What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-21 · 610 added, 577 removed, 549 unchanged (68% of the section changed)

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thousands, except share and per share data)

September 30, 2023

December 31, 2022

September 30, 2023

December 31, 2022

Current Assets

receivable, net of allowance for credit losses

Accounts receivable, net of allowance for credit losses

Prepaid expenses

Prepaid inventory

Prepaid income

current assets

Current Assets

and equipment

Office furniture

and equipment

accumulated depreciation and amortization

and Equipment, Net

lease right of use asset

Current Liabilities

Accrued payroll

and other liabilities

tax position liability

Notes payable,

current portion, net of deferred financing fees

lease liability, current portion

Prepaid income tax

Other current assets

Total Current Assets

Property and Equipment

Machinery and equipment

Office furniture and equipment

Leasehold improvements

Less accumulated depreciation and amortization

Property and Equipment, Net

Operating lease right of use asset

Current Liabilities

Warrant liabilities

Accrued expenses-long

lease liability, net of current portion

Accounts payable

Accrued payroll and other liabilities

Customer deposits

Uncertain tax position liability

Notes payable, current portion, net of deferred financing fees

Operating lease liability, current portion

Financing lease liability, current portion

Total Current Liabilities

Long-Term Liabilities

and Contingencies (See Note 5)

Common stock, 170,000,000 shares

at $ 0.0001 par value, authorized, 58,504,541 and 43,272,728 shares issued and outstanding as of June 30, 2023 and December 31, 2022,

Preferred stock, 5,000,000

shares at $ 0.0001 par value, authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Warrant liabilities

Accrued expenses-long term

Operating lease liability, net of current portion

Financing lease liability, net of current portion

Total Long-Term Liabilities

Total Liabilities

Commitments and Contingencies (See Note 5)

Common stock, 170,000,000 shares at $ 0.0001 par value, authorized, 58,880,712 and 43,272,728 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Preferred stock, 5,000,000 shares at $ 0.0001 par value, authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid in capital

Liabilities and Shareholders’ Equity

Retained deficit

Total Liabilities and Shareholders’ Equity

accompanying notes are an integral part of these condensed and consolidated financial statements.

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thousands, except share and per share data)

The Three Months Ended

The Six Months Ended

Cost of Goods

and development

administrative

and marketing

For The Three Months Ended September 30,

For The Nine Months Ended September 30,

Cost of Goods Sold

Operating Expenses

From Operations

(Expense) Income

in fair market value of warrant liability

Research and development

General and administrative

Selling and marketing

Total Operating Expenses

Loss From Operations

Other (Expense) Income

Tax (Benefit) Expense

Interest expense

Change in fair market value of warrant liability

Total Other (Expense) Income

Loss Before Taxes

Income Tax (Benefit) Expense

Loss Per Share- Basic

Loss Per Share- Diluted

Weighted Average Number

of Shares- Basic

Weighted Average Number

of Shares- Diluted

Weighted Average Number of Shares- Basic

Weighted Average Number of Shares- Diluted

accompanying notes are an integral part of these condensed and consolidated financial statements.

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Condensed Consolidated Statements of Shareholders’ Equity

THE PERIOD ENDED jUNE 30, 2023 AND 2022

THE PERIOD ENDED September 30, 2023 AND 2022

thousands, except share data)

Preferred Stock

-January 1, 2022

application of recapitalization

Balance -January 1, 2022

Retroactive application of recapitalization

( 10,000,000 )

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Exercise of stock options

– March 31, 2022

Balance – March 31, 2022

Stock compensation expense

Exercise of stock options

– June 30, 2022

Balance – June 30, 2022

Stock compensation expense

Stock purchase agreement

Exercise of stock options

Balance – September 30, 2022

Balance - January 1, 2023

Common stock issued in public

offering (ATM), net of costs

Common stock issued in public offering (ATM), net of costs

Exercise of stock options

Exercise of Public Warrants

Cashless exercise of liability

classified warrants

compensation expense

– March 31, 2023

Cashless exercise of liability classified warrants

Stock compensation expense

Balance – March 31, 2023

Common stock issued in public offering, net of costs

Common stock issued in public offering (ATM), net of costs

Exercise of stock options

Cashless exercise of liability classified warrants

Shares issued for vested restricted stock units

Stock compensation expense

Balance - June 30, 2023

Net income (loss)

Common stock issued in public

offering, net of costs

Common stock issued in public

offering (ATM), net of costs

Exercise of stock options

Cashless exercise of liability

classified warrants

Shares issued for vested restricted

compensation expense

- June 30, 2023

Cash exercise of liability classified warrants

Stock compensation expense

Balance – September 30, 2023

accompanying notes are an integral part of these condensed and consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows

the SIX Months Ended June 30, 2023 and 2022

the Nine Months Ended September 30, 2023 and 2022

September 30, 2023

September 30, 2022

Cash flows from Operating Activities

Adjustments to Reconcile Net

Loss to Net Cash

Used in Operating

of debt discount

fair market value of warrant liability

tax liability

interest expense (Paid-in Kind)

for doubtful accounts

and amortization

Loss on disposal

of property and equipment

Adjustments to Reconcile Net Loss to Net Cash

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities

Used in Operating Activities

Stock based compensation

Amortization of debt discount

Change in fair market value of warrant liability

Deferred tax liability

Non-cash interest expense (Paid-in Kind)

Provision for doubtful accounts

Depreciation and amortization

Loss on disposal of property and equipment

Changes in Assets and Liabilities

Accounts receivable

Prepaid expenses

Prepaid inventory

Other current

payable and accrued expenses

Cash Used in Operating Activities

Other current assets

Income taxes payable

Accounts payable and accrued expenses

Customer deposits

Total Adjustments

Net Cash Used in Operating Activities

Cash Flows from Investing Activities

of property and equipment

Cash Used in Investing Activities

Purchase of property and equipment

Net Cash Used in Investing Activities

accompanying notes are an integral part of these condensed and consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows (Continued)

the Six Months Ended June 30, 2023 and 2022

(continued from previous

the NINE Months Ended September 30, 2023 and 2022

(continued from previous page)

September 30, 2023

September 30, 2022

Cash Flows from Financing Activities

from public offering, net

Payment of offering costs

Proceeds from public offering, net

Proceeds from public offering (ATM), net

Proceeds from note payable, related party

of note payable, related party

from exercise of public warrants

from exercise of options

Cash Provided by Financing Activities

Net Increase (Decrease) in Cash

Repayment of note payable, related party

Repayment of note payable

Proceeds from exercise of Public Warrants

Proceeds from exercise of options

Proceeds from stock purchase agreement

Proceeds from exercise of Investor Warrants

Net Cash Provided by Financing Activities

Net Decrease in Cash

Beginning cash

Supplemental Disclosures of Cash

Flow Information:

paid for income taxes

paid for interest

Supplemental Disclosures of Cash Flow Information:

Cash paid for income taxes

Cash paid for interest

Supplemental Non-Cash Items

of options exercised

of property and equipment, not yet paid

exercise of liability classified warrants

Purchases of property and equipment, not yet paid

Recognition of warrant liability

Non-cash impact of cash exercise of liability classified warrants

Cashless exercise of liability classified warrants

accompanying notes are an integral part of these condensed and consolidated financial statements.

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of applications.

The Company sells to distributors under the Dragonfly Energy brand name, and sells direct to consumers under the trade

name Battleborn Batteries.

In addition, the Company develops technology for improved lithium-ion battery manufacturing and assembly methods.

The Company sells to Original Equipment Manufacturers (“OEMs”) under the Dragonfly Energy brand name, and

sells direct to consumers under the trade name Battleborn Batteries.

In addition, the Company develops technology for improved lithium-ion

battery manufacturing and assembly methods.

October 7, 2022, a merger transaction between Chardan NexTech Acquisition 2 Corporation (“CNTQ”), Dragonfly Energy Corp.

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a wholly owned subsidiary of New Dragonfly.

New Dragonfly was the legal acquirer of Legacy Dragonfly in the merger, Legacy Dragonfly was deemed to be the accounting acquirer,

and the historical financial statements of Legacy Dragonfly became the basis for the historical financial statements of New

Dragonfly upon the closing of the merger.

New Dragonfly together with its wholly owned subsidiary, Dragonfly Energy Corp., is

referred to hereinafter as the “Company.”

New Dragonfly was the legal acquirer of Legacy Dragonfly in the merger, Legacy Dragonfly was deemed to be the accounting acquirer, and

the historical financial statements of Legacy Dragonfly became the basis for the historical financial statements of New Dragonfly upon

the closing of the merger.

