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What changed in Dragonfly Energy Holdings Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Dragonfly Energy Holdings Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+428 added−324 removedSource: 10-K (2024-04-16) vs 10-K (2023-04-17)

Top changes in Dragonfly Energy Holdings Corp.'s 2023 10-K

428 paragraphs added · 324 removed · 245 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

88 edited+108 added−53 removed156 unchanged
Biggest changeThe Term Loan Agreement contains financial covenants requiring the credit parties to (a) maintain minimum liquidity (generally, the balance of unrestricted cash and cash equivalents in our account that is subject to a control agreement in favor of the Administrative Agent) of at least $10,000,000 as of the last day of each fiscal month commencing with the fiscal month ending December 31, 2022, (b) if the daily average liquidity for any fiscal quarter ending on December 31, 2022, March 31, 2023, June 30, 2023, or September 30, 2023 is less than $17,500,000 and for each fiscal quarter thereafter (commencing with the fiscal quarter ending December 31, 2023), maintain a senior leverage ratio (generally, aggregate debt minus up to $500,000 of unrestricted cash of Chardan and its subsidiaries divided by consolidated EBITDA for the trailing twelve month period just ended) of not more than 6.75 to 1.00 for fiscal quarters ending December 31, 2022 to March 31, 2023, 6.00 to 1.00 for fiscal quarters ending June 30, 2023 to September 30, 2023, 5.00 to 1.00 for fiscal quarters ending December 1, 2023 to March 31, 2024, 4.00 to 1.00 for fiscal quarters ending June 30, 2024 to September 30, 2024, 3.25 to 1.00 for fiscal quarters ending December 31, 2024 to March 31, 2025, and 3.00 to 1.00 for fiscal quarters ending June 30, 2025 and thereafter, (c) if liquidity is less than $15,000,000 as of the last day of any fiscal quarter (commencing with the fiscal quarter ending December 31, 2022), maintain a fixed charge coverage ratio for the trailing four fiscal quarter period of no less than 1.15:1.00 as of the last day of such fiscal quarter, and (d) if consolidated EBITDA is less than $15,000,000 for any trailing twelve month period ending on the last day of the most recently completed fiscal quarter, cause capital expenditures to not exceed $500,000 for the immediately succeeding fiscal quarter (subject to certain exceptions set forth in the Term Loan Agreement).
Biggest changeThe Term Loan Agreement contains financial covenants requiring the credit parties to (a) maintain minimum liquidity (generally, the balance of unrestricted cash and cash equivalents in our account that is subject to a control agreement in favor of the Administrative Agent) of at least $10,000,000 as of the last day of each fiscal month commencing with the fiscal month ending December 31, 2022, (b) if the daily average liquidity for any fiscal quarter ending on December 31, 2022, March 31, 2023, June 30, 2023, or September 30, 2023 is less than $17,500,000 and for each fiscal quarter thereafter (commencing with the fiscal quarter ending December 31, 2023), maintain a senior leverage ratio (generally, aggregate debt minus up to $500,000 of unrestricted cash of Chardan and its subsidiaries divided by consolidated EBITDA for the trailing twelve month period just ended) of not more than 6.75 to 1.00 for fiscal quarters ending December 31, 2022 to March 31, 2023, 6.00 to 1.00 for fiscal quarters ending June 30, 2023 to September 30, 2023, 5.00 to 1.00 for fiscal quarters ending December 1, 2023 to March 31, 2024, 4.00 to 1.00 for fiscal quarters ending June 30, 2024 to September 30, 2024, 3.25 to 1.00 for fiscal quarters ending December 31, 2024 to March 31, 2025, and 3.00 to 1.00 for fiscal quarters ending June 30, 2025 and thereafter, (c) if liquidity is less than $15,000,000 as of the last day of any fiscal quarter (commencing with the fiscal quarter ending December 31, 2022), maintain a fixed charge coverage ratio for the trailing four fiscal quarter period of no less than 1.15:1.00 as of the last day of such fiscal quarter, and (d) if consolidated EBITDA is less than $15,000,000 for any trailing twelve month period ending on the last day of the most recently completed fiscal quarter, cause capital expenditures to not exceed $500,000 for the immediately succeeding fiscal quarter (subject to certain exceptions set forth in the Term Loan Agreement). 17 On March 29, 2023 and September 29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy the Senior Leverage Ratio and Fixed Charge Coverage Ratio tests (the “ Tests ”) with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023 and September 30, 2023, respectively.
On March 31, 2023 (the “ Effective Date ”), we changed our state of incorporation from the State of Delaware to the State of Nevada (the “ Reincorporation ”) pursuant to a plan of conversion dated March 30, 2023 (the “ Plan of Conversion ”).
Nevada Reincorporation On March 31, 2023 (the “ Effective Date ”), we changed our state of incorporation from the State of Delaware to the State of Nevada (the “ Reincorporation ”) pursuant to a plan of conversion dated March 30, 2023 (the “ Plan of Conversion ”).
In many storage applications, lithium-ion batteries have a lifespan exceeding the lifetime of the project with very limited maintenance requirements, compared to lead-acid batteries, which have a one- to two-year useful life in most applications. 2 ● Power and Performance. As new technologies evolve and people consume more electricity, the importance of battery power and performance increases.
In many storage applications, lithium-ion batteries have a lifespan exceeding the lifetime of the project with very limited maintenance requirements, compared to lead-acid batteries, which have a one- to two-year useful life in most applications. ● Power and Performance. As new technologies evolve and people consume more electricity, the importance of battery power and performance increases.
According to the RVIA’s 2021 RV Market Report, approximately 91% of wholesale RV units shipped in 2021 were towable units, representing a significant growth opportunity for LFP batteries. ● Marine Vessels. As boating becomes more popular in North America, the need for a reliable, non-flammable energy storage system is becoming increasingly apparent.
According to the RVIA’s 2021 RV Market Report, approximately 91% of wholesale RV units shipped in 2021 were towable units, representing a significant growth opportunity for LFP batteries. 3 ● Marine Vessels. As boating becomes more popular in North America, the need for a reliable, non-flammable energy storage system is becoming increasingly apparent.
We train our employees and conduct audits of our operations to assess our fulfillment of these policies. We are also subject to laws imposing liability for the cleanup of releases of hazardous substances. Under the law, we can be liable even if we did not cause a release on real property that we lease.
We train our employees and conduct audits of our operations to assess our fulfillment of these policies. 14 We are also subject to laws imposing liability for the cleanup of releases of hazardous substances. Under the law, we can be liable even if we did not cause a release on real property that we lease.
In addition, LFP batteries are safer, lighter and modular, allowing for more tools to be stored on-board emergency vehicles without sacrificing the performance of the battery system. ● Emergency and Standby Power. Demand for reliable emergency and standby power sources is expected to continue to drive demand for effective power storage for residential, commercial and industrial uses.
In addition, LFP batteries are safer, lighter and modular, allowing for more tools to be stored on-board emergency vehicles without sacrificing the performance of the battery system. 4 ● Emergency and Standby Power. Demand for reliable emergency and standby power sources is expected to continue to drive demand for effective power storage for residential, commercial and industrial uses.
These lifetime costs, at current costs and capacity, will naturally drop as we continue to take advantage of economies of scale. 5 Our Growth Strategy We intend to leverage our competitive strengths, technology leadership and market share position to pursue our growth strategy through the following: ● Expand Product Offerings.
These lifetime costs, at current costs and capacity, will naturally drop as we continue to take advantage of economies of scale. Our Growth Strategy We intend to leverage our competitive strengths, technology leadership and market share position to pursue our growth strategy through the following: ● Expand Product Offerings.
LFP batteries use lithium iron phosphate (LiFePO4) as the cathode material for lithium-ion cells rather than nickel or cobalt. Although the energy density of LFP batteries is lower, they have a longer cycle life and experience a slower rate of capacity loss.
LFP batteries use lithium iron phosphate (“ LiFePO4 ”) as the cathode material for lithium-ion cells rather than nickel or cobalt. Although the energy density of LFP batteries is lower, they have a longer cycle life and experience a slower rate of capacity loss.
In addition, we entered into a Pledge Agreement (the “ Pledge Agreement ”) pursuant to which we pledged to the Administrative Agent our equity interests in Legacy Dragonfly as further collateral security for the obligations under the Term Loan Agreement. 17 The Term Loan Agreement contains affirmative and restrictive covenants and representations and warranties.
In addition, we entered into a Pledge Agreement (the “ Pledge Agreement ”) pursuant to which we pledged to the Administrative Agent our equity interests in Legacy Dragonfly as further collateral security for the obligations under the Term Loan Agreement. The Term Loan Agreement contains affirmative and restrictive covenants and representations and warranties.
In connection with the Reincorporation, our board of directors adopted new bylaws in the form attached to the Plan of Conversion (the “ Bylaws ”). The Reincorporation was previously submitted to a vote of, and approved by, the Company’s stockholders at a special meeting of stockholders held on February 28, 2023 (the “ Special Meeting ”).
In connection with the Reincorporation, our board of directors adopted new bylaws in the form attached to the Plan of Conversion (the “ Bylaws ”). The Reincorporation was previously submitted to a vote of, and approved by, our stockholders at a special meeting of stockholders held on February 28, 2023 (the “ Special Meeting ”).
We have a dual-brand strategy for battery products, Dragonfly Energy (“ Dragonfly Energy ”) and Battle Born Batteries (“ Battle Born ”). Battle Born branded products are primarily sold direct to consumers, while the Dragonfly Energy brand is primarily sold to original equipment manufacturers (“ OEMs ”).
We have a dual-brand strategy for battery products, Dragonfly Energy (“ Dragonfly Energy ”) and Battle Born Batteries (“ Battle Born ”). Battle Born branded products are primarily sold direct-to-consumers (“ DTC ”), while the Dragonfly Energy brand is primarily sold to original equipment manufacturers (“ OEMs ”).
Tightening marina regulations are also driving the need for electric docking motors on more vessels and increasing the focus on safety, which LFP batteries are well-suited to address. 3 ● Off-Grid Residences.
Tightening marina regulations are also driving the need for electric docking motors on more vessels and increasing the focus on safety, which LFP batteries are well-suited to address. ● Off-Grid Residences.
In connection with the Business Combination, Chardan changed its name to Dragonfly Energy Holdings Corp. 15 Prior to the completion of the Business Combination, Chardan was a shell company. Chardan was incorporated in the state of Delaware on June 23, 2020.
In connection with the Business Combination, Chardan changed its name to Dragonfly Energy Holdings Corp. Prior to the completion of the Business Combination, Chardan was a shell company. Chardan was incorporated in the state of Delaware on June 23, 2020.
Pursuant to an assignment agreement, the Backstopped Loans were assigned by CCM 5 to the Backstop Lender on the Closing Date. Pursuant to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date.
Pursuant to an assignment agreement, the Backstopped Loans were assigned by CCM 5 to the Backstop Lender on the Closing Date. 16 Pursuant to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date.
This arrangement and the Keystone arrangement facilitate our ongoing efforts to drive adoption of our products (leveraging the trend of LFP batteries increasingly replacing lead-acid batteries) by, among other things, increasing the number of RV OEMs that “design in” our batteries as original equipment and entering into arrangements with members of the various OEM dealer networks to stock our batteries for service and for aftermarket replacement sales.
This arrangement helps facilitate our ongoing efforts to drive adoption of our products (leveraging the trend of LFP batteries increasingly replacing lead-acid batteries) by, among other things, increasing the number of RV OEMs that “design in” our batteries as original equipment and entering into arrangements with members of the various OEM dealer networks to stock our batteries for service and for aftermarket replacement sales.
As we develop our proprietary solid-state cell technology, we believe our use of LFP will continue to provide significant advantages over the lithium-ion technology in development by most other companies that still incorporate less stable components in their chemistries (such as sulfide glasses, which are chemically unstable and form hydrogen sulfide when exposed to air).
As we develop our proprietary solid-state cell technology, we believe our use of LFP will continue to provide significant advantages over the lithium-ion technology in development by most other companies that still incorporate less stable components in their chemistries (such as sulfide gases, which are chemically unstable and form hydrogen sulfide when exposed to air).
According to the RVIA and THOR Industries, North American RV shipments have had an estimated 10-year compound annual growth rate (“ CAGR ”) of 6.8% from 2012 to 2022. The need for greater power and power storage capabilities to power interiors is driving a shift towards the use of LFP batteries.
According to the RVIA and THOR Industries, North American RV shipments have had an estimated 10-year compound annual growth rate (“ CAGR ”) of 5.6% from 2012 to 2022. The need for greater power and power storage capabilities to power interiors is driving a shift towards the use of LFP batteries.
We continue to seek to grow our customer base within our existing segments; however, we also believe that our products are well suited to address the needs in additional segments, including residential, commercial and/or industrial standby power, industrial vehicles (such as forklifts, material handling equipment and compact construction equipment) and specialty vehicles (such as emergency vehicles, utility vehicles and municipal vehicles) and we will seek to expand our market share in these segments in the future.
We continue to seek to grow our customer base within our existing segments; however, we also believe that our products are well suited to address the needs in additional segments, including residential, commercial and/or industrial standby power, long-haul trucking, industrial vehicles (such as forklifts, material handling equipment and compact construction equipment) and specialty vehicles (such as emergency vehicles, utility vehicles and municipal vehicles) and we will seek to expand our market share in these segments in the future.
End Markets Current Markets According to a Frost and Sullivan report commissioned by us (“ Frost & Sullivan ”), the total addressable market (“ TAM ”) of our three current end markets is estimated to be approximately $12 billion by 2025. ● Recreational Vehicles.
End Markets Current Markets According to a Frost and Sullivan report commissioned by us in 2021 (“ Frost & Sullivan ”), the total addressable market (“ TAM ”) of our three current end markets is estimated to be approximately $12 billion by 2025. ● Recreational Vehicles.
These patents are expected to have expired or expire between May 2023 and 2043, absent any patent term adjustments or extensions. 14 We periodically review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our domain names and trademarks and service marks in the United States and other jurisdictions.
These patents are expected to have expired or expire between May 2033 and 2043, absent any patent term adjustments or extensions. We periodically review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our domain names and trademarks and service marks in the United States and other jurisdictions.
We have a growing customer base of more than 15,000 customers featuring OEMs, distributors, upfitters and end consumers across diverse end markets and applications including RV, marine vessels and off-grid residences.
We have a growing customer base of more than 23,000 customers featuring OEMs, distributors, upfitters and end consumers across diverse end markets and applications including RV, marine vessels and off-grid residences.
The acquisition of the assets of Wakespeed allows us to deliver our own proprietary solution to alternator regulation while also leveraging an established brand name. Wakespeed is especially popular in the marine industry, and our ability to offer this complete solution sets the stage for further penetration into marine markets.
The acquisition of the assets of Wakespeed has allowed us to deliver our own proprietary solution to alternator regulation while also leveraging an established brand name. Wakespeed is especially popular in the marine industry, and our ability to offer this complete solution sets the stage for further penetration into marine markets.
Our RV OEM customers currently include Keystone RV Company (“ Keystone ”), who fulfills certain of its LFP battery requirements exclusively through us (with potential annual renewals), THOR Industries (“ THOR ”), who has made a strategic investment in our business and with whom we intend to enter into a future, mutually agreed exclusive North American distribution agreement with an initial term of two years (with potential annual renewals), Airstream, and REV, and we are in ongoing discussions with a number of additional RV OEMS to further increase adoption of our products.
