscal years for the distributions on the Series A Preferred Stock to qualify as dividends for U.S. federal income tax purposes.
If the distributions fail to qualify as dividends, U.S. holders would be unable to use the dividends-received deduction and may
not be eligible for the preferential tax rates applicable to “qualified dividend income.” If any distributions on the
Series A Preferred Stock with respect to any fiscal year are not eligible for the dividends-received deduction or preferential
tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and profits,
it is possible that the market value of the Series A Preferred Stock could decline.
Our revenues, operating results
and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our
Series A Preferred Stock to decline.
Variations in our quarterly and year-end
operating results are difficult to predict and our income and cash flow may fluctuate significantly from period to period, which
may impact our board of directors’ willingness or legal ability to declare a monthly dividend. If our operating results fall
below the expectations of investors or securities analysts, the price of our Series A Preferred Stock could decline substantially.
Specific factors that may cause fluctuations in our operating results include, but are not limited, to:
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demand and pricing
for our products and services;
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introduction of competing
products;
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our operating expenses
which fluctuate due to growth of our business;
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timing and size of
any new product or technology acquisitions we may complete; and
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variable sales
cycle and implementation periods for our products and services.
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Our Series A Preferred Stock
has not been rated.
We have not sought to obtain a rating for
the Series A Preferred Stock. No assurance can be given, however, that one or more rating agencies might not independently determine
to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series A Preferred
Stock. Also, we may elect in the future to obtain a rating for the Series A Preferred Stock, which could adversely affect the market
price of the Series A Preferred Stock. Ratings only reflect the views of the rating agency or agencies issuing the ratings and
such ratings could be revised downward, placed on a watch list or withdrawn entirely at the discretion of the issuing rating agency
if in its judgment circumstances so warrant. Any such downward revision, placing on a watch list or withdrawal of a rating could
have an adverse effect on the market price of the Series A Preferred Stock.
We may redeem the Series A
Preferred Stock.
On or after September 30, 2023, we may,
at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time. Also, upon the occurrence
of a Change of Control, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after
the first date on which such Change of Control occurred. We may have an incentive to redeem the Series A Preferred Stock voluntarily
if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend on the
Series A Preferred Stock. If we redeem the Series A Preferred Stock, then from and after the redemption date, your dividends will
cease to accrue on your shares of Series A Preferred Stock, your shares of Series A Preferred Stock shall no longer be deemed outstanding
and all your rights as a holder of those shares will terminate, except the right to receive the redemption price plus accumulated
and unpaid dividends, if any, payable upon redemption and to convert your shares of Series A Preferred Stock into shares of our
common stock.
The market price of the Series
A Preferred Stock could be substantially affected by various factors.
The market price of the Series A Preferred
Stock depends on many factors, which may change from time to time, including:
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prevailing interest rates, increases in which may have an adverse effect on the market price of
the Series A Preferred Stock;
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trading prices of similar securities;
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our history of timely dividend payments;
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the annual yield from dividends on the Series A Preferred Stock as compared to yields on other
financial instruments;
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general economic and financial market conditions;
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government action or regulation;
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the financial condition, performance and prospects of us and our competitors;
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changes in financial estimates or recommendations by securities analysts with respect to us or
our competitors in our industry;
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our issuance of additional preferred equity or debt securities; and
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actual or anticipated variations in quarterly operating results of us and our competitors.
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As a result of these and other factors,
investors who purchase the Series A Preferred Stock in this offering may experience a decrease, which could be substantial and
rapid, in the market price of the Series A Preferred Stock, including decreases unrelated to our operating performance or prospects.
As a holder of Series A Preferred
Stock, you will have extremely limited voting rights.
Your voting rights as a holder of Series
A Preferred Stock will be limited. Our shares of common stock and the Series B Preferred Stock are the only class of our securities
that carry full voting rights, and Milton C. Ault, III, our Chief Executive Officer, beneficially owns 9.1% of our outstanding
shares of common stock. As a result, Mr. Ault exercises a significant level of control over all matters requiring stockholder approval,
including the election of directors, amendment of our certificate of incorporation, and approval of significant corporate transactions.
This control could have the effect of delaying or preventing a change of control of our company or changes in management, and will
make the approval of certain transactions difficult or impossible without his support, which in turn could reduce the price of
our Series A Preferred Stock.
Voting rights for holders of Series A Preferred
Stock exist primarily with respect to the ability to elect, voting together with the holders of any other series of our preferred
stock having similar voting rights, two additional directors to our board of directors, subject to limitations described in the
section entitled “Description of the Series A Preferred Stock — Voting Rights,” in the event that eighteen or
more monthly dividend periods (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and with respect
to voting on amendments to our certificate of incorporation or certificate of designation of the Series A Preferred Stock that
materially and adversely affect the rights of the holders of Series A Preferred Stock or, in the case of our certificate of incorporation,
authorize, increase or create additional classes or series of our capital stock that are senior to the Series A Preferred Stock.
Other than the limited circumstances described in this prospectus supplement and except to the extent required by law, holders
of Series A Preferred Stock do not have any voting rights. Please see the section entitled “Description of the Series A Preferred
Stock — Voting Rights.”
If our common stock is delisted,
your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series
A Preferred Stock will likely be materially adversely affected.
The Series A Preferred Stock does not contain
provisions that are intended to protect you if our common stock is delisted from the NYSE American. Since the Series A Preferred
Stock has no stated maturity date, you may be forced to hold your shares of the Series A Preferred Stock and receive stated dividends
on the Series A Preferred Stock when, as and if authorized by our board of directors and paid by us with no assurance as to ever
receiving the liquidation value thereof. Also, if our common stock is delisted from the NYSE American, it is likely that the Series
A Preferred Stock will be delisted from the NYSE American as well. Accordingly, if our common stock is delisted from the NYSE American,
your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series
A Preferred Stock will likely be materially adversely affected.
We will have broad discretion
in using the proceeds of this offering, and we may not effectively spend the proceeds.
We intend to use a portion of the net proceeds
of this offering to fund acquisitions and initiatives to drive additional growth. We will use the balance for payment of existing
indebtedness, working capital and general corporate purposes, which may include developing new products and services, and funding
capital expenditures and investments. We will have significant flexibility and broad discretion in applying the net proceeds of
this offering, and we may not apply these proceeds effectively. Our management might not be able to yield a significant return
for the foreseeable future, if any, on any investment of these net proceeds, and you will not have the opportunity to influence
our decisions on how to use our net proceeds from this offering.
The Series A Preferred Stock
is not convertible except under very limited circumstances, and investors will not realize a corresponding upside if the price
of the common stock increases.
The Series A Preferred Stock is not convertible
into the common stock except under very limited circumstances and earns dividends at a fixed rate. Accordingly, an increase in
market price of our common stock will not necessarily result in an increase in the market price of our Series A Preferred Stock.
The market value of the Series A Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial
paper and other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution
satisfy the liquidation preference with respect to, the Series A Preferred Stock.
Provisions of Delaware law,
of our certificate of incorporation and bylaws may make a takeover more difficult, which could cause our stock price to decline.
Provisions in our certificate of incorporation
and bylaws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change
in control or takeover attempt, which is opposed by management and the board of directors. Public stockholders who might desire
to participate in such a transaction may not have an opportunity to do so. Philou, as the holder of the Series B Preferred Stock,
has the right to appoint two members of our board of directors. Our certificate of incorporation provides that no less than sixty
percent (60%) is required to complete a change of control transaction. Further, our bylaws provide, subject to the rights of Philou
as the holder of the Series B Preferred Stock, for the removal of a director only upon the affirmative vote of the holders of at
least 50.1% of the outstanding shares entitled to cast their vote for the election of directors, which may discourage a third party
from making a tender offer or otherwise attempting to obtain control of us. These and other anti-takeover provisions could substantially
impede the ability of public stockholders to change our management and board of directors. Such provisions may also limit the price
that investors might be willing to pay for shares of our Series A Preferred Stock in the future.
USE OF PROCEEDS
As of the date of this prospectus supplement,
we cannot specify with certainty all of the particular uses of the proceeds, if any, from this offering. Accordingly, we will retain
broad discretion over the use of any such proceeds.
We estimate that the net proceeds to us
from the sale of our Series A Preferred Stock in this offering will be $23.5 million, based on the public offering price of $23.50
per share, prior to deducting estimated offering expenses. We will use the proceeds to, in part, pay the legal, accounting and
other fees associated with this offering of approximately $500,000.
We intend to use the net proceeds from
this offering for acquisitions (we have not entered into any agreement or commitment with respect to any acquisitions or investments
at this time), investments in debt or equity securities (including real estate), repayment of existing indebtedness, to fund organic
growth initiatives and general corporate purposes. We intend to use the remaining net proceeds for working capital and other general
corporate purposes and we will retain broad discretion in the allocation of the net proceeds of this offering.
We will place proceeds equal to one year
of dividends ($2.5 million based on an offering of $25 million of Series A Preferred Stock, assuming the entire offering is sold)
into a separate bank account to be used to pay Series A Preferred Stock dividends.
Investors are cautioned that the proceeds
from this offering are expected to be sufficient to enable us to continue operations for only a short period of time. We expect
that we will have to raise additional capital through the sale of additional equity or debt securities, including debt securities
that may be convertible into equity securities. It may be difficult for us to raise additional funds when needed and on favorable
terms, or at all.
Pending the use of the proceeds from this
offering described above, we plan to invest the net proceeds that we receive in this offering in highly liquid short-term interest-bearing
obligations, investment grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
DESCRIPTION OF THE SERIES A PREFERRED
STOCK
The description of certain terms of the
Series A Preferred Stock in this prospectus supplement does not purport to be complete and is in all respects subject to, and qualified
in its entirety by references to the relevant provisions of our certificate of incorporation, the certificate of designations establishing
the terms of our Series A Preferred Stock, our bylaws and Delaware corporate law. Copies of our certificate of incorporation, certificate
of designations and our bylaws are available from us upon request.
General
Pursuant to our certificate of incorporation,
we are currently authorized to designate and issue up to 25,000,000 shares of preferred stock, par value $0.001 per share, 500,000
of which have been designated Series B Convertible Preferred Stock, in one or more classes or series and, subject to the limitations
prescribed by our certificate of incorporation and Delaware corporate law, with such rights, preferences, privileges and restrictions
of each class or series of preferred stock, including dividend rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any class or series as our board of directors may determine, without any vote or action by
our shareholders. In connection with this offering, our board of directors will designate 1,000,000 shares of our authorized preferred
stock as 10% Series A Cumulative Redeemable Perpetual Preferred Stock, having the rights and privileges described in this prospectus
supplement, by adopting and filing the certificate of designations with the State of Delaware. Assuming all of the shares of Series
A Preferred Stock offered hereunder are issued, we will have available for issuance 23,500,000 authorized but unissued shares of
preferred stock. Our board of directors may, without the approval of holders of the Series A Preferred Stock or our common stock,
designate additional series of authorized preferred stock ranking junior to or on parity with the Series A Preferred Stock or designate
additional shares of the Series A Preferred Stock and authorize the issuance of such shares. Designation of preferred stock ranking
senior to the Series A Preferred Stock will require approval of the holders of Series A Preferred Stock, as described below in
“Voting Rights.”
The registrar, transfer agent and dividend
and redemption price disbursing agent in respect of the Series A Preferred Stock is Computershare Trust Company, N.A., 8742 Lucent
Blvd., Suite 225, Highlands Ranch, CO 80129.
Listing
We intend to apply to list the Series A
Preferred Stock on the NYSE American under the symbol “DPWP.”
No Maturity, Sinking Fund or Mandatory
Redemption
The Series A Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption. Shares of the Series A Preferred Stock will remain
outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem
the Series A Preferred Stock.
Ranking
The Series A Preferred Stock will rank,
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding
up:
(i) senior
to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred
to in clauses (ii) and (iii);
(ii) on
a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity
with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up;
(iii) junior
to the Series B Convertible Preferred Stock and all equity securities issued by us with terms specifically providing that those
equity securities rank senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution
of assets upon our liquidation, dissolution or winding up; and
(iv) effectively
junior to all of our existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock)
and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries
and any future subsidiaries.
Dividends
Holders of shares of the Series A Preferred
Stock are entitled to receive cumulative cash dividends at the rate of 10% of the $25.00 per share liquidation preference per annum
(equivalent to $2.50 per annum per share). Dividends on the Series A Preferred Stock shall be payable monthly on the last day of
each month; provided that if any dividend payment date is not a business day, as defined in the certificate of designations, then
the dividend that would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day
and no interest, additional dividends or other sums will accrue on the amount so payable for the period from and after that dividend
payment date to that next succeeding business day. Any dividend payable on the Series A Preferred Stock, including dividends payable
for any partial dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends
will be payable to holders of record as they appear in our stock records for the Series A Preferred Stock at the close of business
on the applicable record date, which shall be the last day of the calendar month, whether or not a business day, in which the applicable
dividend payment date falls. As a result, holders of shares of Series A Preferred Stock will not be entitled to receive dividends
on a dividend payment date if such shares were not issued and outstanding on the applicable dividend record date.
No dividends on shares of Series A Preferred
Stock shall be authorized by our board of directors or paid or set apart for payment by us at any time when the terms and provisions
of any agreement of ours, including any agreement relating to our indebtedness, prohibit the authorization, payment or setting
apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach
of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment shall be restricted
or prohibited by law. You should review the information appearing above under “Risk Factors — We may not be able to
pay dividends on the Series A Preferred Stock” for information as to, among other things, other circumstances under which
we may be unable to pay dividends on the Series A Preferred Stock.
Notwithstanding the foregoing, dividends
on the Series A Preferred Stock will accrue whether or not we have earnings, whether or not there are funds legally available for
the payment of those dividends and whether or not those dividends are declared by our board of directors. No interest, or sum in
lieu of interest, will be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may be in
arrears, and holders of the Series A Preferred Stock will not be entitled to any dividends in excess of full cumulative dividends
described above. Any dividend payment made on the Series A Preferred Stock shall first be credited against the earliest accumulated
but unpaid dividend due with respect to those shares.
Future distributions on our common stock
and preferred stock, including the Series A Preferred Stock, will be at the discretion of our board of directors and will depend
on, among other things, our results of operations, cash flow from operations, financial condition and capital requirements, any
debt service requirements and any other factors our board of directors deems relevant. Accordingly, we cannot guarantee that we
will be able to make cash distributions on our preferred stock or what the actual distributions will be for any future period.
Unless full cumulative dividends on all
shares of Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof has been or contemporaneously is set apart for payment for all past dividend periods, no dividends (other than
in shares of common stock or in shares of any series of preferred stock that we may issue ranking junior to the Series A Preferred
Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) shall be declared
or paid or set aside for payment upon shares of our common stock or preferred stock that we may issue ranking junior to, or on
a parity with, the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up. Nor shall any other distribution be declared or made upon shares of our common stock or preferred stock that we
may issue ranking junior to, or on a parity with, the Series A Preferred Stock as to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up. Also, any shares of our common stock or preferred stock that we may issue
ranking junior to or on a parity with the Series A Preferred Stock as to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up shall not be redeemed, purchased or otherwise acquired for any consideration (or any
moneys paid to or made available for a sinking fund for the redemption of any such shares) by us (except by conversion into or
exchange for our other capital stock that we may issue ranking junior to the Series A Preferred Stock as to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up).
When dividends are not paid in full (or
a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and the shares of any other series
of preferred stock that we may issue ranking on a parity as to the payment of dividends with the Series A Preferred Stock, all
dividends declared upon the Series A Preferred Stock and any other series of preferred stock that we may issue ranking on a parity
as to the payment of dividends with the Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared
per share of Series A Preferred Stock and such other series of preferred stock that we may issue shall in all cases bear to each
other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other series of preferred stock
that we may issue (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such preferred
stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Series A Preferred Stock that may be in arrears.
We will place proceeds equal to one year
of dividends ($2.5 million based on an offering of $25 million of Series A Preferred) into a separate bank account to be used to
pay Series A Preferred Stock dividends. Whether or not this account is exhausted, our obligation to pay Series A Preferred dividends
will not be affected.
