What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-21 compared with 2023-05-15 · 301 added, 188 removed, 393 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Dragonfly

Energy Holdings Corp..

References to our “Sponsor” refer to Chardan NexTech Investments 2 LLC, a Delaware limited liability

company and to “Legacy Dragonfly” refer to Dragonfly Energy Corp., a Nevada corporation and our wholly-owned subsidiary.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction

with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

in this report (the “Quarterly Report”) to “we,” “us,” “our” or the “Company”

refer to Dragonfly Energy Holdings Corp., a Nevada corporation.

References to our “Sponsor” refer to Chardan NexTech Investments

2 LLC, a Delaware limited liability company and references to “Legacy Dragonfly” refer to Dragonfly Energy Corp., a Nevada

corporation and our wholly-owned subsidiary.

The following discussion and analysis of the Company’s financial condition and results

of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained

elsewhere in this Quarterly Report.

Certain information contained in the discussion and analysis set forth below includes forward-looking

statements that involve risks and uncertainties.

a result of the completion of the Business Combination (as defined herein), the financial statements of Legacy Dragonfly are now the

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These factors include, but are not limited to:

ability to recognize the anticipated benefits of our recent Business Combination, which may be affected by, among other things, the

factors listed below;

ability to successfully increase market penetration into target markets;

addressable markets that we intend to target do not grow as expected;

loss of any members of our senior management team or other key personnel;

loss of any relationships with key suppliers, including suppliers in China;

loss of any relationships with key customers;

ability to protect our patents and other intellectual property;

failure to successfully optimize solid-state cells or to produce commercially viable solid-state cells in a timely manner or at all,

or to scale to mass production;

in applicable laws or regulations;

ability to maintain the listing of our common stock on the Nasdaq Global Market and our public warrants on the Nasdaq Capital Market;

possibility that we may be adversely affected by other economic, business and/or competitive factors (including an economic slowdown

or inflationary pressures);

impact of the COVID-19 pandemic, including any mutations or variants thereof, and its effect on business and financial conditions;

ability to sell the desired amounts of shares of common stock at desired prices under our equity facility;

potential for events or circumstances that result in our failure to timely achieve the anticipated benefits of our customer arrangements

with THOR Industries and its affiliate brands (including Keystone RV Company);

ability to raise additional capital to fund our operations;

ability to generate revenue from future product sales and our ability to achieve and maintain profitability;

accuracy of our projections and estimates regarding our expenses, capital requirements, cash utilization, and need for additional

to recognize the anticipated benefits of our recent Business Combination, which may be affected by, among other things, the factors

listed below;

to successfully increase market penetration into target markets;

the addressable

markets that we intend to target do not grow as expected;

of any members of our senior management team or other key personnel;

of any relationships with key suppliers, including suppliers in China;

of any relationships with key customers;

to protect our patents and other intellectual property;

to successfully optimize solid-state cells or to produce commercially viable solid-state cells in a timely manner or at all, or to

scale to mass production;

applicable laws or regulations;

to maintain the listing of our common stock on the Nasdaq Global Market and our public warrants on the Nasdaq Capital Market;

the possibility

that we may be adversely affected by other economic, business and/or competitive factors (including an economic slowdown or inflationary

to sell the desired amounts of shares of common stock at desired prices under our equity facility;

the potential

for events or circumstances that result in our failure to timely achieve the anticipated benefits of our customer arrangements with

THOR Industries and its affiliate brands (including Keystone RV Company);

to raise additional capital to fund our operations;

to generate revenue from future product sales and our ability to achieve and maintain profitability;

of our projections and estimates regarding our expenses, capital requirements, cash utilization, and need for additional financing;

relating to our competitors and our industry;

ability to engage target customers and successfully retain these customers for future orders;

reliance on two suppliers for our lithium iron phosphate cells and a single supplier for the manufacture of our battery management

current dependence on a single manufacturing facility.

to engage target customers and successfully retain these customers for future orders;

on two suppliers for our lithium iron phosphate cells and a single supplier for the manufacture of our battery management system;

dependence on a single manufacturing facility.

foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or

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Please see “ Part I—Item 1A—Risk Factors ” of our Annual Report on Form 10-K for the year ended December

31, 2022 for additional risks which could adversely impact our business and financial performance.

