PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Q1 2024 unaudited financials report a $10.4 million net loss, 33.5% sales decline, increased liabilities, and going concern doubt Condensed Consolidated Balance Sheets The balance sheet shows increased total liabilities, primarily from operating leases, and a decline in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $8,501 | $12,713 | | Inventory | $33,578 | $38,778 | | Total Current Assets | $47,691 | $55,920 | | Total Assets | $88,449 | $75,204 | | Liabilities & Equity | | | | Total Current Liabilities | $43,523 | $40,377 | | Total Liabilities | $70,638 | $47,292 | | Total Stockholders' Equity | $17,811 | $27,912 | - Total liabilities increased significantly from $47.3 million to $70.6 million, primarily driven by a substantial increase in operating lease liabilities from $3.5 million to $24.4 million11 - The accumulated deficit widened from $(41.5) million at year-end 2023 to $(51.9) million as of March 31, 2024, contributing to the decline in stockholders' equity11 Condensed Consolidated Statements of Operations Q1 2024 operations show a net loss of $10.4 million, reversing prior year's income, driven by a 33.5% sales decrease Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net Sales | $12,505 | $18,791 | | Gross Profit | $3,051 | $4,667 | | Loss From Operations | $(5,839) | $(9,892) | | Net (Loss) Income | $(10,367) | $4,775 | | Net (loss) income Per Share- Basic | $(0.17) | $0.11 | - Net sales decreased by 33.5% year-over-year12 - The company reported a net loss of $10.4 million in Q1 2024, compared to a net income of $4.8 million in Q1 2023. The 2023 income was significantly impacted by a non-cash gain of $18.5 million from the change in fair market value of warrant liability12 Condensed Consolidated Statements of Cash Flows Cash flow statements indicate cash used in operations and a reduction in overall cash reserves during the quarter Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(3,395) | $(3,838) | | Net Cash Used in Investing Activities | $(817) | $(589) | | Net Cash Provided by Financing Activities | $0 | $2,437 | | Net Decrease in Cash | $(4,212) | $(1,990) | - The company's cash and cash equivalents decreased by $4.2 million during the quarter, ending at $8.5 million17 Notes to Condensed Consolidated Financial Statements Notes detail going concern uncertainty, debt covenant violations, revenue disaggregation, and a prior period financial revision - Going Concern: The company's recurring losses from operations, negative cash flow, and failure to comply with financial covenants of its Term Loan raise substantial doubt about its ability to continue as a going concern2324 - Debt Covenant Violation: As of March 31, 2024, the company was not in compliance with its fixed charge coverage ratio, liquidity, and maximum senior leverage ratio covenants. It received a waiver for the liquidity requirement, but the entire debt has been classified as current87 - Revenue Disaggregation: For Q1 2024, sales were split between Direct to Customer ($5.2 million) and Original Equipment Manufacturer (OEM) ($7.3 million)40 - Financial Statement Revision: The company revised its Q1 2023 financial statements to correct for an underpayment of tariffs. This increased Cost of Goods Sold by $76 thousand and reduced Net Income by $117 thousand for that period115118 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024's 33.5% revenue decline to market weakness and OEM changes, noting going concern doubts and covenant waivers Q1 2024 vs Q1 2023 Results of Operations (in thousands) | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net Sales | $12,505 | $18,791 | | Gross Profit | $3,051 | $4,667 | | Loss From Operations | $(5,839) | $(9,892) | | Net (Loss) Income | $(10,367) | $4,775 | - Net sales decreased by $6.3 million (33.5%) YoY, primarily due to lower DTC and OEM sales volumes amid decreased customer demand related to rising interest rates and inflation173 - A major Recreation Vehicle (RV) customer changed the company's product from a standard offering to an option, negatively impacting OEM revenue. However, excluding this customer, RV OEM sales increased 69% year-over-year173 - The company has obtained waivers for failing to meet financial covenants under its Term Loan agreement, but acknowledges these conditions raise substantial doubt about its ability to continue as a going concern212 Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing this item's disclosures - This section is not applicable as the company qualifies as a smaller reporting company220 Item 4. Controls and Procedures Disclosure controls were ineffective as of March 31, 2024, due to an unremediated material weakness in tariff handling - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024223 - The ineffectiveness is due to an unremediated material weakness related to the failure to correctly capture, record, and pay tariffs on imported products223 - A remediation plan is in progress, with management working with a third-party service provider to design and implement additional internal controls224 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 material litigation or legal proceedings225 Item 1A. Risk Factors As a smaller reporting company, risk factor disclosures are not required for this Form 10-Q - This section is not required as the company is a smaller reporting company226 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - The company reported 'None' for this item227 Item 5. Other Information The company received a Term Loan covenant waiver on May 13, 2024, issuing 2.55 million penny warrants to lenders - On May 13, 2024, the company received a waiver for its Term Loan covenant tests for the quarter ended March 31, 2024231 - In connection with the waiver, the company issued 2.55 million penny warrants to the lenders, exercisable at $0.01 per share and expiring in ten years231 Item 6. Exhibits This section lists all exhibits filed, including the Term Loan waiver and May 2024 Penny Warrant form - Key exhibits filed with this report include the Limited Waiver to the Term Loan agreement and the Form of May 2024 Penny Warrant233
Dragonfly Energy(DFLI) - 2024 Q1 - Quarterly Report