Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
1 - NATURE OF BUSINESS
Dragonfly
Energy Holdings Corp. (“New Dragonfly” or the “Company”) sells lithium ion battery packs for use in a wide variety
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.
On
October 7, 2022, a merger transaction between Chardan NexTech Acquisition 2 Corporation (“CNTQ”), Dragonfly Energy Corp.
(“Legacy Dragonfly”), and Bronco Merger Sub, Inc. (“Merger Sub”) was completed pursuant to which Merger Sub was
merged with and into Legacy Dragonfly, with Legacy Dragonfly surviving the merger. As a result of the merger, Legacy Dragonfly became
a wholly owned subsidiary of New Dragonfly.
Although
New Dragonfly was the legal acquirer of Legacy Dragonfly in the merger, Legacy Dragonfly is 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.”
Furthermore,
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; (ii) the combined results of CNTQ and Legacy Dragonfly following the close of the merger; (iii)
the assets and liabilities of Legacy Dragonfly at their historical cost and (iv) the Legacy Dragonfly’s equity structure for all
periods presented, as affected by the recapitalization presentation after completion of the merger.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of consolidation
The
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.
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP
for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”)
set forth in Article 8 of Regulation S X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.
Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These 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.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
For
the three months ended March 31, 2023 and 2022, the Company incurred loss from operations and had negative cash flow from operations.
As of March 31, 2023, the Company had $15,791 in cash and cash equivalents and working capital of $24,533. 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.
In
connection with the Company’s senior secured term loan facility in an aggregate principal amount of $75,000 (the “Term Loan”),
the Company is 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 (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. 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.
In
addition, the Company may need to raise additional debt and/or equity financings to fund our operations, strategic plans, and meet its
financial covenants. The Company has historically been able to raise additional capital through issuance of equity and/or debt financings
and the Company intends to use its equity facility and raise additional capital as needed. However, the Company cannot guarantee that
it will be able to raise additional equity, contain expenses, or increase revenue, and comply with the financial covenants under the
Term Loan.
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 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.
Recently
issued accounting pronouncements:
In
August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments.
ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible
instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s
own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed
to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement
to use the if-converted method for all convertible instruments. The amendments in this update will be effective for the Company on January
1, 2024. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations
or cash flows.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts
Receivable
The
Company’s trade receivables are recorded when billed and represent claims against third parties that will be settled in cash. Generally,
payment is due from customers within 30 – 60 days of the invoice date and the contracts do not have significant financing components.
Trade accounts receivables are recorded gross and are net of any applicable allowance. The Company has an allowance for doubtful accounts
as of March 31, 2023 and December 31, 2022 of $116 and $90, respectively.
Inventory
Inventories
(Note 4), which consist of raw materials and finished goods, are stated at the lower of cost (first in, first out) or net realizable
value, net of reserves for obsolete inventory. We continually analyze our slow moving and excess inventories. Based on historical and
projected sales volumes and anticipated selling prices, we established 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 March 31, 2023 and December 31, 2022, no such reserves were necessary.
Property
and Equipment
Property
and equipment are stated at cost, including the cost of significant improvements and renovations. Costs of routine repairs and maintenance
are charged to expense as incurred. Depreciation and amortization are calculated by the straight line method over the estimated useful
lives for owned property, or, for leasehold improvements, over the shorter of the asset’s useful life or term of the lease. Depreciation
expense for the three months ended March 31, 2023 and 2022 was $297 and $192, respectively. The various classes of property and equipment
and estimated useful lives are as follows:
SCHEDULE
OF VARIOUS CLASSES OF PROPERTY AND EQUIPMENT
AND ESTIMATED USEFUL LIVES
Office
furniture and equipment |
3
to 7 years |
Vehicles |
5
years |
Machinery
and equipment |
3
to 7 years |
Leasehold
improvements |
Remaining
Term of Lease |
Use
of Estimates
The
preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Warrants
The
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.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
Under
Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the
consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements
that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it
is entitled to in exchange for the goods or services it transfers to the customer.
Revenue
is recognized when control of the promised goods is transferred to the customer or reseller, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods and services. Revenue associated with products holding rights of return
are recognized when the Company concludes there is not a risk of significant revenue reversal in the future periods for the expected
consideration in the transaction. There are no material instances including discounts and refunds where variable consideration is constrained
and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in time for standard promised goods at
the time of shipment when title and risk of loss pass to the customer.
