Dragonfly Energy(DFLI) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information The company files a Form 10-Q for the period ended June 30, 2025, detailing its registrant status and outstanding shares - Filing is a Quarterly Report (Form 10-Q) for the period ended June 30, 2025[2] - Registrant: DRAGONFLY ENERGY HOLDINGS CORP, incorporated in Nevada[2][3] Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |---|---|---| | Common Stock, par value $0.0001 per share | DFLI | The Nasdaq Capital Market | | Redeemable Warrants, exercisable for common stock | DFLIW | The Nasdaq Capital Market | - The registrant is a non-accelerated filer, smaller reporting company, and emerging growth company[5] - As of August 11, 2025, there were 61,724,593 shares of common stock outstanding[6] TABLE OF CONTENTS The report is structured into two main parts covering financial information and other corporate disclosures - The report is divided into PART I FINANCIAL INFORMATION and PART II OTHER INFORMATION[8] - Part I includes Financial Statements, Management's Discussion and Analysis, Quantitative and Qualitative Disclosures about Market Risk, and Controls and Procedures[8] - Part II includes Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities and Use of Proceeds, Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information, and Exhibits[8] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | |---|---|---| | Total Current Assets | $30,787 | $32,925 | | Property and Equipment, Net | $21,481 | $22,107 | | Total Assets | $71,774 | $75,214 | | Total Current Liabilities | $22,396 | $21,855 | | Total Long-Term Liabilities | $64,737 | $62,763 | | Total Liabilities | $87,133 | $84,618 | | Redeemable Preferred Stock | $1,245 | $- | | Total Stockholders' (Deficit) | $(16,604) | $(9,404) | - Total assets decreased from $75,214 thousand at December 31, 2024, to $71,774 thousand at June 30, 2025[10] - Total liabilities increased from $84,618 thousand at December 31, 2024, to $87,133 thousand at June 30, 2025[10] - Stockholders' deficit worsened from $(9,404) thousand at December 31, 2024, to $(16,604) thousand at June 30, 2025[11] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---|---|---| | Net Sales | $16,248 | $13,208 | $29,604 | $25,713 | | Cost of Goods Sold | $11,643 | $10,041 | $21,071 | $19,495 | | Gross Profit | $4,605 | $3,167 | $8,533 | $6,218 | | Total Operating Expenses | $7,886 | $9,916 | $17,728 | $18,806 | | Loss From Operations | $(3,281) | $(6,749) | $(9,195) | $(12,588) | | Total Other Expense | $(3,753) | $(6,878) | $(4,636) | $(11,406) | | Net Loss | $(7,034) | $(13,627) | $(13,831) | $(23,994) | | Loss Per Share - Basic & Diluted | $(0.58) | $(2.02) | $(1.42) | $(3.57) | - Net sales increased by 23.0% for the three months ended June 30, 2025, to $16,248 thousand from $13,208 thousand in the prior year[12] - Gross profit increased by 45.4% for the three months ended June 30, 2025, to $4,605 thousand from $3,167 thousand in the prior year[12] - Net loss significantly reduced to $(7,034) thousand for the three months ended June 30, 2025, from $(13,627) thousand in the prior year[12] Condensed Consolidated Statements of Stockholders' Equity (Deficit) Condensed Consolidated Statements of Stockholders' Equity (Deficit) (in thousands) | Metric | January 1, 2025 | June 30, 2025 | |---|---|---| | Total Stockholders' (Deficit) | $(9,404) | $(16,604) | | Net loss | - | $(13,831) (cumulative for 6 months) | | Redeemable preferred stock issued, net | - | $7,330 (cumulative for 6 months) | | Conversion of preferred stock to common stock | - | $5,812 (cumulative for 6 months) | | Additional paid in capital | $72,749 | $79,377 | | Accumulated deficit | $(82,154) | $(95,985) | - Stockholders' deficit increased from $(9,404) thousand at January 1, 2025, to $(16,604) thousand at June 30, 2025[14] - Net loss for the six months ended June 30, 2025, was $(13,831) thousand[14] - Proceeds from redeemable preferred stock issued, net, totaled $7,330 thousand for the six months ended June 30, 2025[14] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---| | Net Cash Used in Operating Activities | $(7,865) | $(7,411) | | Net Cash Used in Investing Activities | $(1,621) | $(1,324) | | Net Cash Provided by Financing Activities | $7,370 | $721 | | Net (Decrease) in cash and cash equivalents | $(2,116) | $(8,014) | | Ending Cash and cash equivalents | $2,733 | $4,699 | - Net cash used in operating activities increased to $(7,865) thousand for the six months ended June 30, 2025, from $(7,411) thousand in the prior year[15] - Net cash provided by financing activities significantly increased to $7,370 thousand for the six months ended June 30, 2025, from $721 thousand in the prior year, primarily due to proceeds from preferred stock offerings[17] - Cash and cash equivalents at the end of the period decreased to $2,733 thousand as of June 30, 2025, from $4,849 thousand at the beginning of the period[17] Notes to Condensed Consolidated Financial Statements NOTE 1 - NATURE OF BUSINESS - Dragonfly Energy Holdings Corp sells lithium-ion battery packs for various applications[19] - The company sells to distributors under the Dragonfly Energy brand and direct to consumers under the Battleborn Batteries trade name[19] - It also develops technology for improved lithium-ion battery manufacturing and assembly methods[19] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Financial statements are prepared in accordance with U.S GAAP and SEC regulations for interim financial information[21] - Management concluded there is significant doubt about the Company's ability to continue as a going concern due to ongoing losses, negative cash flow, and uncertainty regarding future revenue and financing, despite recent strategic initiatives[30][31] - Revenue is recognized when control of promised goods or services is transferred to the customer, typically at shipment for products[39][40] - The company now manages its business through two distinct operating segments: Direct to Customer (DTC) and Original Equipment Manufacturer (OEM), a change from a single segment in Q4 2024[66] Going Concern - The Company incurred losses from operations and had negative cash flow from operations during the six months ended June 30, 2025 and 2024[24] - As of June 30, 2025, the Company had $2,733 thousand in cash and cash equivalents and working capital of $8,391 thousand[24] - Strategic initiatives, including a Term Loan maturity extension to October 2027 and deferral of principal/interest payments to April 2026, and removal of most financial covenants (except $2,500 thousand minimum cash), were executed to alleviate substantial doubt[29][30] - Despite these initiatives, management concluded there is significant doubt about the Company's ability to continue as a going concern due to inherent uncertainty surrounding projected revenues from new markets and no further concessions from lenders[30] Revenue Recognition - Revenue is recognized when control of promised goods or services is transferred to the customer, typically at the point of shipment for standard goods[39][40] - The $5,000 thousand initial licensing fee from the Stryten Energy LLC agreement is recognized as revenue on a straight-line basis over five years[44] Disaggregated Revenues by Distribution Channel (in thousands) | Sales Channel | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---|---|---| | Direct to customer | $5,948 | $6,534 | $10,963 | $11,737 | | Original equipment manufacture | $10,050 | $6,674 | $18,141 | $13,976 | | License fee revenue | $250 | $- | $500 | $- | | Total Net Sales | $16,248 | $13,208 | $29,604 | $25,713 | Segment Reporting - The Company now has two reportable segments: Direct to Customer (DTC) for Battle Born branded batteries and Original Equipment Manufacturer (OEM) for Dragonfly branded batteries[66][194] - This change in reporting structure was implemented in the fourth quarter of 2024 due to the development of operations and internal decision-making processes[66] - The Chief Executive Officer acts as the Chief Operating Decision Maker (CODM) and evaluates segment performance based on gross and net profit/loss from operations[195][197] NOTE 3 - FAIR VALUE MEASUREMENTS - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[70] Fair Value of Warrant Liabilities (in thousands) | Liability | June 30, 2025 (Level 2) | December 31, 2024 (Level 2) | |---|---|---| | Warrant liability - Term Loan | $273 | $3,883 | | Warrant liability - June Public Offering | $49 | $1,250 | | Total