31, 2022, filed with the SEC on April 17, 2023, as amended on May 1, 2023, for additional risks which could adversely impact our business

and financial performance.

forward-looking statements are expressly qualified in their entirety by this cautionary notice.

You are cautioned not to place undue

reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by

reference into this report.

We have no obligation, and expressly disclaims any obligation, to update, revise or correct any of the forward-looking

statements, whether as a result of new information, future events or otherwise.

We have expressed our expectations, beliefs and projections

in good faith and believe they have a reasonable basis.

However, we cannot assure you that our expectations, beliefs or projections will

result or be achieved or accomplished.

reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report or the date of the document incorporated

by reference into this report.

We have no obligation, and expressly disclaims any obligation, to update, revise or correct any of the

forward-looking statements, whether as a result of new information, future events or otherwise.

We have expressed our expectations, beliefs

and projections in good faith and believe they have a reasonable basis.

However, we cannot assure you that our expectations, beliefs

or projections will result or be achieved or accomplished.

are a manufacturer of non-toxic deep cycle lithium-ion batteries that are designed to displace lead acid batteries in a number of different

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2020, we have sold over 266,000 batteries.

For the quarters ended March 31, 2023, and March 31, 2022, we sold 20,331 and 19,664 batteries,

For the quarters ended June 30, 2023, and June 30, 2022, we sold 20,966 and 21,651 batteries,

respectively, and had $19.3 million and $21.6 million in net sales, respectively.

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and “Dragonfly” branded batteries to original equipment manufacturers (“OEMs”).

increased total sales are a reflection of strong growth in OEM sales and Wakespeed Offshore brand (“Wakespeed”) products,

partially offset by a decline in DTC sales.

Our RV OEM customers currently include Keystone RV Company (“Keystone”), THOR

Industries (“THOR”), Airstream, and REV, and we are in ongoing discussions with a number of additional RV OEMs to further

increase adoption of our products.

Related efforts include seeking to have RV OEMs “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.

currently source the lithium iron phosphate 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.

supplement our battery offerings, we are also a reseller of accessories for battery systems.

These include chargers, inverters, monitors,

controllers and other system accessories from brands such as Victron Energy, Progressive Dynamics, Magnum Energy and Sterling Power.

addition to our conventional lithium iron phosphate (“LFP”) batteries, we have been developing proprietary LFP solid-state

cell technology and manufacturing processes.

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.

of March 31, 2023, we had cash totaling $15.8 million.

Our net income for the quarter ended March 31, 2023 was $4.9 million and our net

loss for the quarter ended March 31, 2022 was $2.3 million.

supplement our battery offerings, we also offer our line of proprietary Wakespeed alternator regulation products which are

necessary to ensure that the alternator does not get unduly stressed during the current delivery to the batteries, and that the

current delivery remains within the operating limits of the onboard battery bank.

In addition to its own accessories we are also a

reseller of accessories for battery systems.

These include chargers, inverters, monitors, controllers, solar panels and other system

accessories from brands such as Victron Energy, Progressive Dynamics, REDARK, Rich Solar, and Sterling Power.

addition to our conventional lithium iron phosphate (“LFP”) batteries, we are currently developing the next generation

of LFP solid-state cells.

Since our founding, we have been developing proprietary battery cell manufacturing processes and

solid-state battery cell technology for which we have issued patents and pending patent applications, where appropriate.

lithium-ion technology eliminates the use of a liquid electrolyte, which addresses the residual heat and flammability issues arising

from lithium-ion batteries.

