DEF: Dragonfly Energy Seeks Reverse Split, Equity Plan Boost

Dragonfly Energy Holdings Corp. will hold its 2025 Annual Meeting to vote on proposals including a reverse stock split, an increase in authorized common stock, and an expansion of its equity incentive plan.

Summary

• The 2025 Annual Meeting of Stockholders will be held virtually on Monday, October 15, 2025, at 9:00 a.m. Pacific Time.
• Key proposals include the election of two directors, approval of a reverse stock split with a ratio between 1:2 and 1:50, and an amendment to increase authorized common stock to 400,000,000 shares.
• Stockholders will also vote on increasing the shares authorized for issuance under the 2022 Equity Incentive Plan by 9,000,000 to a total of 10,217,504 shares.
• Other proposals include adjusting voting requirements for future amendments to authorized shares, approving meeting adjournment if necessary, and ratifying CBIZ CPAs P.C. as the independent registered public accounting firm for fiscal year ending December 31, 2025.
• The Record Date for voting is September 10, 2025, with 61,741,974 shares of common stock outstanding at that time.
• The Board of Directors unanimously recommends a vote FOR all proposals.

Sentiment

Score: 3

Explanation: The company is actively addressing critical issues like Nasdaq delisting due to a low share price and market capitalization, which are significant negative indicators. While the proposed reverse stock split and increase in authorized shares are necessary steps for continued listing and future flexibility, they are reactive measures to adverse conditions. The history of material weaknesses in internal controls and the reliance on short-term loans from a director further highlight underlying financial and operational vulnerabilities. These factors suggest a high-risk investment environment.

Positives

• The Board is proactively addressing Nasdaq listing compliance issues, including the Minimum Bid Price and Market Value of Listed Securities (MVLS) Requirements, to maintain market presence.
• Proposals to increase authorized shares and expand the equity incentive plan aim to provide necessary flexibility for future capital raising, strategic transactions, and attracting/retaining key talent.
• The company maintains a strong corporate governance structure with a majority of independent directors on the Board and all standing committees (Audit, Compensation, Nominating and Corporate Governance) composed of independent members.
• The appointment of CBIZ CPAs P.C. as the independent auditor, following the acquisition of Marcum LLP's attest business, ensures continuity of audit services.

Negatives

• The company received a Nasdaq delisting notice due to its common stock closing below the $1.00 per share minimum bid price requirement and failing to maintain a minimum market value of listed securities of $35 million.
• The necessity of a reverse stock split indicates a significantly depressed share price and market valuation.
• Previous material weaknesses in internal controls were identified for the fiscal year ended December 31, 2022, including insufficient accounting resources and ineffective risk assessment.
• A material weakness was identified for the fiscal year ended December 31, 2023, related to the failure to correctly capture, record, and pay tariffs on imported merchandise.
• Contingent cash awards for executives, totaling $752,667.67 for 2023 services, are dependent on the company achieving a minimum cash balance of $30,000,000, suggesting current cash constraints.
• The employment termination of former CFO John Marchetti resulted in the forfeiture of 26,585 RSUs and a $215,333.33 contingent cash award.

Risks

• The proposed reverse stock split may not increase the market price of common stock proportionally to the reduction in shares, or at all, and any increase may not be long-term or permanent.
• The total market capitalization of common stock after a reverse stock split may be lower than before the split.
• There is no assurance that the company will continue to meet Nasdaq listing requirements even if the reverse stock split is effected.
• The reverse stock split may result in some stockholders owning 'odd lots' (less than 100 shares), which can be more difficult and costly to sell.
• The reduced number of shares outstanding after a reverse stock split could adversely affect trading liquidity.
• An increase in authorized but unissued shares could dilute existing stockholders' percentage ownership, earnings per share, book value per share, and voting rights if new shares are issued.
• The increased authorized shares could potentially be used as an anti-takeover measure, which might deter acquisition attempts that could otherwise be beneficial to stockholders.
• Awards granted under the 2022 Plan could be subject to additional taxes and penalties if they do not comply with Section 409A of the Code.
• Executive contingent cash awards are subject to forfeiture if the company does not achieve a minimum cash balance of $30,000,000.

Future Outlook

The company aims to regain Nasdaq compliance by November 10, 2025, by potentially effecting a reverse stock split to meet the minimum bid price and market value requirements. It also seeks to increase authorized shares and expand its equity incentive plan to provide flexibility for future capital raising, strategic transactions, and employee retention. The company anticipates requiring additional capital in the near future to fund its operations.

Management Comments

• "On behalf of the Board and the employees of Dragonfly Energy Holdings Corp., we thank you for your continued support and look forward to speaking with you at the Annual Meeting."
• "Our Board determined that the continued listing of our common stock on the Nasdaq Capital Market is beneficial for our stockholders."
• "Our Board believes that the granting of stock options, stock appreciation rights (SARs), restricted stock and restricted stock unit awards, and similar kinds of equity-based compensation promotes continuity of management and increases incentive and personal interest in the welfare of our Company by those who are primarily responsible for shaping and carrying out our long-range plans and securing our growth and financial success."
• "Our Board believes it would be prudent and advisable to have the additional shares available to provide additional flexibility regarding the potential use of shares of common stock for business and financial purposes in the future."