liabilities | $322 | $5,133 | - Warrant liabilities were transferred from Level 3 to Level 2 as of December 31, 2024, due to the use of observable inputs (stock price, comparable company volatility) in the Black-Scholes calculation[73] - There was no Level 3 activity for the three and six months ended June 30, 2025[78] NOTE 4 - INVENTORY Inventory Composition (in thousands) | Inventory Type | June 30, 2025 | December 31, 2024 | |---|---|---| | Raw material | $18,298 | $18,776 | | Finished goods | $2,755 | $2,940 | | Total inventory | $21,053 | $21,716 | - Total inventory decreased from $21,716 thousand at December 31, 2024, to $21,053 thousand at June 30, 2025[81] - The Company maintains a reserve for obsolete inventory, which was $300 thousand as of June 30, 2025, up from $188 thousand at December 31, 2024[35] NOTE 5 - COMMITMENTS AND CONTINGENCIES - The Company has operating leases for its main office, warehouse, R&D lab, engineering office, and sales office in Reno, Nevada, and a 64,000 sq ft facility in Fernley, Nevada[83][84] - A lease amendment on May 8, 2025, extended the term for the R&D lab and engineering office until November 30, 2030, with a four-month rent abatement[85] Operating Lease Liabilities (in thousands) | Metric | June 30, 2025 | December 31, 2024 | |---|---|---| | Operating lease right-of-use assets | $19,055 | $19,737 | | Total operating lease liabilities | $24,720 | $25,514 | | Weighted average remaining lease term | 8.09 years | 8.46 years | - In March 2025, the Company agreed to pay LithiumHub $2.5 million for a non-exclusive license to patent rights, settling ongoing patent litigation As of June 30, 2025, the accrued settlement liability is $2.3 million ($1.4 million current, $0.9 million non-current)[94] NOTE 6 - LONG TERM DEBT - The Term Loan Agreement matures on October 7, 2027, and amortizes at 5% per annum starting October 2024[96] - Interest accrual rates vary, with all outstanding balances payable entirely in cash from April 1, 2025, at adjusted SOFR plus a margin of 11.5% to 13.5%[97] - The Fifth Amendment in February 2025 extended the loan's maturity to October 2027, deferred all principal and interest payments until April 2026, and removed all financial covenants except for a $2.5 million minimum cash requirement, allowing debt reclassification to long-term[103] Future Debt Maturities (in thousands) | For Year Ended December 31, | Amount | |---|---| | 2025 | $- | | 2026 | $2,813 | | 2027 | $98,429 | | Total debt | $101,242 | | Less: Estimated interest paid-in-kind | $(8,023) | | Less: Unamortized debt discount costs | $(54,179) | | Total carrying amount | $39,040 | | Less: Current portion of debt | $(393) | | Total long-term debt | $38,647 | NOTE 7 - LICENSE AGREEMENT - On July 29, 2024, Legacy Dragonfly granted Stryten Energy LLC an exclusive, worldwide license to use Battle Born Batteries® trademarks for B2B sales in specific markets (automotive, marine, powersports, lawn and garden, golf cart, military and defense)[106] - Stryten paid an initial licensing fee of $5,000 thousand, recognized as revenue on a straight-line basis over five years[106] - The Company recorded $250 thousand and $500 thousand in revenue from the license agreement for the three and six months ended June 30, 2025, respectively[106] - As of June 30, 2025, deferred revenue related to the license agreement was $4,083 thousand ($1,000 thousand short-term, $3,083 thousand long-term)[106] NOTE 8 - RELATED PARTY - In January and February 2024, the Company entered into convertible promissory notes totaling $2,700 thousand with a board member, which were repaid with associated loan fees[107][108] - Effective April 12, 2024, employment agreements with the CEO, CRO, and CMO were amended to allow for annual equity compensation[109] - Dr Vickram Singh was appointed Chief Operating Officer on February 1, 2025, with an initial annual base salary of $350 thousand and a discretionary annual bonus[110] NOTE 9 - WARRANTS - Public Warrants (1,046,948 outstanding) and Underwriters' Warrants (63,362 outstanding) are classified as equity[112][116] - Private Placement Warrants and Term Loan Warrants are classified as liabilities and are subject to re-measurement at fair value each reporting period[117][119][127] - Term Loan