The unique competitive advantage of our cell manufacturing process is highlighted by our dry deposition

technology, which completely displaces the need for toxic solvents in the manufacturing process and allows for the rapid and

scalable production of chemistry-agnostic cells.

Additionally, our internal production of battery cells will streamline our supply

chain, allowing us to vertically integrate our cells into our batteries, thereby lowering our production costs.

of June 30, 2023, we had cash totaling $32.9 million.

Our net loss for the quarter ended June 30, 2023 was $11.7 million and our net

loss for the quarter ended June 30, 2022 was $1.5 million.

As a result of becoming a publicly traded company, we continue to need to

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company for financial statement reporting purposes.

2023 Offering

June 20, 2023, we entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners,

LLC, as representative of the several underwriters (the “Underwriters”), pursuant to which we sold to the Underwriters,

in a firm commitment underwritten public offering (the “June 2023 Offering”), an aggregate of (i) 10,000,000 shares of its

common stock, par value $0.0001 (“Common Stock”) and (ii) accompanying warrants to purchase up to 10,000,000 shares of Common

Stock (the “Investor Warrants”), at the combined public offering price of $2.00 per share and accompanying Investor Warrant,

less underwriting discounts and commissions, and (iii) warrants to purchase up to an aggregate of 570,250 shares of Common Stock (the

“Underwriters’ Warrants”).

In addition, we granted the Underwriters a 45-day over-allotment option to purchase

up to an additional 1,500,000 shares of Common Stock and/or Investor Warrants to purchase up to an aggregate of 1,500,000 shares of Common

Stock at the public offering price per security, less underwriting discounts and commissions.

The Investor Warrants are exercisable for five years from the closing date of the Offering, have an exercise price of $2.00 per share

and are immediately exercisable.

In the event of certain fundamental transactions, holders of the Investor Warrants will have the right

to receive the Black Scholes Value (as defined in the Investor Warrants) of their Investor Warrants calculated pursuant to the formula

set forth in the Investor Warrants, payable either in cash or in the same type or form of consideration that is being offered and being

paid to the holders of Common Stock.

The Underwriters’ Warrants are exercisable upon issuance and will expire on June 20, 2028.

The initial exercise price of the Underwriters’ Warrants is $2.50 per share, which equals 125% of the per share public offering

price in the Offering.

part of the June 2023 Offering, the Underwriters partially exercised their over-allotment option in the amount of 1,405,000 shares of

Common Stock and Investor Warrants to purchase 1,405,000 shares of Common Stock.

The June 2023 Offering closed on June 22, 2023.

aggregate net proceeds from this offering, including the partial over-allotment option, was approximately $21.1 million.

Factors Affecting Our Operating Results

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these OEMs have around end market consumer 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.

Sales of our batteries have benefited

from the increased adoption of the RV lifestyle, the demand for and inclusion of additional appliances and electronics in RVs, and the

accelerating trend of solar power adoption among RV customers.

However, in recent months rising fuel costs and other macro-economic conditions,

such as inflation and rising interest rates, have caused a downward shift in decisions taken by end market consumers around spending.

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.

batteries have benefited from the increased adoption of the RV lifestyle, the demand for and inclusion of additional appliances and

electronics in RVs, and the accelerating trend of solar power adoption among RV customers.

However, in recent months rising fuel

costs and other macro-economic conditions, such as inflation and rising interest rates, have caused a downward shift in decisions

taken by end market consumers around spending in the RV market and in July of 2023, we were notified by our largest RV OEM customer 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.

While this customer is not moving to a different

solution or competitor, we do expect this change in strategy to have a material limiting effect on our revenue throughout the remainder

strategy includes plans to expand into new end markets that we have identified as opportunities for our LFP batteries, including industrial,

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such as battery cells.

In connection with these stockpiling activities, we experienced a significant increase in inventory compared to

prior periods.