The
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 30-60 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 March 31, 2023 and December
31, 2022, the contract liability related to the Company’s customer deposits approximated $418 and $238, respectively. The Company
recognized $211 of contract liability pertaining to the year ended December 31, 2022 as of March 31, 2023. The entire contract liability
balance of $434 as of January 1, 2022 was recognized as revenue during the three months ended March 31, 2022.
Disaggregation
of Revenue
The
following table present our disaggregated revenues by distribution channel:
SCHEDULE
OF DISAGGREGATED REVENUES BY DISTRIBUTION CHANNEL
| |
2023 | | |
2022 | |
| |
For the Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
Sales | |
| | | |
| | |
Retail | |
$ | 7,069 | | |
$ | 13,035 | |
Distributor | |
| 2,968 | | |
| 2,087 | |
Original equipment manufacture | |
| 8,754 | | |
| 3,181 | |
Total | |
$ | 18,791 | | |
$ | 18,303 | |
Total sales | |
$ | 18,791 | | |
$ | 18,303 | |
Shipping
and Handling
Shipping
and handling fees paid by customers are recorded within net sales, with the related expenses recorded in cost of sales. Shipping and
handling costs associated with outbound freight are included in sales and marketing expenses. Shipping and handling costs associated
with outbound freight totaled $1,007 and $1,228 for the three months ended March 31, 2023 and 2022, respectively.
Product
Warranty
The
Company offers assurance type warranties from 5 to 10 years on its products. The Company estimates the costs associated with the warranty
obligation using historical data of warranty claims and costs incurred to satisfy those claims. The Company estimates, based upon a review
of historical warranty claim experience, the costs that may be incurred under our warranties and record a liability in the amount of
such estimate at the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical
and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability
and adjust the accrual as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing
assurance type warranties and has determined that the estimated outstanding warranty obligation on March 31, 2023 and December 31, 2022
to be $400 and $328, respectively.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations
Receivables
from one customer comprised approximately 50% of accounts receivable as of March 31, 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.
Sales
from one customer comprised approximately 26% of revenue for the three months ended March 31, 2023. There were no significant revenue
concentrations for the three months ended March 31, 2022.
Payables
to one vendor comprised approximately 67% of accounts payables as of March 31, 2023. Payables to one vendor comprised approximately 61%
of accounts payables as of December 31, 2022.
For
the three months ended March 31, 2023, two vendors accounted for approximately 38% and 10%, respectively, of the Company’s total
purchases. For the three months ended March 31, 2022, one vendor accounted for approximately 34% of the Company’s total purchases.
Advertising
The
Company expenses advertising costs as they are incurred and are included in selling and marketing expenses. Advertising expenses amounted
to $587 and $781 for the three months ended March 31, 2023, and 2022, respectively.
Stock-Based
Compensation
The
Company accounts for stock-based compensation arrangements with employees and non-employee consultants using a fair value method which
requires the recognition of compensation expense for costs related to all stock-based payments, including stock options (Note
11). The fair value method requires the Company to estimate the fair value of stock-based payment awards to employees and non-employees
on the date of grant using an option pricing model. Stock based compensation costs are based on the fair value of the underlying option
calculated using the Black Scholes option pricing model and recognized as expense on a straight-line basis over the requisite service
period, which is the vesting period. Restricted stock unit awards are valued based on the closing trading value of the Company’s
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.
Determining
the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, expected dividend
yield, expected term, risk free rate of return, and the estimated fair value of the underlying common stock. Due to the lack of company
specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility
of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate
with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage
of product development and focus on the lithium ion battery industry. The Company uses the simplified method, which is the average of
the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as it does not
have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest
rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed
dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The
Company accounts for forfeitures as they occur.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income
Taxes
Deferred
income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss, credit carryforwards
and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at
the current enacted tax rates. The Company recognizes a tax benefit for an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company
has a liability of $128 and $128 as of March 31, 2023, and December 31, 2022, respectively, 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.
Segment
Reporting
Operating
segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation
by the Company’s Chief Executive Officer to make decisions with respect to resource allocation and assessment of performance. To
date, the Company has viewed its operations and manages its business as one operating segment.
NOTE
3 - FAIR VALUE MEASUREMENTS
ASC
820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a fair value hierarchy for instruments measured at
fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable
inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained
from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs
that market participants would use in pricing the asset or liability and are developed based on the best information available in the
circumstances.
