| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN | Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN Principles
of consolidation The
accompanying unaudited condensed 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 SX. 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 condensed consolidated financial
statements should be read along with the 10-K filed with the SEC on April 16, 2024 (as amended April 29, 2024, the “Annual Report”)
of the Company for the annual period ended December 31, 2023. The consolidated balance sheet as of December 31, 2023 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) Note
2 – Summary of Significant Accounting Policies (continued) 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. During
the three months ended March 31, 2024 and 2023, the Company incurred losses from operations and had negative cash flow from operations.
As of March 31, 2024, the Company had $ 8,501 in
cash and cash equivalents and working capital of $ 4,168 .
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). In
addition, the Company may need to raise additional debt and/or equity financings to fund its 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
issued accounting pronouncements : In
November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires, among
other updates, enhanced disclosures about significant segment expenses that are regularly provided to the CODM, as well as the aggregate
amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning
after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption.
Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related
disclosures. In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”).
ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is
effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption
is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures. 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) Cash
and Cash Equivalents The
Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. As of March
31, 2024 and December 31, 2023, the Company held no Cash Equivalents. From
time to time the Company has amounts on deposit with financial institutions that exceed federally insured limits. The Company has not
experienced any significant losses in such accounts. 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- 90 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 allowance for credit losses as of March 31,
2024 and December 31, 2023 were not material. Inventory Inventories
(Note 4), 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. The
Company utilizes the use of estimates in its calculations for the reserve for obsolete or slow moving inventory, right of use assets,
warrant liability, equity based compensation, and income taxes. 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 - 90
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, 2024 and December 31, 2023, the contract liability related to the Company’s customer deposits are $ 231
and $ 201 ,
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) Revenue
Recognition (Continued) The
Company recognized $ 134
of the contract liability as of December
31, 2023 during the three months ended March 31, 2024. The Company recognized $ 211
of the contract liability as of December
31, 2022 during the three months ended March 31, 2023. Disaggregation
of Revenue The
following table present our disaggregated revenues by distribution channel: SCHEDULE
OF DISAGGREGATED REVENUES BY DISTRIBUTION CHANNEL
2024 2023
For the Three Months Ended
March
31
2024 2023
Sales
Direct to
Customer 5,203 10,038
Original
equipment manufacturer 7,302 8,753
Total $ 12,505 $ 18,791 During
the year ended December 31, 2023, the Company deemed it more appropriate to classify Retail and Distributor revenues as a single line
item referred to as direct-to-consumer revenue. The Company has combined previously reported retail and distributor amounts to direct-to-consumer
revenue to conform with current year presentation. The consolidation into direct-to-consumer revenue is motivated by The Company’s
strategic perspective on its operations and better represents how it evaluates their sales channels. 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 its 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. The Company periodically assesses
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 at March 31, 2024 and December 31, 2023 to be $ 414
and $ 307 ,
respectively. SCHEDULE
OF WARRANTY OBLIGATION
March
31, 2024 December
31, 2023
Beginning warranty obligation 307 328
Provision of warranty expense 197 397
Settlement of warranty
claims (90 ) (418 )
Ending warranty
obligation $ 414 $ 307 Concentrations As of March 31, 2024, receivables
from Customer A, Customer B and Customer C comprised approximately 22 %,
14 %
and 12 %,
respectively, of accounts receivable. As of December 31, 2023, receivables from Customer D and Customer E comprised approximately 28 %
and 10 %,
respectively, of accounts receivable. For
the three months ended March 31, 2024, sales from Customer A accounted for approximately 16 %
of the Company’s total revenue. For the three months ended March 31, 2023, sales from Customer B accounted for approximately 26 %
of the Company’s total revenue. As
of March 31, 2024, payables to Vendor A comprised approximately 60 %
of accounts payables. As of December 31, 2023, payables to Vendor A comprised approximately 65 %
of accounts payables. For the three months ended March 31,
2024, Vendor A accounted for approximately 12 %
of the Company’s total purchases. For the three months ended March 31, 2023, Vendor B and Vendor C accounted for approximately
38 %
and 10 %,
respectively, of the Company’s total purchases. 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) 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 $ 91
as of March 31, 2024, and December 31,
2023, 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. The Company regularly assesses the need to record a valuation allowance against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Net
(Loss) Income per Common Share Basic
net (loss) income per share is calculated by dividing net (loss) earnings by the weighted-average number of common shares outstanding
during the period. Diluted net (loss) income per share is calculated using the weighted-average number of common shares outstanding during
