Dragonfly Energy Holdings Corp.

Note 1 -Nature of Business

Dragonfly Energy Holdings Corp. (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 November 12, 2024, the Company’s Board of Directors approved a 1-for-9 reverse stock split of the Company’s common stock, par value $0.0001 per share (“Common Stock”) and a corresponding proportional reduction in the number of common stock shares issued and outstanding. The reverse stock split was effected upon market open on November 22, 2024, (the “Effective Date”), and shares of Common Stock began trading on a split-adjusted basis as of market open on November 22, 2024.

On December 15, 2025, the Company’s Board of Directors approved a 1-for-10 reverse stock split of the Company’s common stock, par value $0.0001 per share and a corresponding proportional reduction in the number of common stock shares issued and outstanding. The reverse stock split was effected upon market open on December 18, 2025, and shares of Common Stock began trading on a split-adjusted basis as of market open on December 18, 2025.

All shares of Common Stock, stock option awards and per share amounts contained in the Consolidated Financial Statements and Notes have been retroactively adjusted to reflect the 1-for-10 reverse stock split.

Note 2 –Summary of Significant Accounting Policies

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 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.

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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

For the years ended December 31, 2025 and 2024, the Company incurred losses from operations and had negative cash flow from operations. As of December 31, 2025, the Company had $18,270 in cash and cash equivalents and a working capital of $30,423. 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 (as amended, 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). Between March 2024 and February 2025, the Company obtained multiple waivers from the Term Loan administrative agent and lenders for noncompliance with the liquidity requirements under the Term Loan.

On February 26, 2025, the Company entered into a Securities Purchase agreement (“Purchase Agreement”). The Purchase Agreement called for the Company to authorize a new series of convertible preferred stock of the Company designated as the Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which shall beconvertible into shares of the Company’s common stock, and sell to each Buyer an aggregate number of shares of Series A Preferred Stock and 20 warrants, to each buyer, that are convertible to common stock. During the year ended December 31, 2025, the Company received proceeds of $8,000 less $670 in costs for net proceeds of $7,330 due to the conversion of 800 shares of Series A Preferred Stock for 3,231,462 shares of common stock which the Company has been using for working capital and general corporate purposes. As of December 31, 2025, all Series A Convertible Preferred Stock has been converted into common stock.

In addition to the Purchase Agreement, the Term Loan was amended on February 26, 2025 to (i) extend the maturity date by one (1) year to October 2027, (ii) defer all principal and interest payments to April 2026 and (iii) remove any applicable financial covenants (except for a financial covenant requiring the Company to maintain cash and cash equivalents equal to or greater than $2,500) through June 30, 2026.

On July 30, 2025, the Company received proceeds of $5,495 less $811 in costs, which the Company has been using for working capital and other general corporate purposes, including the repayment of indebtedness in the ordinary course. Investors received an aggregate of 2,198,000 shares of common stock.

Going Concern (Continued)

On October 6, 2025, the Company received proceeds of $26,925, net of costs, in connection with the issuance of 2,300,000 shares of common stock and option to purchase 300,000 shares of common stock. The Company used the proceeds to make a $4,000 prepayment on the Term Loan. On October 17, 2025, the Company received additional proceeds of $51,928, net of costs, from the issuance of 3,600,000 shares of common stock and 500,000 pre-funded warrants to purchase shares of common stock. The Company used the aggregate net proceeds for working capital and other general corporate purposes, including the repayment of indebtedness in the ordinary course of business. Additionally, on October 20, 2025, the Term Loan was restructured and the Company entered into the Sixth Amendment (the “Sixth Amendment”) with the Term Loan lenders, which included new monthly interest payment terms, $45,000 prepayment in October, and $5,000 debt cancellation. Lastly, as part of the restructuring, on November 4, 2025, the Company and the lenders entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company issued 25,000 shares of Series B Preferred Stock in exchange for $25,000 outstanding principal amount of the Term Loan. Please seeNote 6 & 10 for more information regarding the offerings, term loan amendment, and exchange agreement that occurred in October and November 2025.

Subsequent to year end, on January 30, 2026, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC, as lead agent and representative of the other sales agents, establishing an at-the-market equity offering program under which the Company may, at its discretion, offer and sell from time to time up to $50 million of its common stock. While the Company is not obligated to issue any shares under the agreement and retains full control over the timing, amount, pricing, and terms of any sales effected through the lead agent, this agreement provides the Company with a flexible, readily accessible source of capital to support its liquidity needs, subject to customary closing conditions, a 3% sales commission and reimbursement of specified expenses payable to the agents, and standard indemnification and contribution provisions.

As presented above, strategic initiatives were executed in 2025 and early 2026 in order to alleviate the substantial doubt regarding the Company’s ability to continue as a going concern. These initiatives include multiple capital raises totaling a net cash increase of $90,930 and Term Loan restructuring to reduce principal and interest owed, including a significant principal paydown, partial debt cancellation, and partial principal conversion into preferred shares, along with the at-the-market equity offering program entered into January 2026. With these strong initiatives, along with continued revenue generation anticipated in the next twelve months and the Company’s ability to maintain covenant compliance with a monthly liquidity minimum of $5,000, management has concluded that the substantial doubt regarding the Company’s ability to continue as a going concern has been mitigated.

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 December 31, 2025 and 2024, the Company heldno 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 December 31, 2025 and 2024 were not material.

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. The Company continually analyzes its slow moving and excess inventories. Based on historical and projected sales volumes and anticipated selling prices, the Company 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.

Assets Held for Sale

Assets held for sale are valued at the lower of the carrying amount or the net realizable value estimated at December 31, 2025. Impairment to carrying amounts are recognized to non-operating expenses. The Assets held for sale, or the disposal group, consists of two research and development pieces of equipment that were not in use yet. Due to the nature of the disposal group being long-lived assets, the disposal group qualifies for the held for sale classification, as defined in ASC 360. Due to the Company shifting its focus from research and development efforts to product development, these assets would be put into service at an undeterminable time in the future and therefore, a search for a potential buyer was conducted. The sale was expected to be completed in the second quarter, but unforeseen circumstances forced the buyer to back out. Due to not being able to locate another buyer, the assets held for sale were reclassified as Property and Equipment as of December 31, 2025.

Property and Equipment

Property and equipment are stated at cost, including the cost of significant improvements and renovations. Cost includes the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating as intended, which may include internal labor and related benefits of employees directly involved in the design, construction and installation of property and equipment, as well as applicable allocated overhead. 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 the term of the lease. Depreciation expense for the years ended December 31, 2025 and 2024 was $2,236 and $1,372, respectively.

During the year ended December 31, 2025, the Company began capitalizing certain internal engineering labor costs directly attributable to the construction of property and equipment; the impact of this change on the Company’s financial statements was not material.

The various classes of property and equipment and estimated useful lives are as follows:

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, going concern, right of use asset, warrant liability, equity based compensation, income taxes, leases, right-of-use asset impairment, and license arrangement.

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. For the years ended December 31, 2025, and December 31, 2024, the Company recorded an impairment of $0 and $873, respectively, in connection with the Assets Held for Sale on the Consolidated Statement of Operations. For the year ended December 31, 2025 and 2024, the Company recorded an impairment of $2,667 and $0, respectively, related to its right-of-use assets.

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 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 recognizes revenue from right-to-access license agreements upon the transfer of control to the customer. Upfront fees are deferred and recognized over the estimated period of benefit. Royalties are recognized as revenue when the customer’s underlying sales occur. The transaction price and timing of revenue recognition are adjusted as necessary to reflect changes in expectations.

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 December 31, 2025 and 2024, the contract liability related to the Company’s customer deposits were approximately $121 and $317, respectively.

During the year ended December 31, 2025, the Company recognized $317 of the contract liability that was recorded as of December 31, 2024. In the prior year ended December 31, 2024, the Company recognized $201 of the contract liability that was recorded as a January 1, 2024 beginning balance.

