Dragonfly Energy Holdings Corp. quarterly report, Q2 FY2022

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Business context and reporting period

This is Chardan NexTech Acquisition 2 Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022—not an operating-company 10-Q filed by Dragonfly Energy Holdings Corp. Chardan was a blank-check company with no operating revenue or business operations, formed to complete a business combination. It had agreed to merge with Dragonfly Energy Corp.; the transaction remained subject to closing conditions and stockholder approval.

Financial performance and position

  • Revenue and margins: No operating revenue; operating margins are not meaningful for this SPAC.
  • Results: Q2 2022 net loss was $570,333, versus a loss of $834 in Q2 2021. For the first six months of 2022, net income was $621,507, versus a loss of $834 in the comparable 2021 period. The 2022 results were driven largely by noncash changes in the fair value of warrant liabilities and gains on Trust Account investments, rather than operating activity.
  • Costs: Q2 operating and formation costs were $416,078 and franchise tax expense was $50,000. For the six months, these were $624,284 and $100,656, respectively.
  • Cash flow: Net cash used in operating activities was $450,092 for the six months ended June 30, 2022. Cash outside the Trust Account fell from $799,808 at December 31, 2021 to $349,716 at June 30, 2022. No financing cash flow was reported for the first half of 2022.
  • Liquidity and liabilities: Working capital surplus was $263,247, down from $988,187 at year-end 2021. Trust Account investments were $128.6 million. Total liabilities were $1.20 million, including $879,293 of warrant liabilities; the company reported no long-term debt at June 30.

Material changes versus the prior comparable period

First-half net income in 2022 primarily reflected a $1.16 million gain from the change in fair value of warrant liabilities and $189,482 of Trust Account investment gains; the comparable 2021 period had minimal formation costs and a small loss. The company’s cash outside the Trust Account and working capital surplus declined from December 2021. These comparisons relate to Chardan’s SPAC financials, not Dragonfly’s operating results.

Outlook, transaction, risks and unusual items

  • Proposed combination and financing: The May 2022 merger agreement contemplated 40 million shares for Dragonfly holders at closing and up to 40 million additional earnout shares tied to 2023 revenue and operating-income targets and later share-price milestones. A sponsor-affiliated PIPE investor subscribed for up to $5 million, subject to conditions. A proposed $75 million senior secured term loan and a potential $150 million equity facility were also described; these were commitments or proposed facilities, not reported proceeds received by June 30.
  • Subsequent events: In July, Dragonfly agreed to a $15 million stock investment by THOR Industries, alongside a commercial arrangement, and the merger consideration was amended. At an August 5 special meeting, stockholders approved extensions and redeemed 9,556,652 shares, resulting in a reported $97.2 million distribution from the Trust Account. The filing states approximately $31.5 million remained in trust and 6,255,848 shares remained outstanding. Insiders then indicated an additional one-month extension funded by $200,000.
  • Going concern: Management disclosed substantial doubt about Chardan’s ability to continue as a going concern, given limited cash outside the Trust Account and the risk of mandatory liquidation if a business combination was not completed within the permitted period. Completion of the merger was not assured.
  • Controls: Management concluded disclosure controls were not effective at June 30, 2022 because of a material weakness in accounting for complex financial instruments, following a prior balance-sheet revision involving redeemable common stock. Remediation efforts were underway, with no assurance they would be effective.
  • Other uncertainties: The company noted potential but undetermined effects from COVID-19 and the Russia-Ukraine conflict. It reported no legal proceedings or material changes to previously disclosed risk factors.

Investor verification priorities

  1. Confirm the merger’s closing status, required approvals, and any later amendments to transaction terms.
  2. Reconcile the post-quarter redemptions, remaining Trust Account balance, extension funding, and current share count.
  3. Review Dragonfly’s audited and interim financial statements; this filing does not provide its operating revenue, profit, cash flow, or margins.
  4. Verify whether the proposed term loan, PIPE, and equity facility were finalized and funded, including their conditions, warrants, dilution, and repayment terms.
  5. Track remediation of the material weakness and any subsequent changes in disclosure-control effectiveness.