the period and, if dilutive, the weighted-average number of potential shares of common stock. The
weighted-average number of common shares included in the computation of diluted net (loss) income gives effect to all potentially dilutive
common equivalent shares, including outstanding stock options and warrants. Common
stock equivalent shares are excluded from the computation of diluted net (loss) income per share if their effect is antidilutive. In
periods in which the Company reports a net loss, diluted net loss per share is generally the same as basic net loss per share since dilutive
common shares are not assumed to have been issued if their effect is anti-dilutive. Leases At
the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and
circumstances present in the arrangement including the use of an identified asset(s) and the Company’s control over the use of
that identified asset. The Company elected, as allowed under FASB ASU 2016-02, Leases (“ASC 842”), to not recognize leases
with a lease term of one year or less on its balance sheet. Leases with a term greater than one year are recognized on the balance sheet
as right-of-use (“ROU”) assets and current and non-current lease liabilities, as applicable. 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. Reclassifications Certain
prior period amounts have been reclassified to conform to the current period presentation in the condensed consolidated financial statements
and these accompanying notes. The reclassifications did not have a material impact on the Company’s unaudited condensed consolidated
financial statements and related disclosures. The impact on any prior period disclosures was immaterial. 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 AND GOING CONCERN Basis
of presentation The
accompanying consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”) and in accordance with generally accepted 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. Principles
of consolidation The
accompanying consolidated financial statements and related notes have been prepared in accordance with 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. DRAGONFLY
ENERGY HOLDINGS CORP. Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) Note
2 – Summary of Significant Accounting Policies (continued) Going
Concern The
accompanying 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 consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. For
the year ended December 31, 2023 and 2022, the Company incurred loss from operations and had negative cash flow from operations. As of
December 31, 2023, the Company had $ 12,713 15,543 In
connection with the Company’s senior secured term loan facility in an aggregate principal amount of $ 75,000 (See Note 7). In
addition, the Company may need to raise additional debt and/or equity financings to fund its 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 pronouncements 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 did not have a material impact to
the financial statements or financial statement disclosures. Recently
issued accounting pronouncements In
November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires, among
other updates, enhanced disclosures about significant segment expenses that are regularly provided to the CODM, as well as the aggregate
amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning
after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption.
Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related
disclosures In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”).
ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is
effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption
is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures. DRAGONFLY
ENERGY HOLDINGS CORP. Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) Note
2 – Summary of Significant Accounting Policies (continued) Cash
and Cash Equivalents The
Company considers all short-term debt securities when purchased with a maturity of three months or less to be cash equivalents. As of
December 31, 2023 and 2022, the Company held no From
time to time the Company has amounts on deposit with financial institutions that exceed federally insured limits. The Company has not
experienced any significant losses in such accounts. 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- 90 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 allowance for credit losses as of December
31, 2023 and 2022 were not material. Inventory Inventories
(Note 5), 67 0 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 years ended December 31, 2023 and 2022 was $ 1,237 891 SCHEDULE
OF VARIOUS CLASSES OF PROPERTY AND EQUIPMENT
AND ESTIMATED USEFUL LIVES The
various classes of property and equipment and estimated useful lives are as follows:
Office
furniture and equipment 3 7
Vehicles 5
Machinery
and equipment 3 7
Leasehold
improvements Shorter
of Useful Life or 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. The
Company utilizes the use of estimates in its calculations for the reserve for obsolete or slow moving inventory, warrant liability, equity
based compensation, and income taxes. DRAGONFLY
ENERGY HOLDINGS CORP. Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) Note
2 – Summary of Significant Accounting Policies (continued) Impairment
of Long-Lived Assets The
Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying amount of these asset may not be recoverable. Recoverability of these assets is measured by comparison of
the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. When
indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the
assets’ carrying value, the related assets will be written down to fair value. There were no impairments of the Company’s
long-lived assets for the periods presented. 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 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 qualify for equity classification are measured at fair value upon issuance and are not subsequently remeasured unless they are required
to be reclassified. Commitments
and Contingencies Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable
that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies
are expensed as incurred. 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 90 201 238 DRAGONFLY
ENERGY HOLDINGS CORP. Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) Note
2 – Summary of Significant Accounting Policies (continued) The
