UNITED STATES SECURITIES AND EXCHANGE COMMISSION ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 001-40730 DRAGONFLY ENERGY HOLDINGS CORP. (Exact name of registrant as specified in its charter) Washington, D.C. 20549 FORM 10-K (Mark One) Nevada 85-1873463 (State ...

Dragonfly Energy (NASDAQ:DFLI) stock is heading higher on Tuesday alongside its earnings report for the fourth quarter of 2023.In that report, the company posted earnings per share of 5 cents. That’s much better than the -20 cents per share that Wall Street was expecting for the quarter. It’s also a massive improvement over the -76 cents per share from the same period of the year prior.Unfortunately, its revenue of $10.4 million is less impressive, That missed analysts’ estimate of $12.24 million for the qu ...

Dragonfly Energy Holdings Corp. (NASDAQ:DFLI) Q4 2023 Earnings Conference Call April 15, 2024 5:00 PM ET Company Participants Denis Phares - President & CEO John Marchetti - SVP & Former CFO Conference Call Participants George Gianarikas - Canaccord Genuity Brian Dobson - Chardan Capital Markets Chip Moore - ROTH Pavel Molchanov - Raymond James Jeff Grampp - Alliance Global Partners Operator Good afternoon. My name is Jenny, and I will be your operator today for Dragonfly Energy's Fourth Quarter and Full-Ye ...

Successful diversification of revenue underway, with launch in Q4 2023 of all-electric auxiliary power units ("APU") to the trucking industry; Enables compliance with increasing anti-idling regulations, reduction in fuel costs, increased uptime and payloads, and the reduction of harmful emissions In Q4 2023, achieved successful deposition of cathode electrodes, and double-sided dry deposition of both anode and cathode electrodes, at scale, using the Company's patented dry electrode battery manufacturing pro ...

Dragonfly Energy managers discuss battery data in the R&D lab. Results of a Cost & Sustainability Assessment, conducted by Sphere Energy, concludes Dragonfly Energy's patented dry electrode battery manufacturing process is easily scalable, more cost-effective, and more sustainable than the state-of-the-art technology currently available in the market.The assessment of Dragonfly Energy's patented battery manufacturing process highlights significant improvements compared to conventional manufacturing method ...

RENO, Nev., April 09, 2024 (GLOBE NEWSWIRE) -- Dragonfly Energy Holdings Corp. ("Dragonfly Energy" or the "Company") (NASDAQ:DFLI), maker of Battle Born Batteries® and an industry leader in energy storage, today announced that the Company will release its financial results for the fourth quarter and year ended December 31, 2023 after market close on Monday, April 15, 2024. The earnings press release will be followed by a conference call on April 15, 2024 at 5:00 PM Eastern Time, hosted by members of the Dra ...

NEW ORLEANS, March 04, 2024 (GLOBE NEWSWIRE) -- Velociti Inc., a global provider of technology deployment, maintenance and integration solutions, and Dragonfly Energy Holdings Corp. (NASDAQ:DFLI) ("Dragonfly Energy" or the "Company"), maker of Battle Born Batteries® and an industry leader in energy storage, today announced at American Trucking Associations Technology Maintenance Council's Annual Meeting & Transportation Technology Exhibition, a partnership to provide Dragonfly Energy customers with access t ...

The John Lennon Educational Tour Bus is now powered by Battle Born Batteries' nontoxic lithium batteries, moving the nonprofit mobile recording studio toward improved sustainability.The move to lithium batteries and solar panels allows the nonprofit to enhance their student experiences, increase the organization's reach, and save money on expensive generator fuel as they share music education across the country. Dragonfly Energy uses sixteen 270Ah 12V Battle Born LiFePO4 deep cycle batteries plus twelve 200 ...

Dragonfly Energy Holdings Corp. (NASDAQ:DFLI) Q3 2023 Results Conference Call November 13, 2023 5:00 PM ET Company Participants Denis Phares - CEO John Marchetti - CFO Conference Call Participants George Gianarikas - Canaccord Genuity Vincent Anderson - Stifel Brian Dobson - Chardan Jeff Grampp - Alliance Global Partners Operator Good afternoon. My name is Lester, and I will be your operator today for Dragonfly Energy's Third Quarter Earnings Call. The call can be accessed along with the earnings press rele ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents unaudited financial statements, management's discussion, market risk disclosures, and controls [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, and cash flows, along with comprehensive notes detailing accounting policies, fair value measurements, debt, commitments, and other financial disclosures for the periods ended September 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Snapshot of financial position, detailing assets, liabilities, and equity at specific points | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total Current Assets | $63,022 | $73,489 | $(10,467) | | Total Assets | $82,513 | $88,762 | $(6,249) | | Total Current Liabilities | $41,022 | $40,528 | $494 | | Warrant Liabilities | $14,165 | $32,831 | $(18,666) | | Total Liabilities | $58,178 | $77,430 | $(19,252) | | Total Equity | $24,335 | $11,332 | $13,003 | [Condensed Interim Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Interim%20Consolidated%20Statements%20of%20Operations) Details revenues, expenses, and net loss over specific interim periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $15,889 | $26,117 | $53,954 | $66,042 | | Gross Profit | $4,572 | $7,038 | $13,413 | $19,561 | | Total Operating Expenses | $10,473 | $10,447 | $37,521 | $25,060 | | Loss From Operations | $(5,901) | $(3,409) | $(24,108) | $(5,499) | | Interest Expense | $(3,977) | $(1,166) | $(11,905) | $(3,657) | | Change in fair market value of warrant liability | $(145) | — | $19,182 | — | | Net Loss | $(10,023) | $(3,689) | $(16,831) | $(7,456) | | Loss Per Share- Basic | $(0.17) | $(0.10) | $(0.34) | $(0.20) | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Outlines changes in equity, including net loss, stock issuances, and compensation | Metric (in thousands) | Balance - January 1, 2023 | Net Loss | Common stock issued in public offering (ATM), net of costs | Exercise of stock options | Exercise of Public Warrants | Cashless exercise of liability classified warrants | Stock compensation expense | Balance - September 30, 2023 | | :-------------------- | :------------------------ | :------- | :------------------------------------------------------- | :------------------------ | :-------------------------- | :----------------------------------------------- | :------------------------- | :--------------------------- | | Common Stock (Amount) | $4 | — | — | — | — | $1 | — | $6 | | Additional Paid-In Capital | $38,461 | — | $597 | $93 | $747 | $10,166 | $4,487 | $68,293 | | Retained Deficit | $(27,133) | $(10,023)$ | — | — | — | — | — | $(43,964) | | Total Equity | $11,332 | $(10,023)$ | $7,878 | $36 | $1,163 | $2,462 | $946 | $24,335 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Used in Operating Activities | $(16,727) | $(24,711) | | Net Cash Used in Investing Activities | $(6,507) | $(6,065) | | Net Cash Provided by Financing Activities | $18,688 | $15,707 | | Net Decrease in Cash | $(4,546) | $(15,069) | | Ending Cash | $13,235 | $13,561 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, estimates, and financial statement line items [NOTE 1 - NATURE OF BUSINESS](index=11&type=section&id=NOTE%201%20-%20NATURE%20OF%20BUSINESS) Describes the company's primary business activities, products, and significant corporate events - Dragonfly Energy Holdings Corp. (New Dragonfly) sells lithium-ion battery packs to OEMs (Dragonfly brand) and direct to consumers (Battleborn Batteries brand)[22](index=22&type=chunk) - The company is developing technology for improved lithium-ion battery manufacturing and assembly methods[22](index=22&type=chunk) - On October 7, 2022, a merger between Chardan NexTech Acquisition 2 Corporation ("CNTQ") and Legacy Dragonfly was completed, with Legacy Dragonfly deemed the accounting acquirer[23](index=23&type=chunk)[24](index=24&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the key accounting principles and methods used in preparing the financial statements [Principles of consolidation](index=11&type=section&id=Principles%20of%20consolidation) Explains the basis for consolidating the financial statements of the company and its subsidiaries - Financial statements are prepared in accordance with U.S. GAAP and consolidate the Company and its wholly-owned subsidiary[25](index=25&type=chunk) [Basis of presentation](index=11&type=section&id=Basis%20of%20presentation) Describes the framework and regulations followed in preparing the interim financial statements - Unaudited interim financial statements are prepared in accordance with U.S. GAAP for interim information and SEC regulations (Article 8 of Regulation S-X)[26](index=26&type=chunk) - These statements include normal recurring accruals and should be read with the annual 10-K report for the year ended December 31, 2022[26](index=26&type=chunk) [Going Concern](index=12&type=section&id=Going%20Concern) Addresses the company's ability to continue operations, highlighting financial challenges and covenant compliance - The Company incurred losses from operations and had negative cash flow from operations during the nine months ended September 30, 2023 and 2022[28](index=28&type=chunk) - As of September 30, 2023, the Company had **$13.235 million** in cash and **$22.000 million** in working capital[28](index=28&type=chunk) - The Company obtained waivers for failing to meet fixed charge coverage ratio and maximum senior leverage ratio covenants for Q1 and Q3 2023, and it is probable it will fail to meet these covenants within the next twelve months, raising substantial doubt about its going concern ability[29](index=29&type=chunk) [Recently adopted accounting standards](index=12&type=section&id=Recently%20adopted%20accounting%20standards) Discusses the impact of newly adopted accounting standards on the financial statements - ASU 2016-13 (Credit Losses) adopted on January 1, 2023, had no material impact on financial statements[31](index=31&type=chunk) [Recently issued accounting pronouncements](index=12&type=section&id=Recently%20issued%20accounting%20pronouncements) Identifies recently issued accounting standards and their expected impact on the company - No recently issued accounting standards are expected to have a material effect on the Company's financial statements[32](index=32&type=chunk) [Accounts Receivable](index=13&type=section&id=Accounts%20Receivable) Provides details on the company's accounts receivable and the allowance for doubtful accounts | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Allowance for doubtful accounts | $178 | $90 | [Inventory](index=13&type=section&id=Inventory) Describes the valuation methods and reserves applied to the company's inventory - Inventories are stated at the lower of cost (FIFO) or net realizable value, net of reserves for obsolete inventory[34](index=34&type=chunk) - No reserves for obsolete inventory were necessary as of September 30, 2023, and December 31, 2022[34](index=34&type=chunk) [Property and Equipment](index=13&type=section&id=Property%20and%20Equipment) Details the company's property and equipment, including depreciation expense | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | | Depreciation expense | $909 | $648 | [Use of Estimates](index=13&type=section&id=Use%20of%20Estimates) Explains the role of management's judgments and assumptions in financial reporting - Financial statements require management estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses[36](index=36&type=chunk) [Warrants](index=13&type=section&id=Warrants) Clarifies the accounting classification and fair value measurement of the company's warrants - Warrants are classified as liabilities or equity based on ASC 480 and ASC 815[37](index=37&type=chunk) - Liability-classified warrants are remeasured at fair value each reporting period, with changes recognized in earnings[37](index=37&type=chunk) [Revenue Recognition](index=14&type=section&id=Revenue%20Recognition) Describes the principles and timing for recognizing revenue from product sales - Revenue is recognized when control of promised goods is transferred to the customer, usually at shipment[39](index=39&type=chunk) - Customer deposits are recorded as liabilities and recognized as sales once revenue criteria are met[40](index=40&type=chunk) [Disaggregation of Revenue](index=14&type=section&id=Disaggregation%20of%20Revenue) Breaks down the company's net sales by different sales channels | Sales Channel (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Direct to Customer | $10,305 | $12,249 | $30,314 | $41,755 | | Original equipment manufacture | $5,584 | $13,868 | $23,640 | $24,287 | | Total Net Sales | $15,889 | $26,117 | $53,954 | $66,042 | - Retail and Distributor revenues were combined into "direct-to-consumer revenue" for current year presentation to better reflect sales channel evaluation[41](index=41&type=chunk) [Shipping and Handling](index=14&type=section&id=Shipping%20and%20Handling) Details the costs associated with outbound freight and shipping activities | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Outbound freight costs | $913 | $1,508 | $2,872 | $4,042 | [Product Warranty](index=14&type=section&id=Product%20Warranty) Provides information on the estimated outstanding warranty obligations | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Estimated outstanding warranty obligation | $301 | $328 | [Concentrations](index=16&type=section&id=Concentrations) Identifies significant concentrations of customers and vendors - Two customers comprised