New Dragonfly together with its wholly owned subsidiary, Dragonfly Energy Corp., is referred to hereinafter

as the “Company.”

the historical financial statements of Legacy Dragonfly became the historical financial statements of the Company upon the consummation

of the merger.

As a result, the financial statements included in this Quarterly Report reflect (i) the historical operating results of

Legacy Dragonfly prior to the merger;

As a result, the financial statements included in this Quarterly Report reflect:

(i) the historical operating results

of Legacy Dragonfly prior to the merger;

(ii) the combined results of CNTQ and Legacy Dragonfly following the close of the merger;

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of consolidation

accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally

accepted in the United States of America (“U.S.

GAAP”) and present the consolidated financial statements of the Company and

its wholly owned subsidiary.

All significant intercompany transactions and balances are eliminated in consolidation.

accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting

principles generally accepted in the United States of America (“U.S.

GAAP”) and present the consolidated financial

statements of the Company and its wholly owned subsidiary.

All significant intercompany transactions and balances are eliminated in

consolidation.

of presentation

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Unaudited interim results are not necessarily indicative of the results for the full fiscal year.

These condensed and consolidated financial

statements should be read along with the Annual Report filed of the Company for the annual period ended December 31, 2022.

The consolidated

balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements as of and for the year then ended.

These condensed consolidated financial

statements should be read along with the 10-K filed with the SEC on April 17, 2023 (as amended May 1, 2023, the “Annual Report”)

of the Company for the annual period ended December 31, 2022.

The consolidated balance sheet as of December 31, 2022 was derived from

the audited consolidated financial statements as of and for the year then ended.

Energy Holdings Corp.

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include any adjustments that might result from the outcome of this uncertainty.

the six months ended June 30, 2023 and 2022, the Company incurred loss from operations and had negative cash flow from operations.

of June 30, 2023, the Company had $ 32,952 in cash and working capital of $ 30,592 .

The Company’s ability to

achieve profitability and positive cash flow depends on its ability to increase revenue, contain its expenses and maintain compliance

with the financial covenants in its outstanding indebtedness agreements.

the nine months ended September 30, 2023, and 2022, the Company incurred losses from operations and had negative cash flow from operations.

As of September 30, 2023, the Company had $ 13,235 in cash and working capital of $ 22,000 .

The Company’s ability to achieve profitability

and positive cash flow depends on its ability to increase revenue, contain its expenses and maintain compliance with the financial covenants

in its outstanding indebtedness agreements.

connection with the Company’s senior secured term loan facility in an aggregate principal amount of $ 75,000 (the “Term Loan”),

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liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures (See Note 6).

On March 29, 2023, the Company obtained

a waiver from the Term Loan administrative agent and lenders of its 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.

While the Company

was in compliance with its covenants for the quarter ended June 30, 2023, it is probable that the Company will fail to meet these covenants

within the next twelve months.

If the Company is unable to obtain a waiver or if the Company is unable to comply with such covenants,

the lenders have the right to accelerate the maturity of the Term Loan.

These conditions raise substantial doubt about the Company’s

ability to continue as a going concern.

On March 29, 2023 and September 29,

2023, the Company obtained waivers from the Term Loan administrative agent and lenders of its 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 quarters ended March

31, 2023 and September 30, 2023.

It is probable that the Company will fail to meet these covenants within the next twelve months.

the Company is unable to obtain a waiver or if the Company is unable to comply with such covenants, the lenders have the right to accelerate

the maturity of the Term Loan.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

addition, the Company may need to raise additional debt and/or equity financings to fund our operations, strategic plans, and meet its

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it will be able to raise additional equity, contain expenses, or increase revenue, and comply with the financial covenants under the

Recently adopted accounting standards :

In June 2016, the Financial Accounting Standards Board

(“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic

adopted accounting standards :

June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,

Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The FASB subsequently issued amendments to ASU 2016-13, which have the same

effective date and transition date of January 1, 2023.

These standards replace the existing incurred loss impairment model with an expected

credit loss model and requires a financial asset measure at amortized cost to be presented at the net amount expected to be collected.

The Company determined that this change does not have a material impact to the financial statements or financial statement disclosures.

The FASB subsequently

issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023.

These standards replace

the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measure at amortized cost

to be presented at the net amount expected to be collected.

The Company determined that this change does not have a material impact to

the financial statements or financial statement disclosures.

issued accounting pronouncements :

were no recently adopted accounting standards that had a material impact on the Company’s financial statements.

There were no recently

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The Company has an allowance for doubtful accounts

as of June 30, 2023 and December 31, 2022 of $ 131 and $ 90 , respectively.

as of September 30, 2023 and December 31, 2022 of $ 178 and $ 90 , respectively.

(Note 4), which consist of raw materials and finished goods, are stated at the lower of cost (first in, first out) or net realizable

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projected sales volumes and anticipated selling prices, we establish reserves.

Inventory that is in excess of current and projected

use is reduced by an allowance to a level that approximates its estimate of future demand.

Products that are determined to be obsolete

are written down to net realizable value.

As of June 30, 2023 and December 31, 2022, no such reserves were necessary.

Inventory that is in excess of current and projected use

is reduced by an allowance to a level that approximates its estimate of future demand.

Products that are determined to be obsolete are

written down to net realizable value.

As of September 30, 2023 and December 31, 2022, no such reserves were necessary.

and Equipment

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lives for owned property, or, for leasehold improvements, over the shorter of the asset’s useful life or term of the lease.

expense for the six months ended June 30, 2023 and 2022 was $ 593 and $ 389 , respectively.

Depreciation expense for the three months ended

June 30, 2023 and 2022 was $ 296 and $ 197 , respectively.

The various classes of property and equipment and estimated useful lives are

expense for the nine months ended September 30, 2023 and 2022 was $ 909 and $ 648 , respectively.

Depreciation expense for the three months

ended September 30, 2023 and 2022 was $ 316 and $ 259 , respectively.

The various classes of property and equipment and estimated useful

lives are as follows:

OF VARIOUS CLASSES OF PROPERTY AND EQUIPMENT AND ESTIMATED USEFUL LIVES

Office furniture and

Machinery and equipment

Leasehold improvements

furniture and equipment

and equipment

Term of Lease

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Actual results could differ from those estimates.

Company applies relevant accounting guidance for warrants to purchase the Company’s stock based on the nature of the relationship

with the counterparty.

For warrants issued to investors or lenders in exchange for cash or other financial assets, the Company follows

guidance issued within Accounting Standards Codification (“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.

Warrants that are determined to require liability classification are measured at fair value upon

issuance and are subsequently remeasured to their then fair value at each subsequent reporting period with changes in fair value recorded

in current earnings.

Warrants that are determined to require equity classification are measured at fair value upon issuance and are not

subsequently remeasured unless they are required to be reclassified.

Company applies relevant accounting guidance for warrants to purchase the Company’s common stock, par value $ 0.0001 per share (the

“Common Stock”).

based on the nature of the relationship with the counterparty.

For warrants issued to investors or lenders

in exchange for cash or other financial assets, the Company follows guidance issued within Accounting Standards Codification (“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.

Warrants that are determined to require

liability classification are measured at fair value upon issuance and are subsequently remeasured to their then fair value at each subsequent

reporting period with changes in fair value recorded in current earnings.

Warrants that are determined to require equity classification

are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified.

Energy Holdings Corp.

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Company may receive payments at the onset of the contract before delivery of goods for customers in the retail channel.

Payment terms

for distributors and OEMs are typically due within 30 - 90 days after shipment.

In such instances, the Company records a customer deposit

The Company recognizes these contract liabilities as sales after the revenue criteria are met.

As of June 30, 2023 and December

31, 2022, the contract liability related to the Company’s customer deposits approximated $ 152 and $ 238 , respectively.

recognized $ 221 of the contract liability pertaining to the year ended December 31, 2022 during the six months ended June 30, 2023.

entire contract liability balance of $ 434 as of January 1, 2022 was recognized as revenue during the six months ended June 30, 2022.

terms for distributors and OEMs are typically due within 30 - 90

days after shipment.

In such instances, the Company records a customer deposit liability.

The Company recognizes these contract

liabilities as sales after the revenue criteria are met.

As of September 30, 2023 and December 31, 2022, the contract liability

related to the Company’s customer deposits approximated $ 217

respectively.

The Company recognized $ 230

of the contract liability pertaining to the year ended December 31, 2022 during the nine months ended September 30, 2023.

contract liability balance of $ 434

as of January 1, 2022 was recognized as revenue during the nine months ended September 30, 2022.