Our RV OEM customers currently include Keystone RV Company (“ Keystone ”), who fulfills certain of its LFP battery requirements exclusively through our Supply Agreement (as defined herein), THOR Industries (“ THOR ”), who has made a strategic investment in our business and with whom we intend to enter into a future, mutually agreed exclusive North American distribution agreement with an initial term of two years (with potential annual renewals), Airstream, and REV, and we are in ongoing discussions with a number of additional RV OEMS to further increase adoption of our products.
The first tranche of 15,000,000 shares is issuable if our 2023 total audited revenue is equal to or greater than $250 million and our 2023 audited operating income is equal to or greater than $35 million.
The first tranche of 15,000,000 shares was issuable if our 2023 total audited revenue was equal to or greater than $250 million and our 2023 audited operating income was equal to or greater than $35 million.
We currently offer a line of batteries across our two brands, each differentiated by size, power and capacity, consisting of seven different models, four of which come with a heated option. To supplement our battery offerings, we are also a reseller of accessories for battery systems.
We currently offer several lines of batteries across our two brands, each differentiated by size, power and capacity, consisting of seven different models, four of which come with a heated option. To supplement our battery offerings, we are also a reseller of accessories for battery systems.
Merger Consideration At the Closing, by virtue of the Merger and without any action on the part of Chardan, Merger Sub, Legacy Dragonfly or the holders of any of the following securities: (a) Each outstanding share of Legacy Dragonfly’s common stock, par value $0.001 per share (“ Legacy Dragonfly Common Stock ”), converted into (i) a certain number of shares of our common stock, totaling 41,500,000 shares (including the conversion and assumption of the options to purchase shares of Legacy Dragonfly Common Stock described below), which is equal to (x) $415,000,000 divided by (y) $10.00 (the “ Merger Consideration ”) and (ii) the contingent right to receive Earnout Shares (as defined below) (which may be zero) following the Closing.
Merger Consideration At the Closing, by virtue of the Merger and without any action on the part of Chardan, Merger Sub, Legacy Dragonfly or the holders of any of the following securities: (a) Each outstanding share of Legacy Dragonfly’s common stock, par value $0.001 per share (“ Legacy Dragonfly Common Stock ”), converted into (i) a certain number of shares of our common stock, totaling 41,500,000 shares (including the conversion and assumption of the options to purchase shares of Legacy Dragonfly Common Stock described below), which is equal to (x) $415,000,000 divided by (y) $10.00 (the “ Merger Consideration ”) and (ii) the contingent right to receive Earnout Shares (as defined below) (which may be zero) following the Closing. 15 (b) Each option to purchase shares of Legacy Dragonfly Common Stock, was assumed and converted into options to acquire shares of our common stock.
Although manufacturing operations were previously capacity constrained the expansion into our manufacturing facility will allow us to add production capacity and increase product offerings and scale based on demand. ● The majority of our current batteries are 12 voltage batteries, which provide 100 amp hours of energy and are an affordable solution to customers utilizing smaller or lower power applications.
Although manufacturing operations were previously capacity constrained the expansion into our new manufacturing facility will allow us to add production capacity and increase product offerings and scale based on demand. 9 ● The majority of our current batteries are 12 volt batteries, which provide 100 amp hours of energy and are an affordable solution to customers utilizing smaller or lower power applications.
Related Agreements Concurrently with the execution of the Business Combination Agreement, Chardan, Legacy Dragonfly and the Sponsor entered into a sponsor support agreement. Indemnification of Directors and Officers On the Closing Date, in connection with the consummation of the Business Combination, we entered into indemnification agreements with each of our directors and executive officers.
Related Agreements Concurrently with the execution of the Business Combination Agreement, Chardan, Legacy Dragonfly and the Sponsor (as defined below) entered into a sponsor support agreement. Indemnification of Directors and Officers On the Closing Date, in connection with the consummation of the Business Combination, we entered into indemnification agreements with each of our directors and executive officers.
Our facility provides a streamlined, partially autonomous production process for our current batteries, which comprises module assembly and battery assembly, with the availability to expand the number of lines to handle increased volumes and the additional battery modules we intend to introduce in the near future.
Our 99,000 square foot facility provides a streamlined, partially autonomous production process for our current batteries, which comprises module assembly and battery assembly, with the availability to expand the number of lines to handle increased volumes and the additional battery modules we intend to introduce in the near future.
Moreover, in the first quarter of 2023, we launched Dragonfly IntelLigence, a proprietary monitoring and communication system that allows us to monitor, optimize, and in some cases compile data on battery banks. We believe the natural evolution of our product offering is to become a system integrator for solar and other energy storage solutions. ● Expand End Markets.
Additionally, in January 2023, we launched Dragonfly IntelLigence, a proprietary monitoring and communication system that allows us to monitor, optimize, and in some cases compile data on battery banks. We believe the natural evolution of our product offering is to become a system integrator for solar and other energy storage solutions. ● Expand End Markets.
We currently source the LFP cells incorporated into our batteries from a limited number of carefully selected suppliers that can meet our demanding quality standards and with whom we have developed long-term relationships. We began as an aftermarket-focused business initially targeting direct-to-consumer sales in the RV market. Since 2020, we have sold over 226,000 batteries.
We currently source the LFP cells incorporated into our batteries from a limited number of carefully selected suppliers that can meet our demanding quality standards and with whom we have developed long-term relationships. We began as an aftermarket-focused business initially targeting DTC sales in the RV market. Since 2020, we have sold over 290,000 batteries.
As these medium- and long-term markets mature, we intend to deploy our solid-state technology, once developed, while concurrently continuing to further displace the incumbent lead-acid technology. According to Frost & Sullivan, our TAM is estimated to be $85 billion by 2025. ● Industrial / Material Handlings / Work Truck.
As these medium- and long-term markets mature, we intend to deploy our solid-state technology, once developed, while concurrently continuing to further displace the incumbent lead-acid technology. According to Frost & Sullivan, our TAM is estimated to be $85 billion by 2025. ● Heavy Duty Truck.
Overview We are a manufacturer of non-toxic deep cycle lithium-ion batteries that caters to customers in the consumer (including the recreational vehicle (“ RV ”), marine vessel and off-grid residence industries), industrial and energy storage markets, with disruptive solid-state cell technology currently under development.
Overview We are a manufacturer of non-toxic deep cycle lithium-ion batteries that caters to customers in the consumer industry (including the recreational vehicle (“ RV ”), marine vessel, solar and off-grid residence industries), and industrial and energy storage markets, with proprietary, patented and disruptive battery cell manufacturing and non-flammable solid-state cell technology currently under development.
The patents and patent applications cover the United States, China, Europe (with individual patents in Germany, France and the United Kingdom), Australia, Canada and other regions. We periodically review and update our patent portfolio to protect our products and newly developed technologies.
The patents and patent applications cover the United States, Canada, Australia, Korea, Japan, India, China, and Europe (with individual patents in Germany, France and the United Kingdom). We periodically review and update our patent portfolio to protect our products and newly developed technologies.
In addition, we seek to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants and through non-disclosure agreements with business partners and other third parties. As of December 31, 2022 we owned 26 issued patents and 22 pending patent applications.
In addition, we seek to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants and through non-disclosure agreements with business partners and other third parties. As of December 31, 2023, we owned 44 issued patents and 48 pending patent applications.
Over time, we have increased total sales through a combination of: increasing direct-to-consumer sales of batteries for RV applications; expanding into the marine vessels and off-grid storage markets with related direct-to-consumer sales; selling batteries to RV OEMs; increasing sales to distributors; and reselling accessories for battery systems.
Historically, we have increased total sales through a combination of: increasing DTC sales of batteries for RV applications; expanding into the marine vessels and off-grid storage markets with related DTC sales; selling batteries to RV OEMs; increasing sales to distributors; and reselling accessories for battery systems.
We see opportunities to continue to leverage our success in the aftermarket to expand our relationships to other leading OEMs and distributors while further enhancing our direct-to-consumer offerings.
We see opportunities to continue to leverage our success in the aftermarket to expand our relationships to other leading OEMs, fleets, and distributors while further enhancing our DTC offerings.
Our website also includes investor presentations and corporate governance materials. 20
Our website also includes investor presentations and corporate governance materials. 21
On April 4, 2022, we entered into an asset purchase agreement (“ APA ”) with Thomason Jones Company, LLC, a Washington limited liability company (“ TJC ”), pursuant to which we acquired intellectual property rights and inventory for a purchase price of approximately $444,000 which was the approximated fair market value.
Other Agreements On April 4, 2022, we entered into an asset purchase agreement (“ APA ”) with Thomason Jones Company, LLC, a Washington limited liability company (“ TJC ”), pursuant to which we acquired intellectual property rights relating to Wakespeed, including all trademarks and certain patents, and inventory for a purchase price of approximately $444,000 which was the approximated fair market value.
A battery-electric rail sector would provide more than 200GWh of modular and mobile storage, which could in turn provide grid services and improve the resilience of the power system. 4 ● Data Centers. Data centers have seen strong growth in recent years, with over 2,750 data centers in the United States as of January 2022 according to Statista.
A battery-electric rail sector would provide more than 200GWh of modular and mobile storage, which could in turn provide grid services and improve the resilience of the power system. ● Data Centers. Data centers have seen strong growth in recent years, with over 5,000 data centers in the United States as of September 2023 according to Statista.
The temperature threshold for thermal runaway (i.e., lithium-ion battery overheating that can result in an internal chemical reaction) is roughly 700 degrees Fahrenheit for LFP batteries, compared to 350 degrees Fahrenheit for NMC and NCA batteries, making LFP batteries less flammable and safer.
The temperature threshold for thermal runaway (i.e., lithium-ion battery overheating that can result in an internal chemical reaction) is higher for LFP batteries as compared to NMC and NCA batteries, making LFP batteries less flammable and safer.
On October 25, 2022, we entered into a separation and release agreement with Mr. Nichols that became effective and fully irrevocable on November 2, 2022, which was subsequently amended on November 14, 2022 (as amended, the “ Separation Agreement ”). Pursuant to the Separation Agreement, Mr.
His last day of employment was November 7, 2022 (the “ Separation Date ”). On October 25, 2022, we entered into a separation and release agreement with Mr. Nichols that became effective and fully irrevocable on November 2, 2022, which was subsequently amended on November 14, 2022 (as amended, the “ Separation Agreement ”). Pursuant to the Separation Agreement, Mr.
Pursuant to the Asset Purchase Agreement dated April 22, 2022 by and among us and Thomason Jones Company, LLC (“ Thomason Jones ”) and the other parties thereto, we also acquired the assets, including the Wakespeed Offshore brand (“ Wakespeed ”) of Thomason Jones, allowing us to include our own alternator regulator in systems that we sell.
Pursuant to the Asset Purchase Agreement dated April 22, 2022 by and among us and Thomason Jones Company, LLC (“ Thomason Jones ”) and the other parties thereto, we also acquired the assets, including the Wakespeed Offshore brand (“ Wakespeed ”) of Thomason Jones, allowing us to include our own alternator regulator in systems that we sell. 1 Our battery packs are designed and assembled in-house in the United States.
Markets, such as standby power, industrial vehicles, specialty vehicles and utility-grade storage, are in the early stages of adoption of lithium-ion batteries (including LFP batteries), and we aim to be at the forefront of this movement by continuing to develop and produce products with these end users in mind. ● Commercialize Solid-State Technology.
Markets, such as long-haul trucking, standby power, industrial vehicles, specialty vehicles and utility-grade storage, are in the early stages of adoption of lithium-ion batteries (including LFP batteries), and we aim to be at the forefront of this movement by continuing to develop and produce products with these end users in mind. ● Commercialize our Dry Electrode Cell Manufacturing Technology.
Customer demand and brand recognition of Battle Born batteries from an aftermarket sales perspective have helped drive significant adoption from RV OEMs (with a CAGR of over 135% since 2020) with visibility for future growth through further expansion of our existing relationships. ● High Quality Manufacturing Process.
Customer demand and brand recognition of Battle Born batteries from an aftermarket sales perspective have helped drive significant adoption from OEMs and fleets with visibility for future growth through further expansion of our existing relationships. ● High Quality Manufacturing Process.
Rail transportation is a large potential market, with an estimated market size of $98.6 billion in 2022, according to IBISWorld. Many railroad operators have invested in infrastructure and equipment upgrades in recent years, in an attempt to boost capacity and productivity.
Rail transportation is a large potential market, with an estimated U.S. market size of $110.1 billion in 2023, according to IBISWorld. Many railroad operators have invested in infrastructure and equipment upgrades in recent years, in an attempt to boost capacity and productivity.
We expect to begin offering the Dragonfly IntelLigence product line to customers as an adjacent component and in our product bundles during the first half of 2023. Alternator Regulation Charging batteries in a vehicle, such as a boat or RV, often requires pulling electrical current off of the vehicle’s alternator.
We expect to begin offering the Dragonfly IntelLigence product line to OEMs in the second quarter of 2024 as an adjacent component and in our product bundles. Alternator Regulation Charging batteries in a vehicle, such as a boat or RV, often requires pulling electrical current off of the vehicle’s alternator.
It offers a complete solution for monitoring and controlling our complex battery systems and is designed to protect battery cells from damage in various scenarios.
Battery Management System Our proprietary battery management system is developed and tested in-house. It offers a complete solution for monitoring and controlling our complex battery systems and is designed to protect battery cells from damage in various scenarios.
In an effort to protect our brand, as of December 31, 2022, we own four trademark registrations to cover our house marks in the United States and we have seven pending trademark applications relating to our design logos and slogans in the United States.
In an effort to protect our brand, as of December 31, 2023, we own 21 trademark registrations to cover our house marks in the United States and we have 7 pending trademark applications relating to our design logos and slogans in the United States and we have 4 pending trademark applications internationally.
We believe our battery management system is industry-leading for a number of reasons: ● it enables batteries to draw power under 135 degrees Fahrenheit, and is designed to cut off charging at 24 degrees Fahrenheit to protect cells; ● it actively monitors the rate of change of currents to detect and prevent short circuiting, and also protects against potential ground faults; ● it allows for up to an average of 300 amps continuously, 500 amp surges for 30 seconds, and momentary, half second maximum capacity surges; ● it enables batteries to recharge even if completely drained; ● it utilizes larger resistors to ensure balanced loads to improve performance and extend useful life; and ● it facilitates scalability by enabling batteries to be combined in parallel and in series. 9 Battery Communication System We have developed a complete communication system branded Dragonfly IntelLigence, for which a U.S. non-provisional patent application and an international PCT patent application have been filed, to be used with Dragonfly Energy OEM systems and Battle Born batteries and bundles.
We believe our battery management system is industry-leading for a number of reasons: ● it enables batteries to draw power under 135 degrees Fahrenheit, and is designed to cut off charging at 24 degrees Fahrenheit to protect cells; ● it actively monitors the rate of change of currents to detect and prevent short circuiting, and also protects against potential ground faults; ● it allows for up to an average of 300 amps continuously, 500 amp surges for 30 seconds, and momentary, half second maximum capacity surges; ● it enables batteries to recharge even if completely drained; ● it utilizes larger resistors to ensure balanced loads to improve performance and extend useful life; and ● it facilitates scalability by enabling batteries to be combined in parallel and in series.
