<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-QSB

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

                 For the quarterly period ended June 30, 1999

                                      OR

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

                       Commission file number 2-93477-D

                                 I-STORM, INC.
                   (FORMERLY DIGITAL POWER HOLDING COMPANY)
       (Exact name of small business issuer as specified in its charter)

                 NEVADA                                   87-040127
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

   2440 West El Camino Real, Suite 520, Mountain View, California 94040-1400
                   (Address of principal executive offices)

                                (650) 962-5420
                          (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes _______  No   X
                                                                           -----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

               Class                               Outstanding at June 30, 1999
-----------------------------                      ----------------------------
Common Stock, par value $0.01                                 5,460,449


Traditional Small Business Disclosure Format (Check One):  Yes _____  No   X
                                                                         -----
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements



                                 I-STORM, INC.
                         (A development stage company)


                          CONSOLIDATED BALANCE SHEET
               (Dollars in thousands, except per share amounts)

                                    ASSETS

<TABLE>
<CAPTION>
                                                                                            June 30,      December 31,
                                                                                              1999            1998
                                                                                           (unaudited)
                                                                                        -------------------------------
<S>                                                                                     <C>               <C>
Current assets:
 Cash and cash equivalents                                                                $  2,567          $      5
 Accounts receivable, net of allowance for doubtful accounts of $114 and $51,
  respectively                                                                                   7                44
 Factored accounts receivable, net of allowance for doubtful accounts of $0 and $349,
  respectively                                                                                  --               105
 Prepaid expenses and other current assets                                                      55               158
                                                                                        -------------------------------
     Total current assets                                                                    2,629               312

Property and equipment, net                                                                    142                81

Other assets                                                                                   811                32

Reorganization asset, net of amortization of $303 and $147, respectively                     2,904             3,060
                                                                                        -------------------------------
     Total assets                                                                         $  6,486          $  3,485
                                                                                        ===============================


                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
 Notes payable                                                                            $      52         $  1,197
 Factoring liability                                                                             --            1,144
 Accounts payable                                                                               260              912
 Accrued liabilities                                                                            624              504
                                                                                        -------------------------------
     Total current liabilities                                                                  936            3,757
                                                                                        -------------------------------
Long-term notes payable                                                                         236              260
                                                                                        -------------------------------
Redeemable common stock, at $1.00 per share, 0 and 600,000 shares, respectively                  --              600
                                                                                        -------------------------------
Shareholders' equity (deficit):
 Preferred stock, no par value
  Series A cumulative convertible preferred stock; liquidation preference of $4,002:
     Designated--600,000 shares; outstanding--470,000 and 0 shares, respectively
     Subscribed--583,000 and 600,000 shares, respectively                                         6                6
  Series B cumulative convertible preferred stock:
   Designated--1,700,000 shares; 407,900 and 0 shares outstanding, respectively                   4               --
  Series C cumulative convertible preferred stock:
   Designated--1,225,000 shares; 371,438 and 0 shares outstanding, respectively                   4               --
 Common stock, $0.01 par value:
  Authorized--25,000,000
  Outstanding-- 5,861,000 and 5,208,000 shares, respectively
  Subscribed -- 590,000 and 1,482,000 shares, respectively                                       59               52
 Subscribed warrants to purchase common stock                                                   107              109
 Additional paid-in capital                                                                  10,419            1,461
 Deficit accumulated during the development stage                                            (5,285)          (2,760)
                                                                                        -------------------------------
     Total shareholders' equity (deficit)                                                     5,314           (1,132)
                                                                                        -------------------------------
     Total liabilities and shareholders' equity (deficit)                                 $   6,486         $  3,485
                                                                                        ===============================
</TABLE>

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

                                       1
<PAGE>

                                 I-STORM, INC.
                         (A development stage company)


                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                         Post Emergence                  Predecessor
                                                         --------------                  -----------
                                                                     Period from
                                                  Three months        inception          Three months
                                                     ended          (July 17, 1998)          ended
                                                 June 30, 1999      to June 30, 1999     June 30, 1998
                                                 -------------------------------------------------------
                                                                       (unaudited)
                                                 -------------------------------------------------------
<S>                                              <C>                <C>                  <C>
Revenues                                          $      9           $  1,174              $  1,346
                                                 -------------------------------------------------------

Costs and expenses:
 Cost of revenues                                      180              1,459                   966
 Selling, general, and administrative                  966              4,280                 1,136
 Amortization of reorganization asset                   78                304                    --
                                                 -------------------------------------------------------
     Total operating expenses                        1,224              6,043                 2,102
                                                 -------------------------------------------------------
     Loss from operations                           (1,215)            (4,877)                 (756)

Other income (expense), net                             27               (303)                 (209)
                                                 -------------------------------------------------------

Net loss and comprehensive loss                     (1,188)            (5,172)                 (965)

Preferred stock dividends                             (113)              (113)                   --
                                                 -------------------------------------------------------
Net loss attributable to common stock             $ (1,301)          $ (5,285)             $   (965)
                                                 =======================================================
Net loss per share:
 Basic and diluted                                $  (0.22)          $  (1.06)             $  (0.08)
                                                 =======================================================
Shares used in computing net loss per share:
 Basic and diluted                                   5,861              5,001                11,590
                                                 =======================================================
</TABLE>

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

                                       2
<PAGE>

                   LVL COMMUNICATIONS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
              (Information as of December 31, 1996 is unaudited)




                                 I-STORM, INC.
                         (A development stage company)


                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share amounts)



<TABLE>
<CAPTION>
                                                     Post Emergence       Predecessor
                                                     --------------       -----------
                                                    Six months ended    Six months ended
                                                     June 30, 1999       June 30, 1998
                                                    ------------------------------------
                                                               (unaudited)
                                                    ------------------------------------
<S>                                                 <C>                 <C>
Revenues                                            $     337              $   2,074
                                                    ------------------------------------