approximately **38%** and **15%** of accounts receivable as of September 30, 2023[45](index=45&type=chunk) - One customer accounted for approximately **19%** of revenue for the nine months ended September 30, 2023, and **11%** for the three months ended September 30, 2023[46](index=46&type=chunk) - One vendor comprised approximately **68%** of accounts payable as of September 30, 2023[47](index=47&type=chunk) [Advertising](index=16&type=section&id=Advertising) Details the company's advertising expenses over various periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Advertising expenses | $750 | $515 | $2,020 | $1,777 | [Stock-Based Compensation](index=16&type=section&id=Stock-Based%20Compensation) Explains the accounting for stock-based compensation expenses and valuation methods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation expense | $946 | $436 | $6,387 | $1,155 | - Fair value of stock-based payments is estimated using an option pricing model (Black-Scholes) for options and closing trading value for RSUs[50](index=50&type=chunk) [Income Taxes](index=17&type=section&id=Income%20Taxes) Describes the company's approach to income tax accounting, including deferred taxes and valuation allowances - Deferred income tax assets and liabilities are determined based on estimated future tax effects of net operating loss, credit carryforwards, and temporary differences[52](index=52&type=chunk) - A valuation allowance is recorded against deferred tax assets as it is more likely than not that some or all will not be realized, leading to no tax benefit for the nine months ended September 30, 2023[128](index=128&type=chunk) [Segment Reporting](index=17&type=section&id=Segment%20Reporting) Clarifies the company's operating segments for financial reporting purposes - The Company manages its business as one operating segment[53](index=53&type=chunk) [NOTE 3 - FAIR VALUE MEASUREMENTS](index=17&type=section&id=NOTE%203%20-%20FAIR%20VALUE%20MEASUREMENTS) Provides details on the fair value hierarchy and measurements for various financial instruments | Liability (in thousands) | Sep 30, 2023 (Carrying Amount) | Fair Value (Level 1) | Fair Value (Level 2) | Fair Value (Level 3) | | :----------------------- | :----------------------------- | :------------------- | :------------------- | :------------------- | | Warrant liability - Term Loan | $911 | — | — | $911 | | Warrant liability - June public offering | $13,149 | — | — | $13,149 | | Warrant liability - Private placement warrants | $105 | — | $105 | — | | Total liabilities | $14,165 | — | $105 | $14,060 | - The carrying amounts of accounts receivable and accounts payable approximate fair value and are considered Level 1[57](index=57&type=chunk) - The carrying value of the Term Loan approximates fair value and is considered Level 2[58](index=58&type=chunk) [NOTE 4 - INVENTORY](index=19&type=section&id=NOTE%204%20-%20INVENTORY) Presents a breakdown of the company's inventory by type | Inventory Type (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------- | :----------- | :----------- | | Raw material | $36,850 | $42,586 | | Finished goods | $5,057 | $7,260 | | Total inventory | $41,907 | $49,846 | [NOTE 5 - COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=NOTE%205%20-%20COMMITMENTS%20AND%20CONTINGENCIES) Outlines the company's legal, lease, and other contractual obligations and potential liabilities [Litigation](index=19&type=section&id=Litigation) Addresses the status of any pending legal proceedings - No legal proceedings are pending that are expected to have a material adverse effect on the Company's business and financial condition[61](index=61&type=chunk) [Operating Leases](index=19&type=section&id=Operating%20Leases) Details the company's operating lease assets and liabilities | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease right-of-use assets | $3,615 | $4,513 | | Total operating lease liabilities | $3,829 | $4,729 | | Weighted average remaining lease term | 2.9 years | 3.6 years | - A new 124-month lease agreement for a Reno, Nevada facility, signed in February 2022, is expected to commence in early 2024[62](index=62&type=chunk) [Finance Leases](index=20&type=section&id=Finance%20Leases) Details the company's finance lease assets and liabilities | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Finance lease right-of-use assets | $112 | $45 | | Total finance lease liabilities | $111 | $48 | | Weighted average remaining lease term | 3.0 years | 4.2 years | [Earnout](index=21&type=section&id=Earnout) Describes the contingent earnout shares related to the business combination - Up to **40,000,000** Earnout Shares are issuable in three tranches based on 2023 audited revenue/operating income and stock price thresholds by December 31, 2026, and December 31, 2028[72](index=72&type=chunk) [Other Contingencies](index=21&type=section&id=Other%20Contingencies) Discusses other contingent compensation accruals - Sales goals under the April 2022 Asset Purchase Agreement were achieved during Q3 2023, leading to an accrual of **$2.000 million** for contingent compensation[91](index=91&type=chunk) [NOTE 6 - DEBT](index=22&type=section&id=NOTE%206%20-%20DEBT) Provides details on the company's debt instruments, including terms, covenants, and maturities [Financing Trust Indenture](index=22&type=section&id=Financing%20Trust%20Indenture) Describes the repayment of fixed rate senior notes - **$45 million** fixed rate senior notes were fully repaid on October 7, 2022, resulting in a **$4.824 million** loss on extinguishment[75](index=75&type=chunk) [Term Loan Agreement](index=23&type=section&id=Term%20Loan%20Agreement) Details the terms and purpose of the company's Term Loan Agreement - A **$75 million** Term Loan Agreement was entered into on October 7, 2022, for refinancing, working capital, and corporate purposes[77](index=77&type=chunk)[78](index=78&type=chunk) - The Term Loan accrues interest at adjusted SOFR plus a margin (**7%** cash, **4.5%-6.5%** PIK until Oct 2024, then **11.5%-13.5%** cash), with adjusted SOFR no less than **1%**[78](index=78&type=chunk) - The company partially prepaid the Term Loan by **$5.275 million** from the June 2023 Offering[79](index=79&type=chunk) [Financial Covenants](index=24&type=section&id=Financial%20Covenants) Outlines the financial covenants associated with the Term Loan and compliance status - The Term Loan includes covenants for maximum senior leverage ratio, minimum liquidity (**$10 million**), springing fixed charge coverage ratio (**1.15** to **1.00** if liquidity < **$15 million**), and maximum capital expenditures[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - Waivers were obtained for non-compliance with fixed charge coverage ratio and maximum senior leverage ratio for Q1 and Q3 2023[87](index=87&type=chunk) - Due to probable future non-compliance, the entire Term Loan balance is classified as a current liability[87](index=87&type=chunk) [Future