As of April 17, 2023, 98,500 shares have been issued pursuant to the Purchase Agreement with CCM LLC for aggregate net proceeds to us of $670,593. The net proceeds from any sales under the Purchase Agreement will depend on the frequency with, and prices at, which shares of common stock are sold to CCM LLC.
As of December 31, 2023, 588,500 shares have been issued pursuant to the Purchase Agreement with CCM LLC for aggregate net proceeds to us of $1,278,566. The net proceeds from any sales under the Purchase Agreement will depend on the frequency with, and prices at, which shares of common stock are sold to CCM LLC.
In light of the beneficial ownership limitation set forth above, the Sponsor has agreed that the private placement warrants held by Chardan NexTech 2 Warrant Holdings LLC (“ Warrant Holdings ”), also an affiliate of the Sponsor, may not be exercised to the extent an affiliate of the Sponsor (including CCM LLC) is deemed to beneficially own, or it would cause such affiliate to be deemed to beneficially own, more than 7.5% of our common stock.
In light of the beneficial ownership limitation set forth above, the Sponsor has agreed that the private placement warrants held by Chardan NexTech 2 Warrant Holdings LLC (“ Warrant Holdings ”), also an affiliate of the Sponsor, may not be exercised to the extent an affiliate of the Sponsor (including CCM LLC) is deemed to beneficially own, or it would cause such affiliate to be deemed to beneficially own, more than 7.5% of our common stock. 18 In addition, pursuant to the ChEF RRA, we have agreed to provide CCM LLC with certain registration rights with respect to the shares of common stock issued subject to the Purchase Agreement.
The Penny Warrants have an exercise period of 10 years from the date of issuance. As of March 15, 2023, 1,248,294 shares of common stock have been issued upon the exercise of Penny Warrants. The $10 Warrants had an exercise period of five years from the date of issuance and had customary cashless exercise provisions.
The Penny Warrants have an exercise period of 10 years from the date of issuance. As of April 4, 2024, 1,996,323 shares of common stock have been issued upon the exercise of Penny Warrants. The $10 Warrants had an exercise period of five years from the date of issuance and had customary cashless exercise provisions.
Customers; RV OEM Strategic Arrangements We currently serve more than 15,000 customers in North America. Our existing customers consist of leading OEMs (such as Keystone, Thor, REV Group and Airstream); distributors (who purchase large quantities of batteries from us and sell to consumers); upfitters (who augment or customize vehicles for specific needs); and retail customers (who purchase from us directly).
Our existing customers consist of leading OEMs (such as Keystone, THOR, REV Group and Airstream); distributors (who purchase large quantities of batteries from us and sell to consumers); upfitters (who augment or customize vehicles for specific needs); and retail customers (who purchase from us directly).
Compared to NMC and NCA batteries, LFP batteries are at or much closer to grid parity. Solid-State Cells LFP batteries are not without their disadvantages. While less flammable than other chemistries, the existence of a flammable liquid electrolyte still poses safety risks.
Solid-State Cells LFP batteries are not without their disadvantages. While less flammable than other chemistries, the existence of a flammable liquid electrolyte still poses safety risks.
We believe we have taken commercially reasonable steps to avoid such liability with respect to our current leased facilities. Employees and Human Capital Resources As of December 31, 2022, we have 177 employees; 171 full-time, 2 part-time and 4 seasonal.
We believe we have taken commercially reasonable steps to avoid such liability with respect to our current leased facilities. Employees and Human Capital Resources As of December 31, 2023, we had 156 employees; 150 full-time, 1 part-time and 5 interns.
For the years ended December 31, 2022 and 2021, we sold 96,034 and 74,652 batteries, respectively, and had $86.3 million and $78.0 million in sales, respectively.
For the years ended December 31, 2023 and 2022, we sold 64,906 and 96,034 batteries, respectively, and had $64.5 million and $86.3 million in sales, respectively.
The Note became due and payable in full on April 1, 2023. We were also obligated to pay $100,000 (the “ Loan Fee ”) to Mr. Nelson on April 4, 2023. We paid the Principal Amount and the Loan Fee in full on April 1, 2023 and April 4, 2023, respectively.
The January Note became due and payable in full on February 2, 2024. We were also obligated to pay $50,000 (the “ January Loan Fee ”) to Mr. Nelson on February 2, 2024. We paid the January Principal Amount and the January Loan Fee in full on February 2, 2024.
Our Competitive Strengths We believe that we possess the largest share in the markets we operate in due to our following business strengths, which distinguish us in this competitive landscape and position us to capitalize on the anticipated continued growth in the energy storage market: ● Premier Lithium-Ion Battery Technology.
We believe our ability to cost-effectively develop and manufacture LFP solid-state batteries will position renewable energy projects deploying these batteries to reach “grid parity” sooner. 5 Our Competitive Strengths We believe that we possess the largest share in the markets we operate in due to our following business strengths, which distinguish us in this competitive landscape and position us to capitalize on the anticipated continued growth in the energy storage market: ● Premier Lithium-Ion Battery Technology.
We use a combination of trained employees and automated processes to increase production capacity and lower costs while maintaining the same level of quality our customers expect from our products. Module assembly is a significantly automated process, implementing custom-designed equipment and systems to suit our production needs.
Our manufacturing process is divided into two aspects – (1) module assembly and (2) battery assembly. We use a combination of trained employees and automated processes to increase production capacity and lower costs while maintaining the same level of quality our customers expect from our products.
William Thomason and Richard Jones, our engineer and sales representative, are the managing members of TJC. 19 On November 4, 2022, we announced that Sean Nichols, our former Chief Operating Officer, would be leaving the Company to pursue other interests. His last day of employment was November 7, 2022 (the “ Separation Date ”).
William Thomason and Richard Jones, our engineer and sales representatives, each of whom was hired in connection with the entry into the TJC APA, are the managing members of TJC. Separation Agreements On November 4, 2022, we announced that Sean Nichols, our former Chief Operating Officer, would be leaving the Company to pursue other interests.
Our battery packs are designed and assembled in-house in the United States. In April 2021, we opened our new 99,000 square foot facility in Reno, Nevada, allowing us to increase our production capacity and giving us the ability to increase sales to existing customers and penetrate new markets.
In April 2021, we opened our current 99,000 square foot facility in Reno, Nevada, which has allowed us to increase our production capacity and gave us the ability to increase sales to existing customers and penetrate new markets.
All other terms of the Restated Agreement remain the same as the Original Agreement. On March 5, 2023, we issued an unsecured convertible promissory note in the principal amount of $1.0 million (the “ Principal Amount ”) to Brian Nelson, one of our directors, in a private placement in exchange for cash in an equal amount.
Recent Developments On January 30, 2024, we issued an unsecured convertible promissory note (the “ January Note ”) in the principal amount of $1.0 million (the “ January Principal Amount ”) to Brian Nelson, one of our directors, in a private placement in exchange for cash in an equal amount.
This includes cycling of individual cells to detect faulty components and to enable sorting by capacity. Our custom-designed automated welders spot weld individual cells that are assembled into specified module jigs based on the desired amp hour. Completed modules are then discharged to empty, recharged to full charge and sorted by capacity.
Module assembly is a significantly automated process, implementing custom-designed equipment and systems to suit our production needs. This includes cycling of individual cells to detect faulty components and to enable sorting by capacity. Our custom-designed automated welders spot weld individual cells that are assembled into specified module jigs based on the desired amp hour.
We have an in-house expert customer service team that assists customers in fully integrating their applications to our technologies for a seamless transition to lithium-based energy storage systems.
We have an in-house expert customer service team that assists customers in fully integrating their applications to our technologies for a seamless transition to lithium-based energy storage systems. Through our evolving technology and the customized architecture and application of our products, we are able to offer customers a seamless transition to creating a centralized coordinated system.
Nichols and certain restrictive covenants in favor of us, including non-competition and non-solicitation covenants for 12 months following the Separation Date. Recent Developments On February 24, 2023, we entered into the First Amended and Restated Employment Agreement (the “ Restated Agreement ”) with John Marchetti, our Chief Financial Officer.
Nichols and certain restrictive covenants in favor of us, including non-competition and non-solicitation covenants for 12 months following the Separation Date. On April 26, 2023, we entered into a separation and release of claims agreement with our former Chief Legal Officer (the “ CLO ”).
For the years ended December 31, 2022 and 2021, OEM sales represented 39.2% and 10.5% of our total revenues, respectively. We have deep, long-standing relationships with many of our customers. We also have a diverse customer base, with our top 10 customers accounting for 36.3% of our revenue for the year ended December 31, 2022.
For the years ended December 31, 2023 and 2022, OEM sales represented 42.7% and 39.2% of our total revenues, respectively. We have deep, long-standing relationships with many of our customers.
We believe solid-state technology presents a significant advantage to all products currently on the market, with the potential to be lighter, smaller, safer and cheaper. Once we have optimized the chemistry of our LFP solid-state batteries to enhance conductivity and power, we intend to scale up for mass production of separate solid-state batteries for various applications and use cases.
Once we have optimized the chemistry of our LFP solid-state batteries to enhance conductivity and power, we intend to scale up for mass production of separate solid-state batteries for various applications and use cases.
On September 28, 2022, the Sponsor and Chardan Capital Markets LLC, a New York limited liability company (“ CCM LLC ”), entered into an assignment, assumption and joinder agreement, pursuant to which the Sponsor assigned all of the Sponsor’s rights, benefits and obligations under the Subscription Agreement to CCM LLC. 16 Under the Subscription Agreement, the number of shares of Chardan Common Stock that CCM LLC was obligated to purchase was to be reduced by the number of shares of Chardan Common Stock that CCM LLC purchased in the open market, provided that such purchased shares were not redeemed, and the aggregate price to be paid under the Subscription Agreement was to be reduced by the amount of proceeds received by us because such shares are not redeemed (the “ Offset ”).
Under the Subscription Agreement, the number of shares of Chardan Common Stock that CCM LLC was obligated to purchase was to be reduced by the number of shares of Chardan Common Stock that CCM LLC purchased in the open market, provided that such purchased shares were not redeemed, and the aggregate price to be paid under the Subscription Agreement was to be reduced by the amount of proceeds received by us because such shares are not redeemed (the “ Offset ”).
(b) Each option to purchase shares of Legacy Dragonfly Common Stock, was assumed and converted into options to acquire shares of our common stock. The portion of the Merger Consideration reflecting the conversion of the Legacy Dragonfly options was calculated assuming that all of our options are net-settled.
The portion of the Merger Consideration reflecting the conversion of the Legacy Dragonfly options was calculated assuming that all of our options are net-settled.
We aim to automate the battery management system testing and installation process, which we expect could increase production capacity fourfold. We are currently implementing an automated process for the gluing and sealing process, which would incorporate a two-robot system for gluing and epoxying, as well as a glue pallet system to move finished batteries.
We are currently implementing an automated process for the gluing and sealing process, which would incorporate a two-robot system for gluing and epoxying, as well as a glue pallet system to move finished batteries. After the assembled batteries are tested and sealed, they are processed for outbound distribution.
These brands compete on a number of factors such as format (e.g., motorized or towable), price, design, value, quality and service. On November 19, 2021, we entered into a long-term Manufacturing Supply Agreement with Keystone, a member of the THOR group and the largest towable RV OEM in North America (the “Supply Agreement”).
On November 19, 2021, we entered into a long-term Manufacturing Supply Agreement with Keystone, a member of the THOR group and the largest towable RV OEM in North America (the “ Supply Agreement ”).
The move to a non-liquid electrolyte also means that solid-state batteries will be, on average, smaller and lighter than existing lithium-ion batteries. The process for manufacturing our solid-state cells is described below under “— Research and Development ”. Our Products We currently offer non-toxic deep cycle LFP batteries for use in the RV, marine vessel and off-grid storage markets.
The move to a non-liquid electrolyte also means that solid-state batteries will be, on average, smaller and lighter than existing lithium-ion batteries. The process for manufacturing our solid-state cells is described below under “— Research and Development ”. Our Products We provide various industries with clean, reliable, and efficient power solutions through our comprehensive product portfolio.
Corporate Information The mailing address of our principal executive office is 1190 Trademark Dr. #108, Reno, Nevada 89521, and our telephone number is (775) 622-3448. On March 31, 2023, we effected the Reincorporation from the State of Delaware into the State of Nevada. We file periodic reports, proxy statements and other information with the SEC.
On March 31, 2023, we effected the Reincorporation from the State of Delaware into the State of Nevada. We file periodic reports, proxy statements and other information with the SEC.
Battery assembly is performed largely by hand by our trained employees, although we continue to look for innovative ways to integrate automation into this process. Our proprietary battery management system is thoroughly tested for quality cutoffs, then mounted onto individual modules, before the modules are bolted into its casing.
Completed modules are then fully discharged, recharged fully, and sorted by capacity. Battery assembly is performed largely by hand by our trained employees, although we continue to look for innovative ways to integrate automation into this process.
The shares issued or issuable upon exercise of the Warrants have customary registration rights, which are contained in the respective forms of the Warrants, requiring us to file and keep effective a resale registration statement registering the resale of the shares of common stock underlying the Warrants. 18 ChEF Equity Facility Consistent with the equity facility letter agreement dated May 15, 2022 between Legacy Dragonfly and CCM 5, we entered into a purchase agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “ ChEF RRA ”) with CCM LLC in connection with the Closing.
The shares issued or issuable upon exercise of the Warrants have customary registration rights, which are contained in the respective forms of the Warrants, requiring us to file and keep effective a resale registration statement registering the resale of the shares of common stock underlying the Warrants.
LFP batteries are best suited for energy storage markets where long life and affordability are paramount, such as RV, marine vessel, off-grid storage, onboard tools, material handling, utility-grade storage, telecom, rail and data center markets. 6 NMC batteries are highly dependent on two metals that present significant constraints — nickel, which is facing an industry-wide shortage, and cobalt, a large percentage of which comes from conflict-ridden countries.
LFP batteries are best suited for energy storage markets where long life and affordability are paramount, such as RV, marine vessel, off-grid storage, onboard tools, material handling, utility-grade storage, telecom, rail and data center markets.
Our cells are sourced from two different, carefully selected cell manufacturers in China who are able to meet our demanding quality standards.
Our cells are sourced from two different, carefully selected cell manufacturers in China who are able to meet our demanding quality standards. As a result of our long-standing relationships with these suppliers, we are able to source LFP cells on favorable terms and within reasonable lead-times.
Headquarters, Manufacturing and Production Our headquarters is located in our 99,000 square foot manufacturing facility in Reno, Nevada. The lease for this building was entered into on March 1, 2021 and expires on April 30, 2026. We do not own any real property.
The lease for this building was entered into on March 1, 2021, and expires on April 30, 2026. We do not own any real estate property. This facility leverages a semi-automated production process for battery module and pack assembly. We currently have two production lines with another line currently in construction.
Our customers primarily utilize our products for RVs, marine vessels and off-grid residences. We work directly with OEMs to ensure compatibility with existing designs and also collaborate on custom designs for new applications. The RV market is characterized by low barriers to entry.