On July 29, 2024, Dragonfly Energy Corp. (“Legacy Dragonfly”), a wholly-owned subsidiary of the Company, and Battle Born Battery Products, LLC (“Battle Born LLC”), a wholly-owned subsidiary of Legacy Dragonfly, entered into a License Agreement (the “License Agreement”) with Stryten Energy LLC (“Stryten”) (Note 7). The $5,000 initial licensing fee is being recognized as revenue on a straight-line basis over five years. The Company has recorded $1,000 in revenue related to the license agreement for the year ended December 31, 2025. As of December 31, 2025 and 2024, the contract liability related to the Company’s deferred revenue were approximately $3,583 and $4,583, respectively.

Disaggregation of Revenue

The following table present our disaggregated revenues by distribution channel:

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 $2,766 and $2,530 for the years ended December 31, 2025 and 2024, 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 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 December 31, 2025 and 2024 to be $867 and $514, respectively.

Concentrations

As of December 31, 2025, receivables from Customer A comprised approximately 31% of accounts receivable. As of December 31, 2024, receivables from Customer A and B comprised approximately 15% and 21%, respectively, of accounts receivable. There are no other significant accounts receivable concentration.

Sales from Customer A comprised approximately 27% of the Company’s total revenue for the year ended December 31, 2025. Sales from Customer A comprised approximately 14% of the Company’s total revenue for the year ended December 31, 2024.

Concentrations (Continued)

As of December 31, 2025, payables to Vendor A, Vendor B, and Vendor C comprised approximately 36%,16%, and 12%, respectively, of accounts payables. As of December 31, 2024, payables to Vendor A, Vendor C, and Vendor D comprised approximately 11%,33%, and 12%, respectively, of accounts payables.

For the year ended December 31, 2025, Vendor A, Vendor B, and Vendor E accounted for approximately 18%, 11%, and 10%, respectively, of the Company’s total purchases. For the year ended December 31, 2024, Vendor D accounted for approximately 11% of the Company’s total purchases.

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

Research and development costs are expensed as incurred. Research and development expenses include salaries, contractor and consultant fees, supplies and materials, as well as costs related to overhead such as depreciation, facilities, utilities and other departmental expenses. Costs related to internally developed technology and engineering services are generally included in research and development expenses as incurred. However, internal engineering and other personnel costs that are directly attributable to the acquisition or construction of property and equipment or other assets with alternative future uses are capitalized as part of the cost of those assets and depreciated over their estimated useful lives.

Advertising

The Company expenses advertising costs as they are incurred and are included in selling and marketing expenses. Advertising expenses amounted to $2,311 and $2,257 for the years ended December 31, 2025 and 2024, 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 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.

Stock-Based Compensation (continued)

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.

Income Taxes

Deferred income tax assets and liabilities (Note 13) 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 had a liability of $0 and $55 as of December 31, 2025 and 2024, 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.

On July 4, 2025, the One Big Beautiful Bill (the “OBBB”) Act was signed into law in the United States. The OBBB Act includes significant provisions, such as the permanent extension and modification of certain provisions of the U.S. Tax Cuts and Jobs Act of 2017, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions beginning in 2025 and others beginning at various dates through 2027. The Company does not expect the OBBB Act to materially impact the Company’s income tax position in 2025.

Net Loss per Common Share

Basic net loss per share is calculated by dividing net loss 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 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 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.

Net Loss per Common Share (continued)

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:

Reclassifications

Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year’s presentation. These reclassifications were immaterial to the financial statements and had no impact on previously reported net loss, total assets, total liabilities, stockholders’ equity, or the previously reported net decrease in cash and cash equivalents.

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 (Note 14) as components of the Company for which separate discrete financial information is available and that are regularly reviewed by the Company’s Chief Executive Officer, the chief operating decision maker, to make decisions about resource allocation and assess performance. The Company currently manages its business through two operating and reportable segments. Beginning in 2024, the Company’s internal reporting structure and management’s decision-making processes evolved such that the Company now reports two operating segments. Prior-period segment information has been recast to conform to the current period presentation, where applicable.

Recently adopted accounting pronouncements:

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The Company adopted Accounting Standards Update on a prospective basis. This standard improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The adoption of this new standard did not have a material impact on our consolidated financial statements. For additional information, seeNote 13 — Income Taxes.

Recently issued accounting pronouncements:

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires a public entity to disclose additional information about specific expense categories in the notes to the financial statements on an annual and interim basis. It is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. In January 2025, the FASB issued ASU 2025-01 to clarify that all public entities, including non-calendar year-end entities, should adopt the disclosure requirements of ASU 2024-03. The Company is currently evaluating the impact.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient related to the estimation of expected credit losses for certain financial assets measured on an amortized cost basis, including current accounts receivable and current contract assets under FASB Accounting Standards Codification 606 - Revenues from Contracts with Customers. Under the practical expedient, a public entity may assume that current conditions as of the balance sheet date remain unchanged over the remaining life of the financial asset when developing reasonable and supportable forecasts used to estimate expected credit losses. This ASU is effective for the Company on January 1, 2026, with early adoption permitted. The Company is currently evaluating the potential impact on its consolidated financial statements upon adoption.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies interim disclosure requirements and the applicability of Topic 270. This ASU is effective for the Company on January 1, 2028, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

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:

Note 3 - Fair Value Measurements (continued)

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.

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, 2025:

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:

Due to Black Scholes calculation being utilized on all fair value measurement of warrant liabilities as of December 31, 2025 and 2024, the fair value warrant liabilities were transferred from Level 3 to Level 2 as of December 31, 2024. 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 carrying amounts of accounts receivable and accounts payable are considered level 1 and approximate fair value as of December 31, 2025 and 2024 because of the relatively short maturity of these instruments.

The carrying value of the term loan as of December 31, 2025 and 2024 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.

Note 3 - Fair Value Measurements (continued)

The loss on impairment of right-of-use assets recognized during the year ended December 31, 2025 and the loss on impairment of assets recognized during the year ended December 31, 2024 were measured at fair value on a nonrecurring basis and are classified within Level 3 of the fair value hierarchy, as they were based on unobservable inputs, as further described inNote 2.

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.

There was no Level 3 activity for the year ended December 31, 2025.

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

Note 4 -Inventory

Inventory consists of the following:

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, engineering office, and sales office, all located in Reno, Nevada. The leases require annual escalating monthly payments ranging from $111 to $309. 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. A certificate of substantial completion has been issued and the lease commencement date was March 25, 2024. The Company began paying monthly rent under the lease on July 24, 2024.

On April 12, 2024 the Company entered into a lease agreement, pursuant to which the Company agreed to lease an approximately 64,000 square foot facility (the “Premises”) located in Fernley, Nevada, to be used for general, warehousing, assembly/light manufacturing, painting of products, storage fulfillment, distribution of the Company’s products, and other uses as permitted under the Fernley Lease Agreement (the “Fernley Lease Agreement”). The effective date of the lease is April 1, 2024 (the “Lease Commencement Date”). However, the initial term of the Fernley Lease Agreement (the “Term”) is for a period of sixty (60) months, effective June 1, 2024 (the “Rent Commencement Date”). The base rent for the Premises, payable monthly, is $45 for the first ten months, starting June 1, 2024, and is subject to a three percent (3.0%) increase on the anniversary of the Lease Commencement Date each year. The Company also will be responsible for twenty-five percent (25%) of any operating expenses, taxes and insurance expenses incurred by the Landlord in connection with the building in which the Premises are located (the “Expenses”) as well as utility expenses. The Expenses are subject to recalculation and increase upon the completion of the Initial Improvements (as defined in the Fernley Lease Agreement). The Landlord is responsible for completing the Initial Improvements. The Fernley Lease Agreement also contains customary default provisions allowing the Landlord to terminate the Fernley Lease Agreement if the Company fails to cure certain breaches of its obligations under the Fernley Lease Agreement within a specified period of time upon written notice to the Company. Concurrent with the execution of the Fernley Lease Agreement, the Company paid the Landlord a security deposit of $50.