ASC
820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions
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. |
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest
for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level
of any input that is significant to the fair value measurement.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
3 - FAIR VALUE MEASUREMENTS (CONTINUED)
The
following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis
as of March 31, 2023:
SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES
| |
Carrying
Amount | | |
Fair Value | | |
(Level
1) | | |
(Level
2) | | |
(Level
3) | |
| |
As of March 31, 2023 | |
Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant liability- Term Loan | |
$ | 4,021 | | |
$ | 4,021 | | |
$ | - | | |
$ | - | | |
$ | 4,021 | |
Warrant liability- Private placement warrants | |
| 120 | | |
| 120 | | |
| - | | |
| 120 | | |
| - | |
Total liabilities | |
$ | 4,141 | | |
$ | 4,141 | | |
$ | - | | |
$ | 120 | | |
$ | 4,021 | |
The
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:
| |
Carrying Amount | | |
Fair Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
As of December 31, 2022 | |
Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant liability- Term Loan | |
$ | 30,841 | | |
$ | 30,841 | | |
$ | - | | |
$ | - | | |
$ | 30,841 | |
Warrant liability- Private placement warrants | |
| 1,990 | | |
| 1,990 | | |
| - | | |
| 1,990 | | |
| - | |
Total liabilities | |
$ | 32,831 | | |
$ | 32,831 | | |
$ | - | | |
$ | 1,990 | | |
$ | 30,841 | |
The
carrying amounts of accounts receivable and accounts payable are considered level 1 and approximate fair value as of March 31, 2023 and
December 31, 2022 because of the relatively short maturity of these instruments.
The
carrying value of the term loan as of March 31, 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.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
4 - INVENTORY
Inventory
consists of the following:
SCHEDULE
OF INVENTORY
| |
March 31, 2023 | | |
December 31, 2022 | |
Raw material | |
$ | 44,310 | | |
$ | 42,586 | |
Finished goods | |
| 7,502 | | |
| 7,260 | |
Total inventory | |
$ | 51,812 | | |
$ | 49,846 | |
NOTE
5 - COMMITMENTS AND CONTINGENCIES
Litigation
From
time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, governmental
actions, administrative actions, investigations or claims are pending against the Company or involve the Company that, in the opinion
of the Company’s management, could reasonably be expected to have a material adverse effect on the Company’s business and
financial condition.
Operating
Leases
The
Company has leases related to the main office, warehouse space, research and development lab, and engineering office, all located in
Reno, Nevada. The leases require annual escalating monthly payments ranging from $111 to $128. On February 2, 2022, the Company entered
into a 124-month lease agreement in Reno, Nevada. The lease calls for monthly base rent of $230, $23 of fixed operating expense costs,
and estimated monthly property taxes of $21. The monthly base rent and fixed operating expense costs are subject to escalation of 3%
and 2.4%, respectively, on an annual basis. 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 March 31, 2023, the lease has not commenced as the Company does not have
control over the asset.
The
following table presents the breakout of the operating leases as of:
SCHEDULE OF TABLE REPRESENTING THE BREAKOUT OF THE OPERATING LEASES
| |
March 31, 2023 | | |
December
31, 2022 | |
Operating lease right-of-use assets | |
$ | 4,205 | | |
$ | 4,513 | |
Short-term operating lease liabilities | |
| 1,215 | | |
| 1,188 | |
Long-term operating lease liabilities | |
| 3,209 | | |
| 3,541 | |
Total operating lease liabilities | |
$ | 4,424 | | |
$ | 4,729 | |
Weighted average remaining lease term | |
| 3.4 years | | |
| 3.6 years | |
Weighted average discount rate | |
| 5.2 | % | |
| 5.2 | % |
Assumptions
used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based
on comparable market data.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating
Leases (Continued)
At
March 31, 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 | |
Amount | |
December 31, 2023 (1) | |
$ | 1,054 | |
December 31, 2024 | |
| 1,435 | |
December 31, 2025 | |
| 1,435 | |
December 31, 2026 | |
| 893 | |
Total lease payments | |
| 4,817 | |
Less imputed interest | |
| 393 | |
Total operating lease liabilities | |
$ | 4,424 | |
| (1) | Represents
scheduled payments for the remaining nine-month period ending December 31, 2023. |
SCHEDULE
OF LEASE COST
Lease cost | |
Classification | |
March 31, 2023 | | |
March 31, 2022 | |
Operating lease cost | |
Cost of goods sold | |
$ | 347 | | |
$ | 172 | |
Operating lease cost | |
Research and development | |
| 22 | | |
| 19 | |
Operating lease cost | |
General and administration | |
| 12 | | |
| 10 | |
Operating lease cost | |
Selling and marketing | |
| 12 | | |
| 14 | |
Total lease cost | |
| |
$ | 393 | | |
$ | 215 | |
Earnout
The
former holders of shares of Legacy Dragonfly common stock (including shares received as a result of the conversion of Legacy Dragonfly
Preferred Stock into New Dragonfly Common Stock) are entitled to receive their pro rata share of up to 40,000,000 additional shares of
common stock (the “Earnout Shares”). The Earnout Shares are issuable in three tranches. The first tranche of 15,000,000 shares
is issuable if New Dragonfly’s 2023 total audited revenue is equal to or greater than $250,000 and New Dragonfly’s 2023 audited
operating income is equal to or greater than $35,000. The second tranche of 12,500,000 shares is issuable upon achieving a volume-weighted
average trading price threshold of at least $22.50 on or prior to December 31, 2026 and the third tranche of 12,500,000 is issuable upon
achieving a volume-weighted average trading price threshold of at least $32.50 on or prior to December 31, 2028. To the extent not previously
earned, the second tranche is issuable if the $32.50 price target is achieved by December 31, 2028.