Disaggregation

following table present our disaggregated revenues by distribution channel:

following table presents our disaggregated revenues by distribution channel:

OF DISAGGREGATED REVENUES BY DISTRIBUTION CHANNEL

The Three Months Ended June 30,

The Six Months Ended June 30,

equipment manufacture

For The Three Months Ended September 30,

For The Nine Months Ended September 30,

Direct to Customer

Original equipment manufacture

During the quarter ended September 30, 2023, The Company deemed it more

appropriate to classify Retail and Distributor revenues as a single line item referred to as direct-to-consumer revenue.

has combined previously reported retail and distributor amounts to direct-to-consumer revenue to conform with current year presentation.

The consolidation into direct-to-consumer revenue is motivated by The Company’s strategic perspective on its operations and better

represents how it evaluates their sales channels.

and handling fees paid by customers are recorded within net sales, with the related expenses recorded in cost of sales.

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Shipping and handling costs associated

with outbound freight totaled $ 1,958 and $ 2,534 for the six months ended June 30, 2023 and 2022, respectively.

with outbound freight totaled $ 2,872 and $ 4,042 for the nine months ended September 30, 2023 and 2022, respectively.

Shipping and handling

costs associated with outbound freight totaled $ 951 and $ 1,306 for the three months ended June 30, 2023 and 2022, respectively.

costs associated with outbound freight totaled $ 913 and $ 1,508 for the three months ended September 30, 2023 and 2022, respectively.

Company offers assurance type warranties from 5 to 10 years on its products.

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The Company has assessed the costs of fulfilling its existing

assurance type warranties and has determined that the estimated outstanding warranty obligation on June 30, 2023 and December 31, 2022

assurance type warranties and has determined that the estimated outstanding warranty obligation on September 30, 2023 and December 31,

2022 to be $ 301 and $ 328 , respectively.

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Concentrations

from two customers comprised approximately 22 % and 20 %, respectively, of accounts receivable as of June 30, 2023.

Receivables from three

customers comprised approximately 18 %, 10 % and 10 %, respectively, of accounts receivable as of December 31, 2022.

There are no other

significant accounts receivable concentration.

from one customer comprised approximately 26 % of revenue for the six months ended June 30, 2023.

from two customers comprised approximately 38 % and 15 %, respectively, of accounts receivable as of September 30, 2023.

Receivables from

three customers comprised approximately 18 %, 10 % and 10 %, respectively, of accounts receivable as of December 31, 2022.

other significant accounts receivable concentration.

from one customer comprised approximately 19 % of revenue for the nine months ended September 30, 2023.

One customer accounted for approximately

11 % of the Company’s total revenue for the six months ended June 30, 2022.

20 % of the Company’s total revenue for the nine months ended September 30, 2022.

Sales from one customer comprised approximately

of revenue for the three months ended June 30, 2023.

One customer accounted for approximately 15 % of the Company’s total revenue

for the three months ended June 30, 2022.

to two vendors comprised approximately 56 % and 10 %, respectively, of accounts payables as of June 30, 2023.

Payables to one vendor comprised

approximately 61 % of accounts payables as of December 31, 2022.

the six months ended June 30, 2023, one vendor accounted for approximately 22 % of the Company’s total purchases.

For the six months

ended June 30, 2022, one vendor accounted for approximately 26 % of the Company’s total purchases.

For the three months ended June

30, 2023, one vendor accounted for approximately 10 % of the Company’s total purchases.

For the three months ended June 30, 2022,

two vendors accounted for approximately 17 % and 15 %, respectively, of the Company’s total purchases.

11 % of revenue for the three months ended September 30, 2023.

One customer accounted for approximately 34 % of the Company’s total

revenue for the three months ended September 30, 2022.

to one vendor comprised approximately 68 % of accounts payable as of September 30, 2023.

Payables to one vendor comprised approximately

61 % of accounts payables as of December 31, 2022.

the nine months ended September 30, 2023, one vendor accounted for approximately 16 % of the Company’s total purchases.

nine months ended September 30, 2022, one vendor accounted for approximately 24 % of the Company’s total purchases.

For the three

months ended September 30, 2023, three vendors accounted for approximately 14 %, 11 %, and 10 %, respectively, of the Company’s total

For the three months ended September 30, 2022, three vendors accounted for approximately 20 %, 10 %, and 10 %, respectively,

of the Company’s total purchases.

Company expenses advertising costs as they are incurred and are included in selling and marketing expenses.

Advertising expenses amounted

to $ 1,270 and $ 1,262 for the six months ended June 30, 2023 and 2022, respectively.

Advertising expenses amounted to $ 683 and $ 481 for

the three months ended June 30, 2023 and 2022, respectively.

to $ 2,020 and $ 1,777 for the nine months ended September 30, 2023 and 2022, respectively.

Advertising expenses amounted to $ 750 and $ 515

for the three months ended September 30, 2023 and 2022, respectively.

Company accounts for stock-based compensation arrangements with employees and non-employee consultants using a fair value method which

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Restricted stock unit awards are valued based on the closing trading value of the Company’s

common stock, par value $ 0.0001 , per share (the “Common Stock”) on the date of grant and then amortized on a straight-line

basis over the requisite service period of the award.

The Company measures equity-based compensation awards granted to non-employees

at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.

Common Stock on the date of grant and then amortized on a straight-line basis over the requisite service period of the award.

measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value

as compensation expense at each financial reporting period.

the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, expected dividend

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that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.

has a liability of $ 128 as

of June 30, 2023, and December 31, 2022 of uncertain tax positions.

The Company’s accounting policy is to include

penalties and interest related to income taxes if any, in selling, general and administrative expenses.

has a liability of $ 128 as of September 30, 2023, and December 31, 2022 of uncertain tax positions.

The Company’s accounting policy

is to include penalties and interest related to income taxes if any, in selling, general and administrative expenses.

segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation

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in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

Level 1 inputs are quoted

prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are inputs

other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly or indirectly.

Level 3 inputs are unobservable

inputs that reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset

or liability.

1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

2 inputs are inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either

directly or indirectly.

3 inputs are unobservable inputs that reflect the Company’s own assumptions about the inputs that market participants would

use in pricing the asset or liability.

assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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3 - Fair Value Measurements (Continued)

following table presents assets and liabilities that were measured at fair value in the Condensed Consolidated Balance Sheets on a

recurring basis as of June 30, 2023:

following table presents assets and liabilities that were measured at fair value in the Condensed Consolidated Balance Sheets on a recurring

basis as of September 30, 2023:

OF FAIR VALUE, ASSETS AND LIABILITIES

of June 30, 2023

Warrant liability-

Warrant liability- June public

liability- Private placement warrants

As of September 30, 2023

Warrant liability - Term Loan

Warrant liability - June public offering

Warrant liability - Private placement warrants

Total liabilities

following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis

as of December 31, 2022:

of December 31, 2022

Warrant liability-

liability- Private placement warrants

carrying amounts of accounts receivable and accounts payable are considered level 1 and approximate fair value as of June 30, 2023 and

December 31, 2022 because of the relatively short maturity of these instruments.

carrying value of the term loan as of June 30, 2023 and December 31, 2022 approximates fair value as the interest rate does not differ

significantly from the current market rates available to the Company for similar debt and is considered level 2.

As of December 31, 2022

Warrant liability- Term Loan

Warrant liability- Private placement warrants

Total liabilities

carrying amounts of accounts receivable and accounts payable are considered Level 1 and approximate fair value as of September 30, 2023

and December 31, 2022 because of the relatively short maturity of these instruments.

carrying value of the Term Loan as of September 30, 2023 and December 31, 2022 approximates fair value as the interest rate does not

differ significantly from the current market rates available to the Company for similar debt and is considered Level 2.

Energy Holdings Corp.

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consists of the following:

September 30, 2023

December 31, 2022

Finished goods

Total inventory

5 - COMMITMENTS AND CONTINGENCIES

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The first payment is due upon substantial completion of construction of the building which

is expected to be within 2 years from the effective date.

As of June 30, 2023, the lease has not commenced as the Company does not have

control over the asset.

is expected to be completed in early 2024.