Note 5 - Commitments and Contingencies (continued)

On May 8, 2025, the Company entered into a sixth lease amendment with its landlord to extend the lease term for an additional sixty-four (64) month period for the research and development lab in Sparks, Nevada. Under the terms of the amended lease, the base rent due shall be fully abated for the four (4) month period commencing on August 1, 2025, and ending on November 30, 2025. The lease is set to expire on November 30, 2030.

The following table presents the breakout of the operating leases as of:

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.

At December 31, 2025, the future minimum lease payments under these operating leases are as follows:

During the year ended December 31, 2025, the Company identified indicators of impairment related to certain right-of-use assets. As a result, the Company recognized aggregate impairment charges of $2,667 related to three leases. These impairment charges are included in operating expenses in the accompanying consolidated statement of operations.

All lease costs included in the schedule above are fixed.

Note 5 - Commitments and Contingencies (continued)

Financing Leases

The Company entered into finance lease agreements for equipment to support the Company’s operations. Payments under the finance lease agreements are fixed for a term of 3-5 years. The leased assets are recognized in property plant & equipment.

The following table presents the breakout of the financing leases as of:

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.

At December 31, 2025, the future minimum lease payments under these financing leases are as follows:

Other Contingencies

In March 2025, the Company agreed to pay LithiumHub a total of $2,500, of which approximately $562 is payable in 2025 and approximately $1,938 is payable in 2026, in exchange for a non-exclusive license in LithiumHub Technologies, LLC’s patent rights related to the Patents-in-Suit. In accordance with the Settlement Agreement, the Company and LithiumHub terminated the ongoing patent litigation between them. The Settlement Agreement includes no admission of infringement by the Company. On October 22, 2025, the Company paid the settlement amount in full.

Note 6 -Long Term Debt

Term Loan Agreement

As of December 31, 2025 and 2024, the Company had an outstanding term loan (the “Term Loan”) under a Term Loan, Guarantee and Security Agreement (the “Term Loan Agreement”), dated October 7, 2022, with EICF Agent LLC, as agent, and certain lenders. As amended, the Term Loan matures on October 7, 2027 and requires monthly installments based on 0.4167% of the principal amount of Term Loans outstanding beginning December 1, 2025. The obligations under the Term Loan Agreement are secured by a first priority lien on substantially all of the Company’s assets, including certain mortgaged properties.

Interest

Prior to any amendments, the Term Loan accrued interest based on the Company’s senior leverage ratio. From inception through September 30, 2024, interest accrued at a per annum rate equal to adjusted SOFR (subject to a floor of 1.0%) plus 7.0% payable in cash, plus an additional 4.5% to 6.5% payable in kind (“PIK”), depending on the Company’s senior leverage ratio. Effective April 1, 2024, interest payable to lenders subject to the regulations of the U.S. Small Business Administration (with $30,846 of principal outstanding as of that date) was limited to 14.0% per annum, excluding default interest permitted under applicable SBA regulations. From October 1, 2024 through March 31, 2025, interest on the non SBA regulated portion continued to accrue at adjusted SOFR plus 7.0% payable in cash, and 4.5% to 6.5% payable in kind. Beginning April 1, 2025, interest on all outstanding balances will be payable entirely in cash, at a rate equal to adjusted SOFR plus a margin ranging from 11.5% to 13.5%, depending on the Company’s senior leverage ratio. Effective October 20, 2025, the Term Loan was amended to adjust the fixed interest rate of the remaining outstanding principal amount under the Term Loan Agreement to a fixed interest rate of 12% per annum, payable monthly commencing December 31, 2025 that will mature in October 2027.

During the year ended December 31, 2025, the Company recognized interest expense of $12,636, consisting of $12,046 in PIK interest and $590 in cash, paid subsequent to year end. During the year ended December 31, 2024, the Company recognized interest expense of $13,999, consisting of $9,808 in PIK interest and $4,191 in cash. Amortization of the debt issuance costs amounted to $7,591 and $7,241, respectively, for the same periods. As of December 31, 2025, the carrying value of the Term Loan was $9,645, consisting of $19,344 in principal net of $9,699 in unamortized debt discount. As of December 31, 2024, the carrying value of the Term Loan was $29,646, consisting of $69,974 in principal and $15,938 in capitalized PIK interest, net of $56,266 in unamortized debt discount.

Waivers and Amendments

After the original execution of the Term Loan Agreement, the Company entered into several amendments which modified certain terms of the facility, including, but not limited to, interest rate mechanics, the timing of principal payments, and certain financial and operational covenants. These amendments were in effect as of December 31, 2025.

May 2024 Waiver

On May 13, 2024, the Company received a waiver from its Administrative Agent and Term Loan Lenders (the “May 2024 Waiver”) in regards to its compliance with the Senior Leverage Ratio and Fixed Charge Coverage Ratio tests (the “Tests”) as of the last day of the quarter ended March 31, 2024. The May 2024 Waiver provided for a one-time issuance of penny warrants (the “May 2024 Penny Warrants”) to purchase up to 28,333 shares of the Company’s common stock, par value $0.0001 per share (the “May 2024 Penny Warrant Shares”). The May 2024 Penny Warrants have an exercise price of $0.01 per share, were valued at $3,022, and recorded as a debt discount. The May 2024 Penny Warrants were issued in connection with the Term Loan Lenders’ agreement to waive the Tests under the Term Loan for the quarter ended March 31, 2024. The May 2024 Penny Warrants were immediately exercisable upon issuance and will expire ten years from the date of issuance.

First Amendment

On June 28, 2024, the Company entered into a Limited Waiver and First Amendment (the “Term Loan Amendment” and, together with the Term Loan Agreement, the “Term Loan Agreement”) to the Term Loan with the lenders in regards to its compliance with the Tests as of the last day of the quarter ended June 30, 2024 and certain amendments to the Term Loan. The Term Loan Amendment provided for a one-time issuance of Penny Warrants to purchase up to 23,333 shares of the Company’s Common Stock at an exercise price of $0.01 per share (the “June 2024 Penny Warrants”), valued at $1,767 and recorded as a debt discount. The June 2024 Penny Warrants were issued in connection with the lenders’ agreement to waive the Tests under the Term Loan for the quarter ended June 30, 2024 and to amend the Term Loan. The June 2024 Penny Warrants are immediately exercisable upon issuance and will expire ten years from the date of issuance.

In addition, the First Amendment (i) reduced the liquidity requirement under the Term Loan to be $3.5 million as of the last day of the month ended June 30, 2024, and $10.0 million as of the last day of each fiscal month thereafter commencing with the fiscal month ended July 31, 2024 and (ii) provided for the interest to be paid on the Payment Date (as defined in the Term Loan) occurred on July 1, 2024 to be solely payable-in-kind.

Second Amendment

In connection with the License Agreement, on July 29, 2024, the Company, Legacy Dragonfly and Battle Born LLC entered into a Limited Waiver, Consent and Second Amendment (the “Second Amendment”) to Term Loan.

Pursuant to the Second Amendment, the Term Loan Lenders (i) consented to the transactions contemplated by the License Agreement and the Trademark Transfer Agreement and (ii) agreed to waive the mandatory prepayment under the Term Loan that would have been due to the Lenders under the Loan Agreement upon Battle Born LLC’s receipt of the Initial Licensing Fee.

In connection with the Second Amendment, Battle Born LLC entered into a Joinder Agreement with the Term Lenders whereby Battle Born LLC became a guarantor and credit party to the Term Loan.