Other
Contingencies
See
Note 7 for further discussion regarding contingent consideration arising from the April 2022 asset purchase agreement with Thomason Jones
Company, LLC.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
6 - DEBT
Financing
Trust Indenture
On
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.
In
connection with the merger on October 7, 2022 (the “Closing Date”), the Company entered into a Term Loan, Guarantee and Security
Agreement (see “Term Loan Agreement” below) and the outstanding principal balance for the Series 2021-6 Notes underlying
the Trust Indenture was paid in full. A loss on extinguishment of $4,824 was recognized upon settlement. During the three months ended
March 31, 2022, a total of $619 of interest expense was incurred under the debt. Amortization of the debt issuance costs amounted to
$613 during the three months ended March 31, 2022.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
6 - DEBT (CONTINUED)
Term
Loan Agreement
On
October 7, 2022, in connection with the merger, CNTQ, Legacy Dragonfly and CCM Investments 5 LLC, an affiliate of CCM LLC (“CCM
5”, and in connection with the Term Loan, the “Chardan Lender”), and EICF Agent LLC (“EIP” and, collectively
with the Chardan Lender, the “Initial Term Loan Lenders”) entered into the Term Loan Agreement setting forth the terms of
the Term Loan. The Chardan Lender backstopped its commitment under the Debt Commitment Letter by entering into a backstop commitment
letter, dated as of May 20, 2022 (the “Backstop Commitment Letter”), with a certain third party financing source (the “Backstop
Lender” and collectively with EIP, the “Term Loan Lenders”), pursuant to which the Backstop Lender committed to purchase
from the Chardan Lender the aggregate amount of the Term Loan held by the Chardan Lender (the “Backstopped Loans”) immediately
following the issuance of the Term Loan on the Closing Date. Pursuant to an assignment agreement, the Backstopped Loans were assigned
by CCM 5 to the Backstop Lender on the Closing Date.
Pursuant
to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date. The proceeds of the Term Loan
were used (i) to refinance on the Closing Date prior indebtedness (including the obligations underlying the Trust Indenture), (ii) to
support the Transaction under the merger Agreement, (iii) for working capital purposes and other corporate purposes, and (iv) to pay
any fees associated with transactions contemplated under the Term Loan Agreement and the other loan documents entered into in connection
therewith, including the transactions described in the foregoing clauses (i) and (ii) and fees and expenses related to the merger. The
Term Loan amortizes in the amount of 5% per annum (or $937.5 on the first day of each calendar quarter) beginning 24 months after the
Closing Date and matures on the fourth anniversary of the Closing Date (“Maturity Date”). The Term Loan accrues interest
(i) until April 1, 2023, at a per annum rate equal to the adjusted Secured Overnight Financing Rate (“SOFR”) plus 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, which will be paid in kind and (iii) at all times thereafter, at a per annum rate equal to adjusted SOFR
plus a margin ranging from 11.5% to 13.5% payable in cash, depending on the senior leverage ratio of the consolidated company. In each
of the foregoing cases, adjusted SOFR will be no less than 1%.
In
addition to optional prepayments by the Company upon written notice, the Term Loan Agreement provides for mandatory prepayments upon
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.
Unless
the obligations under the Term Loan are accelerated under the terms of the agreement, the maturity date will be October 7, 2026.
