What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-21 · 390 added, 363 removed, 331 unchanged (69% of the section changed)

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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.

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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financial statements (and notes thereto) for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the

Securities and Exchange Commission (“SEC”), particularly those under “Risk Factors.” This discussion contains

forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in

these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report.

We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report

or to reflect actual outcomes.

Securities and Exchange Commission (the “ SEC ”) on April 17, 2023, as amended May 1, 2023 (the “ Annual Report ”),

particularly those under “Risk Factors.” This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors,

including those discussed below and elsewhere in this Quarterly Report.

We undertake no obligation to update these forward-looking statements

to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Note Regarding Forward Looking-Statements

Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities

Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section

21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements

with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance,

and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual

results, performance or achievements to be materially different from future results, performance or achievements expressed or implied

by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking

You can identify these forward-looking statements through our use of words such as “may,” “can,”

“anticipate,” “assume,” “should,” “indicate,” “would,” “believe,”

“contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,”

“point to,” “project,” “predict,” “could,” “intend,” “target,”

“potential” and other similar words and expressions of the future.

Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ”),

and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”).

Forward-looking statements

include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions

and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which

may cause our actual results, performance or achievements to be materially different from future results, performance or achievements

expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that

could be forward-looking statements.

You can identify these forward-looking statements through our use of words such as “may,”

“can,” “anticipate,” “assume,” “should,” “indicate,” “would,”

“believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,”

“plan,” “point to,” “project,” “predict,” “could,” “intend,”

“target,” “potential” and other similar words and expressions of the future.

are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking

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These factors include, but are not limited to:

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

ability to recognize the anticipated benefits of our 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;

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;

failure to produce lithium battery cells in the United States 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);

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 (“ Keystone ”)), including Keystone’s

decision in July 2023, 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;

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

relating to our competitors and our industry;

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.

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.

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

risk factors that we are faced with that may cause our actual results to differ from those anticipated in such forward-looking statements.

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

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.

Please see “ Part I—Item 1A—Risk Factors ” of our Annual Report, 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.

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

storage applications and end markets including recreational vehicle (“RV”), marine vessel, and solar and off-grid industries,

with disruptive solid-state cell technology currently under development.

storage applications and end markets including recreational vehicle (“ RV ”), marine vessel, and solar and off-grid

industries, with disruptive solid-state cell technology currently under development.

2020, we have sold over 281,000 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.

We currently offer a line of batteries across our “Battle

Born” and “Dragonfly” brands, each differentiated by size, power and capacity, consisting of seven different models,

four of which come with a heated option.

We primarily sell “Battle Born” branded batteries directly to consumers (“DTC”)

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

For the quarters ended September 30, 2023, and September 30, 2022, we sold 14,886 and 31,375

batteries, respectively, and had $15.9 million and $26.1 million in net sales, respectively.

We currently offer a line of batteries across

our “Battle Born” and “Dragonfly” brands, each differentiated by size, power and capacity, consisting of seven

different models, four of which come with a heated option.

We primarily sell “Battle Born” branded batteries directly to

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

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 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.

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 our 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

hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We expect to incur additional expenses as a public company for, among other things, directors’ and officers’ liability insurance,

director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal

As discussed under “ —Liquidity and Capital Resources ” below we expect that we will need to raise additional

funds, including through the use of our $150 million equity facility (the “ChEF Equity Facility”) with Chardan Capital Markets

LLC (“CCM LLC”) and the issuance of equity, equity-related or debt securities or by obtaining additional credit from financial

institutions to fund, together with our principal sources of liquidity, ongoing costs, such as research and development relating to our

solid-state batteries, expansion of our facilities, and new strategic investments.

If such financings are not available, or if the terms

of such financings are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures,

including not seeking potential acquisition opportunities, eliminating redundancies, or reducing or delaying our production facility

expansions, which may adversely affect our business, operating results, financial condition and prospects.

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.

Solid-state lithium-ion

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

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.

In October 2023, we announced the successful dry deposition of anode and cathode

electrodes at scale using our patented battery manufacturing process.