Warrants (Penny Warrants) were issued in connection with waivers for non-compliance with financial covenants, with exercise prices ranging from $0.01 to $0.09 per share[121][122][123][124][126] Warrants Outstanding Roll-Forward (January 1, 2025 to June 30, 2025) | Warrant Type | Warrants Outstanding, Jan 1, 2025 | Warrants Issued | Warrants Outstanding, June 30, 2025 | |---|---|---|---| | Private Warrants | 166,821 | - | 166,821 | | Public Warrants | 1,046,948 | - | 1,046,948 | | Term Loan Warrants | 1,412,147 | 330,000 | 1,742,147 | | Investor Warrants | 1,236,878 | - | 1,236,878 | - Private Placement Convertible Preferred Warrants, issued in February 2025, were cancelled on June 23, 2025, and are no longer outstanding[134][135] NOTE 10 - REDEEMABLE CONVERTIBLE PREFERRED STOCK - In February 2025, the Company sold 350 shares of Series A Preferred Stock and 20 Private Placement Convertible Preferred Warrants, raising approximately $3.2 million in net proceeds[139] - In April 2025, an additional 450 shares of Series A Preferred Stock were sold in a second closing, generating $4.2 million in net proceeds[140] - Series A Preferred Stock holders are entitled to 8% annual dividends, convertible into common stock at varying conversion prices and subject to a Floor Price[145][150][153] - From issuance through June 30, 2025, 664 shares of Series A Preferred Stock were converted into 29,996,775 shares of common stock, reclassifying $6,085 thousand from mezzanine equity[167] - Subsequent to June 30, 2025, all remaining 136 shares of Series A Preferred Stock were exchanged for 2,100,000 shares of common stock, and no Series A Preferred Stock remained outstanding[168][222] NOTE 11 - COMMON STOCK - No dividends on common stock have been declared by the Company[173] Shares of Common Stock Reserved for Issuance (in thousands) | Category | June 30, 2025 | June 30, 2024 | |---|---|---| | Options issued and outstanding | 158,247 | 212,091 | | Common stock outstanding | 37,426,379 | 6,818,626 | | Warrants outstanding | 4,256,156 | 3,240,917 | | Earnout shares | 2,777,778 | 2,777,778 | | Series Preferred Stock A outstanding | 2,317,840 | - | | Shares available for future issuance | 1,189,254 | 995,237 | | Total | 48,125,654 | 14,044,649 | - Under the ChEF Equity Facility, the Company has the right to sell up to $150 million of common stock to CCM LLC For the six months ended June 30, 2025, 23,160 shares were issued for $63 thousand net proceeds[175] NOTE 12 - STOCK-BASED COMPENSATION - Share-based compensation expense for options and RSUs totaled $410 thousand for the six months ended June 30, 2025, a decrease from $503 thousand in the prior year[179] Stock-Based Compensation Expense Allocation (in thousands) | Expense Category | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---| | Cost of goods sold | $35 | $60 | | Research and development | $26 | $101 | | Selling and marketing | $124 | $127 | | General and administrative | $225 | $215 | | Total | $410 | $503 | - The ESPP allows eligible employees to purchase common stock at a discount For the six months ended June 30, 2025, 87,506 shares were issued for $73 thousand[191] Restricted Stock Units Activity (6 months ended June 30, 2025) | RSU Activity | Number of Shares | |---|---| | Unvested shares, January 1, 2025 | 334,751 | | Granted and unvested | 4,667 | | Forfeited | (58,504) | | Vested | (85,036) | | Unvested shares, June 30, 2025 | 195,878 | NOTE 13 - SUPPLIER AGREEMENT - On May 9, 2023, the Company announced a commercial offtake agreement with Ioneer Rhyolite Ridge LLC, a lithium-boron producer[192] - The agreement involves the Company purchasing product from the seller, with a minimum annual purchase requirement, once the Rhyolite Ridge Project is completed and commissioned[192] NOTE 14 - REPORTABLE SEGMENTS - The Company operates two reportable segments: DTC (Battle Born branded batteries sold directly to consumers) and OEM (Dragonfly branded batteries sold to original equipment manufacturers)[194] Reportable Segments Net Sales (in thousands) | Segment | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---|---|---| | DTC Net Sales | $5,947 | $6,534 | $10,963 | $11,737 | | OEM Net Sales | $10,051 | $6,674 | $18,141 | $13,976 | | Licensing Revenue | $250 | $- | $500 | $- | | Total Net Sales | $16,248 | $13,208 | $29,604 | $25,713 | - For the six months ended June 30, 2025, OEM net sales increased by 29.8% to $18,141 thousand, while DTC net sales decreased by 6.6% to $10,963 thousand, compared to the prior year[200][206] - A single customer in the OEM segment accounted for approximately 26% of consolidated revenues for the six months ended June 30, 2025, and 32% for the three months ended June 30, 2025[203][215] NOTE 15 - SUBSEQUENT EVENTS - On July 20, 2025, the Company entered into a Settlement and Release Agreement with the holder of Series A Preferred Stock, issuing 2,100,000 shares of common stock in exchange for all outstanding Series A Preferred Stock, which were then cancelled[222] - On July 31, 2025, the Company completed a public offering of 21,980,000 shares of common stock at $0.25 per share, raising gross proceeds of approximately $5.5 million and net proceeds of $5.035 million[223] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, key operational factors, liquidity, and critical accounting estimates Overview - The Company manufactures non-toxic deep cycle lithium-ion batteries for consumer (RV, marine, solar, off-grid) and commercial (trucking, industrial, energy storage) markets[232] - Net sales for the three months ended June 30, 2025, were $16.2 million (12,134 batteries sold), up from $13.2 million (11,526 batteries sold) in the prior year[233] - The increase in sales reflects a slight recovery in the motorized RV market and increased market penetration, with lithium storage system incorporation accelerating faster than RV unit shipments[234] - The company is prioritizing product development over solid-state R&D, accelerating solutions for trucking and industrial markets, including the recent launch of the Battle Born DualFlow Power Pack[236] - The company is developing proprietary dry electrode cell manufacturing processes and solid-state cell technology, having successfully produced anode and cathode material at scale[239][240] License Agreement with Stryten - On July 29, 2024, Battle Born LLC granted Stryten Energy LLC an exclusive, worldwide license to use Battle Born Batteries® trademarks for B2B sales in specific markets (automotive, marine, powersports, lawn and garden, golf cart, military and defense)[243] - Stryten paid an initial licensing fee of $5,000,000 and will make mid-single digit royalty payments based on net sales, capped at $25,000,000[243][244] - The License Agreement is perpetual unless terminated under specific conditions, such as failure to pay royalties or material breach[244] Earnout Merger Consideration - Up to 4,444,445 additional common shares (Earnout Shares) may be issued based on achieving specified milestones in three tranches[245] - The first tranche (1,666,667 shares) for 2023 revenue/operating income was not achieved[247] - Second and third tranches are tied to common stock volume-weighted average trading prices of $202.50 (by Dec 31, 2026) and $292.50 (by Dec 31, 2028), respectively[247] ChEF Equity Facility - The Company has a ChEF Equity Facility with Chardan Capital Markets LLC (CCM LLC) to sell up to $150 million of common stock[246] - The ChEF Purchase Agreement terminates in December 2025[246] - In connection with the 2025 Public Offering, the Company agreed not to sell common stock under this facility for 90 days following the offering's closing[246] Private Placements and Term Loan Amendments (May 2024 - February 2025) - Multiple waivers were obtained from Term Loan Lenders for non-compliance with financial covenants (liquidity, fixed charge coverage ratio, maximum senior leverage ratio) from May 2024 through February 2025[248][249][255] - In connection with these waivers, the Company issued various tranches of 'Penny Warrants' to Term Loan Lenders, with exercise prices ranging from $0.01 to $0.09 per share[248][249][255] - The Fifth Amendment to the Term Loan Agreement (February 2025) extended the maturity date to October 2027, deferred all principal and interest payments until April 2026, and removed most financial covenants (except for a $2.5 million minimum cash requirement) through June 30, 2026[267] - In February 2025, the Company completed a Registered Direct Offering and Private Placement