The
Term Loan Lenders have been granted a first priority lien, and security interest in, the mortgaged properties underlying the Company’s
mortgages.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
6 - DEBT (CONTINUED)
Term
Loan Agreement (Continued)
During
the three months ended March 31, 2023, a total of $3,496 of interest expense was incurred under the debt. Amortization of the debt issuance
costs amounted to $219 during the three months ended March 31, 2023. The carrying balance of $20,699 on March 31, 2023 consisted of $75,000
in principal, plus $2,430 PIK interest, less $56,731 in unamortized debt discount related to the debt issuance costs.
Financial
Covenants
Maximum
Senior Leverage Ratio
The
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:
SCHEDULE
OF LEVERAGE RATION
Test Period Ending | |
| Leverage Ratio | |
December 31, 2022 - March 31, 2023 | |
| 6.75 to 1.00 | |
June 30, 2023 - September 30, 2023 | |
| 6.00 to 1.00 | |
December 31, 2023 - March 31, 2024 | |
| 5.00 to 1.00 | |
June 30, 2024 - September 30, 2024 | |
| 4.00 to 1.00 | |
December 31, 2024 - March 31, 2025 | |
| 3.25 to 1.00 | |
June 30, 2025 and thereafter | |
| 3.00 to 1.00 | |
Liquidity
The
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
month (commencing with month ending December 31, 2022).
Fixed
Charge Coverage Ratio
The
Fixed Charge Coverage Ratio is the ratio of consolidated EBITDA (less capital expenditures and certain other adjustments) to consolidated
fixed charges, as defined in the agreement. 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
periods ending on the last day of any such quarter to be less than 1.15 to 1.00.
Capital
Expenditures
If
consolidated EBITDA for the trailing twelve month period ending on the most recently completed fiscal quarter is less than $15,000, then
the level of capital expenditures is limited.
On
March 29, 2023, the Company obtained a waiver from Alter Domus (US) LLC, as administrative agent for the lenders (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.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
6 - DEBT (CONTINUED)
Debt Maturities
At
March 31, 2023, the future debt maturities, based on contractual principal payments are as follows:
SCHEDULE OF FUTURE DEBT MATURITIES
| |
| |
For Year Ended December 31, | |
| |
2023 (1) | |
$ | - | |
2024 | |
| 938 | |
2025 | |
| 3,750 | |
2026 | |
| 91,775 | |
Total | |
| 96,463 | |
Less: Estimated interest paid-in-kind | |
| (19,033 | ) |
Total debt | |
| 77,430 | |
Less: Unamortized debt issuance costs, noncurrent | |
| (56,731 | ) |
Total carrying amount | |
| 20,699 | |
Less: Current portion of debt | |
| (20,699 | ) |
Total long-term debt | |
$ | - | |
| (1) | Represents
scheduled payments for the remaining nine-month period ending December 31, 2023 |
NOTE
7 - ASSET PURCHASE AGREEMENT
Bourns
Production, Inc
On
January 1, 2022, the Company entered into an asset purchase agreement (the “APA”) with Bourns Productions, Inc., a Nevada
corporation (“Bourns Productions”) pursuant to which the Company acquired machinery, equipment and a lease for a podcast
studio from Bourns Productions as set forth in the APA for a purchase price of $197 which approximated fair market value.
Thomason
Jones Company, LLC
In
April 2022, the Company entered into an Asset Purchase Agreement (the “April 2022 Asset Purchase Agreement”) with William
Thomason, Richard Jones, and Thomason Jones Company, LLC (“Thomason Jones”) whereby the Company acquired inventory and intellectual
property assets for up to $700 cash plus contingent payments of $1,000 each to William Thomason and Richard Jones (the “Earn Out”).
The Company determined the contingent consideration to be recognized as contingent compensation to Mr. Thomason and Mr. Jones. The Company
concluded the purchase price to be $444 and was allocated in its entirety to inventory.
Contingent
Compensation
If,
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 $1,147 and $782 as of March 31, 2023 and December 31, 2022.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
8 - RELATED PARTY
The
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
expense.
On
October 25, 2022, the Company entered into a separation and release of claims agreement with its 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
is included in general and administrative expenses in the statements of operations, payments equivalent to $1,000 divided into 24 monthly
payments commencing on December 1, 2022, and all outstanding equity-based compensation awards to become fully vested and exercisable.
The COO shall have 12 months from the termination date to exercise outstanding options.