Third Amendment

On September 30, 2024, the Company entered into a Limited Waiver and Third Amendment (the “Third Amendment”, together with the Original Term Loan Agreement, the First Amendment and the Second Amendment, the “Term Loan Agreement”) to the Term Loan Agreement with the Term Loan Lenders in regards to its compliance with the Tests as of the last day of the quarter ended September 30, 2024 and certain amendments to the Term Loan Agreement. The Third Amendment provided for a one-time issuance of penny warrants (the “September 2024 Penny Warrants”) to purchase up to 33,333 shares of the Company’s Common Stock at an exercise price of $0.01 per share, valued at $1,576 and recorded as a debt discount. The September 2024 Penny Warrants were issued in connection with the Term Loan Lenders’ agreement to waive the Tests under the Term Loan for the quarter ended September 30, 2024 and to amend the Term Loan Agreement. The September 2024 Penny Warrants are immediately exercisable upon issuance and will expireten years from the date of issuance.

In addition, the Third Amendment (i) reduced the liquidity requirement under the Term Loan to be $7.0 million as of the last day of the month ended September 30, 2024, and $10.0 million as of the last day of each fiscal month thereafter commencing with the fiscal month ended July 31, 2024 and (ii) on October 1, 2024, interest is payable (a) $1,500,000 in cash for the pro rata benefit of the Lenders and (b) the remaining interest in-kind, to be capitalized and added to the principal. For Payment Dates occurring on or after January 1, 2025 (including interest accruing from October 1, 2024, through December 31, 2024), all interest shall be paid in cash at a rate equal to Adjusted Term SOFR plus the Applicable Margin.

Fourth Amendment

On December 31, 2024, the Company entered into a Limited Waiver and Fourth Amendment (the “Fourth Amendment”, together with the Original Term Loan Agreement, the First Amendment, the Second Amendment, and the Third Amendment the “Term Loan Agreement”) to the Term Loan Agreement with the Term Loan Lenders in regards to its compliance with the Tests as of the last day of the quarter ended December 31, 2024 and certain amendments to the Term Loan Agreement. The Fourth Amendment provided for a one-time issuance of penny warrants (the “December 2024 Penny Warrants”) to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price of $0.01 per share, valued at $971 and recorded as a debt discount. The December 2024 Penny Warrants were issued in connection with the Term Loan Lenders’ agreement to waive the Tests under the Term Loan for the quarter ended December 31, 2024 and to amend the Term Loan Agreement. The December 2024 Penny Warrants are immediately exercisable upon issuance and will expire ten years from the date of issuance.

In addition, the Fourth Amendment (i) reduced the liquidity requirement under the Term Loan to be $3.5 million as of the last day of the month ended December 31, 2024, and $10.0 million as of the last day of each fiscal month thereafter commencing with the fiscal month ended January 31, 2025 and (ii) on January 1, 2025, interest is payable in-kind, to be capitalized and added to the principal. For Payment Dates occurring on or after April 1, 2025 (including interest accruing from January 1, 2025, through March 31, 2025), all interest shall be paid in cash at a rate equal to Adjusted Term SOFR plus the Applicable Margin.

Fifth Amendment

In February 2025, in connection with the Securities Purchase Agreement, the Company entered into the Fifth Amendment to the Term Loan. This amendment extended the loan’s maturity date by one year to October 2027 and deferred all principal and interest payments until April 2026. Additionally, the amendment postponed certain covenant requirements, significantly reducing the likelihood of a breach and the lender’s ability to accelerate repayment based on prior noncompliance, thereby allowing the Company to reclassify the debt as long-term as of December 31, 2024. The Fifth Amendment provided for a one-time issuance of penny warrants (the “February 2025 Penny Warrants”) to purchase up to 33,000 shares of the Company’s Common Stock at an exercise price of $0.01 per share, valued at $697 and recorded as a debt discount. The February 2025 Penny Warrants were issued in connection with the waiver of the antidilution provisions in the existing penny warrants held by the lenders with respect to the shares of Series A Preferred Stock issued at the closing of the Registered Direct Offering as discussed inNote 10. The February 2025 Penny Warrants are immediately exercisable upon issuance and will expire ten years from the date of issuance.

Sixth Amendment

On October 20, 2025, the Company entered into the Sixth Amendment to the Term Loan Agreement to, among other matters, (i) adjust the fixed interest rate of the remaining outstanding principal amount under the Term Loan Agreement to a fixed interest rate of 12% per annum, payable monthly commencing December 31, 2025 that will mature in October 2027, and (ii) waive any applicable financial covenants (except for a financial covenant requiring the Company to maintain cash and cash equivalents equal to or greater than $5,000) through December 31, 2026. In connection with the Sixth Amendment, (i) the Company made a prepayment of $45,000 of outstanding indebtedness under the Term Loan Agreement from the net proceeds from the Second October 2025 Offering, (ii) the lenders forgave the repayment of $5,000 of the outstanding principal under the Term Loan Agreement, (iii) the Company incurred fees to the lenders totaling approximately $930 of which $465 were added to the principal outstanding under the Term Loan Agreement and $465 was paid in cash; (iv) the Company agreed to issue 25,000 shares of newly created Series B Preferred Stock of the Company in exchange for $25,000 outstanding principal amount of the Term Loan. Prior to this amendment, on October 7, 2025, the Company also made a voluntary prepayment on the Term Loan of $4,000.

On November 4, 2025, the Company and the lenders entered into the Exchange Agreement pursuant to which the Company issued 25,000 shares of newly created Series B Preferred Stock in exchange for $25,000 outstanding principal amount of the Term Loan.

The Company evaluated the accounting guidance for debt modifications under ASC 470-50, Modifications and Extinguishments, and ASC 470-60, Troubled Debt Restructurings by Debtors, and determined that the debt restructuring pursuant to the Sixth Amendment did not meet the definition of a troubled debt restructuring under ASC 470-60. The Company also evaluated the significance of the change in cash flows based on ASC 470-50 and determined the debt restructuring was a debt modification. However, since the Company paid down a significant portion of its debt in accordance with the agreed-upon prepayment, the Company measured the loss on extinguishment due to partial settlement of the debt. As noted in Note 2, the Company adopted the accounting policy of expensing the portion of unamortized debt issuance costs as partially settled pro rata based on the partial settlement of debt principal in the amount of $26,200, which is included in debt extinguishment on the consolidated statement of operations. Since the restructuring did not result in a pro rata reduction of future principal payments (since the provision for percentage of principal repayments was also amended), the Company updated the effective interest rate and will utilize the prospective approach for recognition of interest post-restructuring.

Sixth Amendment (continued)

The calculation of the loss on partial extinguishment of debt principal was as follows:

Reacquisition price:

The loss on extinguishment is composed of a (i) pro rata debt discount of $26,200, (ii) Series B shares issued in settlement of $25,000 of principal, with a fair value of $21,704 (netting a $3,296 gain), and a pro rata debt discount reduction of $13,008, resulting in a net loss of $9,712, (iii) and amendment fees of $931, (iv) offset by a gain on the debt principal forgiven of $5,000.

Financial Covenants

As of December 31, 2024, the Company is subject to certain restrictive financial covenants, and the Company was not in compliance with its financial covenants pertaining to the fixed charge coverage ratio, liquidity, and the maximum senior leverage ratio. On March 31, 2024, April 29, 2024, May 30, 2024, June 28, 2024, July 31, 2024, August 30, 2024, September 30, 2024, October 31, 2024, November 30, 2024 and December 31, 2024 the Company obtained waivers from the Term Loan Lenders and administrative agent in regards to its failure to satisfy the liquidity requirement under the Term Loan for the quarters ended March 31, 2024, June 30, 2024, September 30, 2024, and December 31, 2024 and the fiscal months ended April 30, 2024, May 31, 2024 July 31, 2024, August 31, 2024, October 31, 2024 and November 30, 2024, as applicable.