As of September 30, 2023, the lease has not commenced as the Company does not have control

over the asset.

following table presents the breakout of the operating leases as of:

SCHEDULE OF TABLE REPRESENTING THE BREAKOUT OF THE OPERATING LEASES

lease right-of-use assets

September 30, 2023

December 31, 2022

Operating lease right-of-use assets

Short-term operating lease liabilities

operating lease liabilities

Long-term operating lease liabilities

Total operating lease liabilities

Weighted average remaining lease term

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Leases (Continued)

June 30, 2023, the future minimum lease payments under these operating leases are as follows:

September 30, 2023, the future minimum lease payments under these operating leases are as follows:

SCHEDULE OF THE FUTURE MINIMUM LEASE PAYMENTS UNDER THE OPERATING LEASES

Fiscal Years Ending

December 31, 2023 (1)

1 unchanged sentence

December 31, 2025

lease payments

operating lease liabilities

(1) Represents

scheduled payments for the remaining six-month period ending December 31, 2023

December 31, 2026

Total lease payments

Less imputed interest

Total operating lease liabilities

scheduled payments for the remaining three-month period ending December 31, 2023.

OF LEASE COST

The Three Months Ended

The Six Months Ended

For The Three Months Ended September 30,

For The Nine Months Ended September 30,

Classification

5 unchanged sentences

General and administration

and marketing

Operating lease cost

Selling and marketing

Total lease cost

the nine months ended September 30, 2023, the Company entered into a finance lease agreement for equipment to support the Company’s

Payments under the finance lease agreement are fixed for a term of 3

The leased assets are recognized in property

plant & equipment.

During the nine months ended September 30, 2022, the Company entered into a finance lease agreement for equipment

to support the Company’s operations.

Payments under the finance lease agreement are fixed for a term of 5 years.

The leased assets

are recognized in property plant & equipment.

following table presents the breakout of the finance leases as of:

OF TABLE REPRESENTING THE BREAKOUT OF THE FINANCE LEASES

September 30, 2023

December 31, 2022

Finance lease right-of-use assets

Short-term finance lease liabilities

Long-term finance lease liabilities

Total finance lease liabilities

Weighted average remaining lease term

Weighted average discount rate

used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based

on comparable market data.

September 30, 2023, the future minimum lease payments under the finance lease are as follows:

SCHEDULE OF THE FUTURE MINIMUM LEASE PAYMENTS UNDER THE FINANCE LEASES

Fiscal Years Ending

December 31, 2023 (1)

December 31, 2024

December 31, 2025

December 31, 2026

December 31, 2027

Total lease payments

Less imputed interest

Total finance lease liabilities

scheduled payments for the remaining three-month period ending December 31, 2023.

former holders of shares of Legacy Dragonfly common stock (including shares received as a result of the conversion of Legacy Dragonfly

17 unchanged sentences

Trust Indenture

November 24, 2021, the Company entered into agreements to issue $ 45,000 in fixed rate senior notes (Series 2021-6 Notes) pursuant to

a Trust Indenture held by UMB Bank, as trustee and disbursing agent, and Newlight Capital, LLC as servicer.

The trust and debt documents

also require a Lender Collateral Residual Value Insurance Policy (the “Insurance Policy”, with UMB Bank as named insured

for $ 45,000 ), and a placement agent, which is Tribe Capital Markets, LLC.

November 24, 2021, the Company entered into agreements to issue $ 45,000 in fixed rate senior notes (the “Series 2021-6 Notes”)

pursuant to a Trust Indenture held by UMB Bank, as trustee and disbursing agent, and Newlight Capital, LLC as servicer.

The trust and

debt documents also require a Lender Collateral Residual Value Insurance Policy (the “Insurance Policy”, with UMB Bank as

named insured for $ 45,000 ), and a placement agent, which is Tribe Capital Markets, LLC.

connection with the merger on October 7, 2022 (the “Closing Date”), the Company entered into a Term Loan, Guarantee and Security

2 unchanged sentences

A loss on extinguishment of $ 4,824 was recognized upon settlement.

During the six months ended

June 30, 2022, a total of $ 1,254 of interest expense was incurred under the debt.

Amortization of the debt issuance costs amounted to

$ 1,197 during the six months ended June 30, 2022.

During the three months ended June 30, 2022, a total of $ 635 of interest expense was

incurred under the debt.

Amortization of the debt issuance costs amounted to $ 584 during the three months ended June 30, 2022.

During the three months ended

September 30, 2022, a total of $ 619 of interest expense was incurred under the debt.

Amortization of the debt issuance costs amounted

to $ 586 during the three months ended September 30, 2022.

During the nine months ended September 30, 2022, a total of $ 1,873 of interest

expense was incurred under the debt.

Amortization of the debt issuance costs amounted to $ 1,783 during the nine months ended September

Energy Holdings Corp.

31 unchanged sentences

receipt of proceeds from certain transactions or casualty events.

Beginning on the date the financial statements for the year ended December

31, 2023 are required to be delivered to the Term Loan Lenders, the Company will be required to prepay the Term Loan based on excess

cash flow, as defined in the agreement.

Beginning on the date the financial statements for the year ending

December 31, 2023 are required to be delivered to the Term Loan Lenders, the Company will be required to prepay the Term Loan based on

excess cash flow, as defined in the Term Loan Agreement.

Pursuant to the Term Loan Agreement, the Company partially prepaid the Term

Loan in the amount of $ 5,275 as a result of the June 2023 Offering (as defined herein).

the obligations under the Term Loan are accelerated under the terms of the agreement, the maturity date will be October 7, 2026.

5 unchanged sentences

Loan Agreement (Continued)

the three and six months ended June 30, 2023, a total of $ 3,651 and $ 7,147 , respectively, of interest expense was incurred under the

Amortization of the debt issuance costs amounted to $ 401 and $ 620 , respectively, during the three and six months ended June 30,

carrying balance of $ 22,372 on June 30, 2023 consisted of $ 75,000 in principal, plus $ 3,702 Paid-in-Kind (PIK) interest, less $ 56,330 in unamortized

debt discount related to the debt issuance costs.

the three and nine months ended September 30, 2023, a total of $ 3,589 and $ 10,736 , respectively, of interest expense was incurred under

Amortization of the debt issuance costs amounted to $ 375 and $ 995 , respectively, during the three and nine months ended September

carrying balance of $ 18,700 on September 30, 2023 consisted of $ 69,725 in principal, plus $ 4,930 Paid-in-Kind (“PIK”) interest,

less $ 55,955 in unamortized debt discount related to the debt issuance costs.

Senior Leverage Ratio

Senior Leverage Ratio is the ratio of (a) consolidated indebtedness, as defined, on such date minus 100% of the unrestricted cash and

cash equivalents held (subject to adjustment) to (b) Consolidated earnings before interest, tax and amortization (“EBITDA”)

for the trailing twelve (12) fiscal month period most recently ended.

If liquidity, as defined, for any fiscal quarter is less than $17,500,

the Senior Leverage Ratio shall not be permitted , as of the last day of any fiscal quarter ending during any period set forth below,

to exceed the ratio set forth opposite such period in the table below:

Senior Leverage Ratio is the ratio of (a) consolidated indebtedness, as defined, on such date minus 100% of the unrestricted cash

and cash equivalents held (subject to adjustment) to (b) Consolidated earnings before interest, tax and amortization

(“EBITDA”) for the trailing twelve (12) fiscal month period most recently ended.

Starting with the fiscal quarter ending

December 31, 2023, (or through fiscal quarter ended September 30, 2023, only if liquidity, as defined, is less than $17,500), the

Senior Leverage Ratio shall not be permitted , as of the last day of any fiscal quarter ending during any period set forth

below, to exceed the ratio set forth opposite such period in the table below:

OF LEVERAGE RATIO

Period Ending

31, 2022 - March 31, 2023

30, 2023 - September 30, 2023

31, 2023 - March 31, 2024

30, 2024 - September 30, 2024

31, 2024 - March 31, 2025

30, 2025 and thereafter

Test Period Ending

Leverage Ratio

June 30, 2023 - September 30, 2023

December 31, 2023 - March 31, 2024

June 30, 2024 - September 30, 2024

December 31, 2024 - March 31, 2025

June 30, 2025 and thereafter

Company shall not permit their Liquidity (determined on a consolidated basis) to be less than $10,000 as of the last day of each fiscal

4 unchanged sentences

If Liquidity is less than $15,000 as of the last day of any fiscal quarter (commencing with

the quarter ending December 31, 2022), then the Company shall not permit the Fixed Charge Coverage Ratio for the trailing four quarterly

the quarter ended December 31, 2022), then the Company shall not permit the Fixed Charge Coverage Ratio for the trailing four quarterly

periods ending on the last day of any such quarter to be less than 1.15 to 1.00.

2 unchanged sentences

Company was in compliance with its covenants as of June 30, 2023 and December 31, 2022.

During the three months ended March 31, 2023,

the Company determined it would fail to satisfy the fixed charge coverage ratio and maximum senior leverage ratio for the quarter.