Costs and expenses:
 Cost of revenues                                         547                  1,485
 Selling, general, and administrative                   1,961                  2,101
 Amortization of reorganization asset                     156                     --
                                                    ------------------------------------
     Total operating expenses                           2,664                  3,586
                                                    ------------------------------------
     Loss from operations                              (2,327)                (1,512)

Other income (expense), net                               (85)                  (245)
                                                    ------------------------------------

Net loss and comprehensive loss                        (2,412)                (1,757)

Preferred stock dividends                                (113)                    --
                                                    ------------------------------------
Net loss attributable to common stock               $  (2,525)             $  (1,757)
                                                    ====================================
Net loss per share:
 Basic and diluted                                  $   (0.43)             $   (0.15)
                                                    ====================================
Shares used in computing net loss per share:
 Basic and diluted                                      5,858                 11,590
                                                    ====================================
</TABLE>

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

                                       3
<PAGE>

                                 I-STORM, INC.
                         (A development stage company)

           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                                (in thousands)


<TABLE>
<CAPTION>

                                                     Convertible                             Warrants to
                                                   Preferred Stock         Common Stock       Purchase      Additional
                                                 -----------------------------------------     Common        Paid-in
Post-Emergence                                     Shares       Amount    Shares    Amount      Stock        Capital
------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>        <C>       <C>      <C>            <C>
Balance at inception (July 17, 1998)                   600     $     6      3,040    $   30   $      47      $  1,084

 Issuance of common stock for services                  --          --      2,000        20          --           336
 Issuance of common stock related to debt
  financing                                             --          --        170         2          --            41
 Issuance of Series B Preferred stock in
  January and February 1999, net of issuance
  costs of $737                                        408           4         --        --          --         4,255
 Issuance of Series C Preferred stock in March
  through May 1999, net of issuance costs of
  $554                                                 371           4         --        --          --         3,992
 Conversion of redeemable common stock into
  non-redeemable common stock                           --          --        600         6          --           594
 Exchange of Series A Preferred stock for cash         (17)         (1)        --        --          --            (7)
 Issuance of warrants related to debt financing         --          --         --        --          73            --
 Exercise of warrants                                   --          --         50         1         (13)           12
 Exercise of stock options in June 1999                 --          --          1        --          --            --
 Quarterly dividend for Series B Preferred stock         9           1         --        --          --           112

 Net loss                                               --          --         --        --          --            --
                                                 -----------------------------------------------------------------------
Balance at June 30, 1999                             1,371     $    14      5,861    $   59   $     107      $ 10,419
                                                 =======================================================================
<CAPTION>
                                                                                           Total
                                                                                        Shareholders'
                                                                      Accumulated          Equity
                                                                       Deficit            (Deficit)
                                                                     -----------------------------------
<S>                                                                  <C>               <C>
Balance at inception (July 17, 1998)                                   $      --            $  1,167

 Issuance of common stock for services                                        --                 356
 Issuance of common stock related to debt
  financing                                                                   --                  43
 Issuance of Series B Preferred stock in
  January and February 1999, net of issuance
  costs of $737                                                               --               4,259
 Issuance of Series C Preferred stock in March
  through May 1999, net of issuance costs of
  $554                                                                        --               3,996
 Conversion of redeemable common stock into
  non-redeemable common stock                                                 --                 600
 Exchange of Series A Preferred stock for cash                                --                  (8)
 Issuance of warrants related to debt financing                               --                  73
 Exercise of warrants                                                         --                  --
 Exercise of stock options in June 1999                                       --                  --
 Quarterly dividend for Series B Preferred stock                            (113)                 --

 Net loss                                                              $  (5,172)           $ (5,172)
                                                                      ----------------------------------
Balance at June 30, 1999                                               $  (5,285)           $ (5,314)
                                                                      ==================================
</TABLE>





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

                                       4
<PAGE>

                                 I-STORM, INC.
                         (A development stage company)


                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                Post Emergence                     Predecessor
                                                                                --------------                   ----------------
                                                                      Six months ended   Period from inception   Six months ended
                                                                       June 30, 1999      (July 17, 1998) to      June 30, 1998
                                                                                             June 30, 1999
                                                                     ------------------------------------------------------------
                                                                                              (unaudited)
                                                                     ------------------------------------------------------------
<S>                                                                  <C>                 <C>                     <C>
Cash flows from operating activities:
 Net loss                                                            $     (2,412)             $   (5,172)         $    (1,757)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
   Loss on disposal of fixed assets                                            28                      28                  700
   Depreciation and amortization                                              194                     386                   81
   Valuation of common stock issued for services                               --                     356                   --
   Provision for bad debts                                                     28                     312                   --
   Changes in assets and liabilities:
     Accounts receivable                                                       37                      79                 (230)
     Unbilled receivable                                                       --                      --                  (96)
     Factored accounts receivable                                             105                     225                 (125)
     Prepaid expenses and other assets                                        103                     100                   --
     Accounts payable                                                        (652)                   (652)                 506
     Deferred revenue                                                          --                     495                   56
     Accrued liabilities                                                      120                     104                 (123)
                                                                     -----------------------------------------------------------
      Net cash used in operating activities                                (2,449)                 (3,739)                (738)
                                                                     -----------------------------------------------------------