Due to the Sixth Amendment to the Term Loan Agreement described above, as of December 31, 2025, the Company is subject to two restrictive financial covenants, one which pertains to liquidity, requiring the Company to maintain cash and cash equivalents equal to or greater than $5,000 through December 31, 2026, and a maximum capital expenditure threshold of $5,000 per year. The financial covenants pertaining to maximum senior leverage ratio and fixed charge coverage ratio are both delayed until the quarter ending March 31, 2027.

At December 31, 2025, the future debt maturities are as follows:

Note 7 -License Agreement

On July 29, 2024, Legacy Dragonfly and Battle Born LLC, a wholly-owned subsidiary of Legacy Dragonfly, entered into the License Agreement with Stryten. Under the terms of the License Agreement, Battle Born LLC granted Stryten an exclusive, worldwide license to use certain trademarks associated with the Company’s lithium-ion battery brand, Battle Born Batteries®, for business-to-business battery sales in specified markets. In exchange, Stryten paid an initial licensing fee of $5,000 and will make additional mid-single digit royalty payments to be paid based on net sales to be paid quarterly utilizing the licensed trademarks, with total royalties capped at $25,000. Once the cap is reached, Stryten will be required to pay a nominal annual license fee. The License Agreement is perpetual unless terminated in accordance with its terms. Concurrently, the Company transferred all intellectual property rights related to the licensed trademarks to Battle Born LLC and retained a worldwide license outside of Stryten’s designated markets. The $5,000 initial licensing fee is being recognized as revenue on astraight-line basis over five years. As of December 31, 2025 and 2024, the Company has recorded $1,000 and $417, respectively, in revenue related to the amortization of the License Agreement andno royalty payments have been received or earned. As of December 31, 2025, the Company has recorded $1,000 in short term deferred revenue and $2,583 in long-term deferred revenue related to the license agreement. As of December 31, 2024, the Company has recorded $1,000 in short term deferred revenue and $3,583 in long-term deferred revenue related to the license agreement.

Note 8 -RELATED PARTY

On January 26, 2024 the Company entered into a convertible promissory note (the “January Note”) with a board member in the amount of $1,000, or the January Principal Amount. Upon execution of the January Note and funding of the original principal sum, a payment of $50 (the “January Loan Fee”) was fully earned as of the date of the January Note and was due and payable in full in cash on February 2, 2024. The Company paid the January Principal Amount and the January Loan Fee on February 1, 2024.

On February 27, 2024 the Company entered into a convertible promissory note (the “February Note”) with a board member in the amount of $1,700, or the February Principal Amount. Upon execution of the February Note and funding of the original principal sum, a payment of $85 (the “February Loan Fee”) was fully earned as of the date of the February Note and was due and payable in full in cash on March 1, 2024. The Company paid the February Principal Amount and the February Loan Fee on March 1, 2024.

Effective April 12, 2024, the Company entered into amendments to the employment agreements with its Chief Executive Officer, its Chief Revenue Officer and its Chief Marketing Officer to amend the terms of their annual equity compensation (the “Amended Employee Agreements”). The Amended Employee Agreements allow the Company to issue a combination of cash and equity awards on an annual basis up to a specified amount ($1,532 for the Chief Executive Officer, $490 for the Chief Revenue Officer and $236 for the Chief Marketing Officer), subject to approval and such other terms and conditions imposed by the compensation committee of the board of directors.

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 $1,035 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 $0.90 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 $1,440 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 105,417 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.

The Company’s Public Warrants are classified as equity and as of December 31, 2025 and 2024, there were 104,695 Public Warrants issued and outstanding.

During each year ended December 31, 2025 and 2024, no public warrants were exercised.

June 2023 Offering (Underwriter and Investor Warrants)

In connection with the entry into the underwriting agreement as further described inNote 11 of the financial statements, (the “June 2023 Offering”) the Company issued (i) underwriters warrants to purchase up to an aggregate of 6,336 shares of Common Stock (the “Underwriters’ Warrants”) which are exercisable upon issuance and will expire on June 20, 2028. The initial exercise price of the Underwriters’ Warrants is $225.00 per share, which equals 125% of the per share public offering price in the June 2023 Offering and (ii) warrants to purchase up to 111,111 shares of Common Stock to the investors in the offering together with shares of Common Stock (the “Investor Warrants”), at the combined public offering price of $180.00 per share of Common Stock and accompanying Investor Warrant, less underwriting discounts and commissions.

June 2023 Offering (Underwriter and Investor Warrants) (continued)

The Company also granted the underwriters a 45-day over-allotment option to purchase up to an additional 16,667 shares of Common Stock and/or Investor Warrants to purchase up to 16,667 shares of Common Stock at the public offering price per security, less underwriting discounts and commissions. The underwriters exercised their over-allotment option to purchase an additional 15,611 shares of Common Stock and Investor Warrants to purchase up to 15,611 shares of Common Stock. The Company accounts for the Investor Warrants issued in connection with the Offering in accordance with the guidance contained in ASC 815-40. Such guidance provides that because the Investor Warrants do not meet the criteria for equity treatment thereunder, each 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. It was determined that the Underwriters’ Warrants were not precluded from equity treatment and have been accounted for as such.

October 2025 Offering (Pre-Funded Underwriter Warrants)

In connection with the entry into the Second Offering Underwriting Agreement as further described inNote 11 of the financial statements, (the “October 2025 Public Offering”) the Company issued pre-funded warrants to purchase up to an aggregate of 500,000 shares of common stock at a price to the public of $13.50 per pre-funded warrant (the “Prefunded’ Warrants”). The Pre-Funded Warrants are immediately exercisable and may be exercised at any time after issuance at an exercise price of $0.0001 per share. The Company expects to receive nominal proceeds, if any, from the exercise of the Pre-Funded Warrants. A holder of Pre-Funded Warrants may not exercise the Pre-Funded Warrants if, after giving effect to such exercise, the holder (together with its affiliates) would beneficially own more than 9.99% of the Company’s outstanding common stock; provided, however, that the holder may elect to limit such beneficial ownership to 4.99%. A holder may increase or decrease this beneficial ownership limitation, not to exceed 9.99%, upon providing at least 61 days’ prior notice to the Company.

The following table presents a roll-forward of the Company’s equity warrants from January 1, 2025 to December 31, 2025 and January 1, 2024 to December 31, 2024:

Common Stock Warrants classified as Liability

Private Placement Warrants

On October 7, 2022, in connection with the merger, the Company assumed the outstanding private placement warrants of CNTQ. There were no Private Placement Warrants outstanding prior to the merger. The Private Placement Warrants (the “Private 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 year ended December 31, 2023, private placement warrant holders exercised 34,739 warrants on a cashless basis, with the Company agreeing to issue 12,222 shares of Common Stock in connection with such exercise. There were 16,682 private warrants outstanding as of December 31, 2025 and 2024, 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 within the fair value hierarchy. Although these instruments are not actively traded, they are valued based on observable inputs, including the market price of the Company’s publicly traded warrants. The Company used a Black-Scholes model to estimate the fair value of the Private Placement Warrants, applying a discount to the value of the Public Warrants to account for the difference in remaining life. Because the valuation primarily relies on observable market data with limited adjustments, the Company determined that classification within Level 2 is appropriate.