We work directly with OEMs to ensure compatibility with existing designs and also collaborate on custom designs for new applications. 12 The RV market is characterized by low barriers to entry. In North America, there are two large publicly traded RV companies, THOR Industries and REV Group, in addition to a number of independent RV OEMs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe uncertainty in global economic conditions can result in substantial volatility, which can affect our business by reducing customer spending and the prices that our customers may be able or willing to pay for our products, which in turn could negatively impact our sales and result in a material adverse effect on our business financial condition and results of operations. 30 The global macroeconomic environment could be negatively affected by, among other things, the resurgence of COVID-19 or other pandemics or epidemics, instability in global economic markets, increased U.S. trade tariffs and trade disputes with other countries, instability in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of the withdrawal of the United Kingdom from the European Union, the Russian invasion of Ukraine and other political tensions, and foreign governmental debt concerns.
Biggest changeThe global macroeconomic environment could be negatively affected by, among other things, the resurgence of COVID-19 or other pandemics or epidemics, instability in global economic markets, increased U.S. trade tariffs and trade disputes with other countries, instability in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of the withdrawal of the United Kingdom from the European Union, the Russian invasion of Ukraine, Hamas’ attack on Israel, and other political tensions, and foreign governmental debt concerns.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: ● our ability to engage target customers and successfully convert these customers into meaningful orders in the future; ● our reliance on two suppliers for LFP cells and a single supplier for the manufacture of our battery management system; ● the size and growth of the potential markets for our batteries and its ability to serve those markets; ● challenges in our attempts to develop and produce solid state battery cells; ● the level of demand for any products, which may vary significantly; ● future accounting pronouncements or changes in our accounting policies; ● macroeconomic conditions, both nationally and locally; and ● any other change in the competitive landscape of our industry, including consolidation among our competitors or partners.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: ● our ability to engage target customers and successfully convert these customers into meaningful orders in the future; ● our reliance on two suppliers for LFP cells and a single supplier for the manufacture of our battery management system; ● the size and growth of the potential markets for our batteries and its ability to serve those markets; 39 ● challenges in our attempts to develop and produce solid state battery cells; ● the level of demand for any products, which may vary significantly; ● future accounting pronouncements or changes in our accounting policies; ● macroeconomic conditions, both nationally and locally; and ● any other change in the competitive landscape of our industry, including consolidation among our competitors or partners.
We will face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company and these expenses may increase even more after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the PCAOB and the securities exchanges and the listing standards of Nasdaq, impose additional reporting and other obligations on public companies.
We will continue to face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company and these expenses may increase even more after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the PCAOB and the securities exchanges and the listing standards of Nasdaq, impose additional reporting and other obligations on public companies.
It is probable that we will fail to meet these covenants within the next twelve months. If we are unable to comply with the financial covenants in our loan agreement, the Term Loan Lenders have the right to accelerate the maturity of the Term Loan. These conditions raise substantial doubt about our ability to continue as a going concern.
It is probable that we will fail to meet these covenants again within the next twelve months. If we are unable to comply with the financial covenants in our loan agreement, the Term Loan Lenders have the right to accelerate the maturity of the Term Loan. These conditions raise substantial doubt about our ability to continue as a going concern.
In addition, Dragonfly IntelLigence, our battery communications system which we recently launched in the first quarter of 2023, utilizes third-party software and hardware to store, retrieve, process and manage data. The software and hardware utilized in these systems may contain errors, bugs, vulnerabilities or defects, which may be difficult to detect and/or manage.
In addition, Dragonfly IntelLigence, our battery communications system which we recently launched in the first quarter 2023, utilizes third-party software and hardware to store, retrieve, process and manage data. The software and hardware utilized in these systems may contain errors, bugs, vulnerabilities or defects, which may be difficult to detect and/or manage.
If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. 36 If we do not meet the expectations of investors, stockholders or securities analysts, the market price of our securities may decline.
If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. If we do not meet the expectations of investors, stockholders or securities analysts, the market price of our securities may decline.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles generally accepted in the United States of America (“ U.S.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles generally accepted in the United States of America (“ U.S. GAAP ”).
Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments. 37 An active trading market for our securities may not be available on a consistent basis to provide stockholders with adequate liquidity.
Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments. An active trading market for our securities may not be available on a consistent basis to provide stockholders with adequate liquidity.
Such a stock price decline could occur even when it has met any previously publicly stated revenue or earnings guidance it may provide. 38 Changes in laws, regulations or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results of operations.
Such a stock price decline could occur even when it has met any previously publicly stated revenue or earnings guidance it may provide. Changes in laws, regulations or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results of operations.
These provisions provide, among other things, that: ● our board of directors will be divided into three classes, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; ● our board of directors has the exclusive right to expand the size of its board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● our stockholders may not act by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders; 39 ● a special meeting of stockholders may be called only by a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; ● our Articles of Incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● our board of directors may alter certain provisions of our Bylaws without obtaining stockholder approval; ● the approval of the holders of at least sixty-six and two-thirds percent (662∕3%) of our common shares entitled to vote at an election of our board of directors is required to adopt, amend, alter or repeal our Bylaws or amend, alter, change or repeal or adopt any provision of our Articles of Incorporation inconsistent with the provisions of our Articles of Incorporation regarding the election and removal of directors; ● stockholders must provide advance notice and additional disclosures to nominate individuals for election to our board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain voting control of our common stock; and ● our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
These provisions provide, among other things, that: ● our board of directors will be divided into three classes, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; ● our board of directors has the exclusive right to expand the size of its board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● our stockholders may not act by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders; ● a special meeting of stockholders may be called only by a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; ● our Articles of Incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● our board of directors may alter certain provisions of our Bylaws without obtaining stockholder approval; ● the approval of the holders of at least sixty-six and two-thirds percent (66 2∕3%) of our common shares entitled to vote at an election of our board of directors is required to adopt, amend, alter or repeal our Bylaws or amend, alter, change or repeal or adopt any provision of our Articles of Incorporation inconsistent with the provisions of our Articles of Incorporation regarding the election and removal of directors; ● stockholders must provide advance notice and additional disclosures to nominate individuals for election to our board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain voting control of our common stock; and ● our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
Most of the members of our management team have limited to no experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team has limited experience operating a public company. Our management team may not successfully or efficiently manage their new roles and responsibilities.
Most of the members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team has limited experience operating a public company. Our management team may not successfully or efficiently manage their new roles and responsibilities.
In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations. Item 1B. Unresolved Staff Comments Not applicable.
In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations. 42 Item 1B. Unresolved Staff Comments Not applicable.
Future RV OEM sales are subject to a number of risks and uncertainties, including the number of RVs that these OEMs manufacture and sell (which can be impacted by a variety of events including those disrupting our OEM customers’ operations due to supply chain disruptions or labor constraints); the degree to which our OEM customers incorporate/design-in our batteries into their RV product lines; the extent to which RV owners, if applicable, opt to purchase our batteries upon initial purchase of their RV or in the aftermarket; and our continued ability to successfully develop and introduce reliable and cost-effective batteries meeting evolving industry standards and customer specifications and preferences.
Future RV OEM sales are subject to a number of risks and uncertainties, including the number of RVs that these OEMs manufacture and sell (which can be impacted by a variety of events including those disrupting our OEM customers’ operations due to supply chain disruptions or labor constraints); the degree to which our OEM customers incorporate/design-in our batteries into their RV product lines and renew our supply agreements; the extent to which RV owners, if applicable, opt to purchase our batteries upon initial purchase of their RV or in the aftermarket; and our continued ability to successfully develop and introduce reliable and cost-effective batteries meeting evolving industry standards and customer specifications and preferences.
Our policies and procedures designed to ensure compliance with these regulations may not be sufficient and our directors, officers, employees, representatives, consultants, agents and business partners could engage in improper conduct for which we may be held responsible. 32 Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our reputation, business, financial condition and results of operations.
Our policies and procedures designed to ensure compliance with these regulations may not be sufficient and our directors, officers, employees, representatives, consultants, agents and business partners could engage in improper conduct for which we may be held responsible. 33 Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our reputation, business, financial condition and results of operations.
Failure to adequately protect our intellectual property rights could result in competitors using our intellectual property to make, have made, use, import, develop, have developed, sell or have sold their own products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. 29 We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs.
Failure to adequately protect our intellectual property rights could result in competitors using our intellectual property to make, have made, use, import, develop, have developed, sell or have sold their own products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. 30 We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs.
Risks Related to Being a Public Company We will incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on our business, financial condition and operating results.
Risks Related to Being a Public Company We will continue to incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on our business, financial condition and operating results.
If we fail to execute on our growth strategies in accordance with our expectations, our sales growth would be limited to the growth of existing products and existing end markets, and this could have a material adverse effect on our business, financial condition and results of operations. 23 Further, if we are unable to manage the growth of our operations effectively to match the growth in sales, we may incur unexpected expenses and be unable to meet our customers’ requirements, which could materially adversely affect our business, financial condition and results of operations.
If we fail to execute on our growth strategies in accordance with our expectations, our sales growth would be limited to the growth of existing products and existing end markets, and this could have a material adverse effect on our business, financial condition and results of operations. 24 Further, if we are unable to manage the growth of our operations effectively to match the growth in sales, we may incur unexpected expenses and be unable to meet our customers’ requirements, which could materially adversely affect our business, financial condition and results of operations.
Further, negative public perceptions regarding the suitability or safety of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident does not involve our products, could seriously harm our business and reputation. 25 To facilitate an uninterrupted supply of battery cells, we store a significant number of lithium-ion cells at our facility.
Further, negative public perceptions regarding the suitability or safety of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident does not involve our products, could seriously harm our business and reputation. 26 To facilitate an uninterrupted supply of battery cells, we store a significant number of lithium-ion cells at our facility.
Our facility may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, utility and transportation infrastructure disruptions, acts of war or terrorism, or by public health crises, which may render it difficult or impossible for us to manufacture our products for an extended period of time.
Our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, utility and transportation infrastructure disruptions, acts of war or terrorism, or by public health crises, which may render it difficult or impossible for us to manufacture our products for an extended period of time.
In addition, we seek to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants, and through non-disclosure agreements with business partners and other third parties. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property.
In addition, we seek to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants, and through non-disclosure and joint development agreements with business partners and other third parties. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property.
Our future success depends, in part, upon our ability to expand into additional end markets identified by us as opportunities for our LFP batteries. These markets include solar integration industrial, specialty and work vehicles, material handling, rail, and emergency and standby power in the medium term, and data centers, telecom and distributed on-grid storage in the longer term.
Our future success depends, in part, upon our ability to expand into additional end markets identified by us as opportunities for our LFP batteries. These markets include heavy-duty trucking, industrial solar integration, specialty and work vehicles, material handling, rail, and emergency and standby power in the medium term, and data centers, telecom and distributed on-grid storage in the longer term.
We are highly dependent on the talent and services of Denis Phares, our Chief Executive Officer, and other senior technical and management personnel, including our executive officers, who would be difficult to replace. The loss of Dr.
We are highly dependent on the talent and services of Denis Phares, our Chief Executive Officer and Interim Chief Financial Officer, and other senior technical and management personnel, including our executive officers, who would be difficult to replace. The loss of Dr.
Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. 33 Our management team has limited experience managing a public company.
Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. 34 Our management team has limited experience managing a public company.
GAAP ”) As a public company, we are required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls.
As a public company, we are required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls.
Factors affecting the trading price of our securities may include: ● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to ours; ● changes in the market’s expectations about our operating results; ● the public’s reaction to our press releases, other public announcements and filings with the SEC; ● speculation in the press or investment community; ● actual or anticipated developments in our business, competitors’ businesses or the competitive landscape generally; ● innovations or new products developed by us or our competitors; ● manufacturing, supply or distribution delays or shortages; ● any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators, or other strategic partners; ● the operating results failing to meet the expectation of securities analysts or investors in a particular period; ● changes in financial estimates and recommendations by securities analysts concerning us or the market in general; ● operating and stock price performance of other companies that investors deem comparable to ours; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, litigation involving us; ● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; ● the volume of our common stock available for public sale; ● any major change in our board of directors or management; ● sales of substantial amounts of our common stock by our directors, officers or significant stockholders or the perception that such sales could occur; and ● general economic and political conditions such as recessions, interest rates, “trade wars,” pandemics (such as COVID-19) and acts of war or terrorism (including the Russia-Ukraine conflict).
Factors affecting the trading price of our securities may include: ● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to ours; ● changes in the market’s expectations about our operating results; ● the public’s reaction to our press releases, other public announcements and filings with the SEC; ● speculation in the press or investment community; ● actual or anticipated developments in our business, competitors’ businesses or the competitive landscape generally; ● innovations or new products developed by us or our competitors; ● manufacturing, supply or distribution delays or shortages; ● any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators, or other strategic partners; ● the operating results failing to meet the expectation of securities analysts or investors in a particular period; ● changes in financial estimates and recommendations by securities analysts concerning us or the market in general; ● operating and stock price performance of other companies that investors deem comparable to ours; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, litigation involving us; ● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; ● the volume of our common stock available for public sale; ● any major change in our board of directors or management; ● sales of substantial amounts of our common stock by our directors, officers or significant stockholders or the perception that such sales could occur; and ● general economic and political conditions such as recessions, interest rates, “trade wars,” pandemics (such as COVID-19) and acts of war or terrorism (including the Russia-Ukraine conflict and Hamas’ attack on Israel). 38 Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2022 consolidated financial statements, with respect to this uncertainty. In addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial covenants.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2023 consolidated financial statements, with respect to this uncertainty. 35 In addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial covenants.
On March 29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023.
On March 29, 2023 and September 29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023 and September 30, 2023, respectively.
The shares being registered for resale into the public markets represent a substantial majority of our outstanding common stock as of December 31, 2022.
The shares being registered for resale into the public markets represent a substantial majority of our outstanding common stock as of December 31, 2023.
Further, we have registered 21,512,027 shares of common stock to be issued and sold to CCM LLC in connection with the ChEF Equity Facility. The 21,512,027 shares that may be resold and/or issued into the public markets pursuant to the ChEF Equity Facility represent approximately 50% of the shares of our common stock outstanding as of December 31, 2022.
Further, we have registered 21,512,027 shares of common stock to be issued and sold to CCM LLC in connection with the ChEF Equity Facility. The 21,512,027 shares that may be resold and/or issued into the public markets pursuant to the ChEF Equity Facility represent approximately 36% of the shares of our common stock outstanding as of December 31, 2023.
If in the future we are no longer classified under the definition of an “emerging growth company,” our independent registered public accounting firm will also be required, pursuant to Section 404(b) of the Sarbanes-Oxley Act, to attest to the effectiveness of our internal control over financial reporting in each annual report on Form 10-K to be filed with the SEC.
If in the future we are no longer classified under the definition of an “emerging growth company,” and/or a “non-accelerated filer”, our independent registered public accounting firm will also be required, pursuant to Section 404(b) of the Sarbanes-Oxley Act, to attest to the effectiveness of our internal control over financial reporting in each annual report on Form 10-K to be filed with the SEC.