Debt Maturities](index=25&type=section&id=Future%20Debt%20Maturities) Presents a schedule of the company's future debt obligations | Fiscal Year Ending December 31, | Amount (in thousands) | | :------------------------------ | :-------------------- | | 2023 | $0 | | 2024 | $938 | | 2025 | $3,750 | | 2026 | $74,931 | | Total debt | $74,655 | | Total carrying amount | $18,700 | | Current portion of debt | $(18,700) | | Total long-term debt | $0 | [NOTE 7 – ASSET PURCHASE AGREEMENT](index=25&type=section&id=NOTE%207%20%E2%80%93%20ASSET%20PURCHASE%20AGREEMENT) Details the assets acquired through various purchase agreements [Bourns Production, Inc](index=25&type=section&id=Bourns%20Production%2C%20Inc) Describes the acquisition of machinery, equipment, and a podcast studio lease - Acquired machinery, equipment, and a podcast studio lease from Bourns Productions, Inc. for **$197 thousand** on January 1, 2022[89](index=89&type=chunk) [Thomason Jones Company, LLC](index=25&type=section&id=Thomason%20Jones%20Company%2C%20LLC) Details the acquisition of inventory and intellectual property - Acquired inventory and intellectual property from Thomason Jones Company, LLC in April 2022 for up to **$700 thousand** cash plus a **$2.000 million** contingent Earn Out[90](index=90&type=chunk) [Contingent Compensation](index=25&type=section&id=Contingent%20Compensation) Provides information on accruals related to contingent compensation from asset purchases | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Accrual related to Earn Out | $2,000 | $782 | - Sales goals under the April 2022 Asset Purchase Agreement were achieved during the quarter ended September 30, 2023[91](index=91&type=chunk) [NOTE 8 – RELATED PARTY](index=26&type=section&id=NOTE%208%20%E2%80%93%20RELATED%20PARTY) Discloses transactions and agreements with related parties - A **$469 thousand** loan to the former CFO was forgiven in March 2022, recorded as general and administrative expense[92](index=92&type=chunk) - Separation agreements with former COO and CLO included lump sum payments, monthly payments, and full vesting of equity-based compensation awards[93](index=93&type=chunk)[96](index=96&type=chunk) - A **$1.000 million** convertible promissory note with a board member was entered into on March 5, 2023, and repaid in full by April 4, 2023, including a **$100 thousand** loan fee[95](index=95&type=chunk) [NOTE 9 - WARRANTS](index=26&type=section&id=NOTE%209%20-%20WARRANTS) Provides detailed information on the company's equity and liability classified warrants [Common Stock Warrants classified as Equity](index=26&type=section&id=Common%20Stock%20Warrants%20classified%20as%20Equity) Describes warrants classified as equity, including exercise terms and redemption conditions - Public Warrants (**9,422,529** outstanding as of Sep 30, 2023) are equity-classified, exercisable at **$11.50** per share, and redeemable under certain conditions[97](index=97&type=chunk)[99](index=99&type=chunk) - Underwriters' Warrants (**570,250** outstanding as of Sep 30, 2023) from the June 2023 Offering are equity-classified, exercisable at **$2.50** per share, and expire on June 20, 2028[100](index=100&type=chunk)[102](index=102&type=chunk) [Common Stock Warrants classified as Liability](index=28&type=section&id=Common%20Stock%20Warrants%20classified%20as%20Liability) Details warrants classified as liabilities, subject to fair value remeasurement - Private Placement Warrants (**1,501,386** outstanding) and Term Loan Warrants (**593,557** outstanding) are classified as liabilities and remeasured at fair value each reporting period[103](index=103&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Investor Warrants (**11,131,900** outstanding) from the June 2023 Offering are liability-classified, exercisable at **$2.00** per share, and subject to re-measurement at fair value[101](index=101&type=chunk)[107](index=107&type=chunk) | Warrant Type | Fair Value (Sep 30, 2023) | Fair Value (Dec 31, 2022) | | :----------- | :------------------------ | :------------------------ | | Penny Warrants | $1.54 | $11.89 | | Investor Warrants | $1.18 | N/A | [NOTE 10 - COMMON STOCK](index=31&type=section&id=NOTE%2010%20-%20COMMON%20STOCK) Provides information on the company's common stock, including outstanding shares and issuance facilities | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Common stock outstanding | 58,880,712 | 43,272,728 | | Shares reserved for issuance | 129,845,427 | 42,881,152 | [ChEF Equity Facility](index=31&type=section&id=ChEF%20Equity%20Facility) Describes the company's agreement to sell common stock through an equity facility - The Company has a Purchase Agreement with Chardan Capital Markets LLC to sell up to **$150 million** in common stock[112](index=112&type=chunk) - Net proceeds of **$671 thousand** were received from the ChEF Equity Facility from January 1 to September 30, 2023[112](index=112&type=chunk) [June 2023 Offering](index=31&type=section&id=June%202023%20Of%20ering) Details the public offering of common shares and warrants in June 2023 - The June 2023 Offering sold **10 million** common shares and accompanying Investor Warrants, plus Underwriters' Warrants[113](index=113&type=chunk) - The offering generated approximately **$21.1 million** in aggregate net proceeds[149](index=149&type=chunk) - Investor Warrants are exercisable for five years at **$2.00** per share and are classified as a liability[114](index=114&type=chunk)[116](index=116&type=chunk) [NOTE 11 - STOCK-BASED COMPENSATION](index=32&type=section&id=NOTE%2011%20-%20STOCK-BASED%20COMPENSATION) Provides details on the company's stock-based compensation plans and expenses | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation expense | $946 | $436 | $6,387 | $1,155 | | Allocation (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------ | :-------------------------- | :-------------------------- | | Cost of goods sold | $104 | $189 | | Research and development | $82 | $307 | | Selling and marketing | $1,033 | $326 | | General and administrative expense | $5,168 | $333 | [Restricted Stock Units](index=33&type=section&id=Restricted%20Stock%20Units) Describes the activity and valuation of restricted stock units - **461,998** RSUs granted in February 2023 vested immediately, resulting in **$3.464 million** compensation expense[119](index=119&type=chunk) | RSU Activity | Number of Shares | Weighted-Average Fair Market Value | | :----------- | :--------------- | :--------------------------------- | | Unvested shares at January 1, 2023 | 180,000 | $14.00 | | Granted and unvested | 498,998 | $7.19 | | Vested | (461,998) | $7.50 | | Unvested shares, September 30, 2023 | 217,000 | $12.17 | [NOTE 12 - LOSS PER SHARE](index=34&type=section&id=NOTE%2012%20-%20LOSS%20PER%20SHARE) Presents the calculation of basic and diluted loss per share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss attributable to common stockholders | $(10,023) | $(3,689) | $(16,831) | $(7,456) | | Weighted average common shares outstanding | 58,736,013 | 38,129,422 | 50,166,320 | 37,098,990 | | Net loss per share of Common Stock, basic and diluted | $(0.17) | $(0.10) | $(0.34) | $(0.20) | | Anti-dilutive Potential Common Shares | Sep 30, 2023 | Sep 30, 2022 | | :------------------------------------ | :----------- | :----------- | | Warrants | 23,219,622 | — | | Restricted stock units | 217,000 | — | | Options | 3,274,940 | 3,665,099 | | Total anti-dilutive shares | 26,711,562 | 3,665,099 | [NOTE 13 – INCOME TAXES](index=36&type=section&id=NOTE%2013%20%E2%80%93%20INCOME%20TAXES) Provides details on income tax expense, deferred taxes, and valuation allowances | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | | Income tax expense (benefit) | $0 | $(1,700) | - A **100%** valuation allowance was established against deferred tax assets due to the unlikelihood of realization[128](index=128&type=chunk) [NOTE 14 – SUBSEQUENT EVENTS](index=36&type=section&id=NOTE%2014%20%E2%80%93%20SUBSEQUENT%20EVENTS) Discloses significant events that occurred after the reporting period - Issued approximately **490,000** shares of common stock under the ChEF Equity Facility, generating **$607,973** in net cash proceeds, subsequent to September 30, 2023[129](index=129&type=chunk) - Issued additional Penny Warrants to Term Loan Lenders (**4,277** shares) due to anti-dilution provisions related to ChEF Equity Facility sales[129](index=129&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, highlighting key factors affecting operating results, a detailed comparison of financial results for the three and nine months ended September 30, 2023 and 2022, critical accounting estimates, non-GAAP measures, and liquidity challenges, including going concern issues [CAUTIONARY NOTE REGARDING FORWARD LOOKING-STATEMENTS](index=37&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD%20LOOKING-STATEMENTS) Warns about inherent risks and uncertainties in forward-looking statements - The report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially[133](index=133&type=chunk) - Key risk factors include the ability to increase market penetration, loss of key personnel/suppliers/customers, intellectual property protection, successful solid-state cell optimization/production, compliance with financial covenants, and ability to raise additional capital[134](index=134&type=chunk)[137](index=137&type=chunk) [Overview](index=39&type=section&id=Overview) Introduces the company's business, recent corporate actions, and strategic initiatives [Our Business](index=39&type=section&id=Our%20Business) Describes the company's products, target markets, and technological developments - Manufacturer of non-toxic deep cycle lithium-ion batteries for RV, marine, and solar/off-grid industries[138](index=138&type=chunk) - Sells "Battle Born" branded batteries directly to consumers (DTC) and "Dragonfly" branded batteries to OEMs[139](index=139&type=chunk) - Developing next-generation LFP solid-state cells using proprietary dry deposition technology, with successful anode/cathode dry deposition announced in October 2023, and expected US LFP cell production by end of 2023[142](index=142&type=chunk)[143](index=143&type=chunk) | Metric | Q3 2023 | Q3 2022 | | :----- | :------ | :------ | | Batteries Sold | 14,886 | 31,375 | | Net Sales (in millions) | $15.9 | $26.1 | [The Business Combination](index=40&type=section&id=The%20Business%20Combination) Explains the merger event and its accounting treatment - Merger between Chardan NexTech 2 Acquisition Corp. and Legacy Dragonfly completed on October 7, 2022[145](index=145&type=chunk) - Legacy Dragonfly was deemed the accounting acquirer, and its financial statements form the basis for the combined entity[146](index=146&type=chunk) [June 2023 Offering](index=40&type=section&id=June%202023%20Of%20ering) Details the public offering completed in June 2023 and its financial impact - Completed a public offering in June 2023, selling **10 million** common shares and Investor Warrants, plus Underwriters' Warrants[147](index=147&type=chunk) - Generated approximately **$21.1 million** in aggregate net proceeds, including a partial over-allotment option exercise[149](index=149&type=chunk) [Key Factors Affecting Our Operating Results](index=40&type=section&id=Key%20Factors%20Affecting%20Our%20Operating%20Results) Discusses primary internal and external factors influencing financial performance [End Market Consumers](index=40&type=section&id=End%20Market%20Consumers) Analyzes how consumer demand and macroeconomic conditions impact sales - Demand is impacted by fuel costs, green energy trends, and macro-economic conditions (interest rates, inflation)[152](index=152&type=chunk) - Largest RV OEM customer shifted from standard installation to optional offering in July 2023 due to weaker demand, materially impacting Q3 2023 OEM sales and expected future revenue[152](index=152&type=chunk) - Strategy includes expanding into new end markets like long-haul trucking, industrial, rail, and solar integration, requiring significant marketing and R&D[153](index=153&type=chunk) [Supply](index=41&type=section&id=Supply) Addresses the company's supply chain, key suppliers, and inventory management strategies - Relies on two Chinese suppliers for LFP cells and a single Chinese supplier for battery management systems[154](index=154&type=chunk) - Built inventory of key components to mitigate supply chain challenges, now actively working down inventory[154](index=154&type=chunk) - Signed a Commercial Offtake Agreement with a Nevada lithium mining company for future solid-state cell production[155](index=155&type=chunk) [Product and Customer Mix](index=41&type=section&id=Product%20and%20Customer%20Mix) Examines the impact of different product types and customer segments on sales and margins - Product sales consist of LFP batteries and accessories sold to consumers, OEMs, and distributors[156](index=156&type=chunk) - OEM sales typically result in lower average selling prices and margins, offset by increased sales volumes[156](index=156&type=chunk) - Accessory sales generally have lower margins but are expected to increase with full-system design expertise[156](index=156&type=chunk) [Production Capacity](index=42&type=section&id=Production%20Capacity) Describes the company's manufacturing facilities and expansion plans - All battery assembly takes place at the **99,000** sq ft Reno, Nevada facility, with capacity for four additional LFP production lines and a pilot line for domestic cell manufacturing[157](index=157&type=chunk) - A new **390,240** sq ft warehouse in Reno, expected by early 2024, will expand assembly, warehousing, and solid-state cell manufacturing[158](index=158&type=chunk) [Competition](index=42&type=section&id=Competition) Discusses the competitive landscape and the company's position within the market - Competes with traditional lead-acid