Liquidation Preference
In the event of our voluntary or involuntary
liquidation, dissolution or winding up, the holders of shares of Series A Preferred Stock will be entitled to be paid out of the
assets we have legally available for distribution to our shareholders, subject to the preferential rights of the holders of any
class or series of our capital stock we may issue ranking senior to the Series A Preferred Stock with respect to the distribution
of assets upon liquidation, dissolution or winding up, a liquidation preference of $25.00 per share, plus an amount equal to any
accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders
of our common stock or any other class or series of our capital stock we may issue that ranks junior to the Series A Preferred
Stock as to liquidation rights.
In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of our capital stock that we may issue ranking on a parity with the Series A Preferred Stock in the distribution
of assets, then the holders of the Series A Preferred Stock and all other such classes or series of capital stock shall share ratably
in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively
entitled.
Holders of Series A Preferred Stock will
be entitled to written notice of any such liquidation, dissolution or winding up no fewer than 30 days and no more than 60 days
prior to the payment date. After payment of the full amount of the liquidating distributions to which they are entitled, the holders
of Series A Preferred Stock will have no right or claim to any of our remaining assets. The consolidation or merger of us with
or into any other corporation, trust or entity or of any other entity with or into us, or the sale, lease, transfer or conveyance
of all or substantially all of our property or business, shall not be deemed a liquidation, dissolution or winding up of us (although
such events may give rise to the special optional redemption to the extent described below).
Redemption
The Series A Preferred Stock is not redeemable
by us prior to September 30, 2023, except as described below under “— Special Optional Redemption.”
Optional Redemption
. On and after
September 30, 2023, we may, at our option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series
A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus
any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption.
Special Optional Redemption
. Upon
the occurrence of a Change of Control, we may, at our option, upon not less than 30 nor more than 60 days’ written notice,
redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control
occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including,
the redemption date.
A “Change of Control” is deemed
to occur when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:
(i) the
acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the “Exchange
Act (other than Philou Ventures, LLC (“
Philou
”), a significant stockholder of the Company and an affiliate of
Milton C. Ault, III the chairman of our board of directors and our chief executive officer, and any “person” or “group”
under Section 13(d)(3) of the Exchange Act that is an affiliate of Philou, or any trust, partnership, corporate or other entity
affiliated with any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition
transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that person to exercise more
than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors (except that such
person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right
is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
(ii) following
the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class
of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American or the
NASDAQ Stock Market (“
NASDAQ
”), or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE American or NASDAQ.
Redemption Procedures.
In the event
we elect to redeem Series A Preferred Stock, the notice of redemption will be mailed to each holder of record of Series A Preferred
Stock called for redemption at such holder’s address as it appear on our stock transfer records, not less than 30 nor more
than 60 days prior to the redemption date, and will state the following:
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the number of shares of Series A Preferred Stock to be redeemed;
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the place or places where certificates (if any) for the Series A Preferred Stock are to be surrendered
for payment of the redemption price;
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that dividends on the shares to be redeemed will cease to accumulate on the redemption date;
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whether such redemption is being made pursuant to the provisions described above under “—
Optional Redemption” or “— Special Optional Redemption”; and
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if applicable, that such redemption is being made in connection with a Change of Control and, in
that case, a brief description of the transaction or transactions constituting such Change of Control.
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If less than all of the Series A Preferred
Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series
A Preferred Stock held by such holder to be redeemed. No failure to give such notice or any defect thereto or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder
to whom notice was defective or not given.
Holders of Series A Preferred Stock to
be redeemed shall surrender the Series A Preferred Stock at the place designated in the notice of redemption and shall be entitled
to the redemption price and any accumulated and unpaid dividends payable upon the redemption following the surrender. If notice
of redemption of any shares of Series A Preferred Stock has been given and if we have irrevocably set aside the funds necessary
for redemption in trust for the benefit of the holders of the shares of Series A Preferred Stock so called for redemption, then
from and after the redemption date (unless default shall be made by us in providing for the payment of the redemption price plus
accumulated and unpaid dividends, if any), dividends will cease to accrue on those shares of Series A Preferred Stock, those shares
of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders of those shares will terminate,
except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If any
redemption date is not a business day, then the redemption price and accumulated and unpaid dividends, if any, payable upon redemption
may be paid on the next business day and no interest, additional dividends or other sums will accrue on the amount payable for
the period from and after that redemption date to that next business day. If less than all of the outstanding Series A Preferred
Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional shares) or by any other equitable method we determine.
In connection with any redemption of Series
A Preferred Stock, we shall pay, in cash, any accumulated and unpaid dividends to, but not including, the redemption date, unless
a redemption date falls after a dividend record date and prior to the corresponding dividend payment date, in which case each holder
of Series A Preferred Stock at the close of business on such dividend record date shall be entitled to the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment
date. Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on shares
of the Series A Preferred Stock to be redeemed.
Unless full cumulative dividends on all
shares of Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof has been or contemporaneously is set apart for payment for all past dividend periods, no shares of Series A Preferred
Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and we shall not
purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchanging it for our capital
stock ranking junior to the Series A Preferred Stock as to the payment of dividends and distribution of assets upon liquidation,
dissolution or winding up); provided, however, that the foregoing shall not prevent the purchase or acquisition by us of shares
of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares
of Series A Preferred Stock.
Subject to applicable law, we may purchase
shares of Series A Preferred Stock in the open market, by tender or by private agreement. Any shares of Series A Preferred Stock
that we acquire may be retired and reclassified as authorized but unissued shares of preferred stock, without designation as to
class or series, and may thereafter be reissued as any class or series of preferred stock.
Voting Rights
Holders of the Series A Preferred Stock
do not have any voting rights, except as set forth below or as otherwise required by law.
On each matter on which holders of Series
A Preferred Stock are entitled to vote, each share of Series A Preferred Stock will be entitled to one vote. In instances described
below where holders of Series A Preferred Stock vote with holders of any other class or series of our preferred stock as a single
class on any matter, the Series A Preferred Stock and the shares of each such other class or series will have one vote for each
$25.00 of liquidation preference (excluding accumulated dividends) represented by their respective shares.
Whenever dividends on any shares of Series
A Preferred Stock are in arrears for eighteen or more monthly dividend periods, whether or not consecutive, the number of directors
constituting our board of directors will be automatically increased by two (if not already increased by two by reason of the election
of directors by the holders of any other class or series of our preferred stock we may issue upon which like voting rights have
been conferred and are exercisable and with which the Series A Preferred Stock is entitled to vote as a class with respect to the
election of those two directors) and the holders of Series A Preferred Stock (voting separately as a class with all other classes
or series of preferred stock we may issue upon which like voting rights have been conferred and are exercisable and which are entitled
to vote as a class with the Series A Preferred Stock in the election of those two directors) will be entitled to vote for the election
of those two additional directors (the “preferred stock directors”) at a special meeting called by us at the request
of the holders of record of at least 25% of the outstanding shares of Series A Preferred Stock or by the holders of any other class
or series of preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote
as a class with the Series A Preferred Stock in the election of those two preferred stock directors (unless the request is received
less than 90 days before the date fixed for the next annual or special meeting of shareholders, in which case, such vote will be
held at the earlier of the next annual or special meeting of shareholders), and at each subsequent annual meeting until all dividends
accumulated on the Series A Preferred Stock for all past dividend periods and the then current dividend period have been fully
paid or declared and a sum sufficient for the payment thereof set aside for payment. In that case, the right of holders of the
Series A Preferred Stock to elect any directors will cease and, unless there are other classes or series of our preferred stock
upon which like voting rights have been conferred and are exercisable, any preferred stock directors elected by holders of the
Series A Preferred Stock shall immediately resign and the number of directors constituting the board of directors shall be reduced
accordingly. In no event shall the holders of Series A Preferred Stock be entitled under these voting rights to elect a preferred
stock director that would cause us to fail to satisfy a requirement relating to director independence of any national securities
exchange or quotation system on which any class or series of our capital stock is listed or quoted. For the avoidance of doubt,
in no event shall the total number of preferred stock directors elected by holders of the Series A Preferred Stock (voting separately
as a class with all other classes or series of preferred stock we may issue upon which like voting rights have been conferred and
are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of such directors)
under these voting rights exceed two.
If a special meeting is not called by us
within 30 days after request from the holders of Series A Preferred Stock as described above, then the holders of record of at
least 25% of the outstanding Series A Preferred Stock may designate a holder to call the meeting at our expense.
If, at any time when the voting rights
conferred upon the Series A Preferred Stock are exercisable, any vacancy in the office of a preferred stock director shall occur,
then such vacancy may be filled only by a written consent of the remaining preferred stock director, or if none remains in office,
by vote of the holders of record of the outstanding Series A Preferred Stock and any other classes or series of preferred stock
upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series
A Preferred Stock in the election of the preferred stock directors. Any preferred stock director elected or appointed may be removed
only by the affirmative vote of holders of the outstanding Series A Preferred Stock and any other classes or series of preferred
stock upon which like voting rights have been conferred and are exercisable and which classes or series of preferred stock are
entitled to vote as a class with the Series A Preferred Stock in the election of the preferred stock directors, such removal to
be effected by the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding Series A Preferred
Stock and any such other classes or series of preferred stock, and may not be removed by the holders of the common stock.
So long as any shares of Series A Preferred
Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds of the votes
entitled to be cast by the holders of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either
in writing or at a meeting (voting together as a class with all other series of parity preferred stock that we may issue upon which
like voting rights have been conferred and are exercisable), (a) authorize or create, or increase the authorized or issued amount
of, any class or series of capital stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or reclassify any of our authorized capital stock into such
shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such
shares; or (b) amend, alter, repeal or replace our amended and restated certificate of incorporation, including by way of a merger,
consolidation or otherwise in which we may or may not be the surviving entity, so as to materially and adversely affect and deprive
holders of Series A Preferred Stock of any right, preference, privilege or voting power of the Series A Preferred Stock (each,
an “
Event
”). An increase in the amount of the authorized preferred stock, including the Series A Preferred Stock,
or the creation or issuance of any additional Series A Preferred Stock or other series of preferred stock that we may issue, or
any increase in the amount of authorized shares of such series, in each case ranking on a parity with or junior to the Series A
Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up,
shall not be deemed an Event and will not require us to obtain two-thirds of the votes entitled to be cast by the holders of the
Series A Preferred Stock and all such other similarly affected series, outstanding at the time (voting together as a class).
The foregoing voting provisions will not
apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all
outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption.
Except as expressly stated in the certificate
of designations or as may be required by applicable law, the Series A Preferred Stock do not have any relative, participating,
optional or other special voting rights or powers and the consent of the holders thereof shall not be required for the taking of
any corporate action.
Information Rights
During any period in which we are not subject
to Section 13 or 15(d) of the Exchange Act and any shares of Series A Preferred Stock are outstanding, we will use our best efforts
to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders of Series A Preferred Stock, as their
names and addresses appear on our record books and without cost to such holders, copies of the Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act if we were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request, supply
copies of such reports to any holders or prospective holder of Series A Preferred Stock. We will use our best effort to mail (or
otherwise provide) the information to the holders of the Series A Preferred Stock within 30 days after the respective dates by
which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have been required
to be filed with the SEC, if we were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which
we would be required to file such periodic reports if we were a “non-accelerated filer” within the meaning of the Exchange
Act.
Conversion Rights
The Series A Preferred Stock is not convertible
into our common stock or any of our other securities, except that, upon the occurrence of a Change of Control, each holder of Series
A Preferred Stock will have the right subject to our election to redeem the Series A Preferred Stock in whole or part, as described
above under “—Optional Redemption” or “—Special Optional Redemption,” prior to the change of
control conversion date to convert some or all of the Series A Preferred Stock held by such holder on the change of control conversion
date into a number of shares of our common stock per share of Series A Preferred Stock equal to the quotient obtained by dividing
(i) the sum of the $25.00 liquidation preference per share of Series A Preferred Stock plus the amount of any accumulated and unpaid
dividends thereon to, but not including, the change of control conversion Date (unless the change of control conversion date is
after a dividend record date and prior to the corresponding dividend payment date for the Series A Preferred Stock, in which case
no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price, including
provisions for the receipt, under specified circumstances, of alternative consideration.
For purposes hereof, “Common Stock
Price” shall mean; means (i) if the consideration to be received in the Change of Control by the holders of shares of Common
Stock is solely cash, the amount of cash consideration per share of our common stock or (ii) if the consideration to be received
in the Change of Control by holders of shares of our common stock is other than solely cash (x) the average of the closing sale
prices per share of our common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or,
if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten (10) consecutive
trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal
U.S. national securities exchange on which our common stock is then traded, or (y) the average of the last quoted bid prices for
our common stock in the over-the-counter market as reported by OTC Market Group Inc. or similar organization for the ten consecutive
trading days immediately preceding, but not including, the effective date of the Change of Control, if our common stock is not
then listed for trading on a U.S. national securities exchange.
No Preemptive Rights
No holders of the Series A Preferred Stock
will, as holders of Series A Preferred Stock, have any preemptive rights to purchase or subscribe for our common stock or any other
security.
Change of Control
Provisions in our amended and restated
certificate of incorporation and bylaws may make it difficult and expensive for a third party to pursue a tender offer, change
in control or takeover attempt, which is opposed by management and the board of directors. See “Risk Factors — Provisions
of Delaware law, of our charter and bylaws may make a takeover more difficult, which could cause our stock price to decline.”
Book-Entry Procedures
DTC acts as securities depository for our
outstanding common stock and will also act as securities depository for the Series A Preferred Stock offered hereunder. With respect
to the Series A Preferred Stock offered hereunder, we will issue one or more fully registered global securities certificates in
the name of DTC’s nominee, Cede & Co. These certificates will represent the total aggregate number of shares of Series
A Preferred Stock. We will deposit these certificates with DTC or a custodian appointed by DTC. We will not issue certificates
to you for the shares of Series A Preferred Stock that you purchase, unless DTC’s services are discontinued as described
below.
Title to book-entry interests in the Series
A Preferred Stock will pass by book-entry registration of the transfer within the records of DTC in accordance with its procedures.
Book-entry interests in the securities may be transferred within DTC in accordance with procedures established for these purposes
by DTC. Each person owning a beneficial interest in shares of the Series A Preferred Stock must rely on the procedures of DTC and
the participant through which such person owns its interest to exercise its rights as a holder of the Series A Preferred Stock.
DTC has advised us that it is a limited-purpose
trust company organized under the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation”
within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants (“
Direct Participants
”) deposit
with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges
in deposited securities through electronic computerized book-entry changes in Direct Participants’ accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. Access to the DTC system is also available to others such as
securities brokers and dealers, including underwriters, banks and trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly (“
Indirect Participants
”). The rules applicable to
DTC and its Direct and Indirect Participants are on file with the SEC.
When you purchase shares of Series A Preferred
Stock within the DTC system, the purchase must be by or through a Direct Participant. The Direct Participant will receive a credit
for the Series A Preferred Stock on DTC’s records. You will be considered to be the “beneficial owner” of the
Series A Preferred Stock. Your beneficial ownership interest will be recorded on the Direct and Indirect Participants’ records,
but DTC will have no knowledge of your individual ownership. DTC’s records reflect only the identity of the Direct Participants
to whose accounts shares of Series A Preferred Stock are credited.
You will not receive written confirmation
from DTC of your purchase. The Direct or Indirect Participants through whom you purchased the Series A Preferred Stock should send
you written confirmations providing details of your transactions, as well as periodic statements of your holdings. The Direct and
Indirect Participants are responsible for keeping an accurate account of the holdings of their customers like you.
Transfers of ownership interests held through
Direct and Indirect Participants will be accomplished by entries on the books of Direct and Indirect Participants acting on behalf
of the beneficial owners.
Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants
to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be
in effect from time to time.
We understand that, under DTC’s existing
practices, in the event that we request any action of the holders, or an owner of a beneficial interest in a global security, such
as you, desires to take any action that a holder is entitled to take under our amended and restated certificate of incorporation
(including the certificate of designations designating the Series A Preferred Stock), DTC would authorize the Direct Participants
holding the relevant shares to take such action, and those Direct Participants and any Indirect Participants would authorize beneficial
owners owning through those Direct and Indirect Participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Any redemption notices with respect to
the Series A Preferred Stock will be sent to Cede & Co. If less than all of the outstanding shares of Series A Preferred Stock
are being redeemed, DTC will reduce each Direct Participant’s holdings of shares of Series A Preferred Stock in accordance
with its procedures.