Risks Related to Our Financial Position and Capital Requirements Our business is capital intensive, and we may not be able to raise additional capital on attractive terms, if at all. Any further indebtedness we incur may limit our operational flexibility in the future. As of December 31, 2022, we had cash totaling $17.8 million.
Risks Related to Our Financial Position and Capital Requirements Our business is capital intensive, and we may not be able to raise additional capital on attractive terms, if at all. Any further indebtedness we incur may limit our operational flexibility in the future. As of December 31, 2023, we had cash totaling $12.7 million.
These difficulties may arise in connection with current and future efforts to optimize the chemistry or physical structure of our solid-state batteries with the goal of enhancing conductivity and power; maximizing cycling capabilities and power results; reducing costs; and developing related mass production manufacturing processes.
Development and engineering challenges could delay or prevent our production of solid-state battery cells. These difficulties may arise in connection with current and future efforts to optimize the chemistry or physical structure of our solid-state batteries with the goal of enhancing conductivity and power; maximizing cycling capabilities and power results; reducing costs; and developing related mass production manufacturing processes.
Further, our dependence on these third-party suppliers entails additional risks, including: ● inability, failure or unwillingness of third-party suppliers to comply with regulatory requirements; ● breach of supply agreements by the third-party suppliers; ● misappropriation or disclosure of our proprietary information, including our trade secrets and know-how; ● relationships that third-party suppliers may have with others, which may include our competitors, and failure of third-party suppliers to adequately fulfill contractual duties, resulting in the need to enter into alternative arrangements, which may not be available, desirable or cost-effective; and ● termination or nonrenewal of agreements by third-party suppliers at times that are costly or inconvenient for us. 24 We may not be able to accurately estimate future demand for our LFP batteries, and our failure to accurately predict our production requirements could result in additional costs or delays.
Further, our dependence on these third-party suppliers entails additional risks, including: ● inability, failure or unwillingness of third-party suppliers to comply with regulatory requirements; ● breach of supply agreements by the third-party suppliers; ● misappropriation or disclosure of our proprietary information, including our trade secrets and know-how; ● relationships that third-party suppliers may have with others, which may include our competitors, and failure of third-party suppliers to adequately fulfill contractual duties, resulting in the need to enter into alternative arrangements, which may not be available, desirable or cost-effective; and ● termination or nonrenewal of agreements by third-party suppliers at times that are costly or inconvenient for us.
If we are unable to overcome developmental and engineering challenges, our solid-state battery efforts could fail. We currently purchase the battery cells incorporated into our LFP batteries and have no experience in manufacturing battery cells.
If we are unable to overcome developmental and engineering challenges, our solid-state battery efforts could fail. 27 We currently purchase the battery cells incorporated into our LFP batteries and have limited experience in manufacturing battery cells at a commercial scale.
Any disruption in the operations of these key suppliers could adversely affect our business and results of operations. ● We are currently, and likely will continue to be, dependent on a single manufacturing facility.
Any disruption in the operations of these key suppliers could adversely affect our business and results of operations. ● We are currently, and likely will continue to be, dependent on a single manufacturing facility until the construction of our new facility is completed, if at all.
The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations.
A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations.
In addition, if we are required to spend a prolonged period of time negotiating price increases with our suppliers, we may be further delayed in receiving the components necessary to manufacture our products and/or implement aspects of our growth strategy.
In addition, if we are required to spend a prolonged period of time negotiating price increases with our suppliers, we may be further delayed in receiving the components necessary to manufacture our products and/or implement aspects of our growth strategy. Adverse global conditions, including economic uncertainty, may negatively impact our financial results.
We will not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more of the analysts who cover us downgrade our common stock or change their opinion, our stock price would likely decline.
If our financial performance fails to meet analyst estimates or one or more of the analysts who cover us downgrade our common stock or change their opinion, our stock price would likely decline.
In addition, because this machinery has not been used to manufacture and assemble solid-state battery cells, the operational performance and costs associated with repairing and maintaining this equipment can be difficult to predict and may be influenced by factors outside of our control, including failures by suppliers to deliver necessary components of our products in a timely manner and at prices acceptable to us, the risk of environmental hazards and the cost of any required remediation and damages or defects already present in the machinery. 27 Operational problems with our manufacturing equipment could result in personal injury to or death of workers, the loss of production equipment or damage to our manufacturing facility, which could result in monetary losses, delays and unanticipated fluctuations in production.
In addition, because this machinery has not been used to manufacture and assemble solid-state battery cells, the operational performance and costs associated with repairing and maintaining this equipment can be difficult to predict and may be influenced by factors outside of our control, including failures by suppliers to deliver necessary components of our products in a timely manner and at prices acceptable to us, the risk of environmental hazards and the cost of any required remediation and damages or defects already present in the machinery.
Our failure to accomplish any of the foregoing could have a negative impact on our profitability and our business, financial condition and results of operations may ultimately be materially adversely affected. We are currently, and will likely continue to be, dependent on a single manufacturing facility.
Our failure to accomplish any of the foregoing could have a negative impact on our profitability and our business, financial condition and results of operations may ultimately be materially adversely affected. We are currently, and will likely continue to be, dependent on two manufacturing facilities until the construction of our new facility is completed, if at all.
Future resales of our outstanding securities may cause the market price of our securities to drop significantly, even if our business is doing well. We have filed registration statements registering the resale of up to 55,298,545 shares that may be sold and/or issued into the public markets by certain securityholders.
Future resales of our outstanding securities may cause the market price of our securities to drop significantly, even if our business is doing well. We have filed registration statements registering the resale of up to 47,428,544 shares and 12,266,971 warrants to purchase common stock that may be sold and/or issued into the public markets by certain securityholders.
Our status as an emerging growth company will end as soon as any of the following takes place: ● the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; ● the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; ● the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or ● the last day of the fiscal year ending after the fifth anniversary of our IPO.
Our status as an emerging growth company will end as soon as any of the following takes place: ● the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; ● the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; ● the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or ● the last day of the fiscal year ending after the fifth anniversary of our IPO. 41 Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Environmental, social and governance matters may cause us to incur additional costs. Some legislatures, government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate, certain environmental, social and governance (“ ESG ”) disclosure or performance. For example, the Securities and Exchange Commission has proposed rules that would mandate certain climate-related disclosures.
Environmental, social and governance matters may cause us to incur additional costs. Some legislatures, government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate, certain environmental, social and governance (“ ESG ”) disclosure or performance.
The $10 Warrants have been exercised in full and are no longer outstanding.
The $10 Warrants were exercised in full in 2022 and are no longer outstanding.
If the trading price of our common stock does not recover or experiences a further decline, sales of shares of common stock to CCM LLC pursuant to the Purchase Agreement may be a less attractive source of capital and/or may not allow us to raise capital at rates that would be possible if the trading price of our common stock were higher.
If the trading price of our common stock does not recover or experiences a further decline, sales of shares of common stock to CCM LLC pursuant to the Purchase Agreement may be a less attractive source of capital and/or may not allow us to raise capital at rates that would be possible if the trading price of our common stock were higher. 37 Risks Related to Ownership of Our Common Stock If securities or industry analysts do not publish research or reports about us, or publish negative reports, our stock price and trading volume could decline.
These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner .” We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers.
We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers.
Our solid-state battery development efforts are still ongoing, and we may fail to meet our goal of commercially selling LFP batteries incorporating our manufactured solid-state cells, or at all.
Our solid-state battery development efforts are still ongoing, and we may fail to meet our goal of commercially selling LFP batteries incorporating our manufactured solid-state cells, or at all. We may encounter delays in the design, manufacture and launch of our solid-state battery cells, and in increasing production to scale.
If some investors find our common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile and may decline. 40 If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which may adversely affect investor confidence in us and, as a result, the market price of our common stock.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which may adversely affect investor confidence in us and, as a result, the market price of our common stock.
In addition, we may be subject to administrative fines, increased insurance costs or potential legal liabilities. Any of these operational problems could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Supply Chain and Third-Party Vendors We face risks associated with vendors from whom our products are sourced.
Any of these operational problems could have a material adverse effect on our business, financial condition and results of operations. 28 Risks Related to Supply Chain and Third-Party Vendors We face risks associated with vendors from whom our products are sourced.
Our website, systems, and the data we maintain may be subject to intentional disruption, security incidents, or alleged violations of laws, regulations, or other obligations relating to data handling that could result in liability and adversely impact our reputation and future sales.
The failure to attract, integrate, train, motivate, and retain these personnel could impact our ability to successfully grow our operations and execute our strategy. 32 Our website, systems, and the data we maintain may be subject to intentional disruption, security incidents, or alleged violations of laws, regulations, or other obligations relating to data handling that could result in liability and adversely impact our reputation and future sales.
Any further indebtedness we incur may limit our operational flexibility in the future. ● Failure to comply with the financial covenants in our loan agreement could allow our lenders to accelerate payment under our loan agreement, which would have a material adverse effect on our results of obligations and financial position and raise substantial doubt about our ability to continue as a going concern. ● Restrictions imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business and to finance our future operations or capital needs or to engage in acquisitions or other business activities necessary to achieve growth.
Any further indebtedness we incur may limit our operational flexibility in the future. ● Failure to comply with the financial covenants in our loan agreement could allow our lenders to accelerate payment under our loan agreement, which would have a material adverse effect on our results of obligations and financial position and raise substantial doubt about our ability to continue as a going concern. ● Restrictions imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business and to finance our future operations or capital needs or to engage in acquisitions or other business activities necessary to achieve growth. 22 Risks Related to Ownership of Our Common Stock ● Future issuances of debt securities and equity securities may adversely affect us and may be dilutive to existing stockholders. ● We may issue additional shares of our common stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares.
We currently operate three LFP battery production lines, which has been sufficient to meet customer demand. If one or both production lines were to be inoperable for any period of time, we would face delays in meeting orders, which could prevent us from meeting demand or require us to incur unplanned costs, including capital expenditures.
If one or several production lines were to become inoperable for any period of time, we would face delays in meeting orders, which could prevent us from meeting demand or require us to incur unplanned costs, including capital expenditures.
The loss of one or more members of our senior management team, other key personnel or our failure to attract additional qualified personnel may adversely affect our business and our ability to achieve our anticipated level of growth.
Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets. The loss of one or more members of our senior management team, other key personnel or our failure to attract additional qualified personnel may adversely affect our business and our ability to achieve our anticipated level of growth.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and Nasdaq have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected.
The stock market in general and Nasdaq have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable.
Furthermore, stockholders may be subject to increased costs to bring these claims, and the exclusive forum provision could have the effect of discouraging claims or limiting investors’ ability to bring claims in a judicial forum that they find favorable.
Furthermore, stockholders may be subject to increased costs to bring these claims, and the exclusive forum provision could have the effect of discouraging claims or limiting investors’ ability to bring claims in a judicial forum that they find favorable. 40 Our Articles of Incorporation could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our management.
General Risk Factors ● The uncertainty in global economic conditions, including the Russia-Ukraine conflict, could reduce consumer spending and disrupt our supply chain which could negatively affect our results of operations. ● The loss of one or more members of our senior management team, other key personnel or our failure to attract additional qualified personnel may adversely affect our business and our ability to achieve our anticipated level of growth. ● If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or adequately address competitive challenges. 21 Risks Related to Our Financial Position and Capital Requirements ● Our business is capital intensive, and we may not be able to raise additional capital on attractive terms, if at all.
General Risk Factors ● The uncertainty in global economic conditions, including the Russia-Ukraine conflict and Hamas’ attack on Israel, could reduce consumer spending and disrupt our supply chain which could negatively affect our results of operations. ● The loss of one or more members of our senior management team, other key personnel or our failure to attract additional qualified personnel may adversely affect our business and our ability to achieve our anticipated level of growth. ● If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or adequately address competitive challenges. ● Changes in applicable laws or regulations could impact our operations, including changes in the rates of tariffs or any adjustments to the amounts payable by us to customs as a result of improperly identifying the applicable tariff rate payable on our products.
These restrictive covenants restrict our ability to, among other things: ● incur additional indebtedness; ● create or incur encumbrances or liens; ● engage in consolidations, amalgamations, mergers, acquisitions, liquidations, dissolutions or dispositions; ● sell, transfer or otherwise dispose of assets; and ● pay dividends and distributions on, or purchase, redeem, defease, or otherwise acquire or retire for value, our stock. 34 Under the agreements governing our indebtedness, we are also subject to certain financial covenants, including maintaining minimum levels of Adjusted EBITDA, minimum liquidity, maximum capital expenditure levels and a minimum fixed charge coverage ratio.
These restrictive covenants restrict our ability to, among other things: ● incur additional indebtedness; ● create or incur encumbrances or liens; ● engage in consolidations, amalgamations, mergers, acquisitions, liquidations, dissolutions or dispositions; ● sell, transfer or otherwise dispose of assets; and ● pay dividends and distributions on, or purchase, redeem, defease, or otherwise acquire or retire for value, our stock.
As of March 15, 2023, there are currently (i) 9,487,500 shares of common stock issuable upon the exercise of outstanding public warrants at an exercise price of $11.50 per share (the “Public Warrants”); (ii) 4,627,858 shares of common stock issuable upon the exercise of outstanding private warrants at an exercise price of $11.50 per share (the “Private Warrants”); and (iii) 2,593,056 shares of common stock issuable upon exercise of outstanding Penny Warrants at an exercise price of $0.01 per share.
As of April 12, 2024, there are currently (i) 9,422,529 shares of common stock issuable upon the exercise of outstanding public warrants at an exercise price of $11.50 per share (the “Public Warrants”); (ii) 1,501,386 shares of common stock issuable upon the exercise of outstanding private warrants at an exercise price of $11.50 per share (the “Private Warrants”); and (iii) 1,884,510 shares of common stock issuable upon exercise of outstanding Penny Warrants at an exercise price of $0.01 per share.
In addition, we may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards or expectations of shareholders, prospective investors, lawmakers, listing exchanges or other stakeholders.
For example, the Securities and Exchange Commission has enacted rules that will mandate certain companies to provide certain climate-related disclosures. In addition, we may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards or expectations of shareholders, prospective investors, lawmakers, listing exchanges or other stakeholders.
Advances in technology, and an increase in the level of sophistication, expertise and resources of hackers, could result in a compromise or breach of our systems or of security measures used in our business to protect confidential information, personal information, and other data. 31 The availability and effectiveness of our batteries, and our ability to conduct our business and operations, depend on the continued operation of information technology and communications systems, some of which we have yet to develop or otherwise obtain the ability to use.
Advances in technology, and an increase in the level of sophistication, expertise and resources of hackers, could result in a compromise or breach of our systems or of security measures used in our business to protect confidential information, personal information, and other data.
Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, Nasdaq, or other regulatory authorities, which would require additional financial and management resources. 35 There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq.
Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, Nasdaq, or other regulatory authorities, which would require additional financial and management resources. 36 We are not currently in compliance with the continued listing requirements for The Nasdaq Global Market.
For the year ended December 31, 2022, we incurred losses and had a negative cash flow from operations. As of December 31, 2022, we had approximately $17.8 million in cash and cash equivalents and working capital of $32.9 million.
For the year ended December 31, 2023, we incurred losses and had a negative cash flow from operations. As of December 31, 2023, we had approximately $12.7 million in cash and cash equivalents and working capital of $15.5 million. As of December 31, 2023, we had $76 million outstanding under our Term Loan Agreement.