and lithium-ion battery manufacturers[159](index=159&type=chunk) - Expects increased competition with wider range of companies as it expands into new markets and develops solid-state cells[159](index=159&type=chunk) [Research and Development](index=42&type=section&id=Research%20and%20Development) Outlines the company's R&D focus, including new product and technology development - R&D focuses on advanced manufacturing of domestic battery cells and solid-state LFP cells using proprietary dry deposition[160](index=160&type=chunk) - Pilot line successfully produced anode and cathode material, with full sample battery cells expected by end of 2023[160](index=160&type=chunk) - Significant additional expense is expected for chemistry optimization and layered pouch cell production[160](index=160&type=chunk) [Components of Results of Operations](index=42&type=section&id=Components%20of%20Results%20of%20Operations) Defines and explains line items within the statements of operations [Net Sales](index=42&type=section&id=Net%20Sales) Describes the primary sources of the company's net sales - Net sales are primarily from LFP batteries sold to OEMs and consumers, and from chargers and accessories[161](index=161&type=chunk) [Cost of Goods Sold](index=42&type=section&id=Cost%20of%20Goods%20Sold) Details the components included in the cost of goods sold - Cost of goods sold includes cells, components, labor, overhead, logistics, freight, and manufacturing equipment depreciation[162](index=162&type=chunk) [Gross Profit](index=42&type=section&id=Gross%20Profit) Explains the factors influencing the company's gross profit - Gross profit is affected by average selling prices, product costs, and product/customer mix[163](index=163&type=chunk) [Operating Expenses](index=43&type=section&id=Operating%20Expenses) Categorizes and describes the company's operating expenses [Research and development](index=43&type=section&id=Research%20and%20development) Details the nature and expected trends of R&D costs - R&D costs include personnel, materials, and supplies for new product and solid-state technology development[164](index=164&type=chunk) - R&D expenses are anticipated to increase significantly due to investment in solid-state cell development and optimization[164](index=164&type=chunk) [General and administrative](index=43&type=section&id=General%20and%20administrative) Describes the components of general and administrative expenses - G&A costs include personnel, facility costs, and professional services for executive, finance, HR, and IT functions[165](index=165&type=chunk) [Selling and marketing](index=43&type=section&id=Selling%20and%20marketing) Outlines the costs associated with selling and marketing activities - S&M costs include outbound freight, personnel, trade shows, marketing, and customer support[166](index=166&type=chunk) - Investments in S&M are expected to continue for market expansion[166](index=166&type=chunk) [Total Other Income (Expense)](index=43&type=section&id=Total%20Other%20Income%20(Expense)) Explains the items included in other income and expense - Other income (expense) primarily includes interest expense, change in fair value of warrant liability, and amortization of debt issuance costs[167](index=167&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) Provides detailed comparison and analysis of financial performance over different periods | Metric (in thousands) | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Net Sales | $15,889 | $26,117 | $(10,228) | (39.2%) | | Cost of Goods Sold | $11,317 | $19,079 | $(7,762) | (40.7%) | | Gross Profit | $4,572 | $7,038 | $(2,466) | (35.0%) | | Total Operating Expenses | $10,473 | $10,447 | $26 | 0.2% | | Loss From Operations | $(5,901) | $(3,409) | $(2,492) | 73.1% | | Total Other Expense | $(4,122) | $(1,166) | $(2,956) | 253.5% | | Net Loss | $(10,023) | $(3,689) | $(6,334) | 171.7% | [Comparisons for the Three months ended September 30, 2023 and September 30, 2022](index=43&type=section&id=Comparisons%20for%20the%20Three%20months%20ended%20September%2030%2C%202023%20and%20September%2030%2C%202022) Analyzes the financial performance for the three-month periods [Net Sales](index=44&type=section&id=Net%20Sales) Analyzes the changes in net sales for the three-month periods - Net sales decreased by **$10.2 million** (**39.2%**) to **$15.9 million** in Q3 2023[171](index=171&type=chunk) - OEM revenue decreased by **$8.3 million** due to a major RV customer shifting from standard to optional product installation[171](index=171&type=chunk) - DTC revenue decreased by **$1.9 million** due to decreased customer demand from macro-economic factors[171](index=171&type=chunk) [Cost of Goods Sold](index=44&type=section&id=Cost%20of%20Goods%20Sold) Analyzes the changes in cost of goods sold for the three-month periods - Cost of goods sold decreased by **$7.8 million** (**40.7%**) to **$11.3 million** in Q3 2023, primarily due to lower unit volumes[172](index=172&type=chunk) [Gross Profit](index=44&type=section&id=Gross%20Profit) Analyzes the changes in gross profit for the three-month periods - Gross profit decreased by **$2.5 million** (**35.0%**) to **$4.6 million** in Q3 2023, due to lower sales and unit volumes, partially offset by a shift to higher-margin DTC sales[173](index=173&type=chunk) [Research and Development Expenses](index=44&type=section&id=Research%20and%20Development%20Expenses) Analyzes the changes in R&D expenses for the three-month periods - R&D expenses increased by **$0.6 million** (**84.2%**) to **$1.4 million** in Q3 2023, driven by higher patent expenses, increased wages, and material costs[174](index=174&type=chunk) [General and Administrative Expenses](index=44&type=section&id=General%20and%20Administrative%20Expenses) Analyzes the changes in G&A expenses for the three-month periods - G&A expenses decreased by **$0.3 million** (**4.7%**) to **$6.0 million** in Q3 2023, mainly due to lower Business Combination fees, partially offset by higher compliance, insurance, and investor relations expenses[175](index=175&type=chunk) [Selling and Marketing Expenses](index=44&type=section&id=Selling%20and%20Marketing%20Expenses) Analyzes the changes in S&M expenses for the three-month periods - S&M expenses decreased by **$0.3 million** (**8.1%**) to **$3.1 million** in Q3 2023, due to lower shipping costs, partially offset by higher wage and marketing expenses[176](index=176&type=chunk) [Total Other Expense](index=45&type=section&id=Total%20Other%20Expense) Analyzes the changes in total other expense for the three-month periods - Total other expense increased to **$4.1 million** in Q3 2023, from **$1.2 million** in Q3 2022[177](index=177&type=chunk) - Comprised of **$4.0 million** interest expense and **$0.1 million** expense from warrant fair market value change[177](index=177&type=chunk) [Income Tax (Benefit) Expense](index=45&type=section&id=Income%20Tax%20(Benefit)%20Expense) Analyzes the changes