of Series A Preferred Stock, raising $3.2 million net proceeds, followed by a Second Closing in April 2025, raising an additional $4.2 million net proceeds[261][262][265] - Private Placement Convertible Preferred Warrants, issued in February 2025, were cancelled on June 23, 2025[270] - On July 20, 2025, all outstanding Series A Preferred Stock was exchanged for 2,100,000 shares of common stock, terminating related agreements[271] Change in Board of Directors - In May 2025, Dr Karina Montilla Edmonds, Mr Jonathan Bellows, and Rick Parod resigned from the Board of Directors as part of expense reduction efforts[273] - The Board of Directors was reduced to five members, and currently has four directors[273] 2025 Public Offering - On July 31, 2025, the Company completed an underwritten public offering of 21,980,000 shares of common stock at $0.25 per share[274] - The offering raised gross proceeds of approximately $5.5 million and net proceeds of $5.035 million[274] Key Factors Affecting Our Operating Results - Demand for products is driven by consumers in end markets (RV, marine, solar, off-grid) and OEMs, with RV OEM sales expected to grow due to increased RV shipments and battery system inclusion[275][276][277] - DTC sales remained relatively flat due to macroeconomic conditions and increased competition, addressed by product diversification and targeted marketing[277] - The company relies on a limited number of China-based suppliers for LFP cells and a single supplier for its battery management system, managing costs through inventory building and long-term relationships[279] - Product and customer mix (DTC vs OEM, LFP batteries vs accessories) impacts average selling prices and gross margins, with OEM sales typically having lower margins but higher volumes[281] - All battery assembly occurs at the Reno, Nevada facility, with capacity for additional LFP production lines and a solid-state cell pilot line, focusing on automation to reduce costs[282] - Competition comes from traditional lead-acid and lithium-ion battery manufacturers, with a wider range expected as the company expands into new markets and develops its own cells[283] Components of Results of Operations - Net sales are primarily from LFP batteries sold to OEMs and consumers, and chargers/accessories[285] - Cost of goods sold includes cell/component costs, labor, overhead, logistics, freight, and manufacturing equipment depreciation[286] - Operating expenses comprise Research and Development (personnel, materials for new products/solid-state tech), General and Administrative (executive, finance, HR, IT, facility, professional fees), and Selling and Marketing (outbound freight, personnel, events, marketing, customer support)[288][289][290] - Other income (expense) primarily includes interest expense, change in fair value of warrant liability, and amortization of debt issuance costs[291] Results of Operations Three months ended June 30, 2025, and June 30, 2024 Key Financials (Three Months Ended June 30, in thousands) | Metric | 2025 | % Net Sales | 2024 | % Net Sales | Change ($) | Change (%) | |---|---|---|---|---|---|---| | Net Sales | $16,248 | 100.0% | $13,208 | 100.0% | $3,040 | 23.0% | | Cost of Goods Sold | $11,643 | 71.7% | $10,041 | 76.0% | $1,602 | 16.0% | | Gross Profit | $4,605 | 28.3% | $3,167 | 24.0% | $1,438 | 45.4% | | Research and development | $692 | 4.3% | $1,531 | 11.6% | $(839) | (54.7%) | | General and administrative | $4,619 | 28.4% | $5,704 | 43.2% | $(1,085) | (19.0%) | | Selling and marketing | $2,575 | 15.8% | $2,681 | 20.3% | $(106) | (4.0%) | | Loss From Operations | $(3,281) | (20.2%) | $(6,749) | (51.1%) | $3,468 | (51.4%) | | Interest expense, net | $(5,442) | (33.5%) | $(4,878) | (37.0%) | $(564) | 11.6% | | Change in fair market value of warrant liability | $1,689 | 10.4% | $(1,981) | (15.0%) | $3,670 | (185.3%) | | Net Loss | $(7,034) | (43.3%) | $(13,627) | (103.2%) | $6,593 | (48.4%) | - Net sales increased by $3.0 million (23.0%) due to higher OEM battery and accessory sales and licensing revenue[296] - Gross profit increased by $1.4 million (45.4%) due to higher unit volume, partially offset by consuming lower-priced inventory[298] - Research and development expenses decreased by $0.8 million (54.7%) due to lower