March 29, 2023, the Company obtained a waiver from the Administrative Agent and the Term Loan Lenders of its 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.

As a result of the uncertainty of maintaining compliance with financial covenants the Company has continued

to classify the entire term loan balance within current liabilities on the balance sheet..

On March 29, 2023 and September 29, 2023, the

Company obtained waivers from the Administrative Agent and the Term Loan Lenders of its 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 quarters ended March

31, 2023 and September 30, 2023, respectively.

As a result of the uncertainty of maintaining compliance with financial covenants the

Company has continued to classify the entire Term Loan balance within current liabilities on the balance sheet.

Energy Holdings Corp.

2 unchanged sentences

6 – Debt (continued)

Future Debt Maturities

June 30, 2023, the future debt maturities are as follows:

Debt Maturities

September 30, 2023, the future debt maturities are as follows:

OF FUTURE DEBT MATURITIES

For Year Ended December 31,

For Year Ending December 31,

Estimated interest paid-in-kind

Unamortized debt issuance costs, noncurrent

carrying amount

Total carrying amount

Current portion of debt

long-term debt

(1) Represents

scheduled payments for the remaining six-month period ending December 31, 2023

Total long-term debt

scheduled payments for the remaining three-month period ending December 31, 2023.

7 – ASSET PURCHASE AGREEMENT

10 unchanged sentences

concluded the purchase price to be $ 444 and was allocated in its entirety to inventory.

within twenty-four months of the Agreement the Company realizes $ 3,000 in gross sales of product either (a) sold under the Wakespeed

brand and/or (b) which incorporates any portion of Purchased IP as listed within the agreement, then the Company will pay to Thomason

and Jones each the amount of $ 1,000 as soon as reasonably practicable.

This payment may be made in cash or common stock, in the sole

discretion of the Company.

As a result, the Company determined that a liability should be recorded ratably over the 24-month period.

The Company recognized immediate compensation expense within sales and marketing of $ 417 on October 1, 2022 for amounts that should have

been accrued for during the period April 2022 through September 2022.

In October 2022, the Company determined the sales goals will most

likely be achieved within 18 months.

As a result, the Company changed its estimate prospectively and accelerated the accrual as if the

sales goals would be achieved within an 18-month period from the date of acquisition.

As a result, the Company recorded an accrual related

to the Earn Out in the amount of $ 1,909 and $ 782 as of June 30, 2023 and December 31, 2022, respectively.

to the April 2022 Asset Purchase Agreement, if, within twenty-four months of the April 2022 Asset Purchase Agreement the Company realizes

$ 3,000 in gross sales of product either (a) sold under the Wakespeed brand and/or (b) which incorporates any portion of Purchased IP

as listed within the agreement, then the Company would be obligated to pay Messrs.

Thomason and Jones each the amount of $ 1,000 as soon

as reasonably practicable.

This payment may be made in cash or Common Stock, in the sole discretion of the Company.

As a result, the

Company determined that a liability should be recorded ratably over the 24-month period.

The Company recognized immediate compensation

expense within sales and marketing of $ 417 on October 1, 2022 for amounts that should have been accrued for during the period April 2022

through September 2022.

In October 2022, the Company determined the sales goals will most likely be achieved within 18 months.

the Company changed its estimate prospectively and accelerated the accrual as if the sales goals would be achieved within an 18-month

period from the date of acquisition.

Also as a result, the Company recorded an accrual related to the Earn Out in the amount of $ 2,000

and $ 782 as of September 30, 2023 and December 31, 2022, respectively.

The sales goals under the April 2022 Asset Purchase Agreement

were achieved during the quarter ended September 30, 2023.

Energy Holdings Corp.

2 unchanged sentences

8 – RELATED PARTY

Company loaned its Chief Financial Officer $ 469 to repay amounts owed by him to his former employer and entered into a related Promissory

Note with a maturity date of March 1, 2026.

The loan was forgiven in full in March of 2022 and was recorded within general and administrative

October 25, 2022, the Company entered into a separation and release of claims agreement with its Chief Operating Officer (“COO”).

Company loaned its former Chief Financial Officer $ 469 to repay amounts owed by him to his former employer and entered into a related

Promissory Note with a maturity date of March 1, 2026.

The loan was forgiven in full in March of 2022 and was recorded within general

and administrative expense.

October 25, 2022, the Company entered into a separation and release of claims agreement with its former Chief Operating Officer (“COO”).

As consideration for the COO’s execution of the agreement, the Company agreed to pay the employee a lump sum payment of $ 100, which

2 unchanged sentences

The COO shall have 12 months from the termination date to exercise outstanding options.

February 2023, the Company entered into an agreement with its former COO in which the COO waived their rights to a transaction bonus

resulting from the merger transaction (Note 1) in lieu of a Company van.

The Company accounted for the cost of the van as an

employee bonus, resulting in $116 of general and administrative expense for the current period.

February 2023, the Company entered into an agreement with its COO in which the COO waived their rights to a transaction bonus resulting

from the merger transaction (Note 1) in lieu of a Company van.

The Company accounted for the cost of the van as an employee bonus, resulting

in $ 116 of general and administrative expense for the current period.

March 5, 2023, the Company entered into a convertible promissory note (the “Note”) with a board member in the amount of $ 1,000 ,

4 unchanged sentences

Amount and the Loan Fee on April 1, 2023 and April 4, 2023, respectively.

April 26, 2023, the Company entered into a separation and release of claims agreement with its Chief Legal Officer

As consideration for the CLO’s execution of the agreement, the Company agreed to pay the employee

payments equivalent to $ 720

for wages and benefits divided into 24 monthly payments commencing on June 1, 2023, and all outstanding equity-based compensation

awards to become fully vested and exercisable resulting in an expense of $ 76 .

The CLO shall have 3 months from the termination date to exercise outstanding options.

The three-month period ended on July 26, 2023 in which the options were not exercised

and the options were forfeited as a result.

April 26, 2023, the Company entered into a separation and release of claims agreement with its former Chief Legal Officer (the “CLO”).

As consideration for the CLO’s execution of the agreement, the Company agreed to pay the employee payments equivalent to $ 720 for

wages and benefits divided into 24 monthly payments commencing on June 1, 2023, and all outstanding equity-based compensation awards

to become fully vested and exercisable resulting in an expense of $ 76 .

The CLO had three (3) months from the termination date to exercise

the outstanding options.

The three (3) month period ended on July 26, 2023 in which the options were not exercised and the options

were forfeited as a result.

Stock Warrants classified as Equity

Public Warrant entitles the holder to the right to purchase one share of common stock at an exercise price of $ 11.50 per share.

No fractional

shares will be issued upon exercise of the Public Warrants.

The Company may elect to redeem the Public Warrants subject to certain conditions,

in whole and not in part, at a price of $ 0.01 per Public Warrant if (i) 30 days’ prior written notice of redemption is provided

to the holders, and (ii) the last reported sale price of the Company’s common stock equals or exceeds $ 16.00 per share (as adjusted

for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period

ending on the third business day prior to the date on which the Company sends the notice of redemption to the warrant holders.

Upon issuance

of a redemption notice by the Company, the warrant holders have a period of 30 days to exercise for cash, or on a cashless basis.

the Closing Date, there were 9,487,500 Public Warrants issued and outstanding.

The Public Warrants are not precluded from equity classification

and are accounted for as such on the date of issuance, and each balance sheet date thereafter.

On October 7, 2022, in connection with the merger, the Company assumed the outstanding public warrants of CNTQ.

There were no Public Warrants outstanding prior to the merger.

Public Warrant entitles the holder to the right to purchase one share of Common Stock at an exercise price of $ 11.50 per share (the “Public

No fractional shares will be issued upon exercise of the Public Warrants.

The Company may elect to redeem the Public

Warrants subject to certain conditions, in whole and not in part, at a price of $ 0.01 per Public Warrant if (i) 30 days’ prior

written notice of redemption is provided to the holders, and (ii) the last reported sale price of the Common Stock equals or exceeds

$ 16.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading

days within a 30-trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption

to the warrant holders.

Upon issuance of a redemption notice by the Company, the warrant holders have a period of 30 days to exercise

for cash, or on a cashless basis.

On the Closing Date, there were 9,487,500 Public Warrants issued and outstanding.