in income tax expense for the three-month periods - No tax expense recorded in Q3 2023 due to a **100%** valuation allowance against deferred tax assets[178](index=178&type=chunk) [Net Loss](index=45&type=section&id=Net%20Loss) Analyzes the changes in net loss for the three-month periods - Net loss was **$10.0 million** in Q3 2023, up from **$3.7 million** in Q3 2022, due to lower sales and increased other expenses[179](index=179&type=chunk) [Comparisons for the Nine months ended September 30, 2023 and September 30, 2022](index=45&type=section&id=Comparisons%20for%20the%20Nine%20months%20ended%20September%2030%2C%202023%20and%20September%2030%2C%202022) Analyzes the financial performance for the nine-month periods | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net Sales | $53,954 | $66,042 | $(12,088) | (18.3%) | | Cost of Goods Sold | $40,541 | $46,481 | $(5,940) | (12.8%) | | Gross Profit | $13,413 | $19,561 | $(6,148) | (31.4%) | | Total Operating Expenses | $37,521 | $25,060 | $12,461 | 49.7% | | Loss From Operations | $(24,108) | $(5,499) | $(18,609) | 338.4% | | Total Other Income (Expense) | $7,277 | $(3,657) | $10,934 | 299.0% | | Net Loss | $(16,831) | $(7,456) | $(9,375) | 125.7% | [Net Sales](index=46&type=section&id=Net%20Sales) Analyzes the changes in net sales for the nine-month periods - Net sales decreased by **$12.1 million** (**18.3%**) to **$54.0 million** for the nine months ended September 30, 2023[182](index=182&type=chunk) - DTC revenue decreased by **$11.4 million** due to macro-economic factors[182](index=182&type=chunk) - OEM revenue declined by **$0.6 million** due to weaker RV market demand and a major customer's strategy change[182](index=182&type=chunk) [Cost of Goods Sold](index=46&type=section&id=Cost%20of%20Goods%20Sold) Analyzes the changes in cost of goods sold for the nine-month periods - Cost of goods sold decreased by **$6.0 million** (**12.8%**) to **$40.5 million** for the nine months ended September 30, 2023, due to lower unit volumes, partially offset by higher material costs[183](index=183&type=chunk) [Gross Profit](index=46&type=section&id=Gross%20Profit) Analyzes the changes in gross profit for the nine-month periods - Gross profit decreased by **$6.1 million** (**31.4%**) to **$13.4 million** for the nine months ended September 30, 2023, due to lower unit volumes, lower-margin OEM sales, and higher material costs[184](index=184&type=chunk) [Research and Development Expenses](index=46&type=section&id=Research%20and%20Development%20Expenses) Analyzes the changes in R&D expenses for the nine-month periods - R&D expenses increased by **$1.4 million** (**70.8%**) to **$3.3 million** for the nine months ended September 30, 2023, due to higher wages, material costs, and patent expenses[185](index=185&type=chunk) [General and Administrative Expenses](index=46&type=section&id=General%20and%20Administrative%20Expenses) Analyzes the changes in G&A expenses for the nine-month periods - G&A expenses increased by **$9.3 million** (**67.8%**) to **$23.1 million** for the nine months ended September 30, 2023[186](index=186&type=chunk) - Key drivers include increases in stock-based compensation (**$4.8 million**), compliance/insurance (**$2.2 million**), investor relations (**$1.6 million**), and professional services (**$0.8 million**)[186](index=186&type=chunk) [Selling and Marketing Expenses](index=46&type=section&id=Selling%20and%20Marketing%20Expenses) Analyzes the changes in S&M expenses for the nine-month periods - S&M expenses increased by **$1.8 million** (**18.7%**) to **$11.1 million** for the nine months ended September 30, 2023[187](index=187&type=chunk) - Driven by a **$2.8 million** increase in wage-related expenses, partially offset by **$1.2 million** lower shipping costs[187](index=187&type=chunk) [Total Other Income (Expense)](index=46&type=section&id=Total%20Other%20Income%20(Expense)) Analyzes the changes in total other income (expense) for the nine-month periods - Total other income was **$7.3 million** for the nine months ended September 30, 2023, compared to a **$3.7 million** expense in the prior year[188](index=188&type=chunk) - This was driven by **$19.2 million** income from warrant fair value change, offset by **$11.9 million** interest expense[188](index=188&type=chunk) [Income Tax (Benefit) Expense](index=47&type=section&id=Income%20Tax%20(Benefit)%20Expense) Analyzes the changes in income tax expense for the nine-month periods - No tax expense recorded for the nine months ended September 30, 2023, due to a **100%** valuation allowance[189](index=189&type=chunk) [Net Loss](index=47&type=section&id=Net%20Loss) Analyzes the changes in net loss for the nine-month periods - Net loss was **$16.8 million** for the nine months ended September 30, 2023, up from **$7.5 million** in the prior year[190](index=190&type=chunk) - Driven by lower sales, higher material costs, and increased operating expenses, partially offset by income from warrant fair value changes[190](index=190&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=Critical%20Accounting%20Estimates) Discusses accounting policies requiring significant management judgment and estimation [Inventory Valuation](index=47&type=section&id=Inventory%20Valuation) Explains the methods and judgments involved in valuing inventory - Inventory is reviewed for excess, obsolete, and impaired items and written down to net realizable value[193](index=193&type=chunk) - Reserve estimate for excess and obsolete inventory depends on expected future use and management judgment[193](index=193&type=chunk) [Warrants](index=47&type=section&id=Warrants) Details the accounting treatment and fair value measurement of warrants - Warrants are classified as liabilities or equity based on ASC 480 and ASC 815[194](index=194&type=chunk) - Liability-classified warrants are remeasured at fair value each reporting period, with changes recognized in earnings[194](index=194&type=chunk) [Equity-Based Compensation](index=47&type=section&id=Equity-Based%20Compensation) Describes the valuation methodologies for equity-based compensation awards - Black-Scholes option-pricing model is used for stock options, requiring assumptions for expected life, volatility, risk-free rates, dividend yields, and forfeitures[195](index=195&type=chunk) - RSU awards are valued based on the closing trading price of the Company's common stock on the grant date[195](index=195&type=chunk) [Income Taxes](index=48&type=section&id=Income%20Taxes) Explains the accounting for income taxes, including deferred taxes and valuation allowances - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences[196](index=196&type=chunk) - A valuation allowance is recorded against deferred tax assets when realization is not more likely than not, requiring management judgment[197](index=197&type=chunk)[198](index=198&type=chunk) [Non-GAAP Financial Measures](index=48&type=section&id=Non-GAAP%20Financial%20Measures) Presents