To meet our delivery deadlines, we generally make significant decisions on our production level and timing, procurement, facility requirements, personnel needs and other resources requirements based on our estimate of demand, our past dealings with such customers, economic conditions and other relevant factors.
If we fail to order sufficient quantities of product components in a timely manner, the delivery of our batteries to our customers could be delayed, would harm our business, financial condition and results of operations. 25 To meet our delivery deadlines, we generally make significant decisions on our production level and timing, procurement, facility requirements, personnel needs and other resources requirements based on our estimate of demand, our past dealings with such customers, economic conditions and other relevant factors.
In addition, our current or future patents may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.
In addition, our current or future patents may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results. 31 General Risk Factors The uncertainty in global economic conditions, including the Russia-Ukraine conflict and Hamas’ attack on Israel, could reduce consumer spending and disrupt our supply chain which could negatively affect our results of operations.
At this time, we cannot predict the success of such efforts or the outcome of future assessments of the remediation efforts. Our efforts may not remediate these material weaknesses in internal controls over financial reporting, and may not prevent additional material weaknesses from being identified in the future.
Our efforts to remediate these material weaknesses in internal controls over financial reporting may not be successful, and may not prevent additional material weaknesses from being identified in the future.
Risks Related to Ownership of Our Common Stock If securities or industry analysts do not publish research or reports about us, or publish negative reports, our stock price and trading volume could decline. The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us. We will not have any control over these analysts.
To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition, and results of operations may be materially adversely affected. 28 A significant disruption to the timely receipt of inventory could adversely impact sales or increase our transportation costs, which would decrease our profits.
To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition, and results of operations may be materially adversely affected. In 2024, we identified an underpayment of tariffs to U.S.
We seek to maintain an approximately nine-month supply of LFP cells and six-month supply of all other critical components by pre-ordering components in advance of expected demand. However, our business and customer product demand is impacted by trends and factors that may be outside our control. Therefore, our ability to predict our manufacturing requirements is subject to inherent uncertainty.
However, our business and customer product demand is impacted by trends and factors that may be outside our control. Therefore, our ability to predict our manufacturing requirements is subject to inherent uncertainty.
Our net loss for the year ended December 31, 2022 was $39.6 million and our net income for the year ended December 31, 2021 was $4.3 million.
Our net loss for the year ended December 31, 2023 was $13.8 million and our net loss for the year ended December 31, 2022 was $40.0 million.
We cannot predict if investors will find our common stock less attractive if we choose to rely on any of the exemptions afforded emerging growth companies.
We may elect to take advantage of this extended transition period and as a result, our financial statements may not be comparable with similarly situated public companies. We cannot predict if investors will find our common stock less attractive if we choose to rely on any of the exemptions afforded emerging growth companies.
General Risk Factors The uncertainty in global economic conditions, including the Russia-Ukraine conflict, could reduce consumer spending and disrupt our supply chain which could negatively affect our results of operations. Our results of operations are directly affected by the general global economic conditions that impact our main end markets.
Our results of operations are directly affected by the general global economic conditions that impact our main end markets.
Increased overall RV OEM sales may not materialize as expected or at all and we may fail to achieve our targeted sales levels.
While Keystone has not moved to a different solution or competitor, as a result in this change in strategy there was a material limiting effect on our revenue in 2023. Increased overall RV OEM sales in the future may not materialize as expected or at all and we may fail to achieve our targeted sales levels.
We may be unable to convert these relationships into meaningful orders or renew these arrangements going forward, which may require us to expend additional cost and management resources to engage other target customers. 22 Our sales to any future or current customers may decrease for reasons outside our control, including loss of market share by customers to whom we supply products, reduced or delayed customer requirements, supply and/or manufacturing issues affecting production, reputational harm or continued price reductions.
We may be unable to convert these relationships into meaningful orders or renew these arrangements going forward, which may require us to expend additional cost and management resources to engage other target customers.
Our common stock and Public Warrants are currently listed on the Nasdaq Global Market and the Nasdaq Capital Market, respectively. There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq.
Additionally, the market price of our common stock may decline further and stockholders may lose some or all of their investment. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or comply with the other continued listing standards of Nasdaq.
As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022. We are in the process of developing a plan to remediate these material weaknesses. In 2021, we implemented an enterprise resource planning system and hired a new Chief Financial Officer.
As described elsewhere in this Annual Report, our management identified material weaknesses in our internal control over financial reporting as a result of our failure to capture, and record, and pay tariffs correctly related to the imported merchandise on previously filed 2022 and 2021 financial statements. We are in the process of developing a plan to remediate these material weaknesses.
There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Furthermore, the cost of our components is a key element in the cost of our products.
Furthermore, the cost of our components is a key element in the cost of our products.
Removed
Risks Related to Ownership of Our Common Stock ● Future issuances of debt securities and equity securities may adversely affect us and may be dilutive to existing stockholders. ● We may issue additional shares of our common stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares.
Added
Risks Related to Our Financial Position and Capital Requirements ● Our business is capital intensive, and we may not be able to raise additional capital on attractive terms, if at all.
Removed
If we fail to order sufficient quantities of product components in a timely manner, the delivery of our batteries to our customers could be delayed, which would harm our business, financial condition and results of operations.
Added
In July 2023, we were notified by Keystone that, due to weaker demand for its products and their subsequent focus on reducing costs, it would no longer install our storage solutions as standard equipment, but rather return to offering those solutions as an option to dealers and consumers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOn February 8, 2022, we entered into a 124-month lease for an additional 390,240 square foot warehouse that is under construction in Reno, Nevada. The rent under the lease will be $230,000 payable monthly upon substantial completion of construction as provided for in the lease. We maintain a warehouse facility at 12815 Old Virginia Road in Reno, Nevada.
Biggest changeOn February 8, 2022, we entered into a 124-month lease for an additional 390,240 square foot warehouse. The building has passed inspections and a certificate of substantial completion has been issued in Reno, Nevada. The rent under the lease $230,000 became payable monthly on March 25, 2024 upon substantial completion of the project.
Item 2. Properties Our headquarters is located at 1190 Trademark Drive #108, Reno, Nevada 89521 in a 99,000 square foot manufacturing facility. The lease for this building was entered into on March 1, 2021 and expires on April 30, 2026. The current rent is $58,009 payable monthly.
Item 2. Properties Our headquarters is located at 1190 Trademark Drive #108, Reno, Nevada 89521 in a 99,000 square foot manufacturing facility. The lease for this building was entered into on March 1, 2021 and expires on April 30, 2026. The current rent is $59,750 payable monthly.
The lease for these premises was entered into on July 27, 2020 and expires on July 31, 2025. The current monthly rent is $4,736. Our podcast studio is a 1,772 square foot facility located in Sparks, Nevada.
The current monthly rent is $44,800. Our Research & Development lab is a 9,600 square foot facility located in Sparks, Nevada. The lease for these premises was entered into on July 27, 2020 and expires on July 31, 2025. The current monthly rent is $9,336. Our podcast studio is a 1,772 square foot facility located in Sparks, Nevada.
This is a 59,500 square foot facility that we use to store and stage materials in preparation for production work. The lease for this space was entered into on December 1, 2021, and expires December 31, 2026; the current monthly rent is $40,222. Our Research & Development lab is a 9,600 square foot facility located in Sparks, Nevada.
We maintain a warehouse facility at 12815 Old Virginia Road in Reno, Nevada. This is a 59,500 square foot facility that we use to store and stage materials in preparation for production work. The lease for this space was entered into on December 1, 2021, and expires December 31, 2026; the current monthly rent is $49.732.
The lease for this space was assumed by us pursuant to the Asset Purchase Agreement by and between the Company and Bourns Production on January 1, 2022, and expires September 30, 2023. The current monthly rent is $1,333 We do not own any real property.
The lease for this space was assumed by us pursuant to the Asset Purchase Agreement by and between us and Bourns Productions on January 1, 2022, and expired September 30, 2023. We renewed this lease on August 1, 2023 for a one-year term that began on October 1, 2023 and will expire September 20, 2024.
Added
On April 12, 2024, we entered into the Fernley Lease Agreement, effective April 1, 2024, for the approximately 64,000 square foot Premises located at 2275 East Newlands Road, Fernley, Nevada, to be used for general, warehousing, assembly/light manufacturing, painting of products, storage fulfillment, distribution of our products. The Fernley Lease Agreement expires April 1, 2029.
Added
The current monthly rent is $1,375. We do not own any real property.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 21, 2023, the closing price of our common stock and warrants was $4.71 and $0.2465, respectively. As of March 21, 2023, there were 105 holders of record of our common stock and 37 holders of record of our Public Warrants.
Biggest changeAs of April 12, 2024, the closing price of our common stock and warrants was $0.46 and $0.03, respectively. As of April 12, 2024, there were 91 holders of record of our common stock and 2 holders of record of our Public Warrants.
Removed
Recent Sales of Unregistered Securities On October 7, 2022, we granted each of our non-employee directors (i.e. Jonathan Bellows, Perry Boyle, Karina Edmonds, Luisa Ingargiola, Brian Nelson, and Rick Parod) an award of 30,000 restricted stock units (“ RSUs ”) under the Dragonfly Energy Holdings Corp. 2022 Equity Incentive Plan.
Added
Recent Sales of Unregistered Securities None. Item 6. [Reserved]
Removed
The RSUs are eligible to vest on the first anniversary of the grant date, subject to each director’s continued service on our board through the vesting date. The foregoing transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering.
Removed
We believe these transactions were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D promulgated thereunder) as transactions by an issuer not involving any public offering.
Removed
All certificates representing the securities issued in the transactions described above included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities. Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYears ended December 31, 2022 % Net Sales 2021 % Net Sales (in thousands) Net Sales $ 86,251 100.0 $ 78,000 100.0 Cost of Goods Sold 62,247 72.2 48,375 62.0 Gross profit 24,004 27.8 29,625 38.0 Operating expenses Research and development 2,764 3.2 2,689 3.4 General and administrative 41,566 48.2 10,621 13.6 Sales and marketing 13,671 15.9 9,848 12.6 Total Operating expenses 58,001 67.2 23,158 29.7 (Loss) Income From Operations (33,997 ) (39.4 ) 6,467 8.3 Other Income (Expense) Other income 40 0.0 1 0.0 Interest expense, net (6,945 ) (8.1 ) (519 ) (0.7 ) Change in fair market value of warrant liability 5,446 6.3 — — Debt extinguishment (4,824 ) (5.6) — — Total Other Expense (6,283 ) (7.3 ) (518 ) (0.7 ) (Loss) Income Before Taxes (40,280 ) (46.7 ) 5,949 7.6 Income Tax (Benefit) Expense (709 ) (0.8 ) 1,611 2.1 Net (Loss) Income $ (39,571 ) (45.9 ) $ 4,338 5.6 Years ended December 31, 2022 2021 (in thousands) Retailer 43,344 59,042 Distributor 9,102 10,733 DTC 52,446 69,775 % Net Sales 60.8 89.5 OEM 33,805 8,225 % Net Sales 39.2 10.5 Net Sales $ 86,251 $ 78,000 Net Sales Net sales increased by $8.3 million, or 10.6%, to $86.3 million for the year ended December 31, 2022, as compared to $78.0 million for the year ended December 31, 2021.
Biggest changeYears ended December 31, 2023 % Net Sales 2022 % Net Sales (in thousands) Net Sales $ 64,392 100.0 $ 86,251 100.0 Cost of Goods Sold 48,946 76.0 62,633 72.6 Gross profit 15,446 24.0 23,618 27.4 Operating expenses Research and development 3,863 6.0 2,764 3.2 General and administrative 26,389 41.0 41,566 48.2 Sales and marketing 12,623 19.6 13,671 15.9 Total Operating expenses 42,875 66.6 58,001 67.2 Loss From Operations (27,429 ) (42.6 ) (34,383 ) (39.9 ) Other Income (Expense) Other income (expense) 19 0.0 40 0.0 Interest expense, net (16,015 ) (24.9 ) (6,979 ) (8.1 ) Change in fair market value of warrant liability 29,582 45.9 5,446 6.3 Debt extinguishment - - (4,824 ) (5.6 ) Total Other Income (Expense) 13,586 21.1 (6,317 ) (7.3 ) Loss Before Taxes (13,843 ) (21.5 ) (40,700 ) (47.2 ) Income Tax Benefit (26 ) 0.0 (709 ) (0.8 ) Net Loss $ (13,817 ) (21.5 ) $ (39,991 ) (46.4 ) Years ended December 31, 2023 2022 (in thousands) DTC 36,875 52,446 % Net Sales 57.3 60.8 OEM 27,517 33,805 % Net Sales 42.7 39.2 Net Sales $ 64,392 $ 86,251 Net Sales Net sales decreased by $21.9 million, or 25.3%, to $64.4 million for the year ended December 31, 2023, as compared to $86.3 million for the year ended December 31, 2022.
Under this method of accounting, Chardan was treated as the acquired company for financial statement reporting purposes. We have the ChEF Equity Facility. We have chosen to be conservative because of the performance of our common stock in February and March 2023.
Under this method of accounting, Chardan was treated as the acquired company for financial statement reporting purposes. ChEF Equity Facility We have the ChEF Equity Facility. We have chosen to be conservative because of the performance of our common stock in February and March 2023.
If such financings are not available, or if the terms of such financings are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities, eliminating redundancies, or reducing or delaying our production facility expansions, which may adversely affect our business, operating results, financial condition and prospects.
If such financings are not available, or if the terms of such financings are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities, eliminating redundancies, or reducing or delaying our production facility expansions, which may adversely affect our business, operating results, financial condition and prospects.
This facility, combined with our existing facility, will allow further scaling of our increasingly automated battery pack assembly capabilities, expand our warehousing space, and allow for deployment of our solid-state cell manufacturing. 45 Competition We compete with traditional lead-acid battery manufacturers and lithium-ion battery manufacturers, who primarily either import their products or components or manufacture products under a private label.
This facility, combined with our existing facility, will allow further scaling of our increasingly automated battery pack assembly capabilities, expand our warehousing space, and allow for deployment of our solid-state cell manufacturing. Competition We compete with traditional lead-acid battery manufacturers and lithium-ion battery manufacturers, who primarily either import their products or components or manufacture products under a private label.
All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph. 42 Some of the information contained in this discussion and analysis or set forth elsewhere, including information with respect to our plans and strategy for our business include forward-looking statements that involve risks, uncertainties and assumptions.
All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph. Some of the information contained in this discussion and analysis or set forth elsewhere, including information with respect to our plans and strategy for our business include forward-looking statements that involve risks, uncertainties and assumptions.
Our solid-state technology design allows for a much safer, more efficient cell that we believe will be a key differentiator in the energy storage market. On October 7, 2022, or the Closing Date, we consummated the Business Combination.
We believe that our solid-state technology design allows for a much safer, more efficient battery cell that we believe will be a key differentiator in the energy storage market. The Business Combination On October 7, 2022, or the Closing Date, we consummated the Business Combination.
Demand from end market consumers is impacted by a number of factors, including travel restrictions, fuel costs and energy demands (including an increasing trend towards the use of green energy), as well as overall macro-economic conditions.