In those instances where a vote is required,
neither DTC nor Cede & Co. itself will consent or vote with respect to the shares of Series A Preferred Stock. Under its usual
procedures, DTC would mail an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.’s consenting or voting rights to those Direct Participants whose accounts the shares of Series A Preferred Stock are
credited to on the record date, which are identified in a listing attached to the omnibus proxy.
Dividends on the Series A Preferred Stock
will be made directly to DTC’s nominee (or its successor, if applicable). DTC’s practice is to credit participants’
accounts on the relevant payment date in accordance with their respective holdings shown on DTC’s records unless DTC has
reason to believe that it will not receive payment on that payment date.
Payments by Direct and Indirect Participants
to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in “street name.” These payments will be the responsibility
of the participant and not of DTC, us or any agent of ours.
DTC may discontinue providing its services
as securities depositary with respect to the Series A Preferred Stock at any time by giving reasonable notice to us. Additionally,
we may decide to discontinue the book-entry only system of transfers with respect to the Series A Preferred Stock. In that event,
we will print and deliver certificates in fully registered form for the Series A Preferred Stock. If DTC notifies us that it is
unwilling to continue as securities depositary, or it is unable to continue or ceases to be a clearing agency registered under
the Exchange Act and a successor depositary is not appointed by us within 90 days after receiving such notice or becoming aware
that DTC is no longer so registered, we will issue the Series A Preferred Stock in definitive form, at our expense, upon registration
of transfer of, or in exchange for, such global security.
According to DTC, the foregoing information
with respect to DTC has been provided to the financial community for informational purposes only and is not intended to serve as
a representation, warranty or contract modification of any kind.
Global Clearance and Settlement Procedures
Initial settlement for the Series A Preferred
Stock will be made in immediately available funds. Secondary market trading among DTC’s participants will occur in the ordinary
way in accordance with DTC’s rules and will be settled in immediately available funds using DTC’s Same-Day Funds Settlement
System.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the
material U.S. federal income tax considerations that may be applicable to “U.S. holders” and “non-U.S. holders”
(each as defined below) with respect to the purchase, ownership and disposition of the Series A Preferred Stock offered by this
prospectus supplement. This discussion only applies to purchasers who purchase and hold the Series A Preferred Stock as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “
Code
”) (generally
property held for investment). This discussion does not describe all of the tax consequences that may be relevant to each purchaser
or holder of the Series A Preferred Stock in light of its particular circumstances.
This discussion is based upon provisions
of the Code, Treasury regulations, rulings and judicial decisions as of the date hereof. These authorities may change, perhaps
retroactively, which could result in U.S. federal income tax consequences different from those summarized below. This discussion
does not address all aspects of U.S. federal income taxation (such as the alternative minimum tax) and does not describe any foreign,
state, local or other tax considerations that may be relevant to a purchaser or holder of the Series A Preferred Stock in light
of their particular circumstances. In addition, this discussion does not describe the U.S. federal income tax consequences applicable
to a purchaser or a holder of the Series A Preferred Stock who is subject to special treatment under U.S. federal income tax laws
(including, a corporation that accumulates earnings to avoid U.S. federal income tax, a pass-through entity (such as a partnership
or a limited liability company taxed as a partnership) or an investor in a pass-through entity, a tax-exempt entity, pension or
other employee benefit plans, financial institutions or broker-dealers, persons holding the Series A Preferred Stock as part of
a hedging or conversion transaction or straddle, a person subject to the alternative minimum tax, an insurance company, former
U.S. citizens or former long-term U.S. residents). We cannot assure you that a change in law will not significantly alter the tax
considerations that we describe in this discussion.
If a partnership (or any other entity treated
as a partnership for U.S. federal income tax purposes) holds the Series A Preferred Stock, the U.S. federal income tax treatment
of a partner of that partnership generally will depend upon the status of the partner and the activities of the partnership. If
you are a partnership or a partner of a partnership holding the Series A Preferred Stock, you should consult your tax advisors
as to the particular U.S. federal income tax consequences of holding and disposing of the Series A Preferred Stock.
You should consult your own tax advisor
concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of these securities, as well as
any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of
changes in U.S. federal or other tax laws.
U.S. Holders
Subject to the qualifications set forth
above, the following discussion summarizes the material U.S. federal income tax considerations that may relate to the purchase,
ownership and disposition of the Series A Preferred Stock by “U.S. holders.” You are a “U.S. holder” if
you are a beneficial owner of Series A Preferred Stock and you are for U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created
or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source;
or
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a trust if it (i) is subject to the primary supervision of a court within the United States and
one or more United States persons have the authority to control all substantial decisions of the trust or (ii) has a valid election
in effect under applicable United States Treasury regulations to be treated as a United States person.
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Distributions in General
If distributions are made with respect
to the Series A Preferred Stock, such distributions will be treated as dividends to the extent of our current and accumulated earnings
and profits as determined under the Code. Any portion of a distribution that exceeds our current and accumulated earnings and profits
will first be applied to reduce a U.S. holder's tax basis in the Series A Preferred Stock on a share-by-share basis, and the excess
will be treated as gain from the disposition of the Series A Preferred Stock, the tax treatment of which is discussed below under
“Material U.S. Federal Income Tax Considerations — U.S. Holders: Disposition of Series A Preferred Stock, Including
Redemptions.”
Under current law, dividends received by
individual holders of the Series A Preferred Stock will be subject to a reduced maximum tax rate of 20% if such dividends are treated
as “qualified dividend income” for U.S. federal income tax purposes. The rate reduction does not apply to dividends
received to the extent that the individual shareholder elects to treat the dividends as “investment income,” which
may be offset against investment expenses. Furthermore, the rate reduction does not apply to dividends that are paid to individual
shareholders with respect to Series A Preferred Stock that is held for 60 days or less during the 121 day period beginning on the
date which is 60 days before the date on which the Series A Preferred Stock becomes ex-dividend (or where the dividend is attributable
to a period or periods in excess of 366 days, Series A Preferred Stock that is held for 90 days or less during the 181 day period
beginning on the date which is 90 days before the date on which the Series A Preferred Stock becomes ex-dividend). Also, if a dividend
received by an individual shareholder that qualifies for the rate reduction is an “extraordinary dividend” within the
meaning of Section 1059 of the Code (a dividend that equals or exceeds, in the case of preferred stock, 5% of the taxpayer's adjusted
basis in the stock), any loss recognized by such individual shareholder on a subsequent disposition of the stock will be treated
as long-term capital loss to the extent of such “extraordinary dividend,” irrespective of such shareholder's holding
period for the stock. In addition, dividends recognized by U.S. holders that are individuals could be subject to the 3.8% tax on
net investment income. Individual shareholders should consult their own tax advisors regarding the implications of these rules
in light of their particular circumstances.
Dividends received by corporate shareholders
generally will be eligible for the dividends-received deduction (which, along with corporate tax rates, has been reduced under
the 2017 Tax Cuts and Jobs Act). Generally, this deduction is allowed if the underlying stock is held for at least 46 days during
the 91 day period beginning on the date 45 days before the ex-dividend date of the stock, and for cumulative preferred stock with
an arrearage of dividends attributable to a period in excess of 366 days, the holding period is at least 91 days during the 181
day period beginning on the date 90 days before the ex-dividend date of the stock. Corporate shareholders of the Series A Preferred
Stock should also consider the effect of Section 246A of the Code, which reduces the dividends-received deduction allowed to a
corporate shareholder that has incurred indebtedness that is “directly attributable” to an investment in portfolio
stock such as preferred stock. If a corporate shareholder receives a dividend on the Series A Preferred Stock that is an “extraordinary
dividend” within the meaning of Section 1059 of the Code, the shareholder in certain instances must reduce its basis in the
Series A Preferred Stock by the amount of the “nontaxed portion” of such “extraordinary dividend” that
results from the application of the dividends-received deduction. If the “nontaxed portion” of such “extraordinary
dividend” exceeds such corporate shareholder's basis, any excess will be taxed as gain as if such shareholder had disposed
of its shares in the year the “extraordinary dividend” is paid. Each domestic corporate holder of the Series A Preferred
Stock is urged to consult with its tax advisors with respect to the eligibility for and the amount of any dividends received deduction
and the application of Code Section 1059 to any dividends it may receive on the Series A Preferred Stock.
Constructive Distributions on Series
A Preferred Stock.
A distribution by a corporation of its stock deemed made with respect to its preferred stock is treated
as a distribution of property to which Section 301 of the Code applies. If a corporation issues preferred stock that may be redeemed
at a price higher than its issue price, the excess (a “redemption premium”) is treated under certain circumstances
as a constructive distribution (or series of constructive distributions) of additional preferred stock. The constructive distribution
of property equal to the redemption premium would accrue without regard to the holder's method of accounting for U.S. federal income
tax purposes at a constant yield determined under principles similar to the determination of original issue discount (“
OID
”)
pursuant to Treasury regulations under Sections 1271 through 1275 of the Code (the “
OID Rules
”). The constructive
distributions of property would be treated for U.S. federal income tax purposes as actual distributions of the Series A Preferred
Stock that would constitute a dividend, return of capital or capital gain to the holder of the stock in the same manner as cash
distributions described under “Material U.S. Federal Income Tax Considerations — U.S. Holders: Distributions in General.”
The application of principles similar to those applicable to debt instruments with OID to a redemption premium for the Series A
Preferred Stock is uncertain.
We have the right to call the Series A
Preferred Stock for redemption on or after September 30, 2023 (the “call option”), and have the option to redeem the
Series A Preferred Stock upon any Change of Control (the “contingent call option”). The stated redemption price of
the Series A Preferred Stock upon any redemption pursuant to our call option or contingent call option is equal to the liquidation
preference of the Series A Preferred Stock (i.e., $25.00, plus accrued and unpaid dividends) and is payable in cash.
If the redemption price of the Series A
Preferred Stock exceeds the issue price of the Series A Preferred Stock upon any redemption pursuant to our call option or contingent
call option, the excess will be treated as a redemption premium that may result in certain circumstances in a constructive distribution
or series of constructive distributions to U.S. holders of additional Series A Preferred Stock. The redemption price for the Series
A Preferred Stock should be the liquidation preference of the Series A Preferred Stock. Assuming that the issue price of the Series
A Preferred Stock is determined under principles similar to the OID Rules, the issue price for the Series A Preferred Stock should
be the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of the Series A Preferred
Stock is sold.
A redemption premium for the Series A Preferred
Stock should not result in constructive distributions to U.S. holders of the Series A Preferred Stock if the redemption premium
is less than a de-minimis amount as determined under principles similar to the OID Rules. A redemption premium for the Series A
Preferred Stock should be considered de-minimis if such premium is less than .0025 of the Series A Preferred Stock's liquidation
value of $25.00 at maturity, multiplied by the number of complete years to maturity. Because the determination under the OID Rules
of a maturity date for the Series A Preferred Stock is unclear, the remainder of this discussion assumes that the Series A Preferred
Stock is issued with a redemption premium greater than a de- minimis amount.
The call option should not require constructive
distributions of the redemption premium, if based on all of the facts and circumstances as of the issue date, a redemption pursuant
to the call option is not more likely than not to occur. The Treasury regulations provide that an issuer's right to redeem will
not be treated as more likely than not to occur if: (i) the issuer and the holder of the stock are not related within the meaning
of Section 267(b) or Section 707(b) of the Code (substituting “20%” for the phrase “50%); (ii) there are no plans,
arrangements, or agreements that effectively require or are intended to compel the issuer to redeem the stock; and (iii) exercise
of the right to redeem would not reduce the yield on the stock determined using principles applicable to the determination of OID
under the OID Rules. The fact that a redemption right is not within the safe harbor described in the preceding sentence does not
mean that an issuer's right to redeem is more likely than not to occur and the issuer's right to redeem must still be tested under
all the facts and circumstances to determine if it is more likely than not to occur. We do not believe that a redemption pursuant
to the call option should be treated as more likely than not to occur under the foregoing test. Accordingly, no U.S. holder of
the Series A Preferred Stock should be required to recognize constructive distributions of the redemption premium because of our
call option.
Disposition of Series A Preferred Stock,
Including Redemptions
Upon any sale, exchange, redemption (except
as discussed below) or other disposition of the Series A Preferred Stock, a U.S. holder will recognize capital gain or loss equal
to the difference between the amount realized by the U.S. holder and the U.S. holder's adjusted tax basis in the Series A Preferred
Stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder's holding period for the Series A Preferred
Stock is longer than one year. A U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting
rules for capital gains and losses. Certain limitations exist on the deduction of capital losses by both corporate and non-corporate
taxpayers. In addition, gains recognized by U.S. holders that are individuals could be subject to the 3.8% tax on net investment
income.
A redemption of shares of the Series A
Preferred Stock will generally be a taxable event. If the redemption is treated as a sale or exchange, instead of a dividend, a
U.S. holder will recognize capital gain or loss (which will be long-term capital gain or loss, if the U.S. holder's holding period
for such Series A Preferred Stock exceeds one year) equal to the difference between the amount realized by the U.S. holder and
the U.S. holder's adjusted tax basis in the Series A Preferred Stock redeemed, except to the extent that any cash received is attributable
to any accrued but unpaid dividends on the Series A Preferred Stock, which will be subject to the rules discussed above in “Material
U.S. Federal Income Tax Considerations — U.S. Holders: Distributions in General.” A payment made in redemption of Series
A Preferred Stock will be treated as a dividend, rather than as payment in exchange for the Series A Preferred Stock, unless the
redemption:
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is “not essentially equivalent to a dividend” with respect to a U.S. holder under Section
302(b)(1) of the Code;
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is a “substantially disproportionate” redemption with respect to a U.S. holder under
Section 302(b)(2) of the Code;
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results in a “complete redemption” of a U.S. holder's stock interest in the company
under Section 302(b)(3) of the Code; or
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is a redemption of stock held by a non-corporate shareholder, which results in a partial liquidation
of the company under Section 302(b)(4) of the Code.
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In determining whether any of these tests
has been met, a U.S. holder must take into account not only shares of the Series A Preferred Stock and the common stock that the
U.S. Holder actually owns, but also shares of stock that the U.S. holder constructively owns within the meaning of Section 318
of the Code.
A redemption payment will be treated as
“not essentially equivalent to a dividend” if it results in a “meaningful reduction” in a U.S. holder's
aggregate stock interest in the company, which will depend on the U.S. holder's particular facts and circumstances at such time.
If the redemption payment is treated as a dividend, the rules discussed above in “Material U.S. Federal Income Tax Considerations
— U.S. Holders: Distributions in General” apply.
Satisfaction of the “complete redemption”
and “substantially disproportionate” exceptions is dependent upon compliance with the objective tests set forth in
Section 302(b)(3) and Section 302(b)(2) of the Code, respectively. A redemption will result in a “complete redemption”
if either all of the shares of our stock actually and constructively owned by a U.S. holder are exchanged in the redemption or
all of the shares of our stock actually owned by the U.S. holder are exchanged in the redemption and the U.S. holder is eligible
to waive, and the U.S. holder effectively waives, the attribution of shares of our stock constructively owned by the U.S. holder
in accordance with the procedures described in Section 302(c)(2) of Code. A redemption does not qualify for the “substantially
disproportionate” exception if the stock redeemed is only non-voting stock, and for this purpose, stock which does not have
voting rights until the occurrence of an event is not voting stock until the occurrence of the specified event. Accordingly, any
redemption of the Series A Preferred Stock generally will not qualify for this exception because the voting rights are limited
as provided in the “Description of Series A Preferred Stock-Voting Rights.” For purposes of the “redemption from
non- corporate shareholders in a partial liquidation” test, a distribution will be treated as in partial liquidation of a
corporation if the distribution is not essentially equivalent to a dividend (determined at the corporate level rather than the
shareholder level) and the distribution is pursuant to a plan and occurs within the taxable year in which the plan was adopted
or within the succeeding taxable year. For these purposes, a distribution is generally not essentially equivalent to a dividend
if the distribution results in a corporate contraction. The determination of what constitutes a corporate contraction is factual
in nature, and has been interpreted under case law to include the termination of a business or line of business. Each U.S. holder
of the Series A Preferred Stock should consult its own tax advisors to determine whether a payment made in redemption of the Series
A Preferred Stock will be treated as a dividend or a payment in exchange for the Series A Preferred Stock. If the redemption payment
is treated as a dividend, the rules discussed above in “Material U.S. Federal Income Tax Considerations — U.S. Holders:
Distributions in General” apply. Under proposed Treasury regulations, if any amount received by a U.S. holder in redemption
of Series A Preferred Stock is treated as a distribution with respect to such holder's Series A Preferred Stock, but not as a dividend,
such amount will be allocated to all shares of the Series A Preferred Stock held by such holder immediately before the redemption
on a pro rata basis. The amount applied to each share will reduce such holder's adjusted tax basis in that share and any excess
after the basis is reduced to zero will result in taxable gain. If such holder has different bases in shares of the Series A Preferred
Stock, then the amount allocated could reduce a portion of the basis in certain shares while reducing all of the basis, and giving
rise to taxable gain, in other shares. Thus, such holder could have gain even if such holder's aggregate adjusted tax basis in
all shares of the Series A Preferred Stock held exceeds the aggregate amount of such distribution.