However, as many of the supply chain challenges and delays that were prevalent over the last several years have eased,

the Company is now actively working down its inventory to more appropriate safety stock levels.

a result of our battery chemistry and active steps we have taken to manage our inventory levels, we have not been subject to the shortages

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of Operations

for the Three months ended March 31, 2023 and March 31, 2022

following table sets forth our results of operations for the quarters ended March 31, 2023, and March 31, 2022.

for the Three months ended June 30, 2023 and June 30, 2022

following table sets forth our results of operations for the three months ended June 30, 2023, and June 30, 2022.

This data should be

read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety

by reference to such financial statements and related notes.

months ended June 30,

Operating expenses

and development

administrative

Operating expenses

Other Income (Expense)

in fair market value of warrant liability

Other Expense

months ended June 30,

sales decreased by $2.3 million, or 10.9%, to $19.3 million for the three months ended June 30, 2023, as compared to $21.6 million

for the quarter ended June 30, 2022.

This decrease was primarily due to lower DTC battery and accessory sales partially offset by

higher OEM sales.

For the quarter ended June 30, 2023, OEM revenue increased by $2.1 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.

In July of 2023, we were notified by our largest RV OEM customer 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.

While this customer is not

moving to a different solution or competitor, we do expect this change in strategy to have a material limiting effect on our revenue

throughout the remainder of 2023.

DTC revenue decreased by $4.4 million as a result of decreased customer demand for our products

due to rising interest rates and inflation.

of Goods Sold

of revenue increased by $0.6 million, or 4.0%, to $15.2 million for the three months ended June 30, 2023, as compared to $14.6 million

for the quarter ended June 30, 2022.

This increase was primarily due to higher material costs associated with consuming higher priced

profit decreased by $2.9 million, or 41.7%, to $4.1 million for the three months ended June 30, 2023, as compared to $7.0 million for

the quarter ended June 30, 2022.

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, combined with the aforementioned increase in material costs.

and Development Expenses

and development expenses increased by $0.2 million or 24.2%, to $1.1 million for the three months ended June 30, 2023, as compared to

$0.9 million for the quarter ended June 30, 2022.

The increase was primarily due to higher patent expenses, increase wages associated

with increased headcount, and higher materials and supply costs associated with development work.

and Administrative Expenses

and administrative expenses increased by $3.8 million, or 99.5%, to $7.6 million for the three months ended June 30, 2023, as compared

to $3.8 million for the quarter ended June 30, 2022.

This increase was primarily due a $2.0 million increase in professional services,

compliance, and insurance costs, a $0.7 million severance expense, and a $0.7 million increase in stock-based compensation costs.

and Marketing Expenses

and marketing expenses increased by $0.9 million, or 32.2%, to $3.8 million for the three months ended June 30, 2023, as compared to

$2.9 million for the quarter ended June 30, 2022.

This increase was primarily due to a $1.1 million increase in wage-related expenses

primarily due to the addition of sales and marketing personnel to support growth in our existing end markets, as well as to drive growth

in the new, adjacent end markets we are targeting.

This increase was partially offset by lower shipping costs, due to the decline in

DTC sales and change in revenue mix.

Other Expense

expense totaled $3.3 million for the quarter ended June 30, 2023 as compared to total other expense of $1.2 million for the quarter ended

June 30, 2022.

Other income in the quarter ended June 30, 2023 is comprised of $4.1 million in interest expense related to our debt securities,

partially offset by a change in fair market value of our warrants in the amount of $0.8.

The $1.2 million expense in the quarter ended

June 30, 2022 was comprised of interest expense related to the senior secured notes of $45 million which were retired as a result of

the Business Combination.

Tax (Benefit) Expense

was no tax expense recorded for the quarter ended June 30, 2023, as compared to $0.3 million benefit for the quarter ended June 30,

The income tax benefit of $0.3 million for the quarter ended June 30, 2022 was expected to be used against future tax

Based on available evidence as of June 30, 2023, management believes it is more likely than not that some or all the

deferred tax assets will not be realized.