Term Loan Warrants

In connection with the entry into the Term Loan Agreement on October 7, 2022, 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 28,812 shares of Common Stock (the “Original Penny Warrants”) and (ii) the $900.00 warrants to issue warrants to the Term Loan Lenders exercisable to purchase an aggregate of 17,778 shares of Common Stock at $900 per share (the “$10 Warrants” and, together with the Original Penny Warrants, the “Term Loan Warrants”). The $10 Warrants were exercised on a cashless basis on October 10, 2022, with the Company issuing 5,079 shares of Common Stock in connection with such exercise. During the year ended December 31, 2023, Original Penny Warrant holders exercised 22,222 warrants on a cashless basis, with the Company agreeing to issue 22,181 shares of Common Stock in connection with such exercise. During the year ended December 31, 2023 the Company issued additional Original Penny Warrants to purchase 53 shares of Common Stock to the Term Loan Lenders in accordance with the anti-dilution provisions of the original penny warrants with respect to certain sales made by the Company under the ChEF Equity Facility. In addition, pursuant to the Company’s limited waiver agreement on December 29, 2023 between the Company and the lenders and lending agent, the Company agreed to issue to the lenders additional penny warrants exercisable to purchase an aggregate 14,296 shares of its Common Stock.

On May 13, 2024, the Company received the May 2024 Waiver in regards to its compliance with the Tests as of the last day of the quarter ended March 31, 2024. The May 2024 Waiver provided for a one-time issuance of the May 2024 Penny Warrants to purchase up to 28,333 shares of the Company’s common stock, at an exercise price of $0.01 per share, in connection with the Term Loan Lenders’ agreement to waive the Tests under the Term Loan for the quarter ended March 31, 2024. The May 2024 Penny Warrants were immediately exercisable upon issuance and will expireten years from the date of issuance.

On June 28, 2024, the Company entered into the First Amendment to the Term Loan with the Term Loan Lenders in regards to its compliance with the Tests for the quarter ended June 30, 2024. The First Amendment provided for a one-time issuance of the June 2024 Penny Warrants to purchase up to 23,333 shares of the Company’s common stock, at an exercise price of $0.01 per share, in connection with the Term Loan Lenders’ agreement to waive the Tests under the Term Loan for the quarter ended June 30, 2024 and certain amendments to the Term Loan. The June 2024 Penny Warrants are immediately exercisable upon issuance and will expireten years from the date of issuance.

On September 30, 2024, the Company entered into the Third Amendment to the Term Loan with the Term Loan Lenders in regards to its compliance with the Tests for the quarter ended September 30, 2024. The Third Amendment provided for a one-time issuance the September 2024 Penny Warrants to purchase up to 33,333 shares of the Company’s Common Stock, at an exercise price of $0.01 per share, in connection with the Term Loan Lenders agreement to waive the Tests under the Term Loan for the quarter ended September 30, 2024 and to amend the Term Loan. The September 2024 Penny Warrants are immediately exercisable upon issuance and will expireten years from the date of issuance.

On December 31, 2024, the Company entered into the Fourth Amendment to the Term Loan with the Term Loan Lenders in regards to its compliance with the Tests for the quarter ended December 31, 2024. The Fourth Amendment provided for a one-time issuance the December 2024 Penny Warrants to purchase up to 35,000 shares of the Company’s Common Stock, at an exercise price of $0.01 per share, in connection with the Term Loan Lenders agreement to waive the Tests under the Term Loan for the quarter ended December 31, 2024 and to amend the Term Loan. During the year ended December 31, 2024 the Company issued additional Original Penny Warrants to purchase 275 shares of Common Stock to the Term Loan Lenders in accordance with the anti-dilution provisions of the original penny warrants with respect to certain sales made by the Company under the ChEF Equity Facility. The December 2024 Penny Warrants are immediately exercisable upon issuance and will expire ten years from the date of issuance.

On February 26, 2025, the Company entered into the Fifth Amendment to the Term Loan with the Term Loan Lenders in connection with the February 2025 securities purchase agreement (seeNote 10). The Fifth Amendment provided for a one-time issuance the February 2025 Penny Warrants to purchase up to 33,000 shares of the Company’s Common Stock, at an exercise price of $0.01 per share. The February 2025 Penny Warrants are immediately exercisable upon issuance and will expireten years from the date of issuance.

The May 2024 Penny Warrants, the June 2024 Penny Warrants, the September 2024 Penny Warrants, the December 2024 Penny Warrants, and the February 2025 Penny Warrants were valued utilizing a Black-Scholes model to estimate fair value at the grant date, with the following assumptions:

The Company concluded the Penny Warrants are not considered indexed to the Company’s Common 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. There were no Term Loan Warrants outstanding prior to the merger.

The following table provides the significant inputs to the Black-Scholes method for the fair value of the Penny Warrants:

The following table provides the significant inputs to the Black-Scholes method for the fair value of the Investor Warrants issued in the June 2023 Offering:

The following table presents a roll-forward of the Company’s warrants from January 1, 2025 to December 31, 2025 and January 1, 2024 to December 31, 2024:

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 2 Inputs. The only class of warrants that were determined to be Level 2 were the term loan and June offering investor warrants. 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.

Private Placement Convertible Preferred Warrants classified as Liability

In February 2025, in connection with a private placement offering of Series A Convertible Preferred Stock (seeNote 10), the Company issued 20 Private Placement Warrants. Each warrant entitles the holder to purchase up to 200 shares of Series A Preferred Stock at an exercise price of $10,000 per share. The warrants are exercisable immediately and expire five years from the date of issuance. The number of underlying shares and the exercise price are subject to adjustment in the event of stock splits, combinations, dividends, reclassifications, or other similar events. Upon exercise of the warrants, the Series A Preferred Stock is convertible into common stock at a conversion price that is subject to a floor of $0.424 per share, pursuant to the terms set forth in the Certificate of Designation.

The Company accounts for the Private Placement Convertible Preferred Warrants issued in connection with the initial offering in accordance with the guidance contained in ASC 815-40. Such guidance provides that because the Private Placement Convertible Preferred Warrants do not meet the criteria for equity treatment thereunder, each Private Placement Convertible Preferred Warrant must be recorded as a derivative liability with the initial fair value of approximately $120. This liability is subject to re-measurement at each balance sheet date, with changes recorded in the consolidated statement of operations and comprehensive loss. However, the Company has deemed the fair value at inception as immaterial for initial recognition of the liability and will continue to monitor the change in fair value for subsequent periods. On June 23, 2025, the Company and the holder of the Company’s Series A Convertible Preferred Stock agreed to cancel such holder’s warrants to purchase up to an aggregate of 4,000 shares of Series A Preferred Stock, with an exercise price of $10,000 per share of Series A Preferred Stock. As a result, the Warrants are no longer outstanding. Please see Note 10 for more information as related to the aforementioned initial closing of the Private Placement.

The following table presents a roll-forward of the Company’s Private Placement Convertible Preferred Warrants from January 1, 2025 to December 31, 2025:

NOTE 10 –REDEEMABLE PREFERRED STOCK

Series A Convertible Preferred Stock

In February 2025, the Company entered into the Purchase Agreement with an institutional investor. Pursuant to the Purchase Agreement, the investor agreed to purchase in a registered direct offering (the “Registered Direct Offering”) from the Company 180 shares of Series A Preferred Stock, at a price of $10,000 per share, initially convertible into shares of common stock of the Company, at a conversion price of $2.332 per share of common stock.

The Company conducted an initial offering (the “Initial Closing”), which included the sale of Series A Preferred Stock through a Registered Direct Offering (the “Registered Direct Offering”) and a Private Placement pursuant to the Purchase Agreement (the “Private Placement”). In the Private Placement, the Company agreed to sell: (i)170 additional shares of Series A Preferred Stock at the same price as in the Registered Direct Offering, with a conversion price of $2.332 per share, and (ii)20 warrants (the “Private Placement Convertible Preferred Warrants”) to purchase up to 4,000 shares of Series A Preferred Stock at $10,000 per share. The Floor Price for the Series A Preferred Stock sold in the Initial Closing was $0.424. These terms are subject to adjustments for corporate events like stock splits.

In total, the Company sold 350 shares of Series A Preferred Stock and 20 Private Placement Convertible Preferred Warrants, raising $3,180 in net proceeds, which will be used for working capital and other general purposes.

On April 28, 2025, the Company completed the second closing of the Private Placement (the “Second Closing”) pursuant to the Purchase Agreement. In connection with the Second Closing, the investor purchased an additional 450 shares of Series A Preferred Stock at a price of $10,000 per share, resulting in net proceeds of $4,150, which the Company received during the second quarter of 2025.

The terms of the Series A Preferred Stock issued in the Second Closing were substantially similar to those issued in the Initial Closing, except that the initial conversion price was set at $0.594 per share, with a Floor Price of $0.10902 per share. The Second Closing shares were convertible into common stock at the option of the holder, subject to certain limitations and adjustments.

Series A Convertible Preferred Stock (continued)

While the host contract is considered as an equity classified instrument, it includes provisions that allow the investor to redeem the instrument for cash or other assets upon the occurrence of events that are not solely within the company’s control. Because of the Series A Preferred Stock containing this redemption feature, it was originally classified as mezzanine equity. From the issuance date through December 31, 2025,800 shares of Series A Preferred Stock were converted into 3,231,462 shares of common stock. As a result, $7,330 (net of offering costs) was reclassified from mezzanine equity to common stock and additional paid in capital.

At June 30, 2025, the Company did not have a sufficient number of registered shares to fully satisfy the conversion of the remaining 133 Series A Preferred Stock under either the floor conversion price of $0.424, which would have required approximately 319,811 shares, or the Alternate Conversion Price of $1.44, which would have required approximately 940,767 shares (based on 90% of the lowest VWAP over the 10 trading days prior to June 30, 2025). The impact of the Company not having a sufficient number of registered shares to fully satisfy the conversion of the remaining Series A Preferred Stock would be an immaterial reclass to a derivative liability.

On July 20, 2025, the Company entered into a Settlement and Release Agreement (the “Release Agreement”) with the holder of the outstanding shares of Series A Preferred Stock. Pursuant to the terms of the Release Agreement, the Company issued and delivered 210,000 shares of common stock to the holder and the holder surrendered to the Company all of the outstanding shares of Series A Preferred Stock. In addition, under the Release Agreement, upon the issuance of the shares of common stock, the Company’s obligations under the Purchase Agreement, the Certificate of Designation governing the Series A Preferred Stock and the other agreements entered into in connection with the offering of the Series A Preferred Stock were satisfied in full and the Purchase Agreement and the other agreements were deemed terminated and any remaining shares of Series A Preferred Stock that were outstanding or deemed to be outstanding were deemed cancelled and no longer outstanding. The Company has no further obligation to issue any shares of common stock or Series A Preferred Stock to the holder under the Purchase Agreement or otherwise. Under the Release Agreement, each party also provided a full release to the other party.

During the year ended December 31, 2025, all of the Company’s Series A preferred stock was converted into 3,231,462 shares of common stock in accordance with their respective terms. As of December 31, 2025, no Series A preferred stock remains outstanding.

Series B Convertible Preferred Stock

On October 20, 2025, the Company entered into the Sixth Amendment to the Term Loan (seeNote 6). Under this amendment, the Company agreed to enter into a series of transactions with the lenders. The Company and the lenders agreed to exchange $25 million in outstanding principal balance of existing principal into $25 million aggregate principal amount of the newly created Series B Preferred Stock of the Company. The terms of the exchange were finalized in November 2025.

The Company is authorized to issue 25,000 shares of Series B Preferred Stock, each with a base liquidation preference of $1,000, for an aggregate base liquidation preference of $25.0 million. Dividends on the Series B Preferred Stock accrue at a rate of 10% per annum, subject to increases upon the occurrence of certain default events. Eighty percent of accrued dividends are payable in cash and 20% are payable in kind (“PIK”) and added to the liquidation preference. Any unpaid cash dividends may also be settled in kind and added to the liquidation preference. The Series B Preferred Stock is non-voting. Upon any liquidation, dissolution or winding up of the Company, holders of the Series B Preferred Stock are entitled to receive, prior and in preference to any distribution to holders of common stock, an amount per share equal to the liquidation preference of $1,000 per share, plus any accrued and unpaid PIK dividends and any capitalized cash dividends.

Series B Convertible Preferred Stock (continued)

Each share of Series B Preferred Stock is convertible, at the option of the holder, into shares of the Company’s common stock at a fixed conversion price of $3.15 per share at any time on or after six months following the original issuance date, subject to a minimum aggregate value of $500,000 per conversion, except in the case of a final conversion of all of a holder’s outstanding Series B Preferred Stock. Conversions are further subject to a beneficial ownership limitation of 4.99% and an overall exchange cap.

The Series B Preferred Stock is redeemable under certain circumstances. At the Company’s option, the Company may redeem all or a portion of the outstanding Series B Preferred Stock at a price per share equal to the greater of (i) the liquidation preference of such share, plus any accrued but unpaid dividends thereon, and (ii) the As-Converted Value (as defined below) of such share, with the redemption amount effectively varying based on the volume-weighted average price (“VWAP”) of the Company’s common stock during the two-year period following issuance. Prior to the end of such two-year period (or earlier upon a default in dividend payments), any such redemption by the Company is at its option. In addition, if the Company consummates an equity issuance, it is required to use a portion of the net proceeds to redeem Series B Preferred Stock in an amount equal to 50% of such net proceeds if the redemption occurs prior to the maturity date and 75% of such net proceeds if the redemption occurs after the maturity date, in each case at a price per share equal to the greater of (1) the liquidation preference of the shares being redeemed as of the applicable equity issuance redemption date and (2) the As-Converted Value of the shares being redeemed as of such date (the “Equity Issuance Redemption Price”). This feature represents a contingent redemption obligation that becomes mandatory upon the occurrence of an equity issuance, an event that is within the control of the Company. Beginning two years after the original issuance date (or earlier upon non-payment of dividends), each holder has the right to require the Company to redeem all or a portion of such holder’s outstanding Series B Preferred Stock.

As-Converted Value. With respect to each share of Series B Preferred Stock as of any date of determination, an amount equal to the product of (A) the number of shares of common stock into which the liquidation preference of such share would be convertible on such date pursuant to the then-applicable conversion rate and (B) the arithmetic average of the VWAPs of the Company’s common stock for each of the five trading days immediately preceding such date of determination.

Fundamental Transaction. Generally includes certain mergers, consolidations, asset sales and similar transactions. Unless all outstanding shares of Series B Preferred Stock have been redeemed prior to the consummation of a Fundamental Transaction, the Company may not consummate such transaction unless it ensures that holders of Series B Preferred Stock will receive, in the surviving or successor entity, securities having rights, preferences and privileges that are, in the aggregate, substantially equivalent to those of the Series B Preferred Stock prior to such transaction. In addition, in a Fundamental Transaction, holders are entitled to receive the same number of shares of common stock (or equivalent successor securities) that they would have received had all shares of Series B Preferred Stock been converted into common stock immediately prior to the transaction, in lieu of any other assets otherwise distributable with respect to the Series B Preferred Stock.

Upon the occurrence of a Change in Control (as defined in the Certificate of Designation), unless all outstanding shares of Series B Preferred Stock have been previously redeemed, each holder may require the Company, at or immediately after (but not before) the closing of such Change in Control, to exchange all or a portion of such holder’s outstanding Series B Preferred Stock for consideration per share equal to the greater of (i) the liquidation preference of such share, plus any accrued but unpaid dividends thereon, and (ii) the As-Converted Value of such share, in each case plus any other amounts then owed to such holder under the Certificate of Designation or any related transaction document that have not otherwise been paid or satisfied.