The proposed Treasury regulations permit
the transfer of basis in the redeemed shares of the Series A Preferred Stock to the holder's remaining, unredeemed Series A Preferred
stock (if any), but not to any other class of stock held, directly or indirectly, by the holder. Any unrecovered basis in the Series
A Preferred Stock would be treated as a deferred loss to be recognized when certain conditions are satisfied. The proposed Treasury
regulations would be effective for transactions that occur after the date the regulations are published as final Treasury regulations.
There can, however, be no assurance as to whether, when and in what particular form such proposed Treasury regulations are ultimately
finalized.
Information Reporting and Backup Withholding
Information reporting and backup withholding
may apply with respect to payments of dividends on the Series A Preferred Stock and to certain payments of proceeds on the sale
or other disposition of the Series A Preferred Stock. Certain non-corporate U.S. holders may be subject to U.S. backup withholding
(currently at a rate of 24%) on payments of dividends on the Series A Preferred Stock and certain payments of proceeds on the sale
or other disposition of the Series A Preferred Stock unless the beneficial owner thereof furnishes the payor or its agent with
a taxpayer identification number, certified under penalties of perjury, and certain other information, or otherwise establishes,
in the manner prescribed by law, an exemption from backup withholding. U.S. backup withholding tax is not an additional tax. Any
amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder's U.S. federal
income tax liability, which may entitle the U.S. holder to a refund, provided the U.S. holder timely furnishes the required information
to the Internal Revenue Service.
Non-U.S. Holders
Subject to the qualifications set forth
above under the caption “Material U.S. Federal Income Tax Considerations,” the following discussion summarizes the
material U.S. federal income tax consequences of the purchase, ownership and disposition of the Series A Preferred Stock by certain
“Non-U.S. holders.” You are a “Non-U.S. holder” if you are a beneficial owner of the Series A Preferred
Stock and you are not a “U.S. holder.”
Distributions on the Series A Preferred
Stock. If distributions are made with respect to the Series A Preferred Stock, such distributions will be treated as dividends
to the extent of our current and accumulated earnings and profits as determined under the Code and may be subject to withholding
as discussed below. Any portion of a distribution that exceeds our current and accumulated earnings and profits will first be applied
to reduce the Non-U.S. holder's basis in the Series A Preferred Stock and, to the extent such portion exceeds the Non-U.S. holder's
basis, the excess will be treated as gain from the disposition of the Series A Preferred Stock, the tax treatment of which is discussed
below under “Material U.S. Federal Income Tax Considerations — Non-U.S. Holders: Disposition of Series A Preferred
Stock, Including Redemptions.” (Different rules would apply if we were to be classified as a U.S. real property holding corporation
(“
USRPHC
”), but we do not expect to be so classified.)
Dividends paid to a Non-U.S. holder of
the Series A Preferred Stock will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade
or business by the Non-U.S. holder within the United States (and, where a tax treaty applies, are attributable to a permanent establishment
maintained by the Non-U.S. holder in the United States) are not subject to the withholding tax, provided that certain certification
and disclosure requirements are satisfied including completing Internal Revenue Service Form W-8ECI (or other applicable form).
Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. holder
were a United States person as defined under the Code, unless an applicable income tax treaty provides otherwise. Any such effectively
connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty. A Non-U.S. holder of the Series A Preferred Stock
who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will
be required to (i) complete Internal Revenue Service Form W-8BEN or Form W-8BEN-E (or other applicable form) and certify under
penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits,
or (ii) if the Series A Preferred Stock is held through certain foreign intermediaries, satisfy the relevant certification requirements
of applicable Treasury regulations. A Non-U.S. holder of the Series A Preferred Stock eligible for a reduced rate of U.S. withholding
tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for
refund with the Internal Revenue Service.
Disposition of Series A Preferred Stock,
Including Redemptions
Any gain realized by a Non-U.S. holder
on the disposition of the Series A Preferred Stock will not be subject to U.S. federal income or withholding tax unless:
• the gain
is effectively connected with a trade or business of the Non-U.S. holder in the United States (and, if required by an applicable
income tax treaty, is attributable to a permanent establishment maintained by the Non-U.S. holder in the United States);
• the Non-U.S.
holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition, and certain
other conditions are met; or
• in the
case of more than 5% stockholders, we are or have been a USRPHC.
A Non-U.S. holder described in the first
bullet point immediately above will generally be subject to tax on the net gain derived from the sale under regular graduated U.S.
federal income tax rates in the same manner as if the Non-U.S. holder were a United States person as defined under the Code, and
if it is a corporation, may also be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits
or at such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. holder described in the second
bullet point immediately above will be subject to a flat 30% tax (or at such reduced rate as may be provided by an applicable treaty)
on the gain derived from the sale, which may be offset by U.S. source capital losses, even though the individual is not considered
a resident of the United States. A Non-U.S. holder described in the third bullet point above will be subject to U.S. federal income
tax under regular graduated U.S. federal income tax rates with respect to the gain recognized in the same manner as if the Non-U.S.
holder were a United States person as defined under the Code. If a Non-U.S. holder is subject to U.S. federal income tax on any
sale, exchange, redemption (except as discussed below), or other disposition of the Series A Preferred Stock, such a Non-U.S. holder
will recognize capital gain or loss equal to the difference between the amount realized by the Non-U.S. holder and the Non-U.S.
holder's adjusted tax basis in the Series A Preferred Stock. Such capital gain or loss will be long-term capital gain or loss if
the Non-U.S. holder's holding period for the Series A Preferred Stock is longer than one year. A Non-U.S. holder should consult
its own tax advisors with respect to applicable tax rates and netting rules for capital gains and losses. Certain limitations exist
on the deduction of capital losses by both corporate and non-corporate taxpayers. If a Non-U.S. holder is subject to U.S. federal
income tax on any disposition of the Series Preferred Stock, a redemption of shares of the Series A Preferred Stock will be a taxable
event. If the redemption is treated as a sale or exchange, instead of a dividend, a Non-U.S. holder generally will recognize long-term
capital gain or loss, if the Non-U.S. holder's holding period for such Series A Preferred Stock exceeds one year, equal to the
difference between the amount of cash received and fair market value of property received and the Non-U.S. holder's adjusted tax
basis in the Series A Preferred Stock redeemed, except that to the extent that any cash received is attributable to any accrued
but unpaid dividends on the Series A Preferred Stock, which generally will be subject to the rules discussed above in “Material
U.S. Federal Income Tax Considerations — Non-U.S. Holders: Distributions on the Series A Preferred Stock.” A payment
made in redemption of the Series A Preferred Stock may be treated as a dividend, rather than as payment in exchange for the Series
A Preferred Stock, in the same circumstances discussed above under “Material U.S. Federal Income Tax Considerations —
U.S. Holders: Disposition of Series A Preferred Stock, Including Redemptions.” Each Non-U.S. holder of the Series A Preferred
Stock should consult its own tax advisors to determine whether a payment made in redemption of the Series A Preferred Stock will
be treated as a dividend or as payment in exchange for the Series A Preferred Stock.
Information reporting and backup withholding
We must report annually to the Internal
Revenue Service and to each Non-U.S. holder the amount of dividends paid to such Non-U.S. holder and the tax withheld with respect
to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in which the Non-U.S. holder resides under the provisions
of an applicable income tax treaty. A Non-U.S. holder will not be subject to backup withholding on dividends paid to such Non-U.S.
holder as long as such Non-U.S. holder certifies under penalty of perjury that it is a Non-U.S. holder (and the payor does not
have actual knowledge or reason to know that such Non-U.S. holder is a United States person as defined under the Code), or such
Non-U.S. holder otherwise establishes an exemption. Depending on the circumstances, information reporting and backup withholding
may apply to the proceeds received from a sale or other disposition of the Series A Preferred Stock unless the beneficial owner
certifies under penalty of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
U.S. backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as
a refund or a credit against a Non-U.S. holder's U.S. federal income tax liability provided the required information is timely
furnished to the Internal Revenue Service.
Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code
(provisions which are commonly referred to as “
FATCA
”), generally impose a 30% withholding tax on dividends
on Series A Preferred Stock paid on or after July 1, 2014 and the gross proceeds of a sale or other disposition of Series A Preferred
Stock paid on or after January 1, 2019 to: (i) a foreign financial institution (as that term is defined in Section 1471(d)(4) of
the Code) unless that foreign financial institution enters into an agreement with the U.S. Treasury Department to collect and disclose
information regarding U.S. account holders of that foreign financial institution (including certain account holders that are foreign
entities that have U.S. owners) and satisfies other requirements; and (ii) specified other foreign entities unless such an entity
certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer identification number of
each substantial U.S. owner and such entity satisfies other specified requirements. Non-U.S. holders should consult their own tax
advisors regarding the application of FATCA to them and whether it may be relevant to their purchase, ownership and disposition
of Series A Preferred Stock.
PLAN OF DISTRIBUTION
This is a self-underwritten offering. This
prospectus supplement is part of a registration statement that permits our officers and directors to sell the shares directly to
the public, with no commission or other remuneration payable to any of them for any shares that are sold by them. We
may also engage registered broker-dealers to offer and sell the shares. We may pay any such registered persons who make such sales
a commission of up to 6% of the sale price of shares sold, and provide the registered persons a non-accountable expense allowance
of up to 3% of the sale price of shares sold. However, we have not entered into any underwriting agreement, arrangement or
understanding for the sale of the shares being offered. In the event we retain a broker who may be deemed an underwriter,
we will file a prospectus supplement with the Securities and Exchange Commission. This offering is intended to be made solely by
the delivery of this prospectus supplement and the accompanying subscription agreement to prospective investors. We may terminate
this offering prior to the expiration date. Our officers and directors will sell the shares and intend to offer them to friends,
family members, business acquaintances, and interested parties from whom we receive a response through
www.monthlyinterest.com
.
In offering the securities on our behalf, our directors and officers will rely on the safe harbor from broker dealer registration
set out in Rule 3a4-1 under the Securities Exchange Act of 1934.
Rule 3a4-1 sets forth those conditions
under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed
to be a broker-dealer. Those conditions are as follows:
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a.
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Our officers and directors are not subject to a statutory disqualification, as that term is defined
in Section 3(a)(39) of the Act, at the time of their participation;
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b.
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Our officers and directors will not be compensated in connection with their participation by the
payment of commissions or other remuneration based either directly or indirectly on transactions in securities; and
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c.
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Our officers and directors are not, nor will they be at the time of their participation in the
offering, an associated person of a broker-dealer; and
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d.
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Our officers and directors meet the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange
Act, in that they (A) primarily perform, or intend primarily to perform at the end of the offering, substantial duties for or on
behalf of our Company, other than in connection with transactions in securities; and (B) are not a broker or dealer, or been associated
person of a broker or dealer, within the preceding twelve months; and (C) have not participated in selling and offering securities
for any Issuer more than once every twelve months other than in reliance on Paragraphs (a)(4)(i) and (a)(4)(iii).
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Our officers, directors, control persons
and affiliates of same do not intend to purchase any shares in this offering.
www.monthlyinterest.com
is a website that advertises debt and preferred offerings to the public. Any potential investor will have ample time to review
the prospectus supplement prior to making a final investment decision.
LEGAL MATTERS
The validity of the securities being offered
by this prospectus supplement will be passed upon for us by Sichenzia Ross Ference LLP, New York, New York.
EXPERTS
The consolidated financial statements incorporated
in this prospectus supplement by reference from our Annual Report on Form 10-K for the year ended December 31, 2017, have been
so incorporated in reliance on the report of Marcum, LLP, an independent registered public accounting firm, incorporated herein
by reference, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus supplement and the accompanying
prospectus are part of the registration statement on Form S-3 we filed with the SEC under the Securities Act and do not contain
all the information set forth in the registration statement. Whenever a reference is made in this prospectus supplement or the
accompanying prospectus to any of our contracts, agreements or other documents, the reference may not be complete and you should
refer to the exhibits that are a part of the registration statement or the exhibits to the reports or other documents incorporated
by reference in this prospectus supplement and the accompanying prospectus for a copy of such contract, agreement or other document.
Because we are subject to the information and reporting requirements of the Exchange Act, we file annual, quarterly and current
reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at
the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room.
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE
The SEC allows us to “incorporate
by reference” information from other documents that we file with it, which means that we can disclose important information
to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus
supplement and the accompanying prospectus. Information contained in this prospectus supplement and the accompanying prospectus
and information that we file with the SEC in the future and incorporate by reference in this prospectus supplement and the accompanying
prospectus will automatically update and supersede this information. We incorporate by reference the documents listed below and
any future filings (other than information in current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed
on such form that are related to such items) we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
after the date of the prospectus supplement and prior to the termination of the offering of the securities covered by this prospectus
supplement:
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Our Annual Report on Form 10-K for the period ended December 31, 2017;
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Quarterly Reports on Form 10-Q for the quarter ended March 31, 2018;
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·
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Current Reports on Form 8-K filed with the SEC on January 2, 2018, January 16, 2018, January 22,
2018, January 24, 2018, January 25, 2018, January 31, 2018, February 1, 2018, February 12, 2018, February 27, 2018, March 9, 2018,
March 23, 2018, March 26, 2018, March 27, 2018, April 13, 2018, April 16, 2018, April 25, 2018, May 9, 2018, both reports filed
on May 16, 2018, May 23, 2018 May 24, 2018, June 5, 2018, June 6, 2018, June 11, 2018, all three reports filed on June 18, 2018,
both reports filed on July 2, 2018, July 17, 2018, July 23, 2018, both reports filed on July 30, 2018, August 1, 2018, August 3,
2018, August 15, 2018, August 16, 2018, August 23, 2018, both reports filed on September 4, 2018, September 5, 2018, September
6, 2018; and
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Our proxy statement dated November 17, 2017, and
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·
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The description of our common stock contained in Form 8-A.
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We will furnish without charge to you,
upon written or oral request, a copy of any or all of the documents incorporated by reference, including exhibits to these documents.
You should direct any requests for documents to: DPW Holdings, Inc., 201 Shipyard Way, Newport Beach, CA 92663; Tel.: (949) 444-5464;
Attention: Milton C. Ault III, Chief Executive Officer.
In accordance with Rule 412 of the Securities
Act, any statement contained in a document incorporated by reference herein shall be deemed modified or superseded to the extent
that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement.
The
information in this prospectus is not complete and may be changed. We may not sell these securities under this prospectus
until the registration statement of which it is a part and filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
SUBJECT
TO COMPLETION, DATED JANUARY 8, 2018
$100,000,000
Common
Stock
Preferred
Stock
Warrants
Units
We
may offer and sell, from time to time in one or more offerings, any combination of common stock, preferred stock, warrants, or
units having an aggregate initial offering price not exceeding $100,000,000. The preferred stock, warrants, and units may be convertible
or exercisable or exchangeable for common stock or preferred stock or other securities of ours.
Each
time we sell a particular class or series of securities, we will provide specific terms of the securities offered in a supplement
to this prospectus. The prospectus supplement may also add, update or change information in this prospectus. You should
read this prospectus and any prospectus supplement, as well as the documents incorporated by reference or deemed to be incorporated
by reference into this prospectus, carefully before you invest in any securities.
This
prospectus may not be used to offer or sell our securities unless accompanied by a prospectus supplement relating to the offered
securities.
Our
common stock is presently listed on the NYSE American under the symbol “DPW”. On January 2, 2018, the last reported
sale price of our common stock was $3.50.
These
securities may be sold directly by us, through dealers or agents designated from time to time, to or through underwriters or dealers
or through a combination of these methods on a continuous or delayed basis. See “Plan of Distribution” in this
prospectus. We may also describe the plan of distribution for any particular offering of our securities in a prospectus supplement.
If any agents, underwriters or dealers are involved in the sale of any securities in respect of which this prospectus is being
delivered, we will disclose their names and the nature of our arrangements with them in a prospectus supplement. The net proceeds
we expect to receive from any such sale will also be included in a prospectus supplement.
INVESTING
IN OUR SECURITIES INVOLVES VARIOUS RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 4 OF THIS PROSPECTUS AND IN THE
APPLICABLE PROSPECTUS SUPPLEMENT, AS UPDATED IN OUR FUTURE FILINGS MADE WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ARE INCORPORATED
BY REFERENCE INTO THIS PROSPECTUS. YOU SHOULD CAREFULLY READ AND CONSIDER THESE RISK FACTORS BEFORE YOU INVEST IN OUR SECURITIES.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This
prospectus is dated January
, 2018
TABLE OF CONTENTS
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Page
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About this Prospectus
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1
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Our Business
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1
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Risk Factors
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4
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Disclosure Regarding Forward-Looking Statements
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12
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Use of Proceeds
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13
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The Securities We may Offer
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13
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Description of Capital Stock
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13
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Description of Warrants
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14
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Description of Units
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16
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Plan of Distribution
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17
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Legal Matters
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18
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Experts
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18
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Where you can find more Information
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18
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Incorporation of Documents by Reference
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19
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EXPLANATORY
NOTE
This
Amendment No. 1 to Form S-3 is being filed principally for the purpose of reflecting the registrant’s reincorporation from
California to Delaware. The reincorporation occurred by virtue of the merger of Digital Power Corporation, a California corporation,
with and into its then subsidiary DPW Holdings, Inc., a Delaware corporation.
ABOUT
THIS PROSPECTUS
This
prospectus is part of a shelf registration statement that we filed with the Securities and Exchange Commission (the “Commission”)
using a “shelf” registration process. Under this shelf registration process, we may sell any combination of the securities
described in this prospectus in one or more offerings from time to time having an aggregate initial offering price of $100,000,000.
This prospectus provides you with a general description of the securities we may offer. Each time we offer securities, we will
provide you with a prospectus supplement that describes the specific amounts, prices and terms of the securities we offer. The
prospectus supplement also may add, update or change information contained in this prospectus. You should read carefully both this
prospectus and any prospectus supplement together with additional information described below under the caption “Where You
Can Find More Information.”
This
prospectus does not contain all the information provided in the registration statement we filed with the Commission. You should
read both this prospectus, including the section titled “Risk Factors,” and the accompanying prospectus supplement,
together with the additional information described under the heading “Where You Can Find More Information.”
You
should rely only on the information contained or incorporated by reference in this prospectus or a prospectus supplement. We have
not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an offer to sell securities, and it is not soliciting an offer to
buy securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in
this prospectus or any prospectus supplement, as well as information we have previously filed with the Commission and incorporated
by reference, is accurate as of the date on the front of those documents only. Our business, financial condition, results of operations
and prospects may have changed since those dates.
OUR
BUSINESS
Except
where the context otherwise requires, the terms, “we,” “us,” “our” or “the Company,”
refer to the business of DPW Holdings, Inc., a Delaware corporation and its wholly-owned subsidiaries.
Overview
We
are a growth company seeking to increase our revenues through acquisitions. Our strategy reflects our management and Board’s
current philosophy that occurred as a result of a change in control completed in September 2016. Our acquisition and development
target strategy includes companies that have developed a “new way of doing business” in mature, well-developed industries
experiencing changes due to new technology; companies that may become profitable or more profitable through efficiency and reduction
of costs; companies that are related to our core business in the commercial and defense industries; and companies that will enhance
our overall revenues. It is our goal to substantially increase our gross revenues in the near future.
We
were originally a solution-driven organization that designs, develops, manufactures and sells high-grade customized and flexible
power system solutions for the medical, military, telecom and industrial markets. Although we intend to seek growth through acquisitions,
we will continue to 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
also have operations located in Europe through our wholly-owned subsidiary, Digital Power Limited (“DPL”), Salisbury,
England, which operates under the brand name of “Gresham Power Electronics” (“Gresham”). DPL 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 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.
On
June 2, 2017, we completed the acquisition of a 56.4% majority interest in Microphase Corp. (“Microphase”) Microphase
is a customer-driven supplier of advanced electronic technology solutions serving applications from DC to 100 GHz across a diverse
mix of markets. Microphase designs, develops and manufactures standard and customized state-of-the-art RF, Microwave, and Millimeter-wave
components, devices, subsystems and integrated modules for the worldwide commercial wireless infrastructure, defense & aerospace,
satellite, wireless multimedia and consumer electronics, public safety and homeland/global security markets.
In
addition, on September 1, 2017, Coolisys Technologies, Inc. (“Coolisys”), a Delaware corporation and wholly owned subsidiary
of DPW Holdings, Inc. (the ‘Company”), completed the acquisition of all of the Membership Interests of Power Plus Technical
Distributors LLC. Power-Plus Technical Distributors is an industrial distributor of value added power supply solutions, UPS
systems, fans, filters, line cords, and other power-related components. As a result of the acquisition, Power Plus Technical
Distributors has become a subsidiary of Coolisys.
On
August 16, 2017, the Company approved the issuance and sale of (i) 272,727 shares of our common stock at a purchase price equal
to $0.55 per share and (ii) warrants to purchase up to 272,727 shares of our common stock at $0.65 per share to two shareholders
for an aggregate purchase price of $150,000. These shares and warrants have yet to be issued by the Company and are subject to
approval from the NYSE American prior to issuance. In addition, the Company is obligated to issue to Spartan Capital 100,000 shares
of our common stock for capital advisory services.
In
October 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 at $0.60 per share for an aggregate purchase price of $45,000. These shares and warrants have yet to be issued by
the Company and are subject to approval from the NYSE American prior to issuance.
Also,
in October 2017, William Gordon, the Company’s Vice President, purchased 128,806 shares of our common stock at $0.67 for
cancellation of $93,000 in debt that was owed to Mr. Gordon in connection with the Company’s acquisition of Power Plus Technical
Distributors LLC. These shares were issued to Mr. Gordon under the Company’s shelf registration statement (Reg. No. 333-215834).
On
November 2, 2017, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional
investor (the “Purchaser”), pursuant to which the we agreed 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 $1,010,000 with a principal face amount of $1,111,000 and (ii) at the second closing,
an additional 10% Original Issue Discount Convertible Debenture for an aggregate purchase price of $990,000 with an aggregate principal
face amount of $1,089,000.
On
November 7, 2017, we entered into subscription agreements with investors, under which we agreed to issue and sell 725,000 shares
of common stock to the investors at $0.60 per share for an aggregate purchase price of $435,000. $180,000 of the aggregate purchase
price was paid in cash and $255,000 was in consideration for the cancellation of debt incurred by the Company.
On
December 4, 2017, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional
investor (the “Purchaser”), pursuant to which we agreed to issue and sell to the Purchaser 150,000 shares of restricted
common stock of the Company (the “Restricted Shares”) and a 10% Original Issue Discount Convertible Debenture for a
purchase price of $500,000 with a principal face amount of $550,000. The Purchase Agreement closed on December 14, 2017.
On
December 5, 2017, we entered into an exchange agreement (the “Exchange Agreement”) with WT Johnson & Sons (Huddersfield)
Limited (the “Holder”), pursuant to which we issued to the Holder, (a) a convertible promissory note in the principal
amount of $600,000 (“Note A”), and (b) a convertible promissory note in the principal amount of $1,667,766 (“Note
B”), in exchange for cancellation of (i) an outstanding loan made by the Holder to MTIX Ltd., an indirect wholly owned subsidiary
of the Company (“MTIX”), in the amount of $265,666; and (ii) cancellation of an aggregate of $2,002,500 owed by us
to the Holder pursuant to an Agreement for the Sale and Purchase of the Textile Multi-Laser Enhancement Technology Machine dated
as of July 21, 2017 by and between MTIX and the Holder. The Exchange Agreement closed on December 13, 2017.
On
December 5, 2017, we entered into an exchange agreement (the “Agreement”) with several accredited investors (each,
an “Investor” and collectively, the “Investor”), pursuant to which we issued to each of the Investors,
(a) shares of common stock, no par value (the “Conversion Shares”), and (b) a warrant (the “Warrant”) to
purchase shares of common stock (the “Warrant Shares”), in exchange for cancellation of outstanding debt owed to the
Investors by Microphase in the amount of $690,000. Pursuant to the terms of the Agreement, the Investors were entitled to 10% interest
payable on the debt until August 31, 2017 and an additional premium of 25%, resulting in an aggregate amount of debt of $896,939
(the “Debt”). The number of Conversion Shares issuable to each Investor was derived by dividing the individual’s
portion of the Debt by the 10-day trailing volume-weighted average price ending on August 4, 2017, resulting in the issuance of
an aggregate of 1,523,852 Conversion Shares. Each Investor was entitled to receive a Warrant to purchase that number of Warrant
Shares equal to 25% of the Conversion Shares the Investor was issued. Each Warrant is exercisable for $1.10 per share, carries
a term of three years, is exercisable on a cashless basis and contains standard anti-dilution provisions. The Agreement provides
for registration rights under the Securities Act of 1933, as amended for the Conversion Shares and the Warrant Shares. The Agreement
closed on December 13, 2017.
On
December 5, 2017, we entered into a subscription agreement with one investor (the “Direct Offering”) for the sale of
640,000 shares of common stock at $1.25 per share for the aggregate purchase price of $800,000. The Direct Offering was consummated
on December 13, 2017.
On
December 28, 2017, at the Annual Meeting of Shareholders of DPW Holdings, Inc., then known as Digital Power Corporation, the Company’s
shareholders approved a number of proposals, including the reincorporation of the Company from California to Delaware (“Reincorporation”).
The effective date of the Reincorporation was December 29, 2017. Upon consummation of the Reincorporation, the daily business
operations of the Company continued as they were conducted by its predecessor immediately prior to the Reincorporation and the
officers and directors of the predecessor became the officers and directors of the Company, except that Milton C. Ault III became
the Company’s Chief Executive Officer whereas Amos Kohn remained as its President and Chief Financial Officer. The Reincorporation
did not affect any of the Company’s material contracts with any third parties, and the Company’s rights and obligations
under such material contractual arrangements continue to be rights and obligations of the Company after the Reincorporation. The
Reincorporation did not result in any change in headquarters, business, jobs, management, location of any of the offices or facilities,
number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation) of
the Company.
On
December 31, 2017, CooliSys Technologies Inc. (“Coolisys”), a Delaware corporation and wholly owned subsidiary of the
Company, entered into a Share Purchase Agreement (the “Agreement”) with Micronet Enertec Technologies, Inc. (“MICT”),
a Delaware corporation, Enertec Management Ltd., an Israeli corporation and wholly owned subsidiary of MICT (“EML”
and, together with MICT, the “Seller Parties”), and Enertec Systems 2001 Ltd. (“Enertec”), an Israeli corporation
and wholly owned subsidiary of EML, pursuant to which Coolisys shall acquire Enertec, subject to the terms and conditions set forth
in the Agreement. The purchase price consists of a cash payment of $5,250,000 and the assumption of $4,000,000 in Enertec’s
liabilities, with the cash portion to be adjusted for any increase or decrease of the $4,000,000 in liabilities.
Corporate
Information
Our
corporate name is DPW Holdings, Inc. for both legal and commercial purposes. We are located at 48430 Lakeview Blvd., Fremont, California,
94538-3158 (telephone number (510) 657-2635). Our website address is www.dpwholdings.com. The information on our website does not
constitute part of this prospectus. We have included our website address as a factual reference and do not intend it to be
an active link to our website.
RISK
FACTORS
An
investment in our securities is speculative and involves a high degree of risk. Our business, financial condition or results of
operations could be adversely affected by any of these risks. You should carefully consider the following factors as well as the
other information contained in this prospectus, in any supplement to this prospectus and in the other reports that we file with
the Commission and that we incorporate by reference into this prospectus, before deciding to invest in our securities. The risks
and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also affect our operations. Past financial performance may not be a reliable indicator
of future performance, and historical trends should not be used to anticipate results or trends in future periods. If any of these
risks actually occurs, our business, business prospects, financial condition or results of operations could be seriously harmed.
This could cause the trading price of our shares of common stock to decline, resulting in a loss of all or part of your investment.
Please also read carefully the section below entitled “Forward-Looking Statements.”
We generated operating
and net losses for the nine months ended September 30, 2017, and for the years ended December 31, 2016, and 2015; we have
a risk as a going concern.
We are a growth company
and have experienced operating and net losses, and anticipate continuing to experience such losses in the future. For the nine
months ended September 30, 2017, we had a loss from operations of approximately $3,549,000 and a net loss of approximately $4,916,000.
For the years ended December 31, 2016, and 2015, we had losses from operations of approximately $1,219,000 and $1,003,000 and net
losses of approximately $1,122,000 and $1,096,000, respectively.
We expect to continue
to incur losses for the foreseeable future and need to raise additional capital to continue business development initiatives and
to support our working capital requirements. In March 2017, we were 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. We
believe that the MLSE purchase order will be a source of revenue and generate significant cash flows for us. However, if we are
unable to raise additional capital, we may be required to curtail operations and take additional measures to reduce costs, including
reducing our workforce, eliminating outside consultants and reducing legal fees in order to conserve cash in amounts sufficient
to sustain operations and meet our obligations. As a result of these financing uncertainties, during the third quarter ended September
30, 2017, we recognized that our dependence on ongoing capital requirements to fund our operations raise substantial doubt about
our ability to continue as a going concern.
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 (“
Commission
”) on August 21, 2017,
and amended on November 14, 2017. We have carried out an evaluation under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the most recent period covered by this report. Based on the foregoing,
our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not
effective at the reasonable assurance level due to the material weaknesses described below.
A material weakness is
a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“
PCAOB”
)
Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has
identified the following material weaknesses which have caused management to conclude that as of June 30, 2017 our internal controls
over financial reporting (“
ICFR
”) were not effective at the reasonable assurance level:
|
1.
|
We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness.
|
|
2.
|
We have inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management evaluated the impact of the lack of timely communication between non–financial and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.
|
We have taken steps to
remediate some of the weaknesses described above, including a greater level of involvement by our Audit Committee. We intend to
continue to address these weaknesses as resources permit.
If we do not
continue to satisfy the NYSE American continued listing requirements, our common stock could be delisted from NYSE American.
The listing of our common
stock on the NYSE American is contingent on our compliance with the NYSE American’s conditions for continued listing. On
December 18, 2015, we were notified by the NYSE American that we were no longer in compliance with the NYSE American continued
listing standards because our reported stockholders' equity was below continued listing standards. The NYSE American requires that
a listed company's stockholders' equity be $4.0 million or more if it has reported losses from continuing operations and/or net
losses in three of its four most recent fiscal years. Subsequently, the NYSE American informed us that we are required to attain
stockholders’ equity of $6.0 million or more because we experienced a loss for the year ended December 31, 2016.
Following submission
of our compliance plan demonstrating how we intend to regain compliance with the continued listing standards, we were notified
on March 9, 2016, that the NYSE American granted us a listing extension on the basis of our plan until June 19, 2017. We are subject
to periodic review by NYSE American staff during the extension period. Failure to make progress consistent with the plan or to
regain compliance with the continued listing standards by the end of the extension period could result in our common stock being
delisted from the NYSE American.
On June 19, 2017, we
filed a Form 8-K report with the Commission announcing that our Stockholders' Equity was approximately $6,409,000 on a pro-forma
basis. In a letter dated June 20, 2017, the NYSE American notified us that we had successfully regained compliance with the NYSE
American continued listing standards. Notwithstanding the foregoing, in light of our continue losses, there is no assurance that
we will be able to continue to meet the NYSE American continued listing standard. Failure to meet the NYSE American listing requirement,
we may be subject to delisting by the NYSE American. In the event our common stock is no longer listed for trading on the NYSE
American, our trading volume and share price may decrease and we may experience further difficulties in raising capital which could
materially affect our operations and financial results.