and reconciles non-GAAP financial measures used by management - Adjusted EBITDA is a non-GAAP measure used to supplement U.S. GAAP results, illustrating underlying financial and business trends[199](index=199&type=chunk) - Adjusted EBITDA is calculated as EBITDA adjusted for stock-based compensation, employee separation expenses, June 2023 Offering costs, promissory note forgiveness, and change in fair market value of warrant liabilities[199](index=199&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(10,023) | $(3,689) | $(16,831) | $(7,456) | | EBITDA | $(5,730) | $(3,150) | $(4,017) | $(4,851) | | Adjusted EBITDA | $(4,639) | $(2,714) | $(15,188) | $(3,227) | [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's ability to generate and manage cash, including financing and capital needs [Financing Obligations and Requirements](index=49&type=section&id=Financing%20Obligations%20and%20Requirements) Details the company's debt obligations and financing activities - The **$75 million** Term Loan, entered into in October 2022, refinanced prior debt and is subject to financial covenants[206](index=206&type=chunk)[208](index=208&type=chunk) - Due to probable future non-compliance with covenants, the entire Term Loan balance is reclassified as a current liability[208](index=208&type=chunk) - The company issued approximately **98,500** shares under the ChEF Equity Facility for **$670,593** net proceeds (Jan-Sep 2023) and **490,000** shares for **$607,973** net proceeds (post-Sep 2023)[211](index=211&type=chunk) - The June 2023 Offering provided **$21.1 million** in net proceeds, part of which (**$5.3 million**) was used to repay a portion of the Term Loan[213](index=213&type=chunk) [Going Concern](index=50&type=section&id=Going%20Concern) Addresses the company's ability to continue as a going concern, given its financial condition - Net loss of **$16.8 million** and negative operating cash flow for the nine months ended September 30, 2023[214](index=214&type=chunk) - Probable future non-compliance with Term Loan financial covenants raises substantial doubt about the company's ability to continue as a going concern[215](index=215&type=chunk) - The company needs to raise additional debt and/or equity financing to fund operations, strategic plans, and meet financial covenants[216](index=216&type=chunk) [Cash Flows for the Nine months ended September 30, 2023, and September 30, 2022](index=51&type=section&id=Cash%20Flows%20for%20the%20Nine%20months%20ended%20September%2030%2C%202023%2C%20and%20September%2030%2C%202022) Analyzes the company's cash flow activities | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Operating Activities | $(16,727) | $(24,711) | | Investing Activities | $(6,507) | $(6,065) | | Financing Activities | $18,688 | $15,707 | - Net cash provided by financing activities was primarily due to **$21.1 million** from the June 2023 Offering, partially offset by a **$5.3 million** principal payment on notes payable[220](index=220&type=chunk) [Contractual Obligations](index=51&type=section&id=Contractual%20Obligations) Outlines the company's significant contractual commitments - As of September 30, 2023, contractual obligations include **$1.3 million** in short-term operating lease liabilities and **$2.6 million** in long-term operating lease liabilities[221](index=221&type=chunk) - The Term Loan had **$74.7 million** outstanding (**$69.7 million** principal, **$4.9 million** PIK interest) as of September 30, 2023[221](index=221&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item states that the information required for quantitative and qualitative disclosures about market risk is not applicable to the company - Not applicable[222](index=222&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were not effective as of September 30, 2023, due to previously reported and unremediated material weaknesses. The company continues to design and implement internal controls to address these weaknesses - Disclosure controls and procedures were not effective as of September 30, 2023, due to unremediated material weaknesses[224](index=224&type=chunk) - Management continues to design and implement internal controls with third-party assistance to remediate identified weaknesses[225](index=225&type=chunk) [PART II. OTHER INFORMATION](index=52&type=section&id=PART%20II.%20OTHER%20INFORMATION) Includes legal proceedings, risk factors, unregistered sales of equity, defaults, mine safety, and exhibits [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any litigation or legal proceedings that management believes would have a material adverse effect on its business, though litigation can still negatively impact the company due to costs and resource diversion - No current litigation or legal proceedings are expected to have a material adverse effect on the business[226](index=226&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, the registrant is not required to provide the information typically found in this item - As a smaller reporting company, the registrant is not required to provide risk factor information[227](index=227&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Subsequent to September 30, 2023, the company issued additional Penny Warrants for 4,277 shares of common stock to Term Loan Lenders due to anti-dilution adjustments from common stock sales under the ChEF Equity Facility. These warrants and shares were offered under Section 4(a)(2) and Rule 506(b) exemptions - Subsequent to Q3 2023, additional Penny Warrants (**4,277** shares) were issued to Term Loan Lenders due to anti-dilution adjustments from ChEF Equity Facility sales[228](index=228&type=chunk) - These securities were offered under Section 4(a)(2) and Rule 506(b) exemptions from registration[229](index=229&type=chunk) [Item 3. Defaults Upon Senior Securities](index=52&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities[230](index=230&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item states that the information required for mine safety disclosures is not applicable to the company - Not applicable[231](index=231&type=chunk) [Item 5. Other Information](index=53&type=section&id=Item%205.%20Other%20Information) This item states that there is no other information to report - No other information to report[232](index=232&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q, including articles of incorporation, bylaws, certifications, and XBRL taxonomy documents - Lists exhibits filed or incorporated by reference, including corporate documents and certifications[234](index=234&type=chunk)[235](index=235&type=chunk) [Signatures](index=55&type=section&id=Signatures) The report is duly signed on behalf of Dragonfly Energy Holdings Corp. by Denis Phares, Chief Executive Officer, President, and Interim Chief Financial Officer, on November 14, 2023 - Report signed by Denis Phares, CEO, President, and Interim CFO, on November 14, 2023[240](index=240&type=chunk)