Accordingly, the Company established a 100% valuation allowance.

As a result of the full

valuation allowance, the Company did not record a tax benefit during the quarter ended June 30, 2023.

generated a net loss of $11.7 million for the quarter ended June 30, 2023, as compared to a net loss of $1.5 million for the quarter

ended June 30, 2022.

As described above, this result was driven lower sales, increased cost of goods sold, higher operating expenses,

and increased other expense.

for the Six months ended June 30, 2023 and June 30, 2022

following table sets forth our results of operations for the six months ended June 30, 2023, and June 30, 2022.

This data should be read

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by reference to such financial statements and related notes.

Three months ended March 31,

(in thousands)

Cost of Goods Sold

months ended June 30,

Operating expenses

Research and development

General and administrative

Sales and marketing

Total Operating expenses

(Loss) From Operations

and development

administrative

Operating expenses

Other Income (Expense)

Interest expense, net

Change in fair market value of warrant liability

Total Other Income (Expense)

Income (Loss) Before Taxes

Income Tax Benefit

Net Income (Loss)

Three months ended March 31,

(in thousands)

sales increased by $0.5 million, or 2.7%, to $18.8 million for the quarter ended March 31, 2023, as compared to $18.3 million for the

quarter ended March 31, 2022.

This increase was primarily due to higher OEM battery and accessory sales partially offset by lower DTC

For the quarter ended March 31, 2023, OEM revenue increased by $5.6 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.

DTC revenue decreased by $5.1 million as a result of decreased customer demand for our products due to rising interest

rates and inflation.

in fair market value of warrant liability

Other Income (Expense)

(Loss) Before

months ended June 30,

sales decreased by $1.9 million, or 4.7%, to $38.1 million for the six months ended June 30, 2023, as compared to $39.9 million for

the six months ended June 30, 2022.

This decrease was primarily due to lower DTC battery and accessory sales partially offset by

higher OEM sales.

For the six months ended June 30, 2023, OEM revenue increased by $7.6 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.

In July of 2023, we were notified by our largest RV OEM customer 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.

While this customer is not

moving to a different solution or competitor, we do expect this change in strategy to have a material limiting effect on our revenue

throughout the remainder of 2023.

DTC revenue decreased by $9.5 million as a result of decreased customer demand for our products

due to rising interest rates and inflation.

of Goods Sold

of revenue increased by $1.2 million, or 9.7%, to $14.0 million for the quarter ended March 31, 2023, as compared to $12.8 million for

the quarter ended March 31, 2022.

This increase was primarily due to higher material costs associated with growth in the number of units

profit decreased by $0.8 million, or 13.7%, to $4.7 million for the quarter ended March 31, 2023, as compared to $5.5 million for the

quarter ended March 31, 2022.

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.

of revenue increased by $1.8 million, or 6.6%, to $29.2 million for the six months ended June 30, 2023, as compared to $27.4 million

for the six months ended June 30, 2022.

This increase was primarily due to higher material costs associated with consuming higher priced

profit decreased by $3.7 million, or 29.4%, to $8.8 million for the six months ended June 30, 2023, as compared to $12.5 million for

the six months ended June 30, 2022.

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, combined with the aforementioned higher material

and Development Expenses

and development expenses increased by $0.6 million or 159.6%, to $0.9 million for the quarter ended March 31, 2023, as compared to $0.3

million for the quarter ended March 31, 2022.

The increase was primarily due to higher wage expense of $0.4 million associated with increased

headcount, higher materials and supply costs associated with development work and increased patent expenses.

and development expenses increased by $0.7 million or 62.5%, to $1.9 million for the six months ended June 30, 2023, as compared to $1.2

million for the six months ended June 30, 2022.

The increase was primarily due increased wages in the amount of $0.4 million associated

with higher headcount, higher patent expenses, and higher materials and supply costs associated with development work.

and Administrative Expenses

and administrative expenses increased by $5.9 million, or 161.8%, to $9.5 million for the quarter ended March 31, 2023, as compared to

$3.6 million for the quarter ended March 31, 2022.