On November 20, 2017,
we received a letter from NYSE Regulation indicating that the NYSE American had concluded that we failed to comply with Section
401(a) of the NYSE American’s Company Guide, which section requires that a listed company “make immediate public disclosure
of all material information concerning its affairs ...” The letter, which relates to our disclosure of certain personnel
changes to our board of directors and officers, provided that such letter constituted a warning letter issued to the Company pursuant
to Section 1009(a)(i) of the NYSE American Company Guide. On October 12, 2017, we filed a Form 8-K that disclosed that certain
personnel changes to our board of directors and executive officers were effective October 6, 2017. On November 6, 2017, we filed
an amendment to the above referenced Form 8-K that disclosed that the personnel changes had not in fact occurred. After discussion
with the NYSE American, on November 8, 2017, we filed a subsequent Form 8-K that further clarified that we had determined to rescind
the personnel changes as of October 23, 2017. In that Form 8-K, we provided additional disclosure explaining why the personnel
changes were not undertaken.
On November 29, 2017,
we notified the NYSE American, LLC that we were no longer in compliance with Rule 801(h) of the NYSE American Company Guide because,
as a smaller reporting company, our Board of Directors was not comprised of at least 50% independent directors. On November 28,
2017, our Board of Directors approved the issuance of cash compensation, and 200,000 shares of common stock and warrants to purchase
1,000,000 shares of common stock subject to vesting and shareholder approval, to Mr. William Horne, a director of the Company,
for services. As a result of this compensation, Mr. Horne may not be deemed independent within the meaning of Section 803A(2) of
the NYSE American Company Guide. Mr. Horne has resigned from the audit committee of the Board of Directors. Robert Smith has been
appointed as chair of the audit committee. On December 8, 2017, our board of directors rescinded the equity compensation granted
to Mr. Horne. We believe that we are therefore presently in compliance with Rule 801(h) of the NYSE American Company Guide.
We will need to
raise additional capital to increase our stockholders’ equity and to fund our operations in furtherance of our business plan.
Until we are profitable,
we will need to quickly raise additional capital in order to increase our stockholders’ equity in order to continue to meet
NYSE American continued listing standards and fund our operations in furtherance of our business plan. The proposed financing may
include shares of common stock, shares of preferred stock, warrants to purchase shares of common stock or preferred stock, debt
securities, units consisting of the foregoing securities, equity investments from strategic development partners or some combination
of each. Any additional equity financings may be financially dilutive to, and will be dilutive from an ownership perspective to
our stockholders, and such dilution may be significant based upon the size of such financing. Additionally, we cannot assure that
such funding will be available on a timely basis, in needed quantities, or on terms favorable to us, if at all.
Our growth strategy
is subject to a significant degree of risk.
Our growth strategy through
acquisitions involves a significant degree of risk. Some of the companies that we have identified as acquisition targets or make
a significant investment in may not have a developed business or are experiencing inefficiencies and incur losses. Therefore, we
may lose our investment in the event that these companies’ businesses do not develop as planned or that we are unable to
achieve the cost efficiencies or reduction of losses as anticipated.
Further, in order to
implement our growth plan, we have hired additional staff and consultants to review potential investments and implement our plan.
As a result, we have substantially increased our infrastructure and costs. If we fail to quickly find new companies that provide
revenue to offset our costs, we will continue to experience losses. No assurance can be given that our product development and
investments will produce sufficient revenues to offset these increases in expenditures.
Our inability to
successfully integrate new acquisitions could adversely affect our combined business; our operations are widely disbursed.
As stated above, our
growth strategy through acquisitions is fraught with risk. On June 2, 2017, we acquired a majority interest in Microphase Corp.
Our strategy and business plan is dependent on our ability to successfully integrate Microphase’s and our other acquisition’s
operations. In addition, while we are based in Fremont, CA, Microphase’s operations are located in Shelton, Connecticut and
Digital Power Limited’s (doing business as Gresham Power) operations are located in Salisbury, England. These distant locations
will stretch our resources and management time. Further, failure to quickly and adequately integrate all of these operations and
personnel could adversely affect our combined business and our ability to achieve our objectives and strategy. No assurance can
be given that we will realize synergies in the areas we currently operate.
A principal
stockholder has significant influence over us.
Philou
Ventures, LLC (“Philou Ventures”) beneficially owns approximately 16.8% of our currently outstanding Common Stock on
a fully diluted basis, as of January 2, 2018. As a result, it will be able to exert a significant degree of influence over our
management and affairs and over matters requiring stockholder approval, including the election of directors, any merger, consolidation
or sale of all or substantially all of the Company’s assets, and any other significant corporate transaction. Its interests
may not always coincide with those of our other stockholders.
A principal stockholder
has certain rights to maintain its ownership interest in us.
In connection with entering
into a Series B Preferred Stock purchase agreement on March 9, 2017 with Philou Ventures, we granted Philou Ventures the right
to participate in future offerings under substantially the same terms of such offerings in order to allow Philou Ventures to maintain
its ownership interest. If exercised by Philou Ventures, this contractual right has the effect of allowing Philou Ventures to maintain
its interest in us and further dilute existing shareholders’ ownership interests in the event that we issue equity securities
in such further offerings.
Our success is dependent
on key management.
Our success depends substantially
on the performance of certain key officers and personnel, in particular their ability to identify, acquire and operate new businesses
and opportunities. The loss of the services of either Messrs. Ault or Kohn would have a material adverse effect on our business,
results of operations, financial condition and prospects. We have not obtained key person insurance for these individuals.
Microphase is in
technical default of a $450,000 loan.
In connection with our
acquisition of a controlling interest in Microphase, Microphase delivered a promissory note in the principal face amount of $450,000
to an unsecured creditor for Microphase’s prior legal work. The promissory note is secured by 10,000 shares of our
Series E preferred stock. Subject to shareholder approval, each share of Series E preferred stock is convertible into 60
shares of our common stock. Under the terms of the promissory note, we were required to obtain shareholder approval of the
conversion of the Series E preferred stock by August 1, 2017, which has not yet occurred. We will hold a shareholders’
meeting on December 28, 2017 to, among other things, seek approval of the conversion of the Series E preferred stock. The
holder of the Microphase promissory note has not initiated any action to notice an event of default and we have had some limited
discussion with the holder as to this issue. No assurance can be given that the holder will not send a notice of default under
the Microphase promissory note and seek immediate collection. In the event the holder does initiate collection action under
the promissory note, this could have an adverse effect on Microphase’s operations, and, in turn, our investment in Microphase
and therefore upon us as well.
We depend on Advice
Electronics Ltd. (“Advice”) to maintain the technology used to manufacture our products and to manufacture some of
our products. We also depend on the right to manufacture certain products subject to royalty payments with Advice.
In January
2016, Telkoor, a prior affiliate, sold its entire commercial assets to Advice which included without limitation product IP, manufacturing
rights, customer base, inventory, staff and technological capabilities. Following such transaction, we entered into a manufacturing
and distribution agreement with Advice. This agreement allows us to manufacture certain Advice products (formerly owned by Telkoor)
through August 2017 against royalty payments. From August 2017 through December 2020, subject to Advice's consent, we will be allowed
to continue distributing and selling certain Advice products while keeping product branding under our brand, after which we will
be entitled to distribute the products under DPW Holdings, Inc. brand until December 2020.
We depend on Advice to
design and retain up to date product technology and for manufacturing capabilities for certain of the products that we sell. If
Advice is unable or unwilling to continue designing or manufacturing our products in required volumes and with a certain level
of quality on a timely basis, that could lead to loss of sales and adversely affect our operating results and cash position. We
also depend on Advice's intellectual property and ability to transfer production to third party manufacturers. Failure to obtain
new products in a timely manner or delay in delivery of products to customers will have an adverse effect on our ability to meet
our customers’ expectations. In addition, we operate in highly competitive markets where our ability to sell Advice’s
products could be adversely affected by Advice's agreements with third parties, long lead-times and the high cost of Advice’s
products. Also, in 2012, Telkoor’s products manufacturing lead-times increased, which hindered our ability to respond to
our customers’ needs in timely manner. Advice's principal offices, research and development and manufacturing facilities
are located in Israel. Political, economic and military conditions in Israel directly affect Advice operations. We are also
dependent upon Advice’s terms and conditions with its contract manufacturers for some of our products, which terms and conditions
may not always be in our best interest. In 2010, we purchased certain IP from Telkoor in order to reduce our dependency on Telkoor
with respect to a certain line of products. We also entered into a Manufacturing Rights Agreement with Advice in 2016, pursuant
to which we were granted the non-exclusive right to directly place purchase orders for certain products from a third-party manufacturer
in consideration for payment of royalties to Advice. This agreement currently accounts for a significant portion of our sales.
In the event this agreement is terminated for any reason, it would materially affect our financial position.
We are dependent
upon our and our contract manufacturers’ ability to timely procure electronic components.
Because of the global
economy, many raw material vendors have reduced capacities, closed production lines and, in some cases, even discontinued their
operations. As a result, there is a global shortage of certain electronic components, which has extended our production lead-time
and our production costs. Some materials are no longer available to support some of our products, thereby requiring us to search
for cross materials or, even worse, redesign some of our products to support currently-available materials. Such redesign efforts
may require certain regulatory and safety agency re-submittals, which may cause further production delays. While we have initiated
actions that we believe will limit our exposure to such problems, the dynamic business conditions in many of our markets may challenge
the solutions that have been put in place, and issues may recur in the future.
In addition, some of
our products are manufactured, assembled and tested by third party subcontractors and contract manufacturers located in Asia. While
we have had relationships with many of these third parties in the past, we cannot predict how or whether these relationships will
continue in the future. In addition, changes in management, financial viability, manufacturing demand or capacity, or other factors,
at these third parties could hurt our ability to manufacture our products.
Our strategic focus
on our custom power supply solution competencies and concurrent cost reduction plans may be ineffective or may limit our ability
to compete.
As a result of our strategic
focus on custom power supply solutions, we will continue to devote significant resources to developing and manufacturing custom
power supply solutions for a large number of customers, where each product represents a uniquely tailored solution for a specific
customer’s requirements. Failure to meet these customer product requirements or a failure to meet production schedules and/or
product quality standards may put us at risk with one or more of these customers. Moreover, changes in market conditions and strategic
changes at the direction of our customers may affect their decision to continue to purchase from us. The loss of one or more of
our significant custom power supply solution customers could have a material adverse impact on our revenues, business or financial
condition.
We have also implemented
a series of initiatives designed to increase efficiency and reduce costs. While we believe that these actions will reduce costs,
they may not be sufficient to achieve the required operational efficiencies that will enable us to respond more quickly to changes
in the market or result in the improvements in our business that we anticipate. In such event, we may be forced to take additional
cost-reducing initiatives, including those involving our personnel, which may negatively impact quarterly earnings and profitability
as we account for severance and other related costs. In addition, there is the risk that such measures could have long-term adverse
effects on our business by reducing our pool of talent, decreasing or slowing improvements in our products or services, making
it more difficult for us to respond to customers, limiting our ability to increase production quickly if and when the demand for
our solutions increases and limiting our ability to hire and retain key personnel. These circumstances could cause our earnings
to be lower than they otherwise might be.
We are dependent
upon our ability to attract, retain and motivate our key personnel.
Our success depends on
our ability to attract, retain and motivate our key management personnel, including, but not limited to, our President and Chief
Executive Officer, our Vice President of Finance, marketing and sales personnel, and key engineers necessary to implement our business
plan and to grow our business. Competition for certain specific technical and management skill sets is intense. If we are unable
to identify and hire the personnel that we need to succeed, or if one or more of our present key employees were to cease to be
associated with us, our future results could be adversely affected.
We depend upon a
few major customers for a majority of our revenues, and the loss of any of these customers, or the substantial reduction in the
quantity of products that they purchase from us, would significantly reduce our revenues and net income.
We currently depend upon
a few major OEMs and other customers for a significant portion of our revenues. If our major OEM customers reduce or cancel their
orders scaling back some of their activities, our revenues and net income would be significantly reduced. Furthermore, diversions
in the capital spending of certain of these customers to new network elements have and could continue to lead to their reduced
demand for our products, which could, in turn, have a material adverse effect on our business and results of operations. If the
financial condition of one or more of our major customers should deteriorate, or if they have difficulty acquiring investment capital
due to any of these or other factors, a substantial decrease in our revenues would likely result.
We are dependent
on the electronic equipment industry, and accordingly will be affected by the impact on that industry of current economic conditions.
Substantially all of
our existing customers are in the electronic equipment industry, and they manufacture products that are subject to rapid technological
change, obsolescence and large fluctuations in demand. This industry is further characterized by intense competition and volatility.
The OEMs serving this industry are pressured for increased product performance and lower product prices. OEMs, in turn, make similar
demands on their suppliers, such as us, for increased product performance and lower prices. Such demands may adversely affect our
ability to successfully compete in certain markets or our ability to sustain our gross margins.
Our reliance on
subcontract manufacturers to manufacture certain aspects of our products involves risks, including delays in product shipments
and reduced control over product quality.
Since we do not own significant
manufacturing facilities, we must rely on, and will continue to rely on, a limited number of subcontract manufacturers to manufacture
our power supply products. Our reliance upon such subcontract manufacturers involves several risks, including reduced control over
manufacturing costs, delivery times, reliability and quality of components, unfavorable currency exchange fluctuations and
continued inflationary pressures on many of the raw materials used in the manufacturing of our power supply products. If we were
to encounter a shortage of key manufacturing components from limited sources of supply, or experience manufacturing delays caused
by reduced manufacturing capacity, inability of our subcontract manufacturers to procure raw materials, the loss of key assembly
subcontractors, difficulties associated with the transition to our new subcontract manufacturers or other factors, we could experience
lost revenues, increased costs, and delays in, or cancellations or rescheduling of, orders or shipments, any of which would materially
harm our business.
We outsource, and
are dependent upon developer partners for, the development of some of our custom design products.
We made an operational
decision to outsource some of our custom design products to numerous developer partners. This business structure will remain in
place until the custom design volume justifies expanding our in-house capabilities. Incomplete product designs that do not fully
comply with the customer specifications and requirements might affect our ability to transition to a volume production stage of
the custom designed product where the revenue goals are dependent on the high volume of custom product production. Furthermore,
we rely on the design partners’ ability to provide high quality prototypes of the designed product for our customer approval
as a critical stage to approve production.
We face intense
industry competition, price erosion and product obsolescence, which, in turn, could reduce our profitability.
We operate in an industry
that is generally characterized by intense competition. We believe that the principal bases of competition in our markets are breadth
of product line, quality of products, stability, reliability and reputation of the provider, along with cost. Quantity discounts,
price erosion and rapid product obsolescence due to technological improvements are therefore common in our industry as competitors
strive to retain or expand market share. Product obsolescence can lead to increases in unsaleable inventory that may need to be
written off and, therefore, could reduce our profitability. Similarly, price erosion can reduce our profitability by decreasing
our revenues and our gross margins. In fact, we have seen price erosion over the last several years on most of the products we
sell, and we expect additional price erosion in the future.
Our future results
are dependent on our ability to establish, maintain and expand our manufacturers’ representative OEM relationships and our
other relationships.
We market and sell our
products through domestic and international OEM relationships and other distribution channels, such as manufacturers’ representatives
and distributors. Our future results are dependent on our ability to establish, maintain and expand our relationships with OEMs
as well as with manufacturers’ representatives and distributors to sell our products. If, however, the third parties with
whom we have entered into such OEM and other arrangements should fail to meet their contractual obligations, cease doing, or reduce
the amount of their business with us or otherwise fail to meet their own performance objectives, customer demand for our products
could be adversely affected, which would have an adverse effect on our revenues.
We may not be able
to procure necessary key components for our products, or we may purchase too much inventory or the wrong inventory.
The power supply industry,
and the electronics industry as a whole, can be subject to business cycles. During periods of growth and high demand for our products,
we may not have adequate supplies of inventory on hand to satisfy our customers' needs. Furthermore, during these periods of growth,
our suppliers may also experience high demand and, therefore, may not have adequate levels of the components and other materials
that we require to build products so that we can meet our customers' needs. Our inability to secure sufficient components to build
products for our customers could negatively impact our sales and operating results. We may choose to mitigate this risk by increasing
the levels of inventory for certain key components. Increased inventory levels can increase the potential risk for excess and obsolescence
should our forecasts fail to materialize or if there are negative factors impacting our customers’ end markets. If we purchase
too much inventory or the wrong inventory, we may have to record additional inventory reserves or write-off the inventory, which
could have a material adverse effect on our gross margins and on our results of operations.