The Public Warrants

are not precluded from equity classification and are accounted for as such on the date of issuance, and each balance sheet date thereafter.

measurements of the Public Warrants after the detachment of the Public Warrants from the Units are classified as Level 1 due to the use

1 unchanged sentence

For periods subsequent to the detachment of the Public Warrants

from the Units, the close price of the Public Warrant price was used as the fair value of the Warrants as of each relevant date.

the six months ended June 30, 2023, the Company received proceeds from public warrant exercises of $ 747 in exchange for 64,971 common

The Company did not receive any proceeds from public warrants during the three months ended June 30, 2023.

from the Units, the close price of the Public Warrant price was used as the fair value of the Public Warrants as of each relevant date.

the nine months ended September 30, 2023, the Company received proceeds from Public Warrant exercises of $ 747 in exchange for 64,971

shares of Common Stock.

The Company did not receive any proceeds from Public Warrants during the three months ended September 30, 2023.

2023 Offering

connection with the entry into the underwriting agreement as further described in Note 10 of the financial statements, (the “June

2023 Offering”) the Company issued (i) underwriters warrants to purchase up to an aggregate of 570,250

shares of Common Stock (the “Underwriters’

Warrants”) which 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 June 2023 Offering and (ii) warrants to purchase up to 10,000,000

shares of Common Stock to the investors in the

offering together with shares of Common Stock (the “Investor Warrants”), at the combined public offering price of $ 2.00

per share of Common Stock and accompanying Warrant,

less underwriting discounts and commissions .

The Company also 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 1,500,000

shares of Common Stock at the public offering

price per security, less underwriting discounts and commissions.

The underwriters exercised its over-allotment option to purchase an

additional 1,405,000

shares of Common Stock and Investor Warrants

to purchase up to 1,405,000

shares of Common Stock.

The Company accounts

for the Investor Warrants issued in connection with the Offering in accordance with the guidance contained in ASC 815-40.

Such guidance

provides that because the Investor Warrants do not meet the criteria for equity treatment thereunder, each warrant must be recorded as

2023 Offering”) the Company issued (i) underwriters warrants to purchase up to an aggregate of 570,250 shares of Common Stock (the

“Underwriters’ Warrants”) which 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 June 2023

Offering and (ii) warrants to purchase up to 10,000,000 shares of Common Stock to the investors in the offering together with shares

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

Investor Warrant, less underwriting discounts and commissions.

The Company also 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 1,500,000 shares of Common

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

The underwriters exercised their over-allotment

option to purchase an additional 1,405,000 shares of Common Stock and Investor Warrants to purchase up to 1,405,000 shares of Common

The Company accounts for the Investor Warrants issued in connection with the Offering in accordance with the guidance contained

in ASC 815-40.

Such guidance provides that because the Investor Warrants do not meet the criteria for equity treatment thereunder, each

warrant must be recorded as a liability.

This liability is subject to re-measurement at each balance sheet date.

With each such re-measurement, the warrant liabilities

will be adjusted to its current fair value, with the change in fair value recognized in the Company’s statement of operations.

With each such re-measurement,

the warrant liabilities will be adjusted to its current fair value, with the change in fair value recognized in the Company’s statement

of operations.

The Company will reassess the classification at each balance sheet date.

It was determined that the Underwriters’ Warrants were

not precluded from equity treatment and have been accounted for as such.

It was determined that the Underwriters’

Warrants were not precluded from equity treatment and have been accounted for as such.

Underwriters’

OF UNDERWRITER WARRANTS

Common Stock Warrants

Warrants Outstanding, January 1, 2023

Warrants issued

Warrants Outstanding, June 30, 2023

There were no underwriter warrants issued,

exercised and outstanding from the period January 1, 2022 through June 30, 2022.

Underwriters’ Warrants Outstanding, January 1, 2023

Underwriters’ Warrants issued

Underwriters’ Warrants Outstanding, September 30, 2023

Energy Holdings Corp.

4 unchanged sentences

Placement Warrants

Private Placement Warrants may not be redeemed by the Company so long as the Private Placement Warrants are held by the initial purchasers,

or such purchasers’ permitted transferees.

On October 7, 2022, in connection with the merger, the Company assumed the outstanding private placement warrants

There were no Private Placement Warrants outstanding prior to the merger.

Private Placement Warrants (the “Private Warrants”) may not be redeemed by the Company so long as the Private Placement Warrants

are held by the initial purchasers, or such purchasers’ permitted transferees.

The Private Warrants:

(i) will be exercisable either for cash or on a cashless basis

at the holders’ option and (ii) will not be redeemable by the Company, in either case as long as the Private Warrants are held

by the initial purchasers or any of their permitted transferees (as prescribed in the Subscription Agreement).

The Private Warrants may

not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction

that would result in the effective economic disposition of, the Private Warrants (or any securities underlying the Private Warrants)

for a period of one hundred eighty (180) days following the effective date of the Registration Statement to anyone other than any member

participating in the Public Offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up

restriction for the remainder of the time period.

During the six months ended June 30, 2023, private placement warrant holders exercised

3,126,472 warrants on a cashless basis, with the Company agreeing to issue 1,100,000 shares of common stock in connection with such exercise.

There were 1,501,386 and 4,627,858 private warrants issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

Company accounts for the Private Warrants issued in connection with the Initial Public Offering in accordance with the guidance contained

in ASC 815-40.

Such guidance provides that because the private warrants do not meet the criteria for equity treatment thereunder, each

private warrant must be recorded as a liability.

This liability is subject to re-measurement at each balance sheet date.

With each such

re-measurement, the warrant liabilities will be adjusted to its current fair value, with the change in fair value recognized in the Company’s

statement of operations.

(i) will be exercisable either

for cash or on a cashless basis at the holders’ option and (ii) will not be redeemable by the Company, in either case as long as

the Private Warrants are held by the initial purchasers or any of their permitted transferees (as prescribed in the Subscription Agreement).

The Private Warrants may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative,

put, or call transaction that would result in the effective economic disposition of, the Private Warrants (or any securities underlying

the Private Warrants) for a period of one hundred eighty (180) days following the effective date of the Registration Statement to anyone

other than any member participating in the Public Offering and the officers or partners thereof, if all securities so transferred remain

subject to the lock-up restriction for the remainder of the time period.

During the nine months ended September 30, 2023, private placement

warrant holders exercised 3,126,472 warrants on a cashless basis, with the Company agreeing to issue 1,100,000 shares of Common Stock

in connection with such exercise.

There were 1,501,386 and 4,627,858 private warrants outstanding as of September 30, 2023, and December

31, 2022, respectively.

The Company accounts for the Private Warrants issued in connection with the Initial Public Offering in accordance

with the guidance contained in ASC 815-40.

Such guidance provides that because the private warrants do not meet the criteria for equity

treatment thereunder, each private warrant must be recorded as a liability.

This liability is subject to re-measurement at each balance

With each such re-measurement, the warrant liabilities will be adjusted to its current fair value, with the change in fair

value recognized in the Company’s statement of operations.

The Company will reassess the classification at each balance sheet date.

5 unchanged sentences

Loan Warrants

connection with the entry into the Term Loan Agreement, and as a required term and condition thereof, the Company issued (i) the penny

warrants to the Term Loan Lenders exercisable to purchase an aggregate of 2,593,056

shares (the “Penny Warrants”)

and (ii) the $10 warrants to issue warrants to the Term Loan Lenders exercisable to purchase an aggregate of 1,600,000

connection with the entry into the Term Loan Agreement on October 7, 2022, and as a required term and condition thereof, the

Company issued (i) the penny warrants to the Term Loan Lenders exercisable to purchase an aggregate of 2,593,056

shares of Common Stock (the “Penny Warrants”) and (ii) the $10 warrants to issue warrants to the Term Loan Lenders

exercisable to purchase an aggregate of 1,600,000

shares of Common Stock at $ 10

per share (the “$10 Warrants”

and, together with the Penny Warrants, the “Term Loan Warrants”).

The $10 Warrants were exercised on a cashless basis on

October 10, 2022, with the Company issuing 457,142

shares of Common Stock in connection

with such exercise.

During the three months ended June 30, 2023, penny warrant holders exercised 750,000

warrants on a cashless basis, with

the Company agreeing to issue 748,029

shares of common stock in connection

with such exercise.

The Company concluded the warrants are not considered indexed to the Company’s stock and to be accounted for

as liabilities under ASC 815.

As such, the estimated fair value is recognized as a liability each reporting period, with changes in the

fair value recognized within income each period.

per share (the “$10 Warrants” and, together with the Penny Warrants, the “Term Loan Warrants”).

Warrants were exercised on a cashless basis on October 10, 2022, with the Company issuing 457,142

shares of Common Stock in connection with such exercise.