In
February 2023, the Company entered into an agreement with its former COO in which the ownership of a Company van was transferred to
the former COO in connection with his severance. 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.
On
March 5, 2023, the Company entered into a convertible promissory note (the “Note”) with a board member in the amount of $1,000,
or the Principal Amount. Upon execution of the Note and funding of the original principal sum, a payment of $100 ( the “Loan Fee”)
was fully earned as of the date of the Note and was due and payable in full in cash on April 4, 2023. The Company paid the Principal
Amount and the Loan Fee on April 1, 2023 and April 4, 2023, respectively.
NOTE
9 - WARRANTS
Common
Stock Warrants classified as Equity
Public
Warrants
Each
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. 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.
The
measurements of the Public Warrants after the detachment of the Public Warrants from the Units are classified as Level 1 due to the use
of an observable market quote in an active market under the ticker DFLIW. 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.
During
the quarter ended March 31, 2023, the Company received proceeds from public warrant exercises of $747 in exchange for 64,971 common shares.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
9 - WARRANTS (CONTINUED)
Common
Stock Warrants classified as Liability
Private
Placement Warrants
The
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. 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 three months ended March 31, 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 March 31, 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 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. The Company will reassess the classification at each balance sheet date.
The
Private Placement Warrants are classified as Level 2 as the transfer of private placement warrants to anyone who is not a permitted transferee
would result in the Private Placement Warrants having substantially similar terms as the Public Warrants (with the exception of a different
remaining life). We determined, through use of a Binomial Lattice model, that the fair value of each Private Placement Warrant less a
discount for the difference in remaining life is equivalent to that of each Public Warrant.
Term
Loan Warrants
In
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 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 March 31, 2023, penny warrant holders exercised 1,250,000 warrants on a cashless basis,
with the Company agreeing to issue 1,248,294 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.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
9 - WARRANTS (CONTINUED)
Common
Stock Warrants classified as Liability (Continued)
The
following table provides the significant inputs to the Black-Scholes method for the fair value of the Penny Warrants:
SCHEDULE
FAIR VALUE WARRANTS
| |
As of
March 31, 2023 | | |
As of
December 31, 2022 | |
Common stock price | |
$ | 3.00 | | |
$ | 11.09 | |
Exercise price | |
| 0.01 | | |
| 0.01 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
Term | |
| 9.52 | | |
| 9.77 | |
Volatility | |
| 89.00 | % | |
| 90.00 | % |
Risk-free rate | |
| 3.43 | % | |
| 3.90 | % |
Fair value | |
$ | 2.99 | | |
$ | 11.89 | |
The
following table presents a roll-forward of the Company’s warrants from January 1, 2023 to March 31, 2023:
SCHEDULE
OF ROLL FORWARD IN WARRANTS
Private
Warrants:
| |
Common Stock
Warrants | |
Warrants Outstanding, January 1, 2023 | |
| 4,627,858 | |
Exercise of warrants | |
| (3,126,472 | ) |
Warrants Outstanding, March 31, 2023 | |
| 1,501,386 | |
There
were no private warrants issued, exercised and outstanding from the period January 1, 2022 through March 31, 2022.
Public
Warrants:
| |
Common Stock
Warrants | |
Warrants Outstanding, January 1, 2023 | |
| 9,487,500 | |
Exercise of warrants | |
| (64,971 | ) |
Warrants Outstanding, March 31, 2023 | |
| 9,422,529 | |
There
were no public warrants issued, exercised and outstanding from the period January 1, 2022 through March 31, 2022.
Term
Loan Warrants:
| |
Common Stock
Warrants | |
Warrants Outstanding, January 1, 2023 | |
| 2,593,056 | |
Exercise of warrants | |
| (1,250,000 | ) |
Warrants Outstanding, March 31, 2023 | |
| 1,343,056 | |
There
were no term loan warrants issued, exercised and outstanding from the period January 1, 2022 through March 31, 2022.
The
following table presents a roll forward of the aggregate fair values of the Company’s warrant liabilities for which fair value
is determined by Level 3 Inputs. The only class of warrants that were determined to be Level 3 are the term loan warrants.
| |
Warrant Liability | |
Balances, January 1, 2023 | |
$ | 30,841 | |
Exercise of warrants | |
| (8,822 | ) |
Change in fair value of warrants | |
| (17,998 | ) |
Balances, March 31, 2023 | |
$ | 4,021 | |
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
10 - COMMON STOCK
The
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.