Although we depend
on sales of our legacy products for a meaningful portion of our revenues, these products are mature and their sales will decline.
A relatively large portion
of our sales have historically been attributable to our legacy products. We expect that these products may continue to account
for a meaningful percentage of our revenues for the foreseeable future. However, these sales are declining. Although we are unable
to predict future prices for our legacy products, we expect that prices for these products will continue to be subject to significant
downward pressure in certain markets for the reasons described above. Accordingly, our ability to maintain or increase revenues
will be dependent on our ability to expand our customer base, to increase unit sales volumes of these products and to successfully,
develop, introduce and sell new products such as custom design and value added products. We cannot assure you that we will be able
to expand our customer base, increase unit sales volumes of existing products or develop, introduce and/or sell new products.
Our operating results
may vary from quarter to quarter.
Our operating results
have in the past been subject to quarter-to-quarter fluctuations, and we expect that these fluctuations will continue, and may
increase in magnitude, in future periods. Demand for our products is driven by many factors, including the availability of funding
for our products in our customers’ capital budgets. There is a trend for some of our customers to place large orders near
the end of a quarter or fiscal year, in part to spend remaining available capital budget funds. Seasonal fluctuations in customer
demand for our products driven by budgetary and other concerns can create corresponding fluctuations in period-to-period revenues,
and we therefore cannot assure you that our results in one period are necessarily indicative of our revenues in any future period.
In addition, the number and timing of large individual sales and the ability to obtain acceptances of those sales, where applicable,
have been difficult for us to predict, and large individual sales have, in some cases, occurred in quarters subsequent to those
we anticipated, or have not occurred at all. The loss or deferral of one or more significant sales in a quarter could harm our
operating results for such quarter. It is possible that, in some quarters, our operating results will be below the expectations
of public market analysts or investors. In such events, or in the event adverse conditions prevail, the market price of our common
stock may decline significantly.
Failure of our information
technology infrastructure to operate effectively could adversely affect our business.
We depend heavily on
information technology infrastructure to achieve our business objectives. If a problem occurs that impairs this infrastructure,
the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise
carry on business in the normal course. Any such events could cause us to lose customers or revenue and could require us to incur
significant expense to remediate.
We are subject to
certain governmental regulatory restrictions relating to our international sales.
Some of our products
are subject to International Traffic in Arms Regulation (“
ITAR
”), which are interpreted, enforced and administered
by the U.S. Department of State. ITAR regulation controls not only the export, import and trade of certain products specifically
designed, modified, configured or adapted for military systems, but also the export of related technical data and defense services
as well as foreign production. Any delays in obtaining the required export, import or trade licenses for products subject to ITAR
regulation and rules could have a material adverse effect on our business, financial condition, and/or operating results. In addition,
changes in United States export and import laws that require us to obtain additional export and import licenses or delays in obtaining
export or import licenses currently being sought could cause significant shipment delays and, if such delays are too great, could
result in the cancellation of orders. Any future restrictions or charges imposed by the United States or any other country on our
international sales or foreign subsidiary could have a materially adverse effect on our business, financial condition, and/or operating
results. In addition, from time to time, we have entered into contracts with the Israeli Ministry of Defense which were governed
by the U.S. Foreign Military Financing program (“
FMF
”). Any such future sales would be subject to these regulations.
Failure to comply with ITAR or FMF rules could have a material adverse effect on our financial condition, and/or operating results.
We depend on international
operations for a substantial majority of our components and products.
We purchase a substantial
majority of our components from foreign manufacturers and have a substantial majority of our commercial products assembled, packaged,
and tested by subcontractors located outside the United States. These activities are subject to the uncertainties associated with
international business operations, including trade barriers and other restrictions, changes in trade policies, governmental regulations,
currency exchange fluctuations, reduced protection for intellectual property, war and other military activities, terrorism, changes
in social, political, or economic conditions, and other disruptions or delays in production or shipments, any of which could have
a materially adverse effect on our business, financial condition, and/or operating results.
We depend on international
sales for a portion of our revenues.
Sales to customers outside
of North America accounted for 40.2% and 55.8% of net revenues for the years ended December 31, 2016 and 2015, and 28.8% and 44.2%
of net revenues for the quarters ended September 30, 2017 and 2016, and we expect that international sales will continue to represent
a material portion of our total revenues. International sales are subject to the risks of international business operations as
described above, as well as generally longer payment cycles, greater difficulty collecting accounts receivable, and currency restrictions.
In addition, Digital Power Limited, our wholly-owned subsidiary in England, supports our European and other international customers,
distributors, and sales representatives, and therefore is also subject to local regulation. International sales are also subject
to the export laws and regulations of the United States and other countries.
If our accounting
controls and procedures are circumvented or otherwise fail to achieve their intended purposes, our business could be seriously
harmed.
We evaluate our disclosure
controls and procedures as of the end of each fiscal quarter, and are annually reviewing and evaluating our internal control over
financial reporting in order to comply with Commission’s rules relating to internal control over financial reporting adopted
pursuant to the Sarbanes-Oxley Act of 2002. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. If we fail to maintain effective internal control over financial reporting or our management does not
timely assess the adequacy of such internal control, we may be subject to regulatory sanctions, and our reputation may decline.
The sale of our
products is dependent upon our ability to satisfy the proprietary requirements of our customers.
We depend upon a relatively
narrow range of products for the majority of our revenue. Our success in marketing our products is dependent upon their continued
acceptance by our customers. In some cases, our customers require that our products meet their own proprietary requirements. If
we are unable to satisfy such requirements, or forecast and adapt to changes in such requirements, our business could be materially
harmed.
The sale of our
products is dependent on our ability to respond to rapid technological change, including evolving industry-wide standards, and
may be adversely affected by the development, and acceptance by our customers, of new technologies which may compete with, or reduce
the demand for, our products.
Rapid technological change,
including evolving industry standards, could render our products obsolete. To the extent our customers adopt such new technology
in place of our products, the sales of our products may be adversely affected. Such competition may also increase pricing pressure
for our products and adversely affect the revenues from such products.
Our limited ability
to protect our proprietary information and technology may adversely affect our ability to compete, and our products could infringe
upon the intellectual property rights of others, resulting in claims against us, the results of which could be costly.
Many of our products
consist entirely or partly of proprietary technology owned by us. Although we seek to protect our technology through a combination
of copyrights, trade secret laws and contractual obligations, these protections may not be sufficient to prevent the wrongful appropriation
of our intellectual property, nor will they prevent our competitors from independently developing technologies that are substantially
equivalent or superior to our proprietary technology. In addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. In order to defend our proprietary rights in the technology utilized
in our products from third party infringement, we may be required to institute legal proceedings, which would be costly and would
divert our resources from the development of our business. If we are unable to successfully assert and defend our proprietary rights
in the technology utilized in our products, our future results could be adversely affected.
Although we attempt to
avoid infringing known proprietary rights of third parties in our product development efforts, we may become subject to legal proceedings
and claims for alleged infringement from time to time in the ordinary course of business. Any claims relating to the infringement
of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention
and resources, require us to reengineer or cease sales of our products or require us to enter into royalty or license agreements
which are not advantageous to us. In addition, parties making claims may be able to obtain an injunction, which could prevent us
from selling our products in the United States or abroad.
If we are unable
to satisfy our customers’ specific product quality, certification or network requirements, our business could be disrupted
and our financial condition could be harmed.
Our customers demand
that our products meet stringent quality, performance and reliability standards. We have, from time to time, experienced problems
in satisfying such standards. Defects or failures have occurred in the past, and may in the future occur, relating to our product
quality, performance and reliability. From time to time, our customers also require us to implement specific changes to our products
to allow these products to operate within their specific network configurations. If we are unable to remedy these failures or defects
or if we cannot effect such required product modifications, we could experience lost revenues, increased costs, including inventory
write-offs, warranty expense and costs associated with customer support, delays in, or cancellations or rescheduling of, orders
or shipments and product returns or discounts, any of which would harm our business.
If we ship products
that contain defects, the market acceptance of our products and our reputation will be harmed and our customers could seek to recover
their damages from us.
Our products are complex,
and despite extensive testing, may contain defects or undetected errors or failures that may become apparent only after our products
have been shipped to our customers and installed in their network or after product features or new versions are released. Any such
defect, error or failure could result in failure of market acceptance of our products or damage to our reputation or relations
with our customers, resulting in substantial costs for us and our customers as well as the cancellation of orders, warranty costs
and product returns. In addition, any defects, errors, misuse of our products or other potential problems within or out of our
control that may arise from the use of our products could result in financial or other damages to our customers. Our customers
could seek to have us pay for these losses. Although we maintain product liability insurance, it may not be adequate.
Our common stock
price is volatile.
Our common stock is listed
on the NYSE American. In the past, our trading price has fluctuated widely, depending on many factors that may have little to do
with our operations or business prospects. The exercise of outstanding options and warrants may adversely affect our stock price
and a shareholder’s percentage of ownership.
We have a substantial
number of convertible notes, warrants and options outstanding that could affect our price.
Due to
a number of financings, we have a substantial number of shares that are subject to issuance pursuant to outstanding convertible
debt, warrants and options. These conversion prices and exercise prices range from $0.01 to $1.69 per share of common stock. As
of January 2, 2018, the number of shares of common stock subject to convertible notes, warrants and options were 1,283,940, 7,133,828
and 3,877,500 respectively. The issuance of common stock pursuant to convertible notes, warrants and options at conversion or exercise
prices less than market prices may have the effect of limiting an increase in market price of our common stock until all of these
underling shares have been issued.
We have a number
of shares of common stock subject to registration rights.
Due to a number of financings,
we have contractually agreed to register with the Commission shares of common stock, and common stock underlying outstanding warrants
and convertible debt in connection with private placements of our securities. The potential resale at the same time of a large
number of shares of common stock and common stock underlying warrants and convertible debt by the selling stockholders may adversely
affect the market price of our common stock.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation,
intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking
statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties
known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such
statements.
In
some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,”
“intends,” “estimates,” “plans,” “believes,” “seeks,” “may,”
“should”, “could” or the negative of such terms or other similar expressions. Accordingly, these
statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed
in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout
this prospectus.
You
should read this prospectus and any accompanying prospectus supplement and the documents that we reference herein and therein and
have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that
our actual future results may be materially different from what we expect. You should assume that the information appearing
in this prospectus and any accompanying prospectus supplement is accurate as of the date on the front cover of this prospectus
or such prospectus supplement only. Because the risk factors referred to above, as well as the risk factors referred to on
page 7 of this prospectus and incorporated herein by reference, could cause actual results or outcomes to differ materially
from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any
forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the
statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. We qualify all of the information presented in this prospectus and any accompanying prospectus
supplement, and particularly our forward-looking statements, by these cautionary statements.
USE OF PROCEEDS
Except
as otherwise provided in the applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities
offered by this prospectus for general corporate purposes, which may include working capital, capital expenditures, research and
development expenditures, regulatory affairs expenditures, clinical trial expenditures, acquisitions of new technologies and investments,
the financing of possible acquisitions or business expansions, and the repayment, refinancing, redemption or repurchase of future
indebtedness or capital stock.
The
intended application of proceeds from the sale of any particular offering of securities using this prospectus will be described
in the accompanying prospectus supplement relating to such offering. The precise amount and timing of the application of these
proceeds will depend on our funding requirements and the availability and costs of other funds.
THE
SECURITIES WE MAY OFFER
The
descriptions of the securities contained in this prospectus, together with the applicable prospectus supplements, summarize all
the material terms and provisions of the various types of securities that we may offer. We will describe in the applicable prospectus
supplement relating to any securities the particular terms of the securities offered by that prospectus supplement. If we indicate
in the applicable prospectus supplement, the terms of the securities may differ from the terms we have summarized below. We will
also include in the prospectus supplement information, where applicable, about material United States federal income tax considerations
relating to the securities, and the securities exchange, if any, on which the securities will be listed.
We
may sell from time to time, in one or more offerings:
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shares of our common stock;
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shares of our preferred stock;
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warrants to purchase any of the securities listed above; and/or
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units consisting of any of the securities listed above.
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The
terms of any securities we offer will be determined at the time of sale. We may issue securities that are exchangeable for or convertible
into common stock or any of the other securities that may be sold under this prospectus. When particular securities are offered,
a supplement to this prospectus will be filed with the Commission, which will describe the terms of the offering and sale of the
offered securities.
DESCRIPTION OF CAPITAL
STOCK
The
following is a summary of all material characteristics of our capital stock as set forth in our articles of incorporation and bylaws.
The summary does not purport to be complete and is qualified in its entirety by reference to our certificate of incorporation and
bylaws, and to the provisions of the General Corporation Law of the State of Delaware, as amended.
Common Stock
We
are authorized to issue 200,000,000 shares of Class A Common Stock and 25,000,000 shares of Class B Common Stock, par value $0.001
per share. As of January 2, 2018, there were 30,397,299 shares of our Class A common stock issued and outstanding but no
shares of Class B common stock issued or outstanding. The outstanding shares of our common stock are validly issued, fully paid
and nonassessable. In this Prospectus, all references solely to “common stock” shall refer to the Class A common stock.
Holders
of our shares Class A common stock are entitled to one vote for each share on all matters submitted to a shareholder vote. Holders
of our shares Class B common stock are entitled to ten votes for each share on all matters submitted to a shareholder vote. Holders
of our common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of our common stock voting
for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting
power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute
a quorum at any meeting of shareholders. A vote by the holders of a majority of our outstanding shares is required to effectuate
certain fundamental corporate changes such as liquidation, merger or an amendment to our articles of incorporation.
Holders
of our common stock are entitled to share in all dividends that our Board of Directors, in its discretion, declares from legally
available funds. In the event of a liquidation, dissolution or winding up, each outstanding share entitles its holder to participate
pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference
over our common stock. Our common stock has no pre-emptive, subscription or conversion rights and there are no redemption provisions
applicable to our common stock.
Preferred Stock
We
are authorized to issue up to 25,000,000 shares of preferred stock, par value $0.001 per share. Of these shares of preferred
stock, 500,000 are designated as Series A Redeemable Convertible Preferred Stock; 500,000 are designated as Series B Redeemable
Convertible Preferred Stock; 460,000 shares are designated as Series C Redeemable Convertible Preferred Stock; 378,776 shares are
designated as Series D Redeemable Convertible Preferred Stock; and 10,000 shares are designated as Series E Redeemable Convertible
Preferred Stock. As of January 2, 2018, there were no shares of Series A Redeemable Convertible Preferred Stock outstanding; 100,000
shares of Series B Redeemable Convertible Preferred Stock outstanding; no shares of Series C Redeemable Convertible Preferred Stock
outstanding; 378,776 shares of Series D Redeemable Convertible Preferred Stock outstanding; and no shares of Series E Redeemable
Convertible Preferred Stock outstanding.
The
shares of preferred stock may be issued in series, and shall have such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issuance of such stock
adopted from time to time by the board of directors. The board of directors is expressly vested with the authority to determine
and fix in the resolution or resolutions providing for the issuances of preferred stock the voting powers, designations, preferences
and rights, and the qualifications, limitations or restrictions thereof, of each such series to the full extent now or hereafter
permitted by the laws of the State of Delaware.
December 2017 Debenture
In
the December 2017 private placement we issued the December 2017 Debenture for an aggregate purchase price of $500,000 with an aggregate
principal face amount of $550,000. The December 2017 Debenture has a term of eight months, bears interest at 5% per year and the
principal of the December 2017 Debenture and interest earned thereon may be converted into shares of common stock at $0.60 per
share, subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. The interest
may be paid in cash or, subject to the satisfaction of certain equity conditions, in shares of common stock at our discretion.
In the event that we consummate any debt or equity financing with gross proceeds equal to or greater than $7,500,000, then we shall
prepay to the holder in cash 110% of the outstanding principal amounts of the December 2017 Debenture 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 we shall
prepay to the holder in cash 115% of the outstanding principal amounts of the December 2017 Debenture 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 December
2017 Debenture. We have the option to prepay all amounts owed under the December 2017 Debenture 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. The December
2017 Debenture contains a 4.99% beneficial ownership limitation, which may be increased at the holder’s option to up to 9.99%
with 61 days written notice. Further, until the earlier of repayment or conversion, we shall not enter into a variable rate transactions.