During the nine months ended September 30, 2023, Penny Warrant

holders exercised 2,000,000

warrants on a cashless basis, with the Company agreeing to issue 1,996,323

shares of Common Stock in connection with such exercise.

During the three months ended September 30, 2023, there were no exercises

of Penny Warrants.

During the nine months ended September 30, 2023, the Company issued additional Penny Warrants to purchase 501

shares of Common Stock to the Term Loan Lenders in accordance with the anti-dilution provisions of the Penny Warrants with respect

to certain sales made by the Company under the ChEF Equity Facility.

The Company concluded the Penny Warrants are not considered

indexed to the Company’s Common Stock and to be accounted for as liabilities under ASC 815.

As such, the estimated fair value

is recognized as a liability each reporting period, with changes in the fair value recognized within income each period.

no Term Loan Warrants outstanding prior to the merger.

Energy Holdings Corp.

5 unchanged sentences

FAIR VALUE WARRANTS

June 30, 2023

September 30, 2023

December 31, 2022

4 unchanged sentences

Risk-free rate

following table provides the significant inputs to the Black-Scholes method for the fair value of the June Offering Warrants:

June 30, 2023

June 20, 2023

(Initial Measurement)

following table provides the significant inputs to the Black-Scholes method for the fair value of the Investor Warrants issued in the

June 2023 Offering:

September 30, 2023

Common stock price

3 unchanged sentences

Risk-free rate

following table presents a roll-forward of the Company’s warrants from January 1, 2023 to June 30, 2023:

following table presents a roll-forward of the Company’s warrants from January 1, 2023 to September 30, 2023:

OF ROLL FORWARD IN WARRANTS

Stock Warrants

Outstanding, January 1, 2023

Warrants Outstanding, January 1, 2023

Warrants issued

Exercise of warrants

( 3,126,472 )

Outstanding, June 30, 2023

were no private warrants issued, exercised and outstanding from the period January 1, 2022 through June 30, 2022.

Stock Warrants

Outstanding, January 1, 2023

Outstanding, June 30, 2023

were no public warrants issued, exercised and outstanding from the period January 1, 2022 through June 30, 2022.

Warrants Outstanding, September 30, 2023

Warrants Outstanding, January 1, 2023

Exercise of warrants

Warrants Outstanding, September 30, 2023

Loan Warrants:

Stock Warrants

Outstanding, January 1, 2023

Warrants Outstanding, January 1, 2023

Exercise of warrants

( 2,000,000 )

Outstanding, June 30, 2023

were no term loan warrants issued, exercised and outstanding from the period January 1, 2022 through June 30, 2022.

Common Stock Warrants

Warrants issued

Warrants Outstanding, September 30, 2023

Warrants Outstanding, January 1, 2023

Warrants issued

Warrants Outstanding, June 30, 2023

were no investor warrants issued, exercised and outstanding from the period January 1, 2022 through June 30, 2022.

Exercise of warrants

Warrants Outstanding, September 30, 2023

following table presents a roll forward of the aggregate fair values of the Company’s warrant liabilities for which fair value

4 unchanged sentences

Exercise of warrants

in fair value of warrants

June 30, 2023

Change in fair value of warrants

Balances, September 30, 2023

Energy Holdings Corp.

2 unchanged sentences

10 - COMMON STOCK

Company is authorized to issue up to 170,000,000 shares of common stock with $ 0.0001 par value.

Common stockholders are entitled to dividends

if and when declared by the Board of Directors subject to the rights of the preferred stockholders.

As of June 30, 2023 and December

Company is authorized to issue up to 170,000,000 shares of Common Stock.

Common stockholders are entitled to dividends if and when declared

by the Board of Directors of the Company subject to the rights of the preferred stockholders.

As of September 30, 2023 and December 31,

2022, there were 58,880,712 and 43,272,728 shares issued and outstanding.

No dividends on Common Stock had been declared by the Company.

the six months ended June 30, 2023 and 2022, the Company had reserved shares of common stock for issuance as follows:

the nine months ended September 30, 2023 and 2022, the Company reserved shares of Common Stock for issuance as follows:

SUMMARY OF RESERVED SHARES OF COMMON STOCK FOR ISSUANCE

Options issued and

September 30, 2023

September 30, 2022

Options issued and outstanding

Common stock outstanding

1 unchanged sentence

Earnout shares

available for future issuance

Shares available for future issuance

Equity Facility

6 unchanged sentences

Under the terms of the Purchase Agreement, the Company issued 98,500 shares pursuant to the Purchase Agreement with CCM LLC for aggregate

net proceeds to the Company of $ 671 from the period January 1, 2023 through June 30, 2023.

net proceeds to the Company of $ 671 from the period January 1, 2023 through September 30, 2023.

2023 Offering

2 unchanged sentences

Warrant, less underwriting discounts and commissions, and (iii) the Underwriters’ Warrants.

In addition, the Company 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 June 2023 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

Investor Warrants are exercisable for five years from the closing date of the June 2023 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.

5 unchanged sentences

up to 1,405,000 shares of Common Stock and the remaining was not exercised within the 45-day window.

Company received gross proceeds of $ 22,810

and incurred $ 2,074

of offering related costs.

The gross proceeds were first allocated to the liability classified warrants based upon the transaction

date fair value and then to the equity classified warrants with the residual allocated to the common shares.

The offering related

costs were allocated based on the relative fair value of all instruments, of which $ 1,169

was accounted for as a reduction of additional-paid-in-capital and $ 905

was recorded within general and administrative expenses.

The Company accounted for the investor warrants issued in connection with

the Public Offering and the exercise of the underwriters’ over-allotment option in accordance with the guidance contained in

Such guidance provides that the warrants described above are precluded from equity classification.

The fair value of the

warrants were recorded as a liability in the amount of $ 13,762

on issuance and are being fair valued at each reporting period.

Company received gross proceeds of $ 22,810 and incurred $ 2,074 of offering related costs.

The gross proceeds were first allocated to

the liability classified warrants based upon the transaction date fair value and then to the equity classified warrants with the residual

allocated to the common shares.

The offering related costs were allocated based on the relative fair value of all instruments, of which

$ 1,169 was accounted for as a reduction of additional-paid-in-capital and $ 904 was recorded within general and administrative expenses.

The Company accounted for the investor warrants issued in connection with the Public Offering and the exercise of the underwriters’

over-allotment option in accordance with the guidance contained in ASC 815-40.

Such guidance provides that the warrants described above

are precluded from equity classification.

The fair value of the warrants were recorded as a liability in the amount of $ 13,762 on issuance

and are being fair valued at each reporting period.

Energy Holdings Corp.

2 unchanged sentences

11 - STOCK-BASED COMPENSATION

compensation expense for options and RSUs totaling $ 5,441

was recognized in the Company’s

consolidated statements of operations for the six months ended June 30, 2023 and 2022, respectively.

Share-based compensation expense

for options and RSUs totaling $ 954

was recognized in the Company’s

consolidated statements of operations for the three months ended June 30, 2023 and 2022, respectively.

compensation for the six months ended June 30, 2023 and 2022 was allocated as follows:

compensation expense for options and restricted stock units (“RSUs”) totaling $ 6,387 and $ 1,155 was recognized in the Company’s

condensed consolidated statements of operations for the nine months ended September 30, 2023 and 2022, respectively.

Share-based compensation

expense for options and RSUs totaling $ 946 and $ 436 was recognized in the Company’s condensed consolidated statements of operations

for the three months ended September 30, 2023 and 2022, respectively.

compensation for the nine months ended September 30, 2023 and 2022 was allocated as follows:

OF STOCK BASED COMPENSATION

September 30,

Cost of goods sold

2 unchanged sentences

General and administrative expense

compensation for the three months ended June 30, 2023 and 2022 was allocated as follows:

compensation for the three months ended September 30, 2023 and 2022 was allocated as follows:

September 30,

Cost of goods sold

4 unchanged sentences

SCHEDULE OF OPTION ACTIVITY AND RELATED INFORMATION

of Options (1)

Weighted-Average

3 unchanged sentences

Weighted-Average

Remaining Contractual Life

Remaining Contractual Life (in years)

intrinsic value

Balances, January

Options granted

Options forfeited

Balances, June 30, 2022

Balances, January 1, 2023

Options granted

Options forfeited

June 30, 2023

At June 30, 2023

Vested and Exercisable

Vested and expected to vest

of options and weighted average exercise price has been adjusted to reflect the exchange of Legacy Dragonfly’s stock options for

New Dragonfly stock options at an exchange ratio of approximately 1.182 as a result of the merger.

See Note 1 for additional information.