This increase was primarily due to a $3.5 million increase in stock-based compensation

costs and a $2.1 million increase in professional fees, compliance, and insurance costs.

and administrative expenses increased by $9.7 million, or 129.9%, to $17.1 million for the six months ended June 30, 2023, as compared

to $7.4 million for the six months ended June 30, 2022.

This increase was primarily due a $4.1 million increase in stock-based compensation

costs, a $3.9 million increase in professional services, compliance, and insurance costs, a $0.7 million severance expense, and increased

wages associated with higher headcount in the amount of $0.5 million.

and Marketing Expenses

and marketing expenses increased by $1.1 million, or 35.3%, to $4.2 million for the quarter ended March 31, 2023, as compared to $3.1

million for the quarter ended March 31, 2022.

This increase was primarily due to a $1.6 million increase in wage-related expenses primarily

due to the addition of sales and marketing personnel to support growth in our existing end markets, as well as to drive growth in the

new, adjacent end markets we are targeting.

This increase was partially offset by lower spending in outsourced advertising costs along

with lower shipping costs, due to the change in revenue mix.

and marketing expenses increased by $2.0 million, or 33.8%, to $8.0 million for the six months ended June 30, 2023, as compared to $6.0

million for the six months ended June 30, 2022.

This increase was primarily due to a $2.7 million increase in wage-related expenses.

This increase was partially offset by lower shipping costs, due to the decline in DTC sales and change in revenue mix.

Other Income (Expense)

income totaled $14.7 million for the quarter ended March 31, 2023 as compared to total other expense of $1.3 million for the quarter

ended March 31, 2022.

Other income in quarter ended March 31, 2023 is comprised of a change in fair market value of our warrants in the

amount of $18.5 million offset by $3.8 million in interest expense related to the debt securities of $75 million.

The $1.3 million expense

in the quarter ended March 31, 2022 was comprised of interest expense related to the senior secured notes of $45 million which were retired

as a result of the Business Combination.

income totaled $11.4 million for the six months ended June 30, 2023 as compared to total other expense of $2.5 million for the six months

ended June 30, 2022.

Other income for the six months ended June 30, 2023 is comprised of a change in fair market value of our warrants

in the amount of $19.3 million offset by $7.9 million in interest expense related to our debt securities.

The $2.5 million expense in

for the six months ended June 30, 2022 was comprised of interest expense related to the senior secured notes of $45 million which were

retired as a result of the Business Combination.

Tax (Benefit) Expense

was no tax expense recorded for the quarter ended March 31, 2023, as compared to $0.5 million benefit for the quarter ended March 31,

No tax expense was recorded in the quarter ended March 31, 2023 due to utilization of a portion of the $10.6 million valuation

The income tax benefit of $0.5 million for the quarter ended March 31, 2022 was expected to be used against future tax obligations.

Income (Loss)

generated net income of $4.9 million for the quarter ended March 31, 2023, as compared to net loss of $2.3 million for the quarter ended

March 31, 2022.

As described above, this result was driven primarily by higher sales offset by increased cost of goods sold, higher operating

expenses, and increased other income (primarily as a result of a change in fair market value of warrants).

was no tax expense recorded for the six months ended June 30, 2023, as compared to a $0.8 million benefit for the six months ended June

The income tax benefit of $0.8 million for the six months ended June 30, 2022 was expected to be used against future tax obligations.

Based on available evidence as of June 30, 2023, management believes it is more likely than not that some or all

the deferred tax assets will not be realized.

Accordingly, the Company established a 100% valuation allowance.

As a result of the full

valuation allowance, the Company did not record a tax benefit during the six months ended June 30, 2023.

generated a net loss of $6.8 million for the six months ended June 30, 2023, as compared to net loss of $3.8 million for the six months

ended June 30, 2022.