Industry Context

The filing reflects a common challenge for smaller public companies, particularly those with depressed stock prices, in maintaining Nasdaq listing compliance. The need for a reverse stock split and increased authorized shares is a strategic move to address these compliance issues and provide capital-raising flexibility, which is typical in growth-oriented or financially challenged sectors. The emphasis on equity incentives is standard for attracting and retaining talent in competitive industries, especially in technology or emerging markets like energy storage.

Comparison to Industry Standards

• The company's situation regarding Nasdaq delisting for bid price and market value is a common issue for companies that have experienced significant stock price declines, often seen in emerging or volatile sectors, and is not unique to Dragonfly Energy.
• The proposed reverse stock split ratio range (1:2 to 1:50) is broad, reflecting the uncertainty in achieving the desired price target and is a standard tool used by companies facing delisting, comparable to actions taken by other companies in similar circumstances.
• The substantial increase in authorized shares for equity incentive plans is a common practice to ensure competitive compensation packages, though the magnitude of the increase (9 million shares to a total of 10.2 million) suggests a significant reliance on equity for compensation and retention, which can be higher than average in high-growth or capital-intensive industries.
• The related party transactions involving short-term loans from a director (Brian Nelson) are notable and, while repaid, indicate a reliance on internal financing sources, which can be a red flag compared to companies with broader and more diversified access to capital markets.

Management Changes

Corporate Governance

Related Party Transactions

• On April 26, 2023, a separation and release of claims agreement was entered into with Nicole Harvey, former Chief Legal Officer, providing payments equivalent to $720,000 for wages and benefits over 24 months and full vesting of outstanding equity awards (options were later forfeited as not exercised).
• On March 5, 2023, an unsecured promissory note in the principal amount of $1.0 million was issued to Brian Nelson, a director, in exchange for cash. The note and a $100,000 loan fee were repaid in full by April 4, 2023.
• On January 30, 2024, an unsecured convertible promissory note in the principal amount of $1.0 million was issued to Brian Nelson. The note and a $50,000 loan fee were repaid in full on February 2, 2024.
• On February 27, 2024, a convertible promissory note in the principal amount of $1.7 million was issued to Brian Nelson. The note and an $85,000 loan fee were repaid in full on March 1, 2024.
• Indemnification agreements were entered into with directors and executive officers, requiring the company to indemnify them for certain expenses incurred in their service.

Stakeholder Impact

• Shareholders face potential dilution from the reverse stock split and future share issuances, but also the possibility of increased share price and liquidity if the reverse split is successful in maintaining Nasdaq listing.
• Employees, particularly executives, are impacted by the expansion of the equity incentive plan, which aims to attract and retain talent, and by contingent cash awards tied to the company's cash balance.
• Management and directors benefit from compensation packages, including equity awards, and indemnification agreements, while also being responsible for navigating the company through its current challenges.
• Creditors, specifically director Brian Nelson, have provided short-term financing, indicating a reliance on internal sources for capital, which could be a concern for external lenders.

Next Steps

• Stockholders are to vote on the proposals at the 2025 Annual Meeting on October 15, 2025.
• The Board will determine the exact ratio and timing of the reverse stock split within one year after stockholder approval.
• The company will file a Certificate of Amendment with the Nevada Secretary of State if the Increase in Authorized Proposal and Voting Standard Proposal are approved.
• The company must continue efforts to regain Nasdaq compliance by November 10, 2025.
• Additional capital will be required in the near future to fund operations.
• Future amendments to the Code of Business Conduct and Ethics or waivers will be disclosed on the company's website.
• Stockholder proposals for the 2026 Annual Meeting must be received by May 18, 2026.
• Notice for director nominations or other business for the 2026 Annual Meeting must be received between June 17, 2026, and July 17, 2026.
• A supplemental notice under universal proxy rules for the 2026 Annual Meeting is due by August 16, 2026.

Key Dates

Recommendation

The company's current stock price is significantly below Nasdaq's minimum bid requirement, and its market value is also non-compliant, leading to a delisting threat. While a reverse stock split is proposed, its success in sustainably increasing the share price and market capitalization is uncertain, and it often signals underlying operational issues. The history of material weaknesses in financial reporting and the reliance on related-party loans for short-term capital raise concerns about financial stability and governance. Given these significant risks and the company's precarious position, a seasoned investor would likely recommend selling to mitigate potential further losses.

Keywords

Dragonfly Energy, DFLI, SEC Filing, Proxy Statement, DEF 14A, Reverse Stock Split, Nasdaq Listing, Equity Incentive Plan, Authorized Shares, Corporate Governance, Financial Reporting, Audit Committee, Executive Compensation, Related Party Transactions, Lithium-ion Batteries, Energy Storage