Dragonfly Energy Holdings Corp. Fair Value Disclosure

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 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 December 31, 2024:

 SCHEDULE OF FAIR VALUE OF ASSETS AND LIABILITIES   

		Carrying Amount				Fair Value				(Level 1)				(Level 2)				(Level 3)
		As of December 31, 2024
Liabilities
Warrant liability- Term Loan		$	3,883			$	3,883			$	-			$	3,883			$	-
Warrant liability- June Public Offering			1,250				1,250				-				1,250				-
Total liabilities		$	5,133			$	5,133			$	-			$	5,133			$	-

 

Due to Black Scholes calculation being utilized on all fair value measurement of warrant liabilities as of December 31, 2024, the fair value warrant liabilities were transferred from Level 3 to Level 2. This is due to the observable inputs (such as the Company’s stock price and comparable company volatility calculations) included in the Black Scholes calculation, which makes the fair value measurement of the warrant liabilities more closely aligned with Level 2.

 

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, 2023:

 

		Carrying Amount				Fair Value				(Level 1)				(Level 2)				(Level 3)
		As of December 31, 2023
Liabilities
Warrant liability- Term Loan		$	1,014			$	1,014			$	-			$	-			$	1,014
Warrant liability- June Public Offering			3,434				3,434				-				-				3,434
Warrant liability- Private placement warrants			15				15				-				15				-
Total liabilities		$	4,463			$	4,463			$	-			$	15			$	4,448

 

The carrying amounts of accounts receivable and accounts payable are considered level 1 and approximate fair value as of December 31, 2024 and 2023 because of the relatively short maturity of these instruments.

 

The carrying value of the term loan as of December 31, 2024 and 2023 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 Consolidated Financial Statements

(in thousands, except share and per share data)

 

Note 3 - Fair Value Measurements (continued)

 

Level 3 Roll forward

 

Fair value measurements categorized within Level 3 are sensitive to changes in assumptions or methodology used to determine fair value, and such changes could result in a significant increase or decrease in the fair value.

 

The changes for Level 3 items measured at fair value on recurring basis using significant unobservable inputs are as follows:

 SCHEDULE OF FAIR VALUE ON RECURRING BASIS USING SIGNIFICANT UNOBSERVABLE INPUTS  

		Warrant Liability – Term Loan				Warrant liability- June Public Offering
Fair value as of January 1, 2024		$	1,014			$	3,434
Warrants Issued			7,353				-
Warrant exercises
Change in fair value, gain included in net loss(1)			(4,484	)			(2,184	)
Transfers from Level 3 to Level 2(2)			(3,883	)			(1,250	)
Fair value as of December 31, 2024		$	-			$	-

 

		Warrant Liability – Term Loan				Warrant liability- June Public Offering
Fair value as of January 1, 2023		$	30,841			$	-
Fair value, beginning balance		$	30,841			$	-
Warrants Issued			698				13,762
Warrant exercises			(11,284	)			(617	)
Change in fair value, gain included in net loss(1)			(19,241	)			(9,711	)
Fair value as of December 31, 2023		$	1,014			$	3,434
Fair value, ending balance		$	1,014			$	3,434

 

(1)

Changes in fair value of warrant liabilities are disclosed separately in the Consolidated Statements of Operations.

(2)

Transfers of warrant liability fair market value reclassified from Level 3 to Level 2 due to utilizing Black Scholes calculation for fair value measurement across all warrant liabilities, which includes observable inputs (such as company stock price and comparable company volatility calculations) and more closely aligns with Level 2.

 

 

Dragonfly Energy Holdings Corp.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)