Dragonfly Energy Holdings Corp. — Q3 2022 Form 10-Q
Reporting period: Unaudited quarter and nine months ended September 30, 2022. The statements primarily report Chardan NexTech Acquisition 2 Corp., a SPAC that had not begun operating; Dragonfly Energy’s business was not consolidated for this period. The merger closed October 7, 2022, after quarter-end, and the registrant then changed its name to Dragonfly Energy Holdings Corp.
Key financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | None | None | None | None |
| Net income (loss) | $(1.92) million | $2.69 million | $(1.30) million | $2.69 million |
| Operating and formation costs | $999,216 | $92,234 | $1.62 million | $93,068 |
| Operating loss | $(1.05) million | $(116,268) | $(1.77) million | $(117,102) |
| Net cash used in operating activities | Not presented quarterly | $(583,456) | $(459,653) |
- There are no meaningful operating margins to assess: the reporting entity had no operating revenue. Its results reflect SPAC expenses, trust-account investment gains, taxes, and changes in warrant fair value.
- Q3 2022’s $1.92 million net loss included a $1.11 million non-cash loss from warrant remeasurement and $999,216 of operating and formation costs; a $279,627 trust investment gain partly offset these items. For the nine-month period, the $1.30 million net loss included a $46,279 warrant fair-value gain and a $469,109 trust investment gain.
- The prior-year nine-month net income of $2.69 million was largely affected by a $4.07 million warrant fair-value gain, so the year-over-year earnings comparison is not indicative of operating performance.
- At September 30, cash outside the trust was $316,023, versus $799,808 at December 31, 2021. Working capital was a deficit of $1.13 million, compared with a $988,187 surplus at year-end 2021. The trust held $31.996 million; these funds were associated with the SPAC transaction and should not be treated as ordinary operating cash available before the combination.
- Total assets were $32.48 million; total liabilities were $3.60 million, including $1.99 million of warrant liabilities and a $400,000 related-party extension note. Stockholders’ deficit was $2.83 million. No long-term debt was reported at September 30.
Material changes and transaction developments
- In August, public stockholders redeemed 9,556,652 shares, about 60.44% of then-outstanding shares, for $97.19 million. Approximately $31.46 million remained in the trust after redemptions; the balance sheet reports trust assets of $31.996 million at September 30.
- On October 7, after the reporting date, the business combination closed. The filing describes 41.5 million shares of merger consideration, including shares allocated for assumed options, and up to 40 million additional earnout shares subject to financial and share-price milestones.
- At closing, the company drew a $75 million senior secured term loan. Proceeds were designated for refinancing prior debt, transaction costs, working capital, and other corporate purposes. The loan matures in four years; 5% annual amortization begins after 24 months. Interest is based on adjusted SOFR, with a 1% floor, and includes substantial cash and payment-in-kind margins as detailed below.
- The term loan was accompanied by penny warrants for 2,593,056 shares (approximately 5.6% on the agreed fully diluted basis) and warrants for 1.6 million shares at $10 per share, creating potential dilution.
- At closing, the company also entered into an equity facility allowing it, subject to conditions, to sell shares to CCM LLC for up to $150 million over the facility term. Any use could dilute existing holders. The contemplated $5 million PIPE commitment was reduced to zero through an offset after CCM LLC’s market purchases; the filing also reports 15,000 shares issued to CCM LLC at closing.
Outlook, risks, and unusual items
- The 10-Q provides no operating guidance for Dragonfly and does not include Dragonfly’s Q3 operating results. Earnout terms—not management guidance—include a 2023 threshold of at least $250 million revenue and $35 million audited operating income for 15 million shares, plus share-price milestones for up to 25 million more shares through 2028.
- The term loan’s disclosed initial rate through April 1, 2023 is adjusted SOFR plus 13.5%, comprising 7% cash interest and 6.5% payment-in-kind interest. Later rates vary by period and leverage ratio. The loan’s secured status and cost of capital are material financing considerations.
- Management stated that COVID-19 and the Russia-Ukraine conflict could affect the company or its search/operations, but the specific effects were not determinable. The filing also discusses potential 1% federal excise tax on certain repurchases after December 31, 2022; applicability depends on transaction details and future guidance.
- Disclosure controls were deemed ineffective as of September 30, 2022 because of a material weakness related to complex financial instrument accounting and a prior revision involving redeemable common stock classification. Remediation efforts were described as ongoing, with no assurance they will be effective.
- The company reported no legal proceedings and no material changes to the risk factors referenced in its proxy statement/prospectus. COVID-19 and geopolitical impacts remain uncertain.
Important facts for investors to verify
- Review post-merger filings for Dragonfly’s actual revenue, margins, cash flows, and consolidated balance sheet; this 10-Q does not report those operating results.
- Confirm the $75 million loan’s outstanding balance, cash and PIK interest accruals, covenants, repayment capacity, and use of proceeds in subsequent filings.
- Track trust proceeds, redemptions, transaction expenses, and the company’s cash available for operations after closing.
- Assess dilution from the loan warrants, earnout shares, assumed options, registration rights, and any draws under the up-to-$150 million equity facility.
- Check whether management remediated the disclosed material weakness and whether subsequent SEC filings clarify internal-control effectiveness.