As described above, this result was driven primarily by lower sales, increased cost of goods sold, higher operating

expenses, partially offset by increased other income (primarily as a result of a change in fair market value of warrants).

Accounting Estimates

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reported in accordance with U.S.

table below presents our adjusted EBITDA, reconciled to net income (loss) for the quarters ended March 31, 2023, and March 31, 2022.

Three months ended March 31,

table below presents our adjusted EBITDA, reconciled to net income (loss) for the three and six months ended June 30, 2023, and June

months ended June 30,

(in thousands)

Net income (loss)

(in thousands)

Interest Expense

Depreciation and Amortization

and Amortization

Adjusted for:

Stock-Based Compensation (1)

ERP Implementation (2)

Promissory Note Forgiveness (3)

Change in fair market value of warrant liability (4)

Adjusted EBITDA

Separation Agreement (2)

Offering Costs (3)

Note Forgiveness (4)

in fair market value of warrant liability (5)

Compensation is comprised of costs associated with option and RSU grants made to our employees, consultants and board members.

Implementation is comprised of costs and expenses associated with our implementation of an ERP system in anticipation of the Business

Combination and becoming a public company.

Agreement is comprised of $720 in cash severance associated with separation agreement dated April 26, 2023 between us and our former

Chief Legal Officer.

Offering Costs is comprised of fees and expenses, including legal, accounting, and other expenses associated with our secondary

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.

in fair market value of warrant liabilities represents the change in fair value from January 1, 2023 through March 31, 2023.

note, with a maturity date of March 1, 2026, between us and John Marchetti, our former Chief Financial Officer.

fair market value of warrant liabilities represents the change in fair value from January 1, 2023 through June 30, 2023.

and Capital Resources

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cash flows from operations and their sufficiency to fund our operating and investing activities.

As of March 31, 2023, we had cash totaling

As of June 30, 2023, we had cash totaling

$33.0 million.

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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 first quarter of 2023, we continued to increase our inventory purchasing activities.

As a result, our inventory balance at

March 31, 2023 increased by $1.9 million to $51.8 million, compared to $49.9 million at December 31, 2022.

expect that we will need to raise additional funds, including through the use of the ChEF Equity Facility and the issuance of equity,

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On March 29, 2023, we obtained a waiver from Alter Domus (US) LLC, as administrative agent for the lenders (the

“Administrative Agent”) and EICF Agent LLC (“EIP”) and certain third-party financing source (collectively with

EIP, the “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.

It is probable that we will

fail to meet these covenants within the next twelve months.

“Administrative Agent”) and EICF Agent LLC and certain third-party financing source 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.

We were in compliance with the covenants as of June 30, 2023.

However, 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.

The Term Loan accrues interest (i) until April 1, 2023 at a per annum rate equal to adjusted secured

overnight financing rate (“SOFR”) is a margin equal to 13.5%, of which 7% will be payable in cash and 6.5% will be paid in-kind,

(ii) thereafter until October 1, 2024, at a per annum rate equal to adjusted SOFR plus 7% payable in cash plus an amount ranging from

GAAP, we reclassified our notes payable from a long-term liability

to a current liability.

The Term Loan accrues interest (i) until April 1, 2023 at a per annum rate equal to adjusted secured overnight

financing rate (“SOFR”) is a margin equal to 13.5%, of which 7% will be payable in cash and 6.5% will be paid in-kind, (ii)

thereafter until October 1, 2024, at a per annum rate equal to adjusted SOFR plus 7% payable in cash plus an amount ranging from 4.5%

to 6.5%, depending on the senior leverage ratio of the consolidated company.

In each of the foregoing case, adjusted SOFR will be

no less than 1%.

In each of the foregoing case, adjusted SOFR will be no

less than 1%.

may elect to prepay all or any portion of the amounts owed prior to the Maturity Date, provided that we provide notice to the Administrative

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exercisable to purchase 1,600,000 shares of our common stock at an exercise price of $10.00 per share.