wage expense from bonus accrual changes and reduced headcount, shifting focus from Solid State to Product Development[299] - General and administrative expenses decreased by $1.1 million (19.0%) primarily due to a $1.5 million decrease in legal and professional services[300] - Net loss improved by $6.6 million (48.4%) to $(7.0) million, driven by higher sales, lower operating expenses, and a positive change in warrant liability fair value[304] Six months ended June 30, 2025 and June 30, 2024 Key Financials (Six Months Ended June 30, in thousands) | Metric | 2025 | % Net Sales | 2024 | % Net Sales | Change ($) | Change (%) | |---|---|---|---|---|---|---| | Net Sales | $29,604 | 100.0% | $25,713 | 100.0% | $3,891 | 15.1% | | Cost of Goods Sold | $21,071 | 71.2% | $19,495 | 75.8% | $1,576 | 8.1% | | Gross Profit | $8,533 | 28.8% | $6,218 | 24.2% | $2,315 | 37.2% | | Research and development | $1,692 | 5.7% | $2,864 | 11.1% | $(1,172) | (40.9%) | | General and administrative | $10,976 | 37.1% | $10,517 | 40.9% | $459 | 4.4% | | Sales and marketing | $5,060 | 17.1% | $5,425 | 21.1% | $(365) | (6.7%) | | Loss From Operations | $(9,195) | (31.1%) | $(12,588) | (48.9%) | $3,393 | (26.9%) | | Interest expense, net | $(10,143) | (34.3%) | $(9,638) | (37.5%) | $(505) | 5.2% | | Change in fair market value of warrant liability | $5,507 | 18.6% | $(1,745) | (6.8%) | $7,252 | (415.6%) | | Net Loss | $(13,831) | (46.7%) | $(23,994) | (93.3%) | $10,163 | (42.4%) | - Net sales increased by $3.9 million (15.1%) due to higher OEM battery and accessory sales and licensing revenue, despite a decrease in DTC sales[308] - Gross profit increased by $2.3 million (37.2%) due to higher unit volume, partially offset by consuming lower-priced inventory[310] - Research and development expenses decreased by $1.2 million (40.9%) due to lower wage expense, reduced headcount, and decreased rent, travel, and supplies[311] - Net loss improved by $10.2 million (42.4%) to $(13.8) million, driven by higher sales, lower operating expenses, and a positive change in warrant liability fair value[317] Critical Accounting Estimates - Critical accounting estimates include inventory valuation (reserves for excess/obsolete items), warrants (fair value classification and measurement), equity-based compensation (Black-Scholes assumptions), income taxes (deferred tax assets, valuation allowance, uncertain tax positions), leases (incremental borrowing rate for ROU assets/liabilities), license arrangements (revenue recognition pattern for upfront fees), and tariffs (classification and valuation of imported components)[323][324][325] - Management's judgments and estimates are based on historical experience, known trends, and other reasonable factors, with actual results potentially differing[318] - Changes in assumptions for fair value estimates (warrants, equity-based compensation) could result in materially different financial results[324][325] Non-GAAP Financial Measures - The Company uses Adjusted EBITDA, a non-GAAP measure, to supplement U.S GAAP results, defined as EBITDA adjusted for stock-based compensation, change in fair market value of warrant liabilities, non-recurring costs (litigation, tariff adjustments, financing expenses, reverse stock split)[333] - Adjusted EBITDA is used to illustrate underlying financial and business trends and enhance comparability between periods[333] Adjusted EBITDA Reconciliation (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---|---|---| | Net loss | $(7,034) | $(13,627) | $(13,831) | $(23,994) | | Interest Expense | $5,442 | $4,878 | $10,143 | $9,638 | | Depreciation and Amortization | $491 | $331 | $1,350 | $663 | | EBITDA | $(1,101) | $(8,418) | $(2,338) | $(13,693) | | Stock-Based Compensation | $190 | $237 | $411 | $503 | | Change in fair market value of warrant liability | $(1,689) | $1,981 | $(5,507) | $1,745 | | Litigation Fees and loss on settlement | $30 | $- | $573 | $- | | Prior year tariff estimate adjustment | $287 | $- | $287 | $- | | Preferred Stock Financing Expenses | $42 | $- | $673 | $- | | Reverse Stock Split | $- | $- | $15 | $- | | Adjusted EBITDA | $(2,241) | $(6,200) | $(5,886) | $(11,445) | Liquidity and Capital Resources - As of June 30, 2025, the Company had $2.7 million in cash and