We expect to begin producing LFP cells in the United States by

the end of 2023.

of September 30, 2023, we had cash totaling $13.2 million.

Our net loss for the quarter ended September 30, 2023 was $10.0 million and

our net loss for the quarter ended September 30, 2022 was $3.7 million.

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

to need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary

We expect to incur additional expenses as a public company for, among other things, directors’ and officers’ liability

insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased

audit and legal fees.

As discussed under “ Liquidity and Capital Resources ” below, we expect that we will need to raise

additional funds, including through the use of our $150 million equity facility (the “ ChEF Equity Facility ”) with

Chardan Capital Markets LLC (“ CCM LLC ”) and the issuance of equity, equity-related or debt securities or by obtaining

additional credit from financial institutions to fund, together with our principal sources of liquidity, ongoing costs, such as research

and development relating to our solid-state batteries, expansion of our facilities, and new strategic investments.

If such financings

are not available, or if the terms of such financings are less desirable than we expect, we may be forced to take actions to reduce our

capital or operating expenditures, including not seeking potential acquisition opportunities, eliminating redundancies, or reducing or

delaying our production facility expansions, which may adversely affect our business, operating results, financial condition and prospects.

Business Combination

October 7, 2022, Chardan NexTech 2 Acquisition Corp., a Delaware company (“Chardan”), and Legacy Dragonfly consummated the

merger pursuant to the Agreement and Plan of Merger, dated as of May 15, 2022 (as amended, the “Business Combination Agreement”),

October 7, 2022, Chardan NexTech 2 Acquisition Corp., a Delaware company (“ Chardan ”), and Legacy Dragonfly consummated

the merger pursuant to the Agreement and Plan of Merger, dated as of May 15, 2022 (as amended, the “ Business Combination Agreement ”),

by and among Chardan, Bronco Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Chardan (“ Merger Sub ”),

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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.

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

of our common stock, par value $0.0001, 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’

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.

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.

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

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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.

from end market consumers is impacted by a number of factors, including fuel costs and energy demands (including an increasing trend

towards the use of green energy), as well as overall macro-economic conditions, such as interest rates and inflation.

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

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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,

rail, specialty and work vehicles, material handling, solar integration, and emergency and standby power, in the medium term, and data

centers, telecom and distributed on-grid storage in the longer term.

We believe that our current LFP batteries and, eventually, our solid-state

batteries, will be well-suited to supplant traditional lead-acid batteries as a reliable power source for the variety of low power density

uses required in these markets (such as powering the increasing number of on-board tools needed in emergency vehicles).

The success of

this strategy requires (1) continued growth of these addressable markets in line with our expectations and (2) our ability to successfully

enter these markets.

We expect to incur significant marketing costs understanding these new markets, and researching and targeting customers

in these end markets, which may not result in sales.

If we fail to execute on this growth strategy in accordance with our expectations,

our sales growth would be limited to the growth of existing products and existing end markets.

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.

customer is not moving to a different solution or competitor, this change had a material adverse impact on our OEM sales for the

quarter ended September 30, 2023.

Furthermore, we expect this change to continue to have a material limiting effect on our revenue

throughout the remainder of 2023 and potentially into 2024.

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

and fleet trucking, industrial, rail, specialty and work vehicles, material handling, solar integration, and emergency and standby power

in the medium term, and data centers, telecom and distributed on-grid storage in the longer term.

We believe that our current LFP batteries

and, eventually, our solid-state batteries, will be well-suited to supplant traditional lead-acid batteries as a reliable power source

for the variety of low power density uses required in these markets (such as powering the increasing number of on-board tools needed

in emergency vehicles).

The success of this strategy requires (1) continued growth of these addressable markets in line with our expectations

and (2) our ability to successfully enter these markets.

We expect to incur significant marketing costs understanding these new markets,

and researching and targeting customers in these end markets, which may not result in sales.

If we fail to execute on this growth strategy

in accordance with our expectations, our sales growth would be limited to the growth of existing products and existing end markets.

currently rely on two carefully selected cell manufacturers located in China, and a single supplier, also located in China, to manufacture

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such as battery cells.

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.