October 7, 2022, the Company granted 180,000

restricted stock units under the 2022 plan which vest one year from the grant date.

The fair value of the restricted stock units on

the date of grant was $ 2,520 ,

which is recognized as compensation expense over the requisite service period based on the value of the underlying shares on the

date of grant.

On February 10, 2023, the Company granted 461,998

restricted stock units under the 2022 plan which vested immediately.

The fair value of the restricted stock units on the date of

grant was $ 3,464

and was recorded as compensation expense during the six months ended June 30, 2023.

During the first six months of 2023, the Company

granted an additional 28,000

restricted stock units which have not vested.

The fair value of the 28,000

unvested restricted stock units was $ 105

and an expense of $ 7

was recorded during the six months ended June 30, 2023.

January 1, 2022

September 30, 2022

January 1, 2023

September 30, 2023

and Exercisable

and expected to vest

of options and weighted average exercise price has been adjusted to reflect the exchange of Legacy Dragonfly’s stock options

for New Dragonfly stock options at an exchange ratio of approximately 1.182 as a result of the merger.

See Note 1 for additional

October 7, 2022, the Company granted 180,000 restricted stock units under the 2022 plan which vest one year from the grant date.

fair value of the restricted stock units on the date of grant was $ 2,520 , which is recognized as compensation expense over the requisite

service period based on the value of the underlying shares on the date of grant.

On February 10, 2023, the Company granted 461,998 restricted

stock units under the 2022 plan which vested immediately.

The fair value of the restricted stock units on the date of grant was $ 3,464

and was recorded as compensation expense during the nine months ended September 30, 2023.

During the first nine months of 2023, the Company

granted an additional 37,000 restricted stock units which have not vested.

The fair value of the 37,000 unvested restricted stock units

was $ 121 and an expense of $ 14 was recorded during the nine months ended September 30, 2023.

During the three months ended September

30, 2023, the Company granted an additional 9,000 restricted stock units which have not vested.

The fair value of the 9,000 restricted

stock units on the day of grant was $ 16 and no expense was recognized during the three months ended September 30, 2023.

Energy Holdings Corp.

5 unchanged sentences

The following table presents the restricted stock units activity for

the six months ended June 30, 2023:

the nine months ended September 30, 2023:

OF RESTRICTED STOCK UNITS ACTIVITY

Weighted-Average

Fair Market Value

Unvested shares

at January 1, 2023

Number of Shares

Weighted-Average Fair Market Value

Unvested shares at January 1, 2023

Granted and unvested

shares, June 30, 2023

Vested and exercisable as of

June 30, 2023

of June 30, 2023, there were 4,434,916 shares of unissued authorized and available for future awards under the 2022 Equity Incentive

Unvested shares, September 30, 2023

Vested and exercisable as of September 30, 2023

of September 30, 2023, there were 4,470,153 shares of unissued authorized and available for future awards under the 2022 Equity Incentive

Plan and Employee Stock Purchase Plan.

12 – SUPPLIER AGREEMENT

May 9, 2023, Ioneer Rhyolite Ridge LLC (“Seller”), an emerging lithium-boron producer, and the Company announced a commercial

offtake agreement partnership whereby the Seller is developing the Rhyolite Ridge Project which, once completed, is expected to produce lithium carbonate, and boric acid (the “Project”).

Beginning on the supply start date which is the

date the Seller notifies the Company that the project is fully completed and commissioned in accordance with the engineering, procurement

and construction contract, and for the duration of the supply period, the Company shall purchase and receive product from Seller, on

the terms and conditions of the agreement.

The agreement calls for a minimum annual purchase requirement.

The agreement becomes effective when the seller has

informed the Company that the seller has made a positive financial investment decision in respect of the project.

12 - LOSS PER SHARE

17 unchanged sentences

they have been excluded from the calculation.

Company’s common stock warrants contractually entitle the holders of such securities to participate in dividends but do not contractually

require the holders of such securities to participate in losses of the Company.

Accordingly, in periods in which the Company reports

a net loss, such losses are not allocated to such participating securities.

Company’s Common Stock warrants contractually entitle the holders of such securities to participate in dividends but do not

contractually require the holders of such securities to participate in losses of the Company.

Accordingly, in periods in which the

Company reports a net loss, such losses are not allocated to such participating securities.

In periods in which the Company reports

a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net

loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued

if their effect is anti-dilutive.

The Company reported a net loss attributable to common stockholders for the three

and six months ended June 30, 2023 and 2022.

The following table sets forth the information needed to compute basic

and diluted loss per share for the three and six months ended June 30, 2023 and 2022:

loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their

effect is anti-dilutive.

The Company reported a net loss attributable to common stockholders for the three and nine months ended September

30, 2023 and 2022.

following table sets forth the information needed to compute basic and diluted loss per share for the three and nine months ended September

30, 2023 and 2022:

OF INFORMATION NEEDED TO COMPUTER BASIC AND DILUTED EARNINGS PER SHARE

For The Three Months

Ended June 30,

For The Six Months

Ended June 30,

For The Three Months Ended

September 30,

For The Nine Months Ended

September 30,

Net Loss attributable to common stockholders

Weighted average common shares outstanding used to compute net loss per share, basic and diluted

Weighted average common shares outstanding,basic

Net loss per share of Common Stock, basic and diluted

Net loss per share of common stock, basic

Energy Holdings Corp.

4 unchanged sentences

SCHEDULE OF POTENTIAL SHARES OF COMMON STOCK EXCLUDED FROM DILUTED NET (LOSS) INCOME PER SHARE

September 30,

Restricted stock units

Weighted average number

of common shares-basic

Weighted average number of common shares-basic

13 – INCOME TAXES

2 unchanged sentences

The Company recorded an income tax expense (benefit)

of $ 0 and ($ 814 ) during the six months ended June 30, 2023 and 2022, respectively.

of $ 0 and ($ 1,700 ) during the nine months ended September 30, 2023 and 2022, respectively.

The effective tax rate differs from the U.S.

tax rate primarily due to the valuation allowances on the Company’s deferred tax assets as it is more likely than not that some

or all the Company’s deferred tax assets will not be realized.

The Company’s policy is to recognize interest and penalties

associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related

income tax liability on the Company’s condensed consolidated balance sheets.

The Company has not recognized any interest and penalties

in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.

statutory tax rate primarily due to the valuation allowances on the Company’s deferred tax assets as it is more likely than not

that some or all the Company’s deferred tax assets will not be realized.

The Company’s policy is to recognize interest and

penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with

the related income tax liability on the Company’s condensed consolidated balance sheets.

The Company has not recognized any interest

and penalties in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.

14 – SUBSEQUENT EVENTS

to the period ending June 30, 2023, and through August 8, 2023, 273,100 investor warrants were exercised for net proceeds of

July 2023, upon a request from the Company’s lenders under the term loan agreement, the Company repaid $ 5,275

of principal to satisfy a portion

of its outstanding principal under the term loan agreement.

July 6, 2023, the Company opened a 12-month time deposit account at Wells Fargo Commercial Banking amounting to $ 315 with fixed interest

rate of 2 %, payable on a monthly basis.

The time deposit account has a current maturity date of July 6, 2024 and is subject to automatic

annual renewal.

In July of 2023, the Company was notified by its largest

RV OEM customer that, due to weaker demand for its products and their subsequent focus on reducing costs, it would no longer install the

Company’s 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, the Company expects this change in strategy to have a material

limiting effect on the Company’s revenue throughout the remainder of 2023.

On August 20, 2023, upon mutual agreement between

the Company and Mr.

Marchetti, Mr.

Marchetti resigned from his position as the Company’s Chief Financial Officer.

will continue in the role of Senior Vice President, Operations.

In connection with Mr.

Marchetti’s resignation, on August 20, 2023,

the Board appointed Denis Phares, the Company’s President, Chief Executive Officer, and Chairman of the Board, to succeed Mr.

as the Company’s interim Chief Financial Officer.

Phares will continue his duties as President, Chief Executive Officer, and

Chairman of the Board.

The Company intends to commence a search for a full time Chief Financial Officer.

Subsequent to the quarter ended September 30, 2023, we issued and sold approximately 490,000

shares of our common stock under the ChEF Equity Facility, resulting in net cash proceeds of $ 607,973 .

As a result, subsequent to the

quarter ended September 30, 2023, the Company issued additional Penny Warrants to purchase 4,277 shares of common stock to the Term Loan

Lenders in accordance with the anti-dilution provisions of the Penny Warrants with respect to certain sales made by the Company under

the ChEF Equity Facility.

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 1. Financial Statements