Cash flows from investing activities:
 Purchase of fixed assets                                                    (905)                   (913)                  --
                                                                     -----------------------------------------------------------
      Net cash used in investing activities                                  (905)                   (913)                  --
                                                                     -----------------------------------------------------------
Cash flows from financing activities:
 Proceeds from notes payable                                                  105                     659                  925
 Repayment of notes payable                                                (1,250)                 (1,250)                  --
 Factoring liability, net                                                  (1,144)                   (700)                (150)
 Proceeds from issuance of redeemable common stock                          8,229                   8,229                   --
 Payment on notes receivable from shareholders                                (24)                    (24)                  --
 Proceeds from the exercise of warrants                                        --                      10                   --
                                                                     ------------------------------------------------------------
      Net cash provided by financing activities                             5,916                   6,924                  775
                                                                     -----------------------------------------------------------
Net increase in cash and cash equivalents                                   2,562                   2,272                   37
Cash and cash equivalents at beginning of period                                5                     295                   --
                                                                     -----------------------------------------------------------
Cash and cash equivalents at end of period                           $      2,567              $    2,567          $        37
                                                                     ===========================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
 ACTIVITIES:
  Valuation of common stock related to debt financing                $         10              $       42          $        --
  Valuation of warrants issued in conjunction with debt financing    $         --              $       63          $        --

  Notes payable issued to secured creditors for pre-petition
   claims and taxes                                                  $         --              $      275          $        --

  Valuation of redeemable common stock                               $        600              $      600          $        --
</TABLE>


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

                                       5
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


1.  GENERAL:

     The condensed consolidated financial statements included herein have been
prepared by I-Storm, Inc. ("I-Storm" or the "Company") without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.  Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. The condensed consolidated financial statements
included herein should be read in conjunction with the financial statements and
the notes thereto included in the Company's Report on Form 10-K as of December
31, 1998.

     In the opinion of management, the accompanying interim financial statements
contain all material adjustments necessary to present fairly the consolidated
financial condition, results of operations, and changes in financial position
and stockholders' equity of the Company for interim periods.  Certain amounts in
the prior interim consolidated financial statements have been reclassified to
conform to the current period presentation.

     Due to the Restructuring and implementation of Fresh Start Reporting,
Consolidated Financial Statements for the new Reorganized Company (period
starting July 17, 1998) are not comparable to those of the Predecessor Company.
For financial reporting purposes, the effective date of the bankruptcy is
considered to be the close of business on July 16, 1998 (See Note 2).

     A black line has been drawn on the accompanying Condensed Consolidated
Financial Statements to distinguish between the Reorganized Company and the
Predecessor Company.

2.  DESCRIPTION OF THE COMPANY:

     Company Formation and Financial Reorganization

     I-Storm was created through the merger of LVL Communications Corporation
("LVL") and Digital Acquisition Corporation, a wholly owned subsidiary of
Digital Power Holding Company ("Digital"), a Nevada public shell corporation, on
July 17, 1998, resulting in LVL becoming a wholly owned subsidiary of Digital.
Digital has been renamed "I-Storm, Inc."  The merger was accounted for as a
reverse acquisition under the purchase method with LVL being the surviving
entity.

     Since December 1989, Digital has not engaged in any material business
operations.  Its only activities since that time have consisted of restoring and
maintaining its good standing in the State of Nevada.

                                       6
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


     I-Storm is an Internet advertising, marketing and communications agency,
and the developer of the "I-Storm CyberStore" concept, a joint venture program
to finance, design, develop, and operate electronic commerce storefronts in
partnership with brand-name consumer and technology product companies.  LVL has
developed electronic and on-line commerce ("E-commerce") on behalf of
international manufacturing and technology corporations.

     On March 23, 1998, LVL and its two wholly owned subsidiaries, LVL
Advertising, Inc. ("LVLA"), and LVL Interactive, Inc. ("LVLI"), filed a
voluntary petition in the United States Bankruptcy Court for the Northern
District of California ("Bankruptcy Court") seeking protection under Chapter 11
of the U.S. Bankruptcy Code.  The Chapter 11 proceedings of the Companies were
jointly administered by the Bankruptcy Court.  LVL and its subsidiaries operated
their business as debtors-in-possession, subject to Bankruptcy Court approval
for certain transactions, while they developed a reorganization plan to
restructure LVL.  On April 16, 1998, the Bankruptcy Court confirmed the First
Amended Plan of Reorganization ("POR") which became effective on July 17, 1998.
The principal terms of the POR are as follows:

     1.  LVLA and LVLI merged into LVL.

     2.  LVL became a wholly owned subsidiary of Digital.

     3.  The outstanding shares of common stock of LVL ("Old Common Stock") and
         options to purchase Old Common Stock were canceled effective July 17,
         1998.

     4.  Certain founders and shareholders of LVL received 600,000 shares of
         common stock of the Company, subject to certain restrictions on the
         sale and disposition of these shares.

     5.  Certain secured claims are to be repaid by the Company pursuant to the
         original terms of the agreements or will be repaid over five years in
         equal quarterly installments at an annual interest rate of 10%.

     6.  An investor in LVL, Trident III, LLC ("Trident") that provided $600,000
         in pre-confirmation bridge financing was issued 600,000 shares of
         redeemable non-voting common stock and 440,000 shares of non-redeemable
         common stock.

     7.  All unsecured claims will receive a pro rata portion of 600,000 shares
         of Series A Cumulative Convertible Preferred Stock ("Series A"). Claims
         of less than $5,000 may elect to receive 10% of their claim in cash in
         lieu of receiving shares of Series A

                                       7
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


         ("Cash Option"). Claims exceeding $5,000 may elect to reduce their
         claim to $5,000 and receive $500 in lieu of receiving shares of Series
         A. The pool of 600,000 shares of Series A was reduced by the percentage
         dollar amount of claims electing the Cash Option.

     8.  The Company issued warrants to purchase common stock to certain
         investors and service providers during the reorganization.

        The Company also concluded the following additional transactions
relating to the restructuring of the Company:

     1.  Trident provided $228,000 in post-confirmation bridge financing and
         received 91,200 shares of non-voting common stock.

     2.  The Company has also received $100,000 in pre-confirmation bridge
         financing and $300,000 in post-confirmation bridge financing from other
         investors. The Company issued warrants to purchase 80,000 shares of
         common stock at $0.50 per share and 120,000 shares of common stock at
         $0.001 per share, respectively, in conjunction with these financings.

     3.  I-Storm issued warrants to purchase 290,000 shares of common stock at
         $0.25 per share in conjunction with post-confirmation bridge financing
         of $725,0000 .

Significant Risks and Uncertainties

        The Chapter 11 proceedings significantly affected I-Storm's capital
structure, liquidity and capital resources.  I-Storm expects that in the near
term, it will continue to sustain losses from operations (before giving effect
to the non-cash charges that it will incur with respect to the amortization of a
$3.1 million bankruptcy Reorganization Asset over the next ten years).

        The Company is in the development stage, has yet to generate any
significant revenues and has no assurance of future revenues.  The Company is
subject to the risks and challenges associated with other companies at a similar
stage of development, including: dependence on key individuals, successful
development, marketing and sales of products and services, and competition from
larger companies with greater financial, technical, management, marketing, and
sales resources.

        In order to continue operations, the Company will require additional
capital to sustain and expand its business. I-Storm is currently seeking
additional equity financing and is seeking to list its stock on a nationally-
recognized exchange. There can be no assurance that I-Storm will be able to
obtain financing or that the terms of the financing will be favorable to
I-Storm.

                                       8
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


These factors raise substantial doubt about the ability of I-Storm to
continue as a going concern and about the ability of I-Storm to realize its
Reorganization Asset.  The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

     In addition to the need for additional financing, I-Storm is subject to a
number of other risk factors including, but not limited to, a limited operating
history as a reorganized entity; significant concentration of revenue from a few
customers; highly competitive markets with limited barriers to entry; and
successful implementation of its new E-commerce CyberStore concept.

Fresh Start Accounting

     AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," prescribes the use of "fresh start
accounting" when the sum of the allowed claims plus post-petition liabilities
exceeds the value of pre-confirmation assets and the entity experiences a change
in control as pre-reorganization equity holders effectively receive less than
50% of new common stock issued pursuant to the POR.  Under these circumstances,
a new reporting entity is created and assets and liabilities should be recorded
at their fair values.  This accounting treatment is referred to as "fresh start
reporting."

     Distributions in settlement of allowed claims, other transactions pursuant
to the POR and fresh start reporting adjustments have been applied to I-Storm's
pre-confirmation balance sheet resulting in the accompanying July 17, 1998
consolidated balance sheet of I-Storm.  Since fresh start accounting results in
a new reporting entity, amounts included in the accompanying consolidated
financial statements as of or subsequent to July 17, 1998 are not intended to be
comparable to financial statements as of or for any previous period.

     Fresh start reporting equity value was determined in good faith by the
Board of Directors of I-Storm.  I-Storm has valued the Series A Cumulative
Convertible Preferred Stock at $1.00 per share, representing proceeds to the
unsecured creditors of approximately $0.10 per $1.00 of liabilities.  Redeemable
common stock has also been valued at $1.00 based on the redemption features of
the common stock.  Common stock has been valued at $0.25 per share based on the
value of the last transaction involving Digital's common stock.  Warrants to
purchase common stock to be issued pursuant to the POR have been valued at
approximately $0.13 based on an option-pricing model.

     The reorganization and the adoption of fresh start reporting resulted in
the following adjustments to the Company's Consolidated Balance Sheet as of July
17, 1998 (in thousands):

                                       9
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


(UNAUDITED INFORMATION)

<TABLE>
<CAPTION>
                                         Predecessor            Reorganization and                 Reorganized
                                           Company           Fresh Start Adjustments                 Company
                                                          ---------------------------------
                                         July 17, 1998       Debit                Credit           July 17, 1998
                                        --------------    ------------        -------------        -------------
<S>                                     <C>               <C>                 <C>                 <C>
Assets:
 Current assets                         $      1,360      $          --       $        379  (a)   $          981
 Property and equipment, net                     307                 --                185  (b)              122
 Reorganization asset                             --              3,131  (c)            --                 3,131
                                        ------------      -------------       ------------        --------------
Total assets                            $      1,667      $       3,131       $        564        $        4,234
                                        ============      =============       ============        ==============
Liabilities and equity:
 Accounts payable                       $      9,574      $       7,635  (d)  $         --        $        1,939
 Long-term notes payable                         403                 --                125  (e)              528
 Redeemable common stock                          --                 --                600  (f)              600
 Preferred A                                      --                 --                600  (g)              600
 Common                                           11                 --                 19  (h)               30
 Warrants                                         --                 --                 47  (i)               47
 Paid in capital                                 724                234  (j)            --                   490
 Accumulated deficit                          (9,045)                --              9,045  (k)               --
                                        ------------      -------------       ------------        --------------
Total liabilities and equity            $      1,667      $       7,869       $     10,436        $        4,234
                                        ============      =============       ============        ==============
</TABLE>

Explanation of the above adjustment columns are as follows:

  (a) To adjust current assets to fair market value.
  (b) To adjust property and equipment to fair market value.
  (c) To establish the reorganization value in excess of identifiable assets as
      follows (in thousands):

           New debt                                      $    125
           New equity                                       1,266
                                                         --------
                 Reorganization value                       1,391
           Plus: Fair value of liabilities                  2,843
           Less: Fair value of assets                      (1,103)
                                                         --------
                                                         $  3,131
                                                         ========

  (d) To reflect the cancellation of old accounts payable and notes payable.
  (e) To reflect the addition of bridge debt pursuant to the Reorganization
      Plan.

                                       10
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


     (f)  To reflect the issuance of 600,000 shares of Redeemable Common
          pursuant to the Reorganization Plan.
     (g)  To reflect the issuance of 600,000 shares of Convertible Preferred A
          pursuant to the Reorganization Plan.
     (h)  To reflect the net issuance of Common shares pursuant to the
          Reorganization Plan.
     (i)  To reflect the issuance of 350,000 shares of Common Warrants pursuant
          to the Reorganization Plan.
     (j)  To reflect net adjustments to Capital pursuant to the Reorganization
          Plan.
     (k)  To reflect the elimination of stockholders' deficit of the Predecessor
          Company.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

     The accompanying consolidated financial statements reflect the activities
of I-Storm and its wholly-owned subsidiary after elimination of all intercompany
accounts and transactions.

Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.

Statements of Cash Flows

     For purposes of the statements of cash flows, I-Storm considers all highly
liquid investments purchased with original maturities of three months or less to
be cash and cash equivalents.  Cash and cash equivalents consist of amounts on
deposit at a commercial bank.

Concentrations of Credit Risk

     Financial instruments that potentially subject I-Storm to concentrations of
credit risk consist principally of accounts receivable.  I-Storm performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.

Property and Equipment

     Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to seven years) of
the assets.

                                       11
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


Amortization of Reorganization Asset

     At July 17, 1998, the reorganization value of I-Storm in excess of its net
assets was determined to be $3,131,000. This intangible asset was classified as
a reorganization asset ("Reorganization Asset") in the accompanying consolidated
balance sheet of I-Storm and will be amortized on a straight-line basis over ten
years. Pursuant to Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code," the Reorganization Asset was
determined by discounting future cash flows for I-Storm at rates reflecting the
business and financial risks involved and it approximates the amount a willing
buyer would pay for the assets of the Company immediately after the
restructuring. The carrying value of the Reorganization Asset will be reviewed
periodically for impairment, and if the facts and circumstances suggest that it
may not be recoverable, as determined based on the undiscounted cash flows of
I-Storm over the remaining amortization period, the carrying value of the
Reorganization Asset will be adjusted in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of."

Stock-Based Compensation

     The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation," in October 1995. This accounting
standard permits the use of either a fair value based method of accounting or
the method defined in Accounting Principles Board Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees" to account for stock-based
compensation arrangements. Companies that elect to employ the method prescribed
by APB 25 are required to disclose the pro forma net income (loss) that would
have resulted from the use of the fair value based method. I-Storm has elected
to account for its stock-based compensation arrangements under the provisions of
APB 25.

Revenue Recognition

     I-Storm's revenues consist principally of services related to development
and maintenance of web sites.  I-Storm recognizes revenue as the services are
provided.  To the extent costs incurred and anticipated costs to complete
projects in progress exceed anticipated billings, a loss is accrued for the
excess.

Comprehensive Income (Loss)

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which I-Storm adopted beginning on January 1, 1998.  SFAS No. 130
establishes standards for reporting and display of comprehensive income (loss)
and its components in a full set of

                                       12
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


general purpose financial statements. The objective of SFAS No. 130 is to report
a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with shareholders ("comprehensive income"). Comprehensive income (loss) is the
total of net income (loss) and all other non-owner changes in equity. For the
six months ended June 30, 1999 and 1998, I-Storm's comprehensive loss was equal
to net loss.

Computation of Basic and Diluted Net Loss Per Share and Pro Forma Basic and
Diluted Net Loss Per Share

     In accordance with SFAS No. 128, "Earnings Per Share," basic net loss per
common share has been computed by dividing net loss after deduction of preferred
stock dividends by the weighted average number of shares of common stock
outstanding during the period. Basic and diluted pro forma net loss per common
share, as presented in the statements of operations, has been computed as
described above and also gives effect to the conversion of the convertible
preferred stock if dilutive (using the if-converted method) from the
original date of issuance.

Segment Reporting

     During 1998, I-Storm adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information."  SFAS No. 131 requires a new basis of
determining reportable business segments (i.e., the management approach).  This
approach requires that business segment information used by management to assess
performance and manage company resources be the source for information
disclosure.  On this basis, I-Storm has only one business segment, the
development and implementation of the eStore concept.

     During the six months ended June 30, 1999 and 1998, I-Storm's revenue was
generated in the United States.


                                       13
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


4.   FACTORED ACCOUNTS RECEIVABLE:

     I-Storm has entered into a factoring agreement with a financial
institution.  Under this arrangement, I-Storm sells to the financial institution
all third-party receivables that meet certain criteria outlined in the
agreement.  The financial institution has the right to charge back any
receivables that are not paid within 90 days of the invoice date to I-Storm.  As
I-Storm does not surrender control over the factored receivables, the amounts
received from the transfer are treated as secured borrowings until either
payment is received by the financial institution or the receivable is put back
to I-Storm.  The factoring agreement expired on March 25, 1999.  As of June 30,
1999, I-Storm has completely paid off the factoring liability.

5.   INCOME TAXES:

     I-Storm accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes."  A valuation allowance has been recorded for the total deferred
tax assets as a result of uncertainties regarding the realization of the assets
based upon the lack of profitability in recent years, the uncertainty of future
profitability, and limitations on the utilization of net operating losses due to
I-Storm's reorganization.

6.   RELATED PARTIES:

     The Company entered into a twelve-month consulting agreement with
Benchmark, dated August 31, 1998, pursuant to which the Company is obligated to
pay a total of $175,000 in twelve monthly instalments to Benchmark for merger
and acquisitions consulting services rendered to either LVL or the Company,
commencing as of March 1, 1998. Benchmark also entered into an agreement in
April 1998, to provide consulting services to LVL and its successor entity in
consideration of 600,000 shares of unregistered Common Stock, and the Board of
Directors approved the issuance of this Common Stock to Benchmark or its
designees on August 1, 1998, subject to an eighteen month lock-up agreement.

     In September 1997, the Company engaged Mackenzie Shea, Inc. ("MSI") as a
consultant to assist the Company in structuring a reorganization and post-
organization operating entity.  MSI or its designees were issued 500,000 shares
of the Company's Common Stock in August 1998, and MSI was paid a $20,000 cash
fee in 1998 in full compensation for such services.  The shares are exempt from
registration under the federal securities laws, in accordance with Section 1145
of the Bankruptcy Code.  The shares are subject to an eighteen

                                       14
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


month lock-up agreement, commencing August 1, 1998. Ten percent of such shares
to date have been released from the lock-up agreement.

     In September 1997, the Company engaged Thomas Schulz as a consultant to
assist the Company in structuring a reorganization and post-organization
operating entity.  Mr. Schulz or its designees were issued 500,000 shares of the
Company's Common Stock in August 1998, and Mr. Schulz also was paid a fee for
such services.  Mr. Schulz is a director of the Company.  The shares are exempt
from registration under the federal securities laws, in accordance with Section
1145 of the Bankruptcy Code.  The shares are subject to an eighteen month lock-
up agreement, commencing August 1, 1998.  Ten percent of such shares to date
have been released from the lock-up agreement.

     In August 1998, the Company engaged Weatherly Securities Corp.
("Weatherly") to provide investment banking services and strategic planning for
the management, capitalization and business development of the Company for a
flat fee of 1,000,000 shares of Common Stock of the Company, valued at $0.25 per
share.  The shares of Common Stock issued to Weatherly were fully vested
as of August 1, 1998, are unregistered shares and are subject to an eighteen
month lock-up agreement.

     In August 1998, the Company engaged Pound Capital Corp. ("Pound") to
provide investment banking services and strategic planning for the management,
capitalization and business development of the Company for a flat fee of 225,000
shares of Common Stock of the Company, valued at $0.25 per share.  The shares of
Common Stock issued to Pound were fully vested as of August 1, 1998, are
unregistered shares and are subject to an eighteen month lock-up agreement.

     Robert Tomz entered into a consulting arrangement with the Company on
December 8, 1998 whereby he was entitled to receive monthly compensation of
$8,000 a month and warrants to purchase 14,000 shares of Common Stock,
exercisable at $2.00 per share each month for a period of twelve months
commencing January 11, 1999.  Mr. Tomz also served briefly as Acting Chief
Financial Officer of the Company from January 1 to March 15, 1999.  Mr. Tomz and
the Company terminated this consulting arrangement on June 15, 1999, and
renegotiated the consulting fee so that Mr. Tomz received in total $90,000 and
84,000 warrants to purchase Common Stock of the Company exercisable at $2.00 per
share.

     Pursuant to the Plan of Reorganization, the Company has issued 297,642
shares of Common Stock to each of Calbert Lai and Stephen Venuti, and 500,000
shares of Common Stock to Thomas A. Schulz, or his designees, as set forth
below.  Further, Benchmark Equity Group, Inc., an affiliate of Frank DeLape, a
director, has been issued 557,800 shares of Common Stock.  Additionally, Mr.
DeLape, has received options to purchase 50,000 shares of Common Stock at $3.50
per share for one year's service as the Chairman of the Board of Directors of

                                       15
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


the Company on July 23, 1999, and all other non-employee directors have received
options to purchase 25,000 shares at $3.50 per share for one year's service on
the Board of Directors of the Company, to be issued on July 23, 1999.

     The Company is a party to a twelve month consulting agreement with
Benchmark Equity Group, Inc. ("Benchmark"), dated August 31, 1998, pursuant to
which the Company is obligated to pay $175,000 in twelve monthly instalments to
Benchmark for consulting services rendered to either LVL or the company,
commencing as of March 1, 1998.  Benchmark also entered into an earlier
agreement, in April 1998, to provide consulting services to LVL and its
successor entity in consideration of 600,000 shares of Common Stock, and the
Board of Directors approved the issuance of this Common Stock to Benchmark or
its designees on July 23, 1998.  Frank DeLape, Chairman of the Board, is the
President of Benchmark Equity Group, Inc.  The Company has a management
consulting agreement with Matthew Howard, a director, for a fee of $5,000 per
month.  Mr. Howard's consulting arrangement commenced August 1998.

7.   EQUITY FUNDING:

     In February 1999, I-Storm raised net proceeds of $4,259,000 in connection
with the issuance of 407,900 shares of Series B Cumulative Convertible Preferred
Stock ("Series B") offered in a Regulation D private placement at par value of
$0.01 per share for an offering price of $12.25 per share.   The Series B shares
shall pay a quarterly cumulative dividend at 9% per annum, payable in cash or
Series B Preferred stock at the option of the Board of Directors, and shall be
convertible into common stock at a conversion price of not greater than $3.50
per share and not less than $2.80 per share.

     In May 1999, I-Storm raised net proceeds of $3,996,000 in connection with
the issuance of 371,438 shares of Series C Cumulative Convertible Preferred
Stock ("Series C") offered in a Regulation D private placement at par value of
$0.01 per share for an offering price of $12.25 per share.  The Series C shares
shall pay a quarterly cumulative dividend at 9% per annum, payable in cash or
Series C Preferred stock at the option of the Board of Directors, and shall be
convertible into common stock at a conversion price of not greater than $3.50
per share and not less than $2.80 per share.

8.   BOARD OF DIRECTORS SHARES:

     On June 11, 1999, the Board of Directors authorized the issuance of options
to purchase 50,000 shares of common stock to the Chairman of the Board of
Directors.  Each director other than the Chairman shall be granted options to
purchase 25,000 shares of common stock.  These options will be granted annually
for each full year of service and vest one year from the date of grant.  The
exercise price of options granted for the current year of

                                       16
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


service is $3.50 per share. The Board of Directors also authorized the issuance
of options to purchase 50,000 and 25,000 shares of common stock to the Chairman
and members of the Advisory Board of I-Storm, respectively, under the same terms
as the options granted to the Chairman and members of the Board of Directors.
Individuals may only receive options as a member of either the Board of
Directors or the Advisory Board, but not as a member of both boards.

Item 2.   Management's Discussion and Analysis

     The Company's net loss for the quarter ended June 30, 1999 was
approximately $1,188,000 primarily due to operating losses and expenses
associated with the Company's reorganization, subsequent merger with Digital,
and shift away from advertising service revenue toward E-commerce development
activities. The Company's net loss for the six months ended June 30, 1999 was
approximately $2,412,000, primarily due to operating losses compared to a net
loss of approximately $1,757,000 for the six months ended June 30, 1998. The
Company's operating loss for the quarter ended June 30, 1999 was approximately
$1,215,000 as compared to an operating loss of approximately $756,000 for the
quarter ended June 30, 1998. The increase in operating loss of approximately
$459,000 was caused primarily by a decline in gross profit from the prior year
of approximately $550,700. The Company's operating loss for the six months ended
June 30, 1999 was approximately $2,327,600 as compared to an operating loss of
$1,512,000 for the six months ended June 30, 1998. The increase in operating
loss is due to a sharp decline in revenue.

     Revenue for the quarters ended June 30, 1999 and 1998 were approximately
$8,900 and $1,346,000, respectively, a decrease of approximately $1,337,100 due
to the change in focus of the Company from generating advertising service
revenue to seeking financing for the newly-merged corporation and developing
E-commerce partnerships. Gross profit for the quarters ended June 30, 1999 and
June 30, 1998 were approximately $(170,700) and $380,000 or (1900%) and 28% of
sales, respectively. The decrease in gross profit was primarily a result of the
Company's shift away from advertising service revenue toward E-commerce
development activities. Revenue for the six months ended June 30, 1999 and 1998
were approximately $337,000 and $2,074,000, respectively, a decrease of
approximately $1,737,000. Gross profit for the six months ended June 30, 1999
and 1998 were approximately $(210,000) and $589,000, or (162%) and 29% of sales,
respectively.

     Operating expenses for the quarters ended June 30, 1999 and 1998 were
approximately $1,224,000 and $2,102,000 respectively. The decrease in operating
expenses of approximately $878,000 from the period one year earlier was due
primarily to a reduction in staff relating to the shift away from advertising
and a reduction in facilities expenses due to relocation of the Company's
headquarters. Operating expenses for the six months ended June 30, 1999 and 1998
were $2,664,000 and $3,586,000, respectively.

     Interest expense for the quarters ended June 30, 1999 and 1998 were
approximately $8,400 and $57,800, respectively. For June 30, 1999 and 1998
interest expenses was approximately $117,000 and $127,000, respectively. As of
June 30, 1999, liabilities of the Company consisted of approximately $236,000 of
long-term debt and current liabilities of $936,000.

Liquidity and Capital Resources
-------------------------------

     At June 30, 1999 and June 30, 1998, the Company had current assets of
approximately $2,752,000 and $1,389,000, while cash and cash equivalents were
approximately $2,567,000 compared to $37,000 at June 30, 1999 and 1998,
respectively.

     As of June 30, 1999, the Company owed approximately $236,000 long-term
debt and current notes payable totaling approximately $52,000. The Company is in
compliance with all covenants of the shareholder notes payable as of June 30,
1999.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

     The information and events reported in the Company's 1998 Form 10-KSBA,
filed September 8, 1999, are hereby incorporated by reference and should be read
in conjunction with this Form 10-QSB.

Item 2. Changes in Securities and Use of Proceeds

     The information and events reported in the Company's 1998 Form 10-KSB,
filed on September 8, 1998, are hereby incorporated by reference and should be
read in conjunction with this Form 10-QSB.

                                      17
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


Sales of Unregistered Stock

Private Placement Offering of the Series C Preferred Stock

     The Company has recently raised a total of $4,550,000 in gross proceeds
from a private placement offering of Series C Cumulative Convertible Preferred
Stock ("Series C Preferred Stock"), made pursuant to Section 506 of Regulation
D, at a price per share of $12.25. The offering of such Series C Preferred Stock
("the Offering") commenced on February 22, 1999 and concluded on May 31, 1999. A
total of 371,429 shares of Series C Preferred Stock were offered and sold by the
Company with the assistance of financial consultants who received a consulting
fee equal to 12% of gross proceeds or $546,000. Additionally, certain
consultants received warrants to purchase 2,040 shares of Series C Preferred
Stock at an exercise price of $12.25. After deducting the consulting fees and
various expenses related to the offering, a total of approximately $3,996,000 in
proceeds was received by the Company from the Offering. The net proceeds are
being used for the development of I-Storm E-commerce stores, for normal
operating expenses during the Company's development stage, and for general
working capital purposes.

     The Series C Preferred Stock has a par value of $0.01 per share.  Each
share is entitled to cumulative annual dividends, when and as declared by the
Board of Directors, at an annual rate of nine percent (9%) each year, in
quarterly installments of $0.28 on February 15, May 15, August 15, and November
15, of each year, payable at the option of the Company either in shares of
Series C Preferred Stock or in cash.  The right of the Series C Preferred Stock
to payment of either cash or Series C Preferred stock dividends is subordinate
to the right to cash or stock dividend payments of Series A Preferred Stock or
Series B Preferred Stock.  The shares of Series C Preferred Stock are
convertible into Common Stock at any time following the closing of the Offering,
at the option of the holder, into such number of shares of the Company's Common
Stock as shall equal $12.25 divided by the lower of $3.50 (the "Conversion
Price"), or should the closing bid price for any five consecutive trading days
during the period commencing 11 months after the Final Closing of the Offering
and ending one month thereafter be less than $3.50, the Conversion Price shall
be readjusted to that price, provided, however, that in no event shall the
Conversion Price be reduced below $2.80.  The number of shares of Common Stock
to be issued upon conversion shall also be subject to certain antidilution
provisions.  Each share may be converted into Common Stock at the Conversion
Price at the option of the Company, at any time after one year from the Final
Closing of the Offering, upon the payment to the holder of any unpaid
accumulated dividends, in cash or Common Stock, at the option of the Company.
The Common Stock exercisable upon conversion of the Shares shall have piggy-back
registration rights effective from the Final Closing of this Offering and shall
have demand registration rights effective from the Final Closing until 12 months
thereafter.