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

eased, we are now actively working down our 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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Our existing facility has the capacity to add up to four additional LFP battery production lines

and construct and operate a pilot production line for our solid-state cells, all designed to maximize the capacity of our manufacturing

and construct and operate a pilot production line for domestic cell manufacturing, all designed to maximize the capacity of our manufacturing

Although our automation efforts are expected to reduce our costs of goods, we may not fully recognize the anticipated savings

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and Development

research and development is primarily focused on the advanced manufacturing of solid-state lithium-ion batteries using an LFP catholyte,

a solid electrolyte and an intercalation-based anolyte (intercalation being the reversible inclusion of a molecule or ion into layered

The next stage in our technical development is to construct the battery to optimize performance and longevity to meet and exceed

industry standards for our target storage markets.

Ongoing testing and optimizing of more complicated batteries incorporating layered

pouch cells will assist us in determining the optimal cell chemistry to enhance conductivity and increase the number of cycles (charge

and discharge) in the cell lifecycle.

This is expected to require significant additional expense, and we may need to raise additional

funds to continue these research and development efforts.

research and development is primarily focused on the advanced manufacturing of domestic battery cells and solid-state lithium-ion battery

cells using our proprietary and patented dry deposition battery cell manufacturing process.

The Company has announced that its pilot

line successfully produced both anode and cathode material, at pilot scale, using this patented process.

The Company currently expects

to deliver full sample battery cells from its pilot line before the end of 2023.

The next stage in our technical development is to construct

the battery to optimize performance and longevity to meet and exceed industry standards for our target storage markets.

Ongoing testing

and optimizing of more complicated batteries incorporating layered pouch cells will assist us in determining the optimal cell chemistry

to enhance conductivity and increase the number of cycles (charge and discharge) in the cell lifecycle.

This is expected to require significant

additional expense, and we may need to raise additional funds to continue these research and development efforts.

of Results of Operations

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of Operations

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

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

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

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 September 30,

(in thousands)

Cost of Goods Sold

Operating expenses

Research and development

General and administrative

Sales and marketing

Total Operating expenses

Loss From Operations

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.

Interest expense, net

Change in fair market value of warrant liability

Total Other Expense

Loss Before Taxes

Income Tax Benefit

months ended September 30,

(in thousands)

sales decreased by $10.2 million, or 39.2%, to $15.9 million for the three months ended September 30, 2023, as compared to $26.1

million for the quarter ended September 30, 2022.

This decrease was primarily due to lower OEM and DTC battery and accessory sales

compared to the three months ended September 30, 2022.

For the quarter ended September 30, 2023, OEM revenue decreased by $8.3

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, this change in strategy had a material adverse impact on our OEM sales for the quarter ended September 30, 2023.

Furthermore, we expect this change to continue to have a material limiting effect on our revenue throughout the remainder of 2023 and potentially 2024.

DTC revenue decreased by $1.9 million as a result of decreased customer demand for our products due to ongoing macro-economic

factors such as 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.

of revenue decreased by $7.8 million, or 40.7%, to $11.3 million for the three months ended September 30, 2023, as compared to $19.1

million for the three months ended September 30, 2022.

This decrease was primarily due to lower unit volumes sold in the three

months ended September 30, 2023.

profit decreased by $2.5 million, or 35.0%, to $4.6 million for the three months ended September 30, 2023, as compared to $7.0 million

for the three months ended September 30, 2022.

The decrease in gross profit was primarily due to lower overall sales and unit volumes

offset by a change in revenue mix that included a smaller percentage of lower margin OEM sales and a higher percentage of higher margin

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 development expenses increased by $0.6 million or 84.2%, to $1.4 million for the three months ended September 30, 2023, as compared

to $0.8 million for the three months ended September 30, 2022.

The increase was primarily due to higher patent expenses, increased 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 administrative expenses decreased by $0.3 million, or 4.7%, to $6.0 million for the three months ended September 30, 2023, as compared

to $6.3 million for the three months ended September 30, 2022.

This decrease was primarily due to lower fees related to the Company’s

Business Combination expenses in 2022 partially offset by higher compliance, insurance and investor relation expenses.

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.

and marketing expenses decreased by $0.3 million, or 8.1%, to $3.1 million for the three months ended September 30, 2023, as compared

to $3.4 million for the three months ended September 30, 2022.

This decrease was primarily due to lower shipping costs on lower unit

volumes partially offset by higher spend on wage-related expenses and general marketing expenses.

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.

expense totaled $4.1 million for the three months ended September 30, 2023 as compared to total other expense of $1.2 million for the

three months ended September 30, 2022.

Other expense in the quarter ended September 30, 2023 is comprised of $4.0 million in interest

expense related to our debt securities, and a $0.1 million expense due to the change in fair market value of our warrants.

The $1.2 million

expense in the quarter ended September 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.

was no tax expense recorded for the three months ended September 30, 2023, as compared to a $0.9 million benefit for the three months

ended September 30, 2022.

The income tax benefit of $0.9 million for the quarter ended September 30, 2022 was expected to be used against

future tax obligations.

Based on available evidence as of September 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

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

As a result of

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

generated a net loss of $10.0 million for the three months ended September 30, 2023, as compared to a net loss of $3.7 million for the

three months ended September 30, 2022.

As described above, this result was driven lower sales and increased other expense.

for the Nine months ended September 30, 2023 and September 30, 2022

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

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 September 30,

(in thousands)

Cost of Goods Sold

Operating expenses

Other Income (Expense)

in fair market value of warrant liability

Research and development

General and administrative

Sales and marketing

Total Operating expenses

(Loss) From Operations

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.

Interest expense, net

Change in fair market value of warrant liability

Total Other Income (Expense)

(Loss) Before Taxes

Income Tax Benefit

months ended September 30,

(in thousands)

sales decreased by $12.1 million, or 18.3%, to $54.0 million for the nine months ended September 30, 2023, as compared to $66.0

million for the nine months ended September 30, 2022.

This decrease was primarily due to lower DTC battery and accessory sales.

revenue decreased by $11.4 million as a result of decreased customer demand for our products due to ongoing macro-economic factors

such as rising interest rates and inflation.

OEM revenue decline by $0.6 million for the nine months ended September 30, 2023

compared to the nine-months ended September 30, 2022 primarily due to weaker overall demand in the RV market.

As described above, the change in strategy by our largest RV OEM customer in

July of 2023 had a material adverse impact on our OEM sales for the quarter ended September 30, 2023 and we expect this change to

continue to have a material limiting effect on our revenue throughout the remainder of 2023.

of Goods Sold

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

of revenue decreased by $6.0 million, or 12.8%, to $40.5 million for the nine months ended September 30, 2023, as compared to $46.5 million

for the nine months ended September 30, 2022.

This decrease was primarily due to lower unit volumes partially offset by higher material

costs associated with consuming higher-priced inventory.

profit decreased by $6.1 million, or 31.4%, to $13.4 million for the nine months ended September 30, 2023, as compared to $19.6

million for the nine months ended September 30, 2022.

The decrease in gross profit was primarily due to lower unit volumes sold and

a change in revenue mix that included a larger percentage of lower margin OEM sales and a lower percentage of higher margin DTC

sales, combined with the aforementioned higher material costs.

and Development 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 development expenses increased by $1.4 million or 70.8%, to $3.3 million for the nine months ended September 30, 2023, as compared

to $2.0 million for the nine months ended September 30, 2022.

The increase was primarily due to increased wages in the amount of $0.6

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

and Administrative Expenses

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 administrative expenses increased by $9.3 million, or 67.8%, to $23.1 million for the nine months ended September 30, 2023, as compared

to $13.8 million for the nine months ended September 30, 2022.

This increase was primarily due a $4.8 million increase in stock-based

compensation costs, a $2.2 million increase in compliance and insurance expenses, a $1.6 million increase in investor relations expenses

and a $0.8 million increase in professional services related to the June 2023 Offering.

and Marketing Expenses

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.

and marketing expenses increased by $1.8 million, or 18.7%, to $11.1 million for the nine months ended September 30, 2023, as compared

to $9.3 million for the nine months ended September 30, 2022.

This increase was primarily due to a $2.8 million increase in wage-related

expenses, partially offset by $1.2 million in lower shipping costs due to the decline in DTC sales.

Other Income (Expense)

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.

income totaled $7.3 million for the nine months ended September 30, 2023 as compared to total other expense of $3.7 million for the

nine months ended September 30, 2022.

Other income for the nine months ended September 30, 2023 is comprised of a change in fair

market value of our warrants in the amount of $19.2 million of income, offset by $11.9 million in interest expense related to our

debt securities.

The $3.7 million expense for the nine months ended September 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 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.

was no tax expense recorded for the nine months ended September 30, 2023, as compared to a $1.7 million benefit for the nine months ended

September 30, 2022.

The income tax benefit of $1.7 million for the nine months ended September 30, 2022 was expected to be used against

future tax obligations.

Based on available evidence as of September 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).

As a result of

the full valuation allowance, the Company did not record a tax benefit during the nine months ended September 30, 2023.

generated a net loss of $16.8 million for the nine months ended September 30, 2023, as compared to a net loss of $7.5 million for the

nine months ended September 30, 2022.

As described above, this result was driven primarily by lower sales, increased material costs due

to the absorption of higher-priced inventory, and higher operating expenses, partially offset by increased other income (due to the change

in fair market value of the Company’s warrants treated as liabilities).

Accounting Estimates

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For warrants issued to investors or lenders in exchange for cash or other financial assets, we follow guidance issued within ASC 480,

Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”), to assist

in the determination of whether the warrants should be classified as liabilities or equity.

Warrants that are determined to require liability

classifications 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 classifications

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

9—Warrants” in our accompanying consolidated financial statements for information on the warrants.

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 classifications 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

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

See “ Note 9—Warrants ” in our accompanying condensed consolidated financial statements for information on the

use the Black-Scholes option-pricing model to determine the fair value of option grants.

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future dividend yields and estimated forfeitures at the initial grant date.

Restricted stock unit (“RSU”) awards are valued

based on the closing trading price of the Company’s common stock on the date of grant.

Changes in assumptions used to estimate

fair value could result in materially different results.

RSU awards are valued based on the closing trading price

of the Company’s common stock on the date of grant.

Changes in assumptions used to estimate fair value could result in materially

different results.

account for income taxes using the asset and liability method.

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Quarterly Report includes a non-generally accepted account principles within the United States (“ U.S.

GAAP”) measure that

we use to supplement our results presented in accordance with U.S.

GAAP ”) measure

that we use to supplement our results presented in accordance with U.S.

Earnings before interest tax and amortization (“ EBITDA ”)

1 unchanged sentence

Adjusted EBITDA

is calculated as EBITDA adjusted for stock-based compensation, Enterprise Resource Planning (“ERP”) implementation, promissory

note forgiveness, and change in the fair market value of warrant liabilities.

Adjusted EBITDA is a performance measure that we believe

is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core, recurring

results of operations and enhances comparability between periods.

is calculated as EBITDA adjusted for stock-based compensation, employee separation expenses, costs associated with the June 2023 Offering,

promissory note forgiveness, and change in the fair market value of warrant liabilities.

Adjusted EBITDA is a performance measure that

we believe is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core,

recurring results of operations and enhances comparability between periods.

EBITDA is not a recognized measure under U.S.

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reported in accordance with U.S.

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,

table below presents our adjusted EBITDA, reconciled to net loss for the three and nine months ended September 30, 2023, and September

months ended September 30,

(in thousands)

1 unchanged sentence

Interest Expense

and Amortization

Depreciation and Amortization

Adjusted for:

1 unchanged sentence

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.

June 2023 Offering Costs (3)

Promissory Note Forgiveness (4)

Change in fair market value of warrant liability (5)

Adjusted EBITDA

Compensation is comprised of costs associated with option and RSU grants made to our

employees, consultants and board members.

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

2023 Offering Costs are 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 former Chief Financial Officer.

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

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

Vice President, Operations.

in fair market value of warrant liabilities represents the change in fair value for the three and nine month period ended September

and Capital Resources

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

As of June 30, 2023, we had cash totaling

$33.0 million.