Demand from end market consumers is impacted by a number of factors, including travel restrictions, fuel costs and energy demands (including an increasing trend towards the use of green energy), as well as overall macro-economic conditions and inflation.
GAAP. EBITDA is defined as earnings before interest and other income (expenses), income taxes, and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA adjusted for stock-based compensation, ERP implementation, non-recurring debt transaction and business combination expenses.
EBITDA is defined as earnings before interest and other income (expenses), income taxes, and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA adjusted for stock-based compensation, ERP implementation, non-recurring debt transaction and business combination expenses.
Pursuant to an assignment agreement, the Backstopped Loans were assigned by CCM 5 to the Backstop Lender on the Closing Date. Pursuant to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date.
Pursuant to an assignment agreement, the Backstopped Loans were assigned by CCM 5 to the Backstop Lender on the Closing Date. 55 Pursuant to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date.
Much of this was due to the low public float, low institutional interest (since we are pre-lockup expiration), and low visibility of the Company in general. Moving forward, after the lockup expiration, we intend to market more heavily to institutions and expect the trading volume to increase and the stock price to stabilize.
Much of this was due to our low public float, low institutional interest (since we are pre-lockup expiration), and low visibility in general. Moving forward, after the lockup expiration, we intend to market more heavily to institutions and expect the trading volume to increase and the stock price to stabilize.
GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net (loss) income for the years ended December 31, 2022 and 2021.
GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net (loss) income for the years ended December 31, 2023 and 2022.
Overview We are a manufacturer of non-toxic deep cycle lithium-ion batteries that are designed to displace lead acid batteries in a number of different storage applications and end markets including RV, marine vessel, and solar and off-grid industries, with disruptive solid-state cell technology currently under development. Since 2020, we have sold over 226,000 batteries.
Overview We are a manufacturer of non-toxic deep cycle lithium-ion batteries that are designed to displace lead acid batteries in a number of different storage applications and end markets including RV, marine vessel, and solar and off-grid industries, with disruptive cell manufacturing and solid-state cell technology currently under development. Since 2020, we have sold over 290,000 batteries.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2022 consolidated financial statements, with respect to this uncertainty. In addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial covenants.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2023 consolidated financial statements, with respect to this uncertainty. 54 In addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial covenants.
We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. Inventory Valuation The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items and reserves. Any such inventory is written down to net realizable value.
We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. Inventory Valuation We periodically review physical inventory for excess, obsolete, and potentially impaired items and reserves. Any such inventory is written down to net realizable value.
Accordingly, the financial statements of Legacy Dragonfly and their respective subsidiaries as they existed prior to the Business Combination and reflecting the sole business and operating assets of the Company going forward, are now the financial statements of us.
Accordingly, the financial statements of Legacy Dragonfly and their respective subsidiaries as they existed prior to the Business Combination and reflecting our sole business and operating assets going forward, are now the financial statements of us.
Key Factors Affecting Our Operating Results Our financial position and results of operations depend to a significant extent on the following factors: End Market Consumers The demand for our products ultimately depends on demand from consumers in our current end markets. We generate sales through (1) DTC and (2) through OEMs, particularly in the RV market.
Key Factors Affecting Our Operating Results Our financial position and results of operations depend to a significant extent on the following factors: End Market Consumers The demand for our products ultimately depends on demand from consumers in our current end markets. We generate sales through (1) direct-to-customer and (2) through OEMs, particularly in the RV market.
On March 29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023.
On March 29, 2023 and September 29, 2023 we obtained a waiver from our Administrative Agent and the Term Loan Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023 and September 30, 2023, respectively.
Although our automation efforts are expected to reduce our costs of goods, we may not fully recognize the anticipated savings when planned and could experience additional costs or disruptions to our production activities. In addition, we have entered into a lease for an additional 390,240 square foot warehouse in Reno, Nevada, which is expected to be completed in early 2024.
Although our automation efforts are expected to reduce our costs of goods, we may not fully recognize the anticipated savings when planned and could experience additional costs or disruptions to our production activities. 47 In addition, we have entered into a lease for an additional 390,240 square foot warehouse in Reno, Nevada, which is expected to be completed in the second half of 2024.
(7) Change in fair market value of warrant liabilities represents the change in fair value from the date the warrants were issued through December 31, 2022. 50 Liquidity and Capital Resources Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments.
(7) Change in fair market value of warrant liabilities represents the change in fair value from the date the warrants were issued through December 31, 2023. 52 Liquidity and Capital Resources Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments.
In connection with the ChEF Equity Facility, we filed a registration statement registering the resale of up to 21,512,027 shares that may be resold into the public markets by CCM LLC, which represented approximately 50% of the shares of our common stock outstanding as of December 31, 2022.
In connection with the ChEF Equity Facility, we filed a registration statement registering the resale of up to 21,512,027 shares that may be resold into the public markets by CCM LLC, which represented approximately 36% of the shares of our common stock outstanding as of December 31, 2023.
These include chargers, inverters, monitors, controllers and other system accessories from brands such as Victron Energy, Progressive Dynamics, Magnum Energy and Sterling Power. In addition to our conventional LFP batteries, we have been developing proprietary LFP solid-state cell technology and manufacturing processes.
These include chargers, inverters, monitors, controllers, solar panels, and other system accessories from brands such as Victron Energy, Progressive Dynamics, Magnum Energy and Sterling Power. In addition to our conventional LFP batteries, we have been developing proprietary dry electrode cell manufacturing processes and solid-state cell technology.
For warrants issued to investors or lenders in exchange for cash or other financial assets, we follow guidance issued within ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”), to assist in the determination of whether the warrants should be classified as liabilities or equity.
For warrants issued to investors or lenders in exchange for cash or other financial assets, we follow guidance issued within ASC 480, Distinguishing Liabilities from Equity (“ ASC 480 ”), and ASC 815, Derivatives and Hedging (“ ASC 815 ”), to assist in the determination of whether the warrants should be classified as liabilities or equity.
(3) Promissory Note Forgiveness is comprised of the loan that was forgiven, prior to the Business Combination, in connection with the promissory note, with a maturity date of March 1, 2026, between us and John Marchetti, our Chief Financial Officer.
(3) Promissory Note Forgiveness is comprised of the loan that was forgiven, prior to the Business Combination, in connection with the promissory note, with a maturity date of March 1, 2026, between us and John Marchetti, our Senior Vice President of Operations and our former Chief Financial Officer.
The Term Loan amortizes in the amount of 5% per annum beginning 24 months after the Closing Date and matures on the fourth anniversary of the Closing Date (“Maturity Date”).
The Term Loan amortizes in the amount of 5% per annum beginning 24 months after the Closing Date and matures on the fourth anniversary of the Closing Date (“ Maturity Date ”).
On March 5, 2023, we issued the Note in the Principal Amount of $1.0 million to Brian Nelson, one of our directors, in a private placement in exchange for cash in an equal amount. The Note became due and payable in full on April 1, 2023.
On January 24, 2024, we issued the January Note in the Principal Amount of $1.0 million to Brian Nelson, one of our directors, in a private placement in exchange for cash in an equal amount. The January Note became due and payable in full on February 5, 2024.
We currently offer a line of batteries across our “Battle Born” and “Dragonfly” brands, each differentiated by size, power and capacity, consisting of seven different models, four of which come with a heated option. We primarily sell “Battle Born” branded batteries directly to consumers and “Dragonfly” branded batteries to OEMs.
We currently offer a line of batteries across our “Battle Born” and “Dragonfly” brands, each differentiated by size, power and capacity, consisting of seven different models, four of which come with a heated option.
We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. As of December 31, 2022, we had cash totaling $17.8 million.
We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. As of December 31, 2023, we had cash totaling $12.7 million.
Total Other (Expense) Income Other expense totaled $6.3 million for the year ended December 31, 2022 as compared to total other expense of $0.5 million for the year ended December 31, 2021.
Total Other Income (Expense) Other income totaled $13.6 million for the year ended December 31, 2023 as compared to total other expense of $6.3 million for the year ended December 31, 2022.
(4) Separation Agreement is comprised of $1.2 million in cash severance associated with the Separation Agreement, dated October 25, 2022, as amended on November 14, 2022, between us and Sean Nichols, our former Chief Operating Officer. (5) Business Combination Expenses is comprised of fees and expenses, including legal, accounting, and others associated with the Business Combination.
(4) Separation Agreement in 2022 is comprised of $1.2 million in cash severance associated with the Separation Agreement, dated October 25, 2022, as amended on November 14, 2022, between us and Sean Nichols, our former Chief Operating Officer.
As we look toward the production of our solid-state cells, we have signed a non-binding Memorandum of Understanding with a lithium mining company located in Nevada for the supply of lithium, which we expect will enable us to further manage our cost of goods.
As we look toward the production of our solid-state cells, we have signed a Commercial Offtake Agreement with a lithium mining company located in Nevada for the supply of lithium, which we expect will enable us to further manage our cost of goods over time.
Financial Statements and Supplementary Data Our consolidated audited financial statements as of and for the years ended December 31, 2022 and December 31, 2021, together with the report of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-2.
Financial Statements and Supplementary Data Our consolidated audited financial statements as of and for the years ended December 31, 2023 and December 31, 2022, together with the report of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-2. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
During the year ended December 31, 2022, we did not sell any shares of our common stock under the ChEF Equity Facility. From January 1, 2023 to April 17, 2023, we issued and sold approximately 98,500 shares of our common stock under this facility, resulting in net cash proceeds of $670,593.
During the year ended December 31, 2022, we did not sell any shares of our common stock under the ChEF Equity Facility. During the year ended December 31, 2023, we issued and sold approximately 588,500 shares of our common stock under this facility, resulting in net cash proceeds of $1,278,566.
As part of the Business Combination, we entered into the Term Loan, the proceeds of which were used to repay the $45 million fixed rate senior notes, and ChEF Equity Facility. 51 The Term Loan proceeds were used to: (i) support the Business Combination, (ii) prepay the fixed rate senior notes at closing of the Business Combination, (iii) pay fees and expenses in connection with the foregoing, (iv) to provide additional growth capital and (v) for other general/corporate purposes.
The Term Loan proceeds were used to: (i) support the Business Combination, (ii) prepay the fixed rate senior notes at closing of the Business Combination, (iii) pay fees and expenses in connection with the foregoing, (iv) to provide additional growth capital and (v) for other general/corporate purposes.
Given the substantial number of shares of common stock being registered for potential resale by the selling securityholders pursuant to such prospectus, the sale of shares by the selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, may increase the volatility of the market price of our common stock, may prevent the trading price of our securities from exceeding the Chardan IPO offering price and may cause the trading prices of our securities to experience a further decline. 52 Going Concern For the year ended December 31, 2022, we incurred losses and had a negative cash flow from operations.
Given the substantial number of shares of common stock being registered for potential resale by the selling securityholders pursuant to such prospectus, the sale of shares by the selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, may increase the volatility of the market price of our common stock, may prevent the trading price of our securities from exceeding the Chardan IPO offering price and may cause the trading prices of our securities to experience a further decline.
Research and Development Expenses Research and development expenses increased by $0.1 million, or 2.8%, to $2.8 million for the year ended December 31, 2022, as compared to $2.7 million for the year ended December 31, 2021.
Research and Development Expenses Research and development expenses increased by $1.1 million, or 39.8%, to $3.9 million for the year ended December 31, 2023, as compared to $2.8 million for the year ended December 31, 2022.
On March 29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failure to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023.
On March 29, 2023 and September 29, 2023, we obtained waivers from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan for the quarters ended, March 31, 2023 and September 30, 2023.
It is probable that we will fail to meet these covenants within the next twelve months. If we are unable to comply with the financial covenants in our loan agreement, the Term Loan Lenders have the right to accelerate the maturity of the Term Loan. These conditions raise substantial doubt about our ability to continue as a going concern.
If we are unable to comply with the financial covenants in our loan agreement, the Term Loan Lenders have the right to accelerate the maturity of the Term Loan. These conditions raise substantial doubt about our ability to continue as a going concern.
In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of the Company’s future share price, risk-free rates, future dividend yields and estimated forfeitures at the initial grant date.
In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of our future share price, risk-free rates, future dividend yields and estimated forfeitures at the initial grant date. Restricted stock unit awards are valued based on the closing trading price of our common stock on the date of grant.
We were also obligated to pay the Loan Fee in the amount of $100,000 to Mr. Nelson on April 4, 2023. The Principal Amount of the Note was paid in full on April 1, 2023 and the Loan Fee was paid in full on April 4, 2023.
We were also obligated to pay the February Loan Fee in the amount of $85,000 to Mr. Nelson on March 1, 2024. The February Principal Amount of the February Note and the February Loan Fee were paid in full on March 1, 2024.
Cash Flows for the Years ended December 31, 2022 and 2021 Years ended December 31, 2022 2021 Net Cash provided by/(used in): (in thousands) Operating Activities $ (45,696 ) $ (13,573 ) Investing activities $ (6,827 ) $ (2,909 ) Financing activities $ 41,674 $ 38,906 Operating Activities Net cash used in operating activities was $45.7 million for the year ended December 31, 2022, primarily due to a net loss during the period largely driven by Business Combination expenses and an increase in purchased inventory to support future growth and to protect against potential supply disruptions.
Net cash used in operating activities was $45.7 million for the year ended December 31, 2022 primarily due to a net loss during the period, largely driven by Business Combination expenses, and an increase in purchased inventory to support future growth and to protect against potential supply disruptions.
For the years ended December 31, 2022 and 2021, we sold 96,034 and 74,652 batteries, respectively, and had $86.3 million and $78.0 million in net sales, respectively.
For the years ended December 31, 2023 and 2022, we sold 64,096 and 96,034 batteries, respectively, and had $64.4 million and $86.3 million in net sales, respectively.
We have also filed a registration statement registering the resale of up to 55,298,545 shares that may be resold and/or issued into the public markets, which represents approximately 128% of the shares of our common stock outstanding as of December 31, 2022.
We have also filed a registration statement registering the resale of up to 47,428,544 shares and 12,266,971 warrants to purchase common stock that may be resold and/or issued into the public markets, which represents approximately 79% of the shares of our common stock outstanding as of December 31, 2023.
Our increased total sales are a reflection of strong growth in OEM sales and Wakespeed products, partially offset by a decline in DTC sales. Our RV OEM customers currently include Keystone, THOR, Airstream, and REV, and we are in ongoing discussions with a number of additional RV OEMs to further increase adoption of our products.
Our RV OEM customers currently include Keystone, THOR, Airstream, and REV, and we are in ongoing discussions with a number of additional RV OEMs to further increase adoption of our products.
As described above, this result was driven primarily by higher sales offset by increased cost of goods sold, higher operating expenses (primarily as a result of the Business Combination) and increased other expense. 48 Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States.
As described above, this result was driven by lower sales due to reduced demand in the RV market, partially offset by lower cost of goods sold, lower operating expenses and increased other income. 50 Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States.
Debt extinguishment expense of $4.8 million due to the retirement of the $45 million in senior secured notes as a result of the Business Combination, partially offset by $5.4 million in the change of the fair market value of our warrants.
Other expense in 2022 is comprised primarily of interest expense of $6.9 million related to senior secured note of $45 million combined with debt securities of $75 million, debt extinguishment expense of $4.8 million due to the retirement of the $45 million in senior secured notes as a result of the Business Combination, partially offset by $5.4 million in the change of the fair market value of our warrants.