The
December 2017 Debenture contains standard and customary events of default including, but not limited to, failure to make payments
when due under the December 2017 Debenture, failure to comply with certain covenants contained therein, or bankruptcy or insolvency
of the Company. Upon an event of default, 150% of the outstanding principal amount of the December 2017 Debenture, plus accrued
but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become,
at the holder's election, immediately due and payable in cash or in shares of common stock.
Transfer
Agent and Registrar
The
Transfer Agent and Registrar for our common stock is Computershare, 8742 Lucent Blvd., Suite 225, Highlands Ranch, CO 80129.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include in any applicable prospectus supplements, summarizes
the material terms and provisions of the warrants that we may offer under this prospectus and the related warrant agreements and
warrant certificates. While the terms summarized below will apply generally to any warrants that we may offer, we will describe
the particular terms of any series of warrants in more detail in the applicable prospectus supplement. If we indicate in the prospectus
supplement, the terms of any warrants offered under that prospectus supplement may differ from the terms described below.
If there are differences between that prospectus supplement and this prospectus, the prospectus supplement will control.
Thus, the statements we make in this section may not apply to a particular series of warrants. Specific warrant agreements
will contain additional important terms and provisions and will be incorporated by reference as an exhibit to the registration
statement which includes this prospectus.
We
may issue warrants for the purchase of common stock and/or preferred stock in one or more series. We may issue warrants independently
or together with common stock and/or preferred stock, and the warrants may be attached to or separate from these securities.
We
will evidence each series of warrants by warrant certificates that we may issue under a separate agreement. We may enter into the
warrant agreement with a warrant agent. Each warrant agent may be a bank that we select which has its principal office in the United
States and a combined capital and surplus of at least $50,000,000. We may also choose to act as our own warrant agent.
We will indicate the name and address of any such warrant agent in the applicable prospectus supplement relating to a particular
series of warrants.
We
will describe in the applicable prospectus supplement the terms of the series of warrants, including:
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the offering price and aggregate number of warrants offered;
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the currency for which the warrants may be purchased;
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if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each such security or each principal amount of such security;
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if applicable, the date on and after which the warrants and the related securities will be separately transferable;
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in the case of warrants to purchase common stock or preferred stock, the number of shares of common stock or preferred stock, as the case may be, purchasable upon the exercise of one warrant and the price at which these shares may be purchased upon such exercise;
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the warrant agreement under which the warrants will be issued;
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the effect of any merger, consolidation, sale or other disposition of our business on the warrant agreement and the warrants;
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anti-dilution provisions of the warrants, if any;
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the terms of any rights to redeem or call the warrants;
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any provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants;
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the dates on which the right to exercise the warrants will commence and expire or, if the warrants are not continuously exercisable during that period, the specific date or dates on which the warrants will be exercisable;
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the manner in which the warrant agreement and warrants may be modified;
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the identities of the warrant agent and any calculation or other agent for the warrants;
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federal income tax consequences of holding or exercising the warrants;
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the terms of the securities issuable upon exercise of the warrants;
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any securities exchange or quotation system on which the warrants or any securities deliverable upon exercise of the warrants may be listed; and
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any other specific terms, preferences, rights or limitations of or restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such
exercise, including in the case of warrants to purchase common stock or preferred stock, the right to receive dividends, if any,
or, payments upon our liquidation, dissolution or winding up or to exercise voting rights, if any.
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in the applicable prospectus supplement at the exercise
price that we describe in the applicable prospectus supplement. Unless we otherwise specify in the applicable prospectus supplement,
holders of the warrants may exercise the warrants at any time up to 5:00 p.m. Eastern Time on the expiration date that we
set forth in the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will
become void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate representing the warrants to be exercised together
with specified information, and paying the required amount to the warrant agent in immediately available funds, as provided in
the applicable prospectus supplement. We will set forth on the reverse side of the warrant certificate, and in the applicable prospectus
supplement, the information that the holder of the warrant will be required to deliver to the warrant agent.
Until
the warrant is properly exercised, no holder of any warrant will be entitled to any rights of a holder of the securities purchasable
upon exercise of the warrant.
Upon
receipt of the required payment and the warrant certificate properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the applicable prospectus supplement, we will issue and deliver the securities
purchasable upon such exercise. If fewer than all of the warrants represented by the warrant certificate are exercised, then we
will issue a new warrant certificate for the remaining amount of warrants. If we so indicate in the applicable prospectus supplement,
holders of the warrants may surrender securities as all or part of the exercise price for warrants.
Enforceability
of Rights by Holders of Warrants
Any
warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship
of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue
of warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable warrant agreement
or warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us.
Any holder of a warrant may, without the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate
legal action its right to exercise, and receive the securities purchasable upon exercise of, its warrants in accordance with their
terms.
Warrant
Agreement Will Not Be Qualified Under Trust Indenture Act
No
warrant agreement will be qualified as an indenture, and no warrant agent will be required to qualify as a trustee, under the Trust
Indenture Act. Therefore, holders of warrants issued under a warrant agreement will not have the protection of the Trust Indenture
Act with respect to their warrants.
Governing
Law
Each
warrant agreement and any warrants issued under the warrant agreements will be governed by New York law.
Calculation
Agent
Calculations
relating to warrants may be made by a calculation agent, an institution that we appoint as our agent for this purpose. The
prospectus supplement for a particular warrant will name the institution that we have appointed to act as the calculation agent
for that warrant as of the original issue date for that warrant. We may appoint a different institution to serve as calculation
agent from time to time after the original issue date without the consent or notification of the holders.
The
calculation agent’s determination of any amount of money payable or securities deliverable with respect to a warrant will
be final and binding in the absence of manifest error.
DESCRIPTION
OF UNITS
We
may issue units comprised of one or more of the other securities described in this prospectus in any combination. Each unit will
be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will
have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may provide
that the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified
date.
The
applicable prospectus supplement will describe:
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the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held or transferred separately;
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any unit agreement under which the units will be issued;
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any provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units; and
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whether the units will be issued in fully registered or global form.
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The
applicable prospectus supplement will describe the terms of any units. The preceding description and any description of units in
the applicable prospectus supplement does not purport to be complete and is subject to and is qualified in its entirety by reference
to the unit agreement and, if applicable, collateral arrangements and depositary arrangements relating to such units.
PLAN
OF DISTRIBUTION
We
may sell the securities being offered pursuant to this prospectus through underwriters or dealers, through agents, or directly
to one or more purchasers or through a combination of these methods. The applicable prospectus supplement will describe the
terms of the offering of the securities, including:
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the name or names of any underwriters, if any, and if required, any dealers or agents;
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the purchase price of the securities and the proceeds we will receive from the sale;
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any underwriting discounts and other items constituting underwriters’ compensation;
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any discounts or concessions allowed or reallowed or paid to dealers; and
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any securities exchange or market on which the securities may be listed.
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We
may distribute the securities from time to time in one or more transactions at:
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a fixed price or prices, which may be changed;
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market prices prevailing at the time of sale;
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prices related to such prevailing market prices; or
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negotiated prices.
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Only
underwriters named in the prospectus supplement are underwriters of the securities offered by the prospectus supplement.
If
underwriters are used in an offering, we will execute an underwriting agreement with such underwriters and will specify the name
of each underwriter and the terms of the transaction (including any underwriting discounts and other terms constituting compensation
of the underwriters and any dealers) in a prospectus supplement. The securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or directly by one or more investment banking firms or others, as
designated. If an underwriting syndicate is used, the managing underwriter(s) will be specified on the cover of the prospectus
supplement. If underwriters are used in the sale, the offered securities will be acquired by the underwriters for their own accounts
and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Any public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time. Unless otherwise set forth in the prospectus supplement, the obligations
of the underwriters to purchase the offered securities will be subject to conditions precedent and the underwriters will be obligated
to purchase all of the offered securities if any are purchased.
We
may grant to the underwriters options to purchase additional securities to cover over-allotments, if any, at the public offering
price, with additional underwriting commissions or discounts, as may be set forth in a related prospectus supplement. The terms
of any over-allotment option will be set forth in the prospectus supplement for those securities.
If
we use a dealer in the sale of the securities being offered pursuant to this prospectus or any prospectus supplement, we will sell
the securities to the dealer, as principal. The dealer may then resell the securities to the public at varying prices to
be determined by the dealer at the time of resale. The names of the dealers and the terms of the transaction will be specified
in a prospectus supplement.
We
may sell the securities directly or through agents we designate from time to time. We will name any agent involved in the
offering and sale of securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless
the prospectus supplement states otherwise, any agent will act on a best-efforts basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by institutional investors to purchase securities from us at the public
offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery
on a specified date in the future. We will describe the conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
In
connection with the sale of the securities, underwriters, dealers or agents may receive compensation from us or from purchasers
of the securities for whom they act as agents in the form of discounts, concessions or commissions. Underwriters may sell the securities
to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the securities, and any institutional investors or others that purchase securities directly and then resell
the securities, may be deemed to be underwriters, and any discounts or commissions received by them from us and any profit on the
resale of the securities by them may be deemed to be underwriting discounts and commissions under the Securities Act.
We
may provide agents and underwriters with indemnification against particular civil liabilities, including liabilities under the
Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to such liabilities.
Agents and underwriters may engage in transactions with, or perform services for, us in the ordinary course of business.
In
addition, we may enter into derivative transactions with third parties (including the writing of options), or sell securities not
covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates,
in connection with such a transaction, the third parties may, pursuant to this prospectus and the applicable prospectus supplement,
sell securities covered by this prospectus and the applicable prospectus supplement. If so, the third party may use securities
borrowed from us or others to settle such sales and may use securities received from us to close out any related short positions.
We may also loan or pledge securities covered by this prospectus and the applicable prospectus supplement to third parties, who
may sell the loaned securities or, in an event of default in the case of a pledge, sell the pledged securities pursuant to this
prospectus and the applicable prospectus supplement. The third party in such sale transactions will be an underwriter and will
be identified in the applicable prospectus supplement or in a post-effective amendment.
To
facilitate an offering of a series of securities, persons participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the market price of the securities. This may include over-allotments or short sales of the securities,
which involves the sale by persons participating in the offering of more securities than have been sold to them by us. In those
circumstances, such persons would cover such over-allotments or short positions by purchasing in the open market or by exercising
the over-allotment option granted to those persons. In addition, those persons may stabilize or maintain the price of the securities
by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to
underwriters or dealers participating in any such offering may be reclaimed if securities sold by them are repurchased in connection
with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the securities
at a level above that which might otherwise prevail in the open market. Such transactions, if commenced, may be discontinued at
any time. We make no representation or prediction as to the direction or magnitude of any effect that the transactions described
above, if implemented, may have on the price of our securities.
Any
common stock sold pursuant to a prospectus supplement will be eligible for quotation and trading on The NYSE American. Any underwriters
to whom securities are sold by us for public offering and sale may make a market in the securities, but such underwriters will
not be obligated to do so and may discontinue any market making at any time without notice.
In
order to comply with the securities laws of some states, if applicable, the securities offered pursuant to this prospectus will
be sold in those states only through registered or licensed brokers or dealers. In addition, in some states securities may not
be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or
qualification requirement is available and complied with.
LEGAL MATTERS
The
validity of the issuance of the securities offered hereby will be passed upon for us by Sichenzia Ross Ference Kesner LLP, New
York, New York.
EXPERTS
The
consolidated financial statements as of December 31, 2016, and for the year then ended incorporated by reference in this prospectus
have been so incorporated in reliance on the report of Marcum, LLP, an independent registered public accounting firm, incorporated
herein by reference, given on the authority of said firm as experts in auditing and accounting.
The
consolidated financial statements as of December 31, 2015, and for year then ended incorporated by reference in this prospectus
have been so incorporated in reliance on the reports of Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global,
an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts
in auditing and accounting.
WHERE YOU CAN FIND
MORE INFORMATION
We have
filed with the Commission a registration statement on Form S-3 under the Securities Act, with respect to the securities covered
by this prospectus. This prospectus and any prospectus supplement which form a part of the registration statement, does not contain
all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information
with respect to us and the securities covered by this prospectus, please see the registration statement and the exhibits filed
with the registration statement. Any statements made in this prospectus or any prospectus supplement concerning legal documents
are not necessarily complete and you should read the documents that are filed as exhibits to the registration statement or otherwise
filed with the Commission for a more complete understanding of the document or matter. A copy of the registration statement and
the exhibits filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the
Commission, located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for more information
about the operation of the Public Reference Room. The Commission also maintains an internet website that contains reports, proxy
and information statements and other information regarding registrants that file electronically with the Commission. The address
of the website is http://www.sec.gov.
We
file annual, quarterly and current reports, proxy statements and other information with the Commission. You may read, without charge,
and copy the documents we file at the Commission’s public reference room in Washington, D.C. at 100 F Street, N.E., Washington,
D.C. 20549. You can request copies of these documents by writing to the Commission and paying a fee for the copying cost. Please
call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. Our filings with the Commission are
also available to the public at no cost from the SEC’s website at
http://www.sec.gov
.
INCORPORATION
OF DOCUMENTS BY REFERENCE
We
have filed a registration statement on Form S-3 with the Commission under the Securities Act. This prospectus is part of the registration
statement but the registration statement includes and incorporates by reference additional information and exhibits. The Commission
permits us to “incorporate by reference” the information contained in documents we file with the Commission, which
means that we can disclose important information to you by referring you to those documents rather than by including them in this
prospectus. Information that is incorporated by reference is considered to be part of this prospectus and you should read it with
the same care that you read this prospectus. Information that we file later with the Commission will automatically update and supersede
the information that is either contained, or incorporated by reference, in this prospectus, and will be considered to be a part
of this prospectus from the date those documents are filed. We have filed with the Commission, and incorporate by reference in
this prospectus:
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Our Annual Report on Form 10-K for the period ended December 31, 2016;
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Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and September 30, 2017, and Form 10-Q/A for the quarter ended June 30, 2017;
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Current Reports on Form 8-K filed with the Commission on January 5, 2017, January 20, 2017, February 17, 2017, February 24, 2017, February 27, 2017, March 9, 2017, March 16, 2017, March 20, 2017, March 21, 2017, March 28, 2017, April 4, 2017, April 11, 2017, May 3, 2017, May 5, 2017, May 17, 2017, May 31, 2017, June 5, 2017, June 6, 2017, June 7, 2017, June 8, 2017, June 19, 2017, June 21, 2017, June 29, 2017, July 12, 2017, July 17, 2017, July 26, 2017, July 31, 2017, August 9, 2017, August 11, 2017, August 25, 2017, September 6, 2017 (Item 2.01 only), September 7, 2017, October 12, 2017, October 19, 2017, October 23, 2017, November 2, 2017, November 6, 2017 (Form 8-K/A), November 7, 2017, November 8, 2017 (Form 8-K/A), November 8, 2017, November 14, 2017, November 21, 2017, November 22, 2017, December 4, 2017, December 8, 2017, December 13, 2017, December 15, 2017 (Form 8-K/A), December 20, 2017, December 26, 2017, December 28, 2017, December 29, 2017 and January 2, 2018.
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Our proxy statement dated November 17, 2017, and
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The description of our common stock contained in Form 8-A.
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We
also incorporate by reference all additional documents that we file with the Securities and Exchange Commission under the terms
of Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that are made after the initial filing date of the registration statement
of which this prospectus is a part until the offering of the particular securities covered by a prospectus supplement or term sheet
has been completed. We are not, however, incorporating, in each case, any documents or information that we are deemed to furnish
and not file in accordance with Securities and Exchange Commission rules.
We
will provide you, without charge upon written or oral request, a copy of any and all of the information that has been incorporated
by reference in this prospectus and that has not been delivered with this prospectus. Requests should be directed to DPW Holdings,
Inc., 48430 Lakeview Blvd., Fremont, California, 94538-3158; Tel.: (510) 657-2635; Attention: Milton C. Ault III, Chief Executive
Officer.
DPW HOLDINGS, INC.
1,000,000 Shares of 10% Series A Cumulative
Redeemable Perpetual Preferred Stock
$25.00 Per Share Liquidation Preference
$23.50 Per Share
PROSPECTUS SUPPLEMENT
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