For
the three months ended March 31, 2023 and 2022, the Company had reserved shares of common stock for issuance as follows:
SUMMARY OF RESERVED SHARES OF COMMON STOCK FOR ISSUANCE
| |
March 31, 2023 | | |
March 31, 2022 | |
Options issued and outstanding | |
| 3,731,392 | | |
| 3,631,002 | |
Common stock outstanding | |
| 45,795,502 | | |
| 36,581,910 | |
Warrants outstanding | |
| 12,266,971 | | |
| - | |
Earnout shares | |
| 40,000,000 | | |
| - | |
Shares available for future issuance | |
| 4,319,309 | | |
| 1,205,790 | |
Total | |
| 106,113,174 | | |
| 41,418,702 | |
ChEF
Equity Facility
The
Company and Chardan Capital Markets LLC, a New York limited liability company (“CCM LLC”) entered into a purchase agreement
(the “Purchase Agreement”) and a Registration Rights Agreement (the “ChEF RRA”) in connection with the merger.
Pursuant to the Purchase Agreement, the Company has the right to sell to CCM LLC an amount of shares of Common Stock, up to a maximum
aggregate purchase price of $150 million, pursuant to the terms of the Purchase Agreement. In addition, the Company appointed LifeSci
Capital, LLC as “qualified independent underwriter” with respect to the transactions contemplated by the Purchase Agreement.
Under the terms of the Purchase Agreement, the Company issued 73,500 shares pursuant to the Purchase Agreement with CCM LLC for aggregate
net proceeds to the Company of $597 from the period January 1, 2023 through March 31, 2023.
NOTE
11 - STOCK-BASED COMPENSATION
Share-based
compensation expense for options and RSUs totaling $4,487 and $288 was recognized in the Company’s consolidated statements of operations
for the three months ended March 31, 2023 and 2022, respectively. Of the $4,487 of share-based compensation incurred during the three
months ended March 31, 2023, $36 is allocated to cost of goods sold, $29 to research and development, $856 to selling and marketing,
and $3,566 to general and administrative expenses. Of the $288 of share-based compensation incurred during the three months ended March
31, 2022, $97 is allocated to cost of goods sold, $37 to research and development, $60 to selling and marketing, and $94 to general and
administrative expenses.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
11 - STOCK-BASED COMPENSATION (CONTINUED)
A
summary of the Company’s option activity and related information follows:
SCHEDULE OF OPTION ACTIVITY AND RELATED INFORMATION
| |
Number
of Options (1) | | |
Weighted-Average
Exercise Price | | |
Weighted-Average
Grant
Date Fair
Value | | |
Weighted-Average Remaining Contractual Life (in years) | | |
Aggregate
intrinsic value | |
Balances, January 1, 2022 | |
| 3,690,955 | | |
$ | 1.98 | | |
$ | 1.38 | | |
| 8.52 | | |
$ | 6,550 | |
Options granted | |
| - | | |
| - | | |
| - | | |
| | | |
| - | |
Options forfeited | |
| (11,584 | ) | |
| 1.44 | | |
| 2.17 | | |
| | | |
| - | |
Options exercised | |
| (48,369 | ) | |
| 0.49 | | |
| 0.83 | | |
| | | |
| - | |
Balances, March 31, 2022 | |
| 3,631,002 | | |
$ | 2.00 | | |
$ | 1.39 | | |
| 8.29 | | |
$ | 6,377 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balances, January 1, 2023 | |
| 3,642,958 | | |
$ | 2.02 | | |
$ | 1.21 | | |
| 7.90 | | |
$ | 35,989 | |
Options granted | |
| 143,607 | | |
| 7.50 | | |
| 3.82 | | |
| | | |
| 632 | |
Options forfeited | |
| (19,164 | ) | |
| 7.27 | | |
| 3.71 | | |
| | | |
| 6 | |
Options exercised | |
| (36,009 | ) | |
| 2.58 | | |
| 1.65 | | |
| | | |
| 232 | |
Balances, March 31, 2023 | |
| 3,731,392 | | |
$ | 2.20 | | |
$ | 1.30 | | |
| 6.62 | | |
$ | 3,800 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
At March 31, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
Vested and Exercisable | |
| 2,029,985 | | |
$ | 1.53 | | |
| | | |
| 4.98 | | |
$ | 3,120 | |
Vested and expected to vest | |
| 3,731,392 | | |
$ | 2.20 | | |
| | | |
| 6.62 | | |
$ | 3,800 | |
(1) | Number 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. |
Restricted
Stock Units
On
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 vest immediately. The fair value of the restricted stock units on the date of grant was $3,464
and was recorded as compensation expense.