As a result, a full valuation allowance totaling $7.3 million was recorded as of December 31, 2022. Net (Loss) Income We experienced a net loss of $39.6 million for the year ended December 31, 2022, as compared to net income of $4.3 million for the year ended December 31, 2021.
As a result, a full valuation allowance totaling $19.7 million was recorded as of December 31, 2023. Net Loss We experienced a net loss of $13.8 million for the year ended December 31, 2023, as compared to a net loss of $40.0 million for the year ended December 31, 2022.
Any sales of such shares into the public market could have a significant negative impact on the trading price of our common stock. This impact may be heightened by the fact that sales to CCM LLC will generally be at prices below the current trading price of our common stock.
This impact may be heightened by the fact that sales to CCM LLC will generally be at prices below the current trading price of our common stock.
Use of the ChEF Equity Facility may adversely affect us, including the market price of our common stock and future issuances may be dilutive to existing stockholders. 43 As of December 31, 2022, we had cash totaling $17.8 million.
Use of the ChEF Equity Facility may adversely affect us, including the market price of our common stock and future issuances may be dilutive to existing stockholders.
As of December 31, 2022, we had approximately $17.8 million in cash and cash equivalents and working capital of $32.9 million. Under the Term Loan Agreement, we are obligated to comply with certain financial covenants, which include maintaining a maximum senior leverage ratio, minimum liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures.
Under the Term Loan Agreement, we are obligated to comply with certain financial covenants, which include maintaining a maximum senior leverage ratio, minimum liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures.
Warrants that are determined to require equity classifications are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified. See “Note 12—Warrants” in our accompanying consolidated financial statements for information on the warrants. Equity-Based Compensation The Company uses the Black-Scholes option-pricing model to determine the fair value of option grants.
Warrants that are determined to require equity classifications are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified. See “ Note 10—Warrants ” in our accompanying consolidated financial statements for information on the warrants.
The increase in net cash used in investing activities was primarily due to an increase in capital expenditures to support the expansion of our core battery business and our ongoing efforts to develop solid-state battery technology and manufacturing processes. 53 Financing Activities Net cash provided by financing activities was $41.7 million for the year ended December 31, 2022, primarily as a result of proceeds from the $75.0 million term loan as part of the Business Combination, and $15.0 million from the strategic investment made by Thor Industries, partially offset by a $45.0 million expense for the repayment of the senior secured notes.
Net cash provided by financing activities was $41.7 million for the year ended December 31, 2022, primarily as a result of proceeds from the $75.0 million term loan as part of the Business Combination, and $15.0 million from the strategic investment made by THOR, partially offset by a $45.0 million expense for the repayment of the senior secured notes.
Selling and Marketing Expenses Sales and marketing expenses increased by $3.8 million, or 38.8%, to $13.7 million for the year ended December 31, 2022, as compared to $9.8 million for the year ended December 31, 2021.
Selling and Marketing Expenses Sales and marketing expenses decreased by $1.1 million, or 7.7%, to $12.6 million for the year ended December 31, 2023, as compared to $13.7 million for the year ended December 31, 2022.
As of December 31, 2022, we had $1.2 million in short-term operating lease liabilities and $3.5 million in long-term operating lease liabilities.
Contractual Obligations Our estimated future obligations consist of short-term and long-term operating and financing lease liabilities. As of December 31, 2023, we had $1.3 million in short-term operating and financing lease liabilities and $2.3 million in long-term operating, and financing lease liabilities.
An increasing proportion of our sales has been and is expected to continue to be derived from sales to RV OEMs, driven by continued efforts to develop and expand sales to RV OEMs with whom we have longstanding relationships.
An increasing proportion of our sales has been and is expected to continue to be derived from sales to RV and other OEMs, driven by continued efforts to develop larger and more complete storage systems.
Years ended December 31, 2022 2021 (in thousands) Net (loss) income $ (39,571 ) $ 4,338 Interest Expense 6,945 519 Taxes (709 ) 1,611 Depreciation and Amortization 891 617 EBITDA (32,444 ) 7,085 Adjusted for: Stock-Based Compensation (1) 2,467 734 ERP Implementation (2) - 233 Promissory Note Forgiveness (3) 469 - Loss on Disposal of Assets 56 124 Separation Agreement (4) 1,197 - Business Combination Expenses (5) 21,337 294 Debt extinguishment (6) 4,824 - Change in fair market value of warrant liability (7) (5,446 ) - Adjusted EBITDA $ (7,540 ) $ 8,470 (1) Stock-Based Compensation is comprised of costs associated with option and RSU grants made to our employees, consultants and board members.
Years ended December 31, 2023 2022 (in thousands) Net (loss) $ (13,817 ) $ (39,991 ) Interest Expense 16,015 6,979 Taxes (26 ) (709 ) Depreciation 1,237 891 EBITDA 3,409 (32,830 ) Adjusted for: Stock-Based Compensation (1) 6,710 2,467 June 2023 Offering Costs (2) 904 - Promissory Note Forgiveness (3) - 469 Loss on Disposal of Assets 712 56 Separation Agreement (4) 720 1,197 Business Combination Expenses (5) - 21,337 Debt extinguishment (6) - 4,824 Change in fair market value of warrant liability (7) (29,582 ) (5,446 ) Adjusted EBITDA $ (17,127 ) $ (7,926 ) (1) Stock-Based Compensation is comprised of costs associated with option and RSU grants made to our employees, consultants and board members.
In the event that actual results differ from these estimates or we adjust our estimates in the future, we may need to adjust our valuation allowance, which could materially impact our financial position and results of operations. 49 Non-GAAP Financial Measures This Annual Report includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S.
In the event that actual results differ from these estimates or we adjust our estimates in the future, we may need to adjust our valuation allowance, which could materially impact our financial position and results of operations.
The decrease in gross profit was primarily due to a change in revenue mix that included a larger percentage of lower margin OEM sales and a lower percentage of higher margin DTC sales, together with an increase in cost of goods sold as noted above.
The decrease in gross profit was primarily due to lower unit volumes and a change in revenue mix that included a larger percentage of lower margin OEM sales and a lower percentage of higher margin DTC sales, together with higher material costs as noted above. Gross Profit percentage decreased by 4.3% from 27.4% in 2022 to 23.1% in 2023.
General and Administrative Expenses General and administrative expenses increased by $30.9 million, or 291.4%, to $41.6 million for the year ended December 31, 2022, as compared to $10.6 million for the year ended December 31, 2021.
General and Administrative Expenses General and administrative expenses decreased by $15.2 million, or 36.5%, to $26.4 million for the year ended December 31, 2023, as compared to $41.6 million for the year ended December 31, 2022.
If the Term Loan is accelerated following the occurrence of an event of default, Legacy Dragonfly is required to immediately pay to lenders the sum of all obligations for principal, accrued interest, and the applicable prepayment premium.
If the Term Loan is accelerated following the occurrence of an event of default, Legacy Dragonfly is required to immediately pay to lenders the sum of all obligations for principal, accrued interest, and the applicable prepayment premium. 53 Pursuant to the Term Loan Agreement, we have guaranteed the obligations of Legacy Dragonfly and such obligations will be guaranteed by any of Legacy Dragonfly’s subsidiaries that are party thereto from time to time as guarantors.
The reserve estimate for excess and obsolete inventory is dependent on expected future use and requires management judgement. Warrants We apply relevant accounting guidance for warrants to purchase our stock based on the nature of the relationship with the counterparty.
Warrants We apply relevant accounting guidance for warrants to purchase our stock based on the nature of the relationship with the counterparty.
However, in recent months rising fuel costs and other macro-economic conditions have caused a downward shift in decisions taken by end market consumers around spending. 44 Our strategy includes plans to expand into new end markets that we have identified as opportunities for our LFP batteries, including industrial, rail, specialty and work vehicles, material handling, solar integration, and emergency and standby power, in the medium term, and data centers, telecom and distributed on-grid storage in the longer term.
Based on our discussions with customers and current unit forecast projections, we expect our revenue in the RV market to increase in 2024. 46 Our strategy includes plans to expand into new end markets that we have identified as opportunities for our LFP batteries, including industrial, rail, specialty and work vehicles, material handling, solar integration, and emergency and standby power, in the medium term, and data centers, telecom and distributed on-grid storage in the longer term.
It is probable that we will fail to meet these covenants within the next twelve months. In accordance with U.S. GAAP, we reclassified our notes payable from a long-term liability to a current liability.
In accordance with U.S. GAAP, we reclassified our notes payable from a long-term liability to a current liability.
We expect to continue to make the necessary sales and marketing investments to enable the execution of our strategy, which includes expanding into additional end markets.
We expect to continue to make the necessary sales and marketing investments to enable the execution of our strategy, which includes expanding into additional end markets. 48 Total Other Income (Expense) Other income (expense) consists primarily of interest expense, the change in fair value of the warrant liability and amortization of debt issuance costs.
Over the next two to three years, we expect to spend in excess of $50 million on solid-state development and cell manufacturing technologies. In connection with the growth of our business and in anticipation of future needs and to protect against supply-chain and logistics related shortages, during the fourth quarter of 2022, we continued to increase our inventory purchasing activities.
Over the next two to three years, we expect to spend in excess of $50 million on solid-state development and cell manufacturing technologies. In connection with the contraction of our business and uncertainty around the timing of future needs, we reduced our purchase activities in 2023.
Our net loss for the year ended December 31, 2022 was $39.6 million and our net income for the year ended December 31, 2021 was $4.3 million. As a result of becoming a publicly traded company, we continue to need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.
As a result of being a publicly traded company, we continue to need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.
As a result, our inventory balance at December 31, 2022 increased by $22.8 million to $49.9 million, compared to $27.1 million at December 31, 2021.
As a result, our inventory balance at December 31, 2023 decreased by $11.4 million to $38.8 million, compared to $50.2 million at December 31, 2022.
DTC revenue decreased by $17.3 million as a result of decreased customer demand for our products due to rising interest rates and inflation. 47 Cost of Goods Sold Cost of revenue increased by $13.9 million, or 28.7%, to $62.2 million for the year ended December 31, 2022, as compared to $48.4 million for the year ended December 31, 2021.
Cost of Goods Sold Cost of revenue decreased by $13.7 million, or 21.9%, to $48.9 million for the year ended December 31, 2023, as compared to $62.6 million for the year ended December 31, 2022.
Restricted stock unit awards are valued based on the closing trading value of the Company’s common stock on the date of grant. Changes in assumptions used to estimate fair value could result in materially different results. Income Taxes We account for income taxes using the asset and liability method.
Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position in the industry and changes in market interest rates which can result in materially different results. Income Taxes We account for income taxes using the asset and liability method.
Investing Activities Net cash used in investing activities was $6.8 million for the year ended December 31, 2022, as compared to $2.9 million for the year ended December 31, 2021.
Investing Activities Net cash used in investing activities was $6.9 million for the year ended December 31, 2023, as compared to $6.8 million for the year ended December 31, 2022. The cash used in investing activities was primarily driven by capital expenditures to support our core battery business and our ongoing efforts to develop solid-state battery technology and manufacturing processes.
The income tax benefit reflects our expected use of losses in the period against future tax obligations.
Income Tax Benefit The income tax benefit for the year ended December 31, 2023, was minimal as compared to a $0.7 million benefit for the year ended December 31, 2022. The income tax benefit reflects our expected use of losses in the period against future tax obligations.
Total Other Income (Expense) Other income (expense) consists primarily of interest expense, the change in fair value of the warrant liability and amortization of debt issuance costs. 46 Results of Operations Comparisons for the Years Ended December 31, 2022 and 2021 The following table sets forth our results of operations for the years ended December 31, 2022 and 2021.
Results of Operations Comparisons for the Years Ended December 31, 2023 and 2022 The following table sets forth our results of operations for the years ended December 31, 2023 and 2022.
This increase was primarily due to expenses associated with the aforementioned Business Combination and professional fees in the amount of $23.4 million and a $6.3 million increase in costs associated with personnel needed for public company readiness. Other increases relate to compliance, insurance and system costs related to being a public company.
This decrease was primarily due to the absence of $23.4 million of fiscal year 2022 expenses associated with the Business Combination and a decrease in employee-related costs in the amount of $2.5 million offset by an increase in stock-based compensation costs of $4.5 million.
Net cash provided by financing activities was $38.9 million for the year ended December 31, 2021, primarily as a result of $45.0 million in proceeds from the senior secured notes, partially offset by associated issuance costs. Contractual Obligations Our estimated future obligations consist of short-term and long-term operating lease liabilities.
Financing Activities Net cash provided by financing activities was $19.5 million for the year ended December 31, 2023, primarily as a result of proceeds $20.7 million from the June 2023 Offering.
This increase was primarily due to growth in the number of units sold resulting in an $11.6 million increase of product cost, a $2.2 million increase in overhead expense associated with the new manufacturing facility, and higher labor costs due to growth in our operations.
This decrease was primarily due to a $13.1 million decrease in product cost due to lower unit volume, partially offset by higher material cost associated with consuming higher priced inventory and an adjustment to customs due to tariff correction of $0.3 million, and a $0.6 million decrease in overhead expense associated with lower labor cost due to reduced headcount.
Gross Profit Gross profit decreased by $5.6 million, or 19.0%, to $24.0 million for the year ended December 31, 2022, as compared to $29.6 million for the year ended December 31, 2021.
We expect our Cost of Goods Sold to increase in conjunction with the anticipated increase in revenue over the next 12 months. 49 Gross Profit Gross profit decreased by $8.2 million, or 34.6%, to $15.4 million for the year ended December 31, 2023, as compared to $23.6 million for the year ended December 31, 2022.
Removed
To mitigate against potential adverse production events, we opted to build our inventory of key components, such as battery cells. In connection with these stockpiling activities, we experienced a significant increase in prepaid inventory compared to prior periods as suppliers required upfront deposits in response to global supply chain disruptions.
Added
We primarily sell “Battle Born” branded batteries directly to consumers and “Dragonfly” branded batteries to OEMs. 44 Our decrease in 2023 total sales is a reflection of weaker demand from both OEM and DTC customers in our core RV and marine markets due to rising interest rates and inflation.
Removed
This increase was primarily due to higher OEM battery and accessory sales partially offset by lower DTC sales.
Added
June 2023 Offering On June 20, 2023, we entered into the Underwriting Agreement with the Underwriters, pursuant to which we sold to the Underwriters, in a firm commitment underwritten public offering, or the June 2023 Offering, an aggregate of (i) 10,000,000 shares of common stock, par value $0.0001 and (ii) Investor Warrants to purchase up to 10,000,000 shares of common Stock, at the combined public offering price of $2.00 per share and accompanying Investor Warrant, less underwriting discounts and commissions, and (iii) Underwriters’ Warrants to purchase up to an aggregate of 570,250 shares of common stock.
Removed
For the year ended December 31, 2022, OEM revenue increased by $25.6 million as a result of increased adoption of our products by new and existing customers, several of whom have begun to “design in” our batteries in various RV models as original equipment or have increased purchases in response to end-customer demand for safer, more efficient batteries and as a replacement for traditional lead-acid batteries.

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