                                       18
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


Issuance of Common Stock and Options to Consultants

     In July 1999, the Board approved the grant of performance based options to
purchase 150,000 shares of Common Stock of the Company to NSA, a provider of
business consulting services, exercisable at $2.25 per share. The options will
cliff-vest in five years, subject to performance conditions and are also
accelerable, based upon certain performance conditions.

     In July 1999, the Board approved the grant of performance based options to
purchase 10,000 shares of Common Stock of the Company to each of Marvin Su and
Jerry Klemushin, a provider of business consulting services, exercisable at
$2.25 per share. The options will cliff-vest in five years, subject to
performance conditions and are also accelerable, based upon certain performance
conditions.

     In July 1999, the Board of Directors approved the grant of options to
purchase Series C Preferred Stock, exercisable at $12.25 per share until March
22, 2009, issued on March 22, 1999 to Calbert Lai, in the amount of 255,000
options, and to Stephen Venuti, 126,000 options. Such options shall cliff-vest
five years from the date of grant.  The vesting of the options can also be
accelerated at a rate of 105,000 options with respect to Mr. Lai and 51,000
options, with respect to Mr. Venuti, at the time that the first E-commerce
CyberStore of the Company becomes operational; and an additional 75,000 options
with respect to Mr. Lai and an additional 37,500 options with respect to Mr.
Venuti, may vest at the time that the second E-commerce CyberStore shall becomes
operational. Finally, an additional 75,000 options with respect to Mr. Lai, and
an additional 37,500 options with respect to Mr. Venuti, may vest at the time
that the third E-commerce CyberStore shall becomes operational.

     In May 1999, Mackenzie Shea, Inc. or its designees became entitled, subject
to Board approval, to a warrant to purchase 2,040 shares of Series C Preferred
Stock, exercisable for five years for a price of $12.25 per share.

     In April 1999, consultant Michael Kanas became entitled, to options to
purchase 10,000 shares of Common Stock exercisable at $6.37 per share, subject
to Board approval, for services rendered. The exercise price was equivalent to
the fair market value of the Common Stock at the time of entitlement.

     The Company believes that the transactions set forth above were exempt from
registration with the Commission pursuant to Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering.  No broker-
dealer or underwriter was involved in the foregoing transactions.  All
certificates representing such securities were appropriately legended.

Item 3.   Defaults Upon Senior Securities

     None

                                       19
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999

Item 4.   Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of securities holders during this
period.

Item 5.   Other Information

     The information and events reported in the Company's 1998 Form 10-KSBA,
filed September 8, 1999, are hereby incorporated by reference and should be read
in conjunction with this Form 10-QSB.

     On June 16, 1999, the Company entered into a three-year E-commerce Sales
and Marketing Agreement with AIG Warranty Services and Insurance Company
("AIG"). During the three-year term of the Sales and Marketing Agreement, I-
Storm will be the exclusive on-line marketer of AIG's on-line warranties and
service contracts.

     In June 1999, the Board appointed John Matthews to the Board of Directors
to fill a vacancy left by Richard Snyder in April 1999.  Mr. Matthews has been
the Chairman of the Board and Chief Executive Officer of Weatherly Securities
Corp. since June 1996. Mr. Matthews previously served as the Chief Operating
Officer of Americorp Securities, Inc., a New York based investment-banking firm,
from June 1992 to May 1996. From 1990 to 1992, Mr. Matthews was a Vice President
of Vantage Securities, Inc., an investment-banking firm located in Melville, New
York. In 1990, prior to entering the securities industry, Mr. Matthews served as
a Director of the New York Office of Senator Daniel Patrick Moynhihan (D-NY).
His responsibilities included managing the Senator's staff, coordinating all
intergovernmental relations in New York, serving as the Senator's senior
ombudsman, as well as directing legislative initiatives and constituent services
for the State of New York.

Additional Employee Stock Option Plan

     In June 1999, the Board approved the establishment of an employee stock
option plan proposed in 1998 consisting of 1.5 million shares of common stock.
The anticipated provisions of the this plan are as follows: options granted
under the 1998 Option Plan may be either incentive stock options or nonstatutory
stock options, as designated by the Board of Directors; options granted under
the 1998 Option Plan will expire on the tenth anniversary of the date of grant;
the exercise price of each incentive stock option will be no less than 100% of
the fair market value of the common stock at the date of the grant; the exercise
price of each nonstatutory stock option will be no less than 85% of the fair
market value of the common stock at the date of the grant; the exercise price to
an optionee who possesses more than 10% of the total combined voting power of
all classes of stock will be no less than 110% of the fair market value of the
common stock at the date of the grant and is not exercisable after the

                                       20
<PAGE>

                                 I-STORM, INC.
                    FORMERLY DIGITAL POWER HOLDING COMPANY
                         (A DEVELOPMENT STAGE COMPANY)
                                 JUNE 30, 1999


expiration of five years from the date of grant; vesting provisions of
individual options under the 1998 Option Plan may vary as the Board of Directors
will have the authority to set exercise dates, payment terms and other
provisions for each grant. Such options and the stock underlying such options
shall not be exempt from registration under the federal securities laws.


                                  SIGNATURES

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



Date:  November 5, 1999                 I-STORM, INC.



                                        By: /s/ Calbert Lai
                                            ______________________________
                                            Calbert Lai, President

                                       21