January 1, 2023 to May 15, 2023, we issued and sold approximately 98,500 shares of our common stock under the ChEF Equity Facility, resulting

in net cash proceeds of $670,593

January 1, 2023 to June 30, 2023, we issued and sold approximately 98,500 shares of our common stock under the ChEF Equity Facility,

resulting in net cash proceeds of $670,593.

March 5, 2023, we issued a note in the principal amount of $1.0 million (the “Principal Amount”) to Brian Nelson, one of

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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.

the quarter ended March 31, 2023, we generated net income of $4.9 million but had a negative cash flow from operations.

As of March 31,

2023, we had approximately $15.8 million in cash and cash equivalents and working capital of $24.5 million.

June 2023, we completed the June 2023 Offering which provided net proceeds to us, including the partial over-allotment option exercise,

of approximately $21.1 million.

the quarter ended June 30, 2023, we generated a net loss of $11.7 million and had a negative cash flow from operations.

As of June 30,

2023, we had approximately $33.0 in cash and cash equivalents and working capital of $30.6 million.

the Term Loan Agreement, we are obligated to comply with certain financial covenants, which include maintaining a maximum senior leverage

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leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 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.

While the Company

was in compliance with its covenants for the quarter ended June 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

addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial

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future debt or equity financings may be dilutive to our current stockholders.

Flows for the Three months ended March 31, 2023, and March 31, 2022

Three months ended March 31,

Net Cash provided by/(used in):

Flows for the Six months ended June 30, 2023, and June 30, 2022

months ended June 30,

Net Cash (used in)/provided by:

(in thousands)

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Financing activities

cash used in operating activities was $3.8 million for three months ended March 31, 2023, primarily due to a net operating loss of $9.8

million during the period offset by an increase in accounts payable and accrued expenses as a result of extended payments for the large

influx of cells received late in 2022 and early 2023.

cash used in operating activities was $11.1 million for the three months ended March 31, 2022, primarily due to a net loss during the

period in addition to an increase in inventory and reduction of accounts payable and accrued expenses.

cash used in investing activities was $0.6 million for the three months ended March 31, 2023, as compared to net cash used in investing

activities of $4.5 million for the three months ended March 31, 2022.

cash used in operating activities was $5.6 million for six months ended June 30, 2023, primarily due to a net loss of $6.8 million and

negative change of $19.3 million in the fair market value of our warrant liability during the period offset by lower inventory levels

an increase in accounts payable and accrued expenses as a result of extended payments for the large influx of cells received late in

2022 and early 2023.

cash used in operating activities was $19.9 million for the six months ended June 30, 2022, primarily due to a net loss during the period

in addition to an increase in inventory.

cash used in investing activities was $2.6 million for the six months ended June 30, 2023, as compared to net cash used in investing

activities of $4.8 million for the three months ended June 30, 2022.

The decrease in cash used in investing activities was primarily

due to a decrease in capital equipment expenses.

cash provided by financing activities was $2.4 million for the three months ended March 31, 2023, as compared to net cash provided by

financing activities of $0.1 million for the three months ended March 31, 2022, and was primarily due to proceeds from a $1.0 million

note payable and proceeds from public offering and warrants.

cash provided by financing activities was $23.4 million for the six months ended June 30, 2023, as compared to net cash provided by financing

activities of $0.2 million for the six months ended June 30, 2022, and was primarily due to net proceeds of $21.1 million from our June

equity offering.

estimated future obligations consist of short-term and long-term operating lease liabilities.

As of March 31, 2023, we had $1.2 million

As of June 30, 2023, we had $1.2 million

in short-term operating lease liabilities and $2.9 million in long-term operating lease liabilities.

disclosed above, we have a Term Loan.

As of March 31, 2023, the principal amount outstanding under the Term Loan was $77.4 million.

As of June 30, 2023, the principal amount outstanding under the Term Loan was $78.7 million.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis