DFLI

Business Context and Reporting Period

Company: Dragonfly Energy Holdings Corp. (DFLI)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2026
Business Overview: The Company manufactures and sells lithium-ion battery packs for consumer (Battle Born Batteries) and OEM (Dragonfly Energy) markets, including RV, marine, and industrial applications. It is also developing solid-state battery technology and dry electrode manufacturing processes.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 22.8% year-over-year to $22.9 million. This was driven by lower OEM sales due to slower-than-anticipated RV market recovery and reduced DTC sales due to macroeconomic pressures and negative third-party online commentary regarding product quality.
• Cost of Goods Sold (COGS) Reduction: COGS decreased 20.2% to $16.8 million. This reduction was partially offset by a $1.1 million IEEPA tariff refund recognized as a reduction to cost of sales.
• Improved Net Loss: Net loss narrowed by 20.4% to $11.0 million, primarily due to significantly lower interest expense following debt restructuring in late 2025 and the tariff refund benefit.
• Interest Expense: Interest expense dropped from $10.1 million in the prior year period to $3.0 million, reflecting the conversion of $25 million of term loan principal into Series B Preferred Stock and principal paydowns.
• Inventory: Inventory levels decreased from $24.2 million to $20.3 million as the Company worked down excess stock to appropriate safety levels.

Guidance, Outlook, and Risks

• Going Concern: Management has concluded that substantial doubt regarding the Company's ability to continue as a going concern has been alleviated. This conclusion is based on recent capital raises, debt restructuring, and the Seventh Amendment to the Term Loan which provides liquidity flexibility.
• Debt Restructuring (Seventh Amendment): Subsequent to June 30, 2026, the Company amended its Term Loan to allow interest to be paid in-kind (PIK) through December 31, 2026, at a rate of 14%. Minimum liquidity covenants were reduced to $4.0 million through January 2027.
• Strategic Acquisition: The Company acquired the Dakota Lithium brand assets for $4.0 million (cash and stock) to expand product offerings into marine, golf cart, and power sports markets. Material revenue contribution is expected in Q4 2026.
• Outlook: Management expects sales to increase over the next 12 months as OEM customers expand model adoption and the Company enters trucking and industrial markets. However, the Company anticipates incremental operating cost increases to restore Dakota Lithium operations.
• Risks: Key risks include reliance on a single manufacturing facility, dependence on Chinese suppliers for cells and BMS, potential inability to raise additional capital, and the impact of negative online commentary on DTC sales.

Investor Verification Checklist

• Liquidity Runway: Verify if the $6.3 million cash balance and ATM program are sufficient to fund operations through Q2 2027, considering the PIK interest obligation.
• Customer Concentration: Confirm the status of the top OEM customer (Customer A), which represented 22% of revenue for the six months ended June 30, 2026.
• Tariff Refund Realization: Monitor the collection of the remaining $332,000 tariff receivable and the impact of future tariff regulations on COGS.
• Series B Preferred Stock: Review the terms of the $25 million Series B Preferred Stock, including the 10% dividend rate (8% cash, 2% PIK) and the requirement to use 50% of future equity proceeds to redeem these shares.
• Dakota Lithium Integration: Assess the timeline and cost to integrate the Dakota Lithium assets and the projected revenue contribution in Q4 2026.