Dragonfly
Energy Holdings Corp.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands, except share and per share data)
NOTE
11 - STOCK-BASED COMPENSATION (CONTINUED)
Restricted
Stock Units (Continued)
There
were no grants of restricted stock units prior to October 7, 2022. The following table presents the restricted stock units activity for
the three months ended March 31, 2023:
SCHEDULE
OF RESTRICTED STOCK UNITS ACTIVITY
| |
Number of
Shares | | |
Weighted-Average
Fair Market Value | |
Unvested shares at January 1, 2023 | |
| 180,000 | | |
$ | 14.00 | |
Granted and unvested | |
| 461,998 | | |
| 7.50 | |
Vested | |
| (461,998 | ) | |
| 7.50 | |
Unvested shares, March 31, 2023 | |
| 180,000 | | |
$ | 14.00 | |
| |
| | | |
| | |
Vested as of March 31, 2023 | |
| 461,998 | | |
$ | 7.50 | |
As
of March 31, 2023, there were 4,319,309 shares of unissued authorized and available for future awards under the 2022 Equity Incentive
Plan and Employee Stock Purchase Plan.
NOTE
12 - EARNINGS (LOSS) PER SHARE
Earnings
(Loss) per Common Share
The
following table sets forth the information needed to compute basic and diluted earnings (loss) per share for the three months ended March
31, 2023 and 2022:
SCHEDULE OF INFORMATION NEEDED TO COMPUTE BASIC AND DILUTED EARNINGS PER SHARE
| |
March 31, 2023 | | |
March 31, 2022 | |
Basic Earnings (Loss) per common share: | |
| | | |
| | |
Net Income (Loss) available to common shareholders | |
$ | 4,892 | | |
$ | (2,298 | ) |
Weighted average number of common shares-basic | |
| 45,104,515 | | |
| 36,542,944 | |
Earnings (Loss) per share, basic | |
$ | 0.11 | | |
$ | (0.06 | ) |
| |
| | | |
| | |
Diluted Earnings (Loss) per common share: | |
| | | |
| | |
Net Income (Loss) available to common shareholders | |
$ | 4,892 | | |
$ | (2,298 | ) |
Weighted average number of common shares-basic | |
| 45,104,515 | | |
| 36,542,944 | |
Dilutive effect related to stock options and warrants | |
| 3,351,481 | | |
| - | |
Weighted average diluted shares outstanding | |
| 48,455,996 | | |
| 36,542,944 | |
Earnings (Loss) per share, diluted | |
$ | 0.10 | | |
$ | (0.06 | ) |
The
following table sets forth the number of potential shares of common stock that have been excluded from diluted net income per share net
income (loss) per share because their effect was anti-dilutive:
SCHEDULE OF POTENTIAL SHARES OF COMMON STOCK EXCLUDED FROM DILUTED NET (LOSS) INCOME PER SHARE
| |
March 31, 2023 | | |
March 31, 2022 | |
Warrants | |
| 10,923,915 | | |
| - | |
Restricted stock units | |
| 111,015 | | |
| - | |
Options | |
| - | | |
| 3,631,002 | |
Weighted average number of common shares-basic | |
| 11,034,930 | | |
| 3,631,002 | |
NOTE
13 – INCOME TAXES
The
Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual
effective tax rate adjusted for the effect of discrete items arising in that quarter. The Company recorded an income tax expense (benefit)
of $0 and ($527) during the three months ended March 31, 2023 and 2022, respectively. The effective tax rate differs from the U.S. 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.
NOTE
14 – SUBSEQUENT EVENTS
On
April 1, 2023 the Company paid the $1,000 Principal Amount on the Note previously issued to Brian Nelson on March 5, 2023. Upon execution
of the Note and funding of the Principal Amount, a payment of the $100 Loan Fee, was fully earned as of the date of the note and was
due and paid in full in cash on April 4, 2023.
On
April 26, 2023 (the “Separation Date”), the Company’s Chief Legal Officer’s employment with the Company
ended and her employment agreement was deemed terminated as of that date by the Company without cause for purposes of determining severance thereunder.
Under the terms of her employment agreement, Ms. Harvey is entitled to receive cash severance equal to $334,000 payable in 52 biweekly
installments commencing 30 days from the Separation Date. Ms. Harvey’s outstanding options granted by the Company fully vested,
and are exercisable for three (3) months following the Separation Date.