Company recognized $ 230 8 434 Disaggregation
of Revenue The
following table present our disaggregated revenues by distribution channel: SCHEDULE
OF DISAGGREGATED REVENUES BY DISTRIBUTION CHANNEL
Sales 2023 2022
December 31,
Sales 2023 2022
Direct to Customer 36,875 52,446
Original equipment manufacturer 27,517 33,805
Total $ 64,392 $ 86,251 During
the year ended December 31, 2023, the Company deemed it more appropriate to classify Retail and Distributor revenues as a single
line item referred to as direct-to-consumer revenue. The Company has combined previously reported retail and distributor amounts to
direct-to-consumer revenue to conform with current year presentation. The consolidation into direct-to-consumer revenue is motivated
by the Company’s strategic perspective on its operations and better represents how it evaluates their sales
channels. 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 $ 3,466 5,440 Product
Warranty The
Company offers assurance type warranties from 5 10 307 328 SCHEDULE
OF WARRANTY OBLIGATION
2023 2022
December 31,
2023 2022
Beginning warranty obligation $ 328 $ -
Provision of warranty expense 397 328
Settlement of warranty claims (418 ) -
Ending warranty obligation $ 307 $ 328 Concentrations Receivables
from two 28 10 three 18 10 10 Sales
from one 16 one 22 Payables
to one 65 one 61 For
the year ended December 31, 2023, one 14 Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) Note
2 – Summary of Significant Accounting Policies (continued) Concentrations
(continued) For
the year ended December 31, 2022, one 28 Deferred
Financing Costs The
incremental cost, including the fair value of warrants, directly associated with obtaining debt financing is capitalized as deferred
financing costs upon the issuance of the debt and amortized over the term of the related debt agreement using the effective-interest
method with such amortized amounts included as a component of interest expense in the consolidated statement of operations. Unamortized
deferred financing costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related
debt obligation. Research
and Development The
Company expenses research and development costs as incurred. Research and development expenses include salaries, contractor and consultant
fees, supplies and materials, as well as costs related to other overhead such as depreciation, facilities, utilities, and other departmental
expenses. The costs we incur with respect to internally developed technology and engineering services are included in research and development
expenses as incurred as they do not directly relate to acquisition or construction of materials, property or intangible assets that have
alternative future uses. Advertising The
Company expenses advertising costs as they are incurred and are included in selling and marketing expenses. Advertising expenses amounted
to $ 2,167 2,334 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 12). 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. Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) Note
2 – Summary of Significant Accounting Policies (continued) Income
Taxes Deferred
income tax assets and liabilities (Note 15) 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 $ 91 128 The
Company’s accounting policy is to include penalties and interest related to income taxes if any, in selling, general and administrative
expenses. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized. Net
(Loss) Earnings per Common Share Basic
net (loss) earnings per share is calculated by dividing net (loss) earnings by the weighted-average number of common shares outstanding
during the period. Diluted net (loss) earnings per share is calculated using the weighted-average number of common shares outstanding
during the period and, if dilutive, the weighted-average number of potential shares of common stock. The
weighted-average number of common shares included in the computation of diluted net (loss) earnings gives effect to all potentially dilutive
common equivalent shares, including outstanding stock options and warrants. Common
stock equivalent shares are excluded from the computation of diluted net (loss) earnings per share if their effect is antidilutive. In
periods in which the Company reports a net loss, diluted net loss per share is generally the same as basic net loss per share since dilutive
common shares are not assumed to have been issued if their effect is anti-dilutive. The
following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because
their effect was anti-dilutive: SCHEDULE OF POTENTIAL SHARES OF COMMON STOCK EXCLUDED FROM DILUTED NET LOSS PER SHARE
December 31, December 31,
Warrants 24,510,575 16,708,414
Restricted stock units 47,000 180,000
Options 2,364,787 3,642,958
Weighted average number of common shares-basic 26,922,362 20,531,372 As
the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the
continuation of the pre-merger Legacy Dragonfly financial statements; Dragonfly equity has been retroactively adjusted to the earliest
period presented to reflect the legal capital of the legal acquirer, CNTQ. As a result, net (loss) earnings per share was also retrospectively
adjusted for periods ended prior to the Merger. See–Note 3 - Reverse Capitalization for details and discussion of the retrospective
adjustment of net loss per share. Leases At
the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and
circumstances present in the arrangement including the use of an identified asset(s) and the Company’s control over the use of
that identified asset. The Company elected, as allowed under FASBASU 2016-02, Leases (“ASC 842”), to not recognize leases
with a lease term of one year or less on its balance sheet. Leases with a term greater than one year are recognized on the balance sheet
as right-of-use (“ROU”) assets and current and non-current lease liabilities, as applicable. 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 Reclassification Certain
prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and
these accompanying notes. The reclassifications did not have a material impact on the Company’s consolidated
financial statements and related disclosures. The impact on any prior period disclosures was immaterial. DRAGONFLY
ENERGY HOLDINGS CORP. Notes
to Consolidated Financial Statements December
31, 2023 and 2022 (in
thousands, except share and per share data) |