cash equivalents[338] - In February and April 2025, the Company raised $7.4 million in net proceeds from Series A Preferred Stock offerings[339] - On July 31, 2025, a public offering of common stock raised $5.035 million in net proceeds[340] - The Term Loan Agreement (totaling $75 million principal) was amended in February 2025 to extend maturity to October 2027, defer principal and interest payments to April 2026, and remove most financial covenants (except for a $2.5 million minimum cash requirement) through June 30, 2026[358] - Despite strategic initiatives and capital raises, management concluded there is significant doubt about the Company's ability to continue as a going concern due to ongoing losses, negative cash flow, and uncertainty regarding future revenue and financing[359][361] - The Company expects to need additional debt and/or equity financing to fund operations, strategic plans, and meet financial covenants[342][361] Cash Flows for the Six months ended June 30, 2025, and June 30, 2024 Net Cash Flows (in thousands) | Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | |---|---|---| | Operating Activities | $(7,865) | $(7,411) | | Investing activities | $(1,621) | $(1,324) | | Financing activities | $7,370 | $721 | - Net cash used in operating activities was $7.9 million for the six months ended June 30, 2025, primarily due to a net loss of $13.8 million, partially offset by $7.3 million in payment-in-kind interest[364] - Net cash provided by financing activities was $7.4 million for the six months ended June 30, 2025, mainly from $7.3 million in net proceeds from the February 2025 Purchase Agreement[367] - Net cash used in investing activities increased to $1.6 million, primarily due to increased capital expenses for the core battery business[366] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the reporting period - This item is not applicable for the current reporting period[369] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025 - Management concluded that the Company maintained effective disclosure controls and procedures as of June 30, 2025[371] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[372] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is not currently a party to any litigation or legal proceedings expected to have a material adverse effect on its business[374] - Litigation, regardless of outcome, can adversely impact the company due to defense/settlement costs and diversion of management resources[374] Item 1A. Risk Factors The company is not in compliance with Nasdaq's listing requirements but has been granted an exception until November 10, 2025 - No material changes to previously disclosed risk factors in the Annual Report on Form 10-K, except for those noted[376] - The Company is not in compliance with Nasdaq's continued listing requirements for Market Value of Listed Securities ($35 million) and minimum bid price ($1.00)[377][378] - Nasdaq granted an exception until November 10, 2025, to regain compliance, subject to achieving milestones including conversion of Series A Preferred Stock (completed) and debt restructuring/conversion[380] - Failure to regain compliance could lead to delisting, adversely affecting stock price, liquidity, financing ability, and investor confidence[380] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds for the period - None reported for the period[381] Item 3. Defaults Upon Senior Securities This section indicates no defaults upon senior securities during the reporting period - None reported for the period[382] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Not applicable[383] Item 5. Other Information No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[384] Item 6. Exhibits This section lists all exhibits filed with or incorporated by reference into the Form 10-Q - This section lists exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including Articles of Incorporation, Bylaws, Settlement and Mutual Release Agreement, Certifications, and XBRL documents[385][386] Signatures The report was signed by the Chief Executive Officer, President, and Interim Chief Financial Officer - The report was signed on August 14, 2025, by Denis Phares, Chief Executive Officer, President, and Interim Chief Financial Officer[390]