As of September 30, 2023, we had cash

totaling $13.2 million.

expect our capital expenditures and working capital requirements to increase materially in the near future, as we continue our research

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As part of the Business Combination, we entered into a senior secured term loan facility in an aggregate principal amount of

$75 million (the “Term Loan”) pursuant to the Term Loan, Guarantee and Security Agreement (the “Term Loan Agreement”),

the proceeds of which were used to repay the $45 million fixed rate senior notes, and ChEF Equity Facility.

$75 million (the “ Term Loan ”) pursuant to the Term Loan, Guarantee and Security Agreement (the “ Term Loan

Agreement ”), the proceeds of which were used to repay the $45 million fixed rate senior notes, and ChEF Equity Facility.

Term Loan proceeds were used to:

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expenditures covenant.

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 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.

On March 29, 2023 and September 29, 2023, we obtained waivers from Alter Domus (US) LLC, as the administrative

agent for the lenders (the “ 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 quarters ended March 31, 2023 and September 30, 2023.

We were in compliance with the covenants as of June

However, it is probable that we will fail to meet

these covenants within the next twelve months.

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 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%.

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%.

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

January 1, 2023 to September 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

our directors, in a private placement in exchange for cash in an equal amount (the “Note”).

The Note became due and payable

in full on April 1, 2023.

We were also obligated to pay a fee in the amount of $100,000 (the “Loan Fee”) to Mr.

April 4, 2023.

The Principal Amount of the Note was paid in full on April 1, 2023 and the Loan Fee was paid in full on April 4, 2023.

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.

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, we 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.

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

one of our directors, in a private placement in exchange for cash in an equal amount (the “ Note ”).

The Note became

due and payable in full on April 1, 2023.

We were also obligated to pay a fee in the amount of $100,000 (the “ Loan Fee ”)

Nelson on April 4, 2023.

The Principal Amount of the Note was paid in full on April 1, 2023 and the Loan Fee was paid in full

on April 4, 2023.

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.

In July 2023, upon a request from the Company’s lenders under the Term Loan Agreement, the Company

repaid $5.3 million to satisfy a portion of its outstanding principal.

the quarter ended September 30, 2023, we generated a net loss of $16.8 million and had a negative cash flow from operations.

As of September

30, 2023, we had approximately $13.2 million in cash and cash equivalents and working capital of $22.0 million.

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

ratio, minimum liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures.

On March 29, 2023, we obtained a

waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior

leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023.

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

On March 29, 2023 and September

29, 2023, we obtained waivers from our Administrative Agent and the Term Loan Lenders of our failures to satisfy the fixed charge coverage

ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarters ended March

31, 2023 and September 30, 2023.

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 concern.

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

months ended June 30,

Flows for the Nine months ended September 30, 2023, and September 30, 2022

months ended September 30,

Net Cash (used in)/provided by:

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Financing activities

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 $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.

cash used in operating activities was $16.7 million for the nine months ended September 30, 2023, primarily due to a net loss of $16.8

million partially offset by a $0.1 million increase as a result of other operating adjustments.

cash used in operating activities was $24.7 million for the nine months ended September 30, 2022, due to a net loss during the period

and a $17.3 million decrease in other operating adjustments.

cash used in investing activities was $6.5 million for the nine months ended September 30, 2023, as compared to net cash used in investing

activities of $6.1 million for the nine months ended September 30, 2022.

The increase in cash used in investing activities was primarily

due to an increase in capital equipment expenses.

cash provided by financing activities was $18.7 million for the nine months ended September 30, 2023, as compared to net cash provided

by financing activities of $15.7 million for the nine months ended September 30, 2022, and was primarily due to net proceeds of $21.1

million from the June 2023 Offering partially offset by a $5.3 million principal payment of our notes payable.

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

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

As of September 30, 2023, we had $1.3 million

in short-term operating lease liabilities and $2.6 million in long-term operating lease liabilities.

disclosed above, we have a Term Loan.

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

As of September 30, 2023, the amount outstanding under the Term Loan was $74.7 million, which consists

of $69.7 million in principal and $4.9 million in PIK interest.

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