Series B Convertible Preferred Stock (continued)

The Company evaluated the features of the Series B Preferred Stock to determine whether the contract should be classified as a liability, temporary or permanent equity, or if the underlying conversion option or redemption features would require them to be bifurcated from the host contract as embedded derivatives. The Company concluded that the Series B Preferred Stock was not a liability under the provisions of ASC 480, Distinguishing Liabilities from Equity, as the stock was not mandatorily redeemable and did not otherwise meet the definition of a liability based on that guidance. The Company then evaluated the relevant guidance under ASC 815, Derivatives and Hedging. The Company determined that the host contract was more akin to debt and therefore concluded that while the redemption features are clearly and closely related to the host contract, the conversion feature is not, and therefore it was assessed for bifurcation as a derivative. Based on the Company’s assessment, the conversion feature met the scope exceptions for being considered indexed to the Company’s stock and for the settlement provision since the conversion price is fixed. While the host contract is considered as an equity classified instrument, it includes provisions that allow the investor to redeem the instrument for cash or other assets upon the occurrence of events that are not solely within the company’s control, therefore the Series B Preferred Stock is classified as temporary equity, and is presented in them mezzanine, or temporary, equity section of the balance sheet.

Temporary equity is measured initially at fair value, therefore the Company determined the fair value by measuring the present value of the contractual redemption feature by discounting the redemption value of $25 million at the stated dividend rate of 10% over the expected two-year redemption period, and adding the fair value of the conversion feature by utilizing a Black-Scholes valuation model. The initial carrying value of the Series B Preferred Stock will be accreted to redemption value and accrued or paid in kind dividends added to the carrying value by recognizing preferred dividends. The conversion feature (equity-linked) portion of the carrying value will also be re-measured at each reporting period. The Company recognized accreted dividends related to the Series B Preferred Stock of $473 as of December 31, 2025.

Note 11 -COMMON STOCK

The Company is authorized to issue up to 400,000,000 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. As of December 31, 2025 and 2024, there were 12,078,713 and 723,265 shares issued and outstanding.

No dividends on common stock had been declared by the Company.

For the years ended December 31, 2025 and 2024, the Company had reserved shares of common stock for issuance as follows:

ChEF Equity Facility

The Company and Chardan Capital Markets LLC, a New York limited liability company (“CCM LLC”) entered into a purchase agreement (the “Original Purchase Agreement”) and a Registration Rights Agreement in connection with the merger. Pursuant to the Original 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 (the “ChEF Equity Facility”). 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 with CCM LLC, the Company issued 2,316 shares for aggregate net proceeds to the Company of $63 from the period January 1, 2025 through December 31, 2025. The Company issued 35,042 shares pursuant to the ChEF Equity Facility for aggregate proceeds to the Company of $2,025 from the period of January 1, 2024 through December 31, 2024. In accordance with the anti-dilution provisions of the Penny Warrants with respect to certain sales made by the Company under the ChEF Equity Facility, 276 Penny Warrants were issued from the period January 1, 2024 through December 31, 2024. The ChEF Equity Facility expires in December 2025. As part of the expiration, the remainder of the Commitment Fee, pursuant to the purchase agreement, of $891 is due and payable to Chardan Capital Markets. This amount is expensed and accrued in current liabilities, specifically ‘Accrued payroll and other liabilities’, on the balance sheet as of December 31, 2025.

July 2025 Public Offering

On July 30, 2025, the Company entered into an underwriting agreement with Canaccord Genuity LLC, as underwriter, relating to an underwritten public offering of 2,198,000 shares of common stock at a price to the public of $2.50 per share raising proceeds of $4,684 net of offering costs.

October 2025 Public Offering

On October 6, 2025, the Company entered into the First Offering Underwriting Agreement with Canaccord, as representative of the First Offering Underwriters, relating to the First October 2025 Offering of 2,000,000 shares of common stock, at a price to the public of $12.50 per share. Pursuant to the terms of the First Offering Underwriting Agreement, the Company granted to the First Offering Underwriters a 30-day option to purchase up to an additional 300,000 shares of common stock in the First October 2025 Offering at the public price which the First Offering Underwriters exercised. On October 7, 2025, the Company completed the First October 2025 Offering of 2,300,000 shares of common stock raising gross proceeds of approximately $27,025 and net proceeds of $26,925 after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company.

On October 16, 2025, the Company entered into the Second Offering Underwriting Agreement with Canaccord, as representative of the Second Offering Underwriters, relating to the Second October 2025 Offering of (i)3,600,000 shares of common stock, at a price to the public of $13.50 per share and (ii) pre-funded warrants to purchase up to 500,000 shares of common stock at a price to the public of $13.50 per pre-funded warrant. On October 17, 2025, the Company completed the Second October 2025 Offering raising gross proceeds of approximately $52,028 and net proceeds of $51,929 after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company.

Reverse Stock Split and Recasting of Per-Share Amounts

On November 12, 2024, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada to be effected at 6:00 a.m. Eastern Time on November 22, 2024, a one-for-nine reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.0001 per share. As a result of the reverse stock split, every nine shares of common stock issued and outstanding, including shares held as treasury shares, were automatically combined into one share of common stock. The number of authorized shares of Common Stock remained the same at 250,000,000 authorized shares.

Shares of the Common Stock began trading on a split-adjusted basis at market open on November 22, 2024. The $0.0001 par value per share of Common Stock and any other rights associated with the Common Stock were not affected by the reverse stock split.

On December 15, 2025, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada to be effected at 6:00 a.m. Eastern Time on December 18, 2025, a one-for-ten reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.0001 per share. As a result of the reverse stock split, every ten shares of the Company’s issued and outstanding common stock was converted into one share of common stock. The number of authorized shares of Common Stock remained the same at 400,000,000 authorized shares.

The Common Stock began trading on a Reverse Stock Split-adjusted basis when the market opens on December 18, 2025. The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock.

All shares of Common Stock, stock option awards and per share amounts in the accompanying Consolidated Financial Statements and related Notes have been retrospectively restated to reflect the effect of the reverse stock split.

Preferred shares outstanding were not affected by the reverse stock split and as such, those shares have not been adjusted in the accompanying Consolidated Financial Statements and related Notes.

Note 12 -STOCK-BASED COMPENSATION

In July of 2021, the Board of Directors approved the 2021 Stock Incentive Plan (the “2021 Plan” and, together with the 2019 Plan, the “Prior Plans”) with a term often years. The Plan was administered by the Board of Directors, which was authorized to grant, at its discretion, awards to employees, directors, and consultants. The maximum number of common shares reserved for grants of awards under the Plan was 11,111 shares which was amended and increased to 22,222 in May of 2022. The Plan provides for the grant of stock options (both incentive stock options and nonqualified stock options), and the grants and sale of RSUs. Shares issued under this Plan may be drawn from authorized and unissued shares, or shares reacquired by the Company.

In connection with the merger, shareholders and board members approved the Dragonfly Energy Holdings 2022 Equity Incentive Plan (the “2022 Plan”). A total of 30,955 shares of common stock was initially reserved for issuance under the 2022 Plan, with the potential for additional shares to be issued under the plan. The 2022 Plan replaced the Prior Plans, which the Company assumed in the merger. Following the Closing, no additional awards will be granted under the Prior Plans, although all stock awards granted under the Prior Plans that are outstanding immediately prior to the Closing will be assumed by the Company and continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the applicable Prior Plan.

If an incentive award granted under the 2022 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for future awards under the 2022 Plan. The number of shares subject to the 2022 Plan, and the number of shares and terms of any Incentive Award may be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares, or similar transaction.

On October 15, 2025 at the 2025 Annual Meeting of Stockholders (the “Annual Meeting”) of the Company, the Company’s stockholders approved an amendment (the “Plan Amendment”) to the Company’s 2022 Equity Incentive Plan (the “2022 Plan”) increasing the number of shares available for issuance under the 2022 Plan by 900,000 shares. The Plan Amendment became effective following its approval by the Company’s stockholders.

The Company maintains the Dragonfly Energy Holdings Corp. Employee Stock Purchase Plan (the “ESPP”) which is designed to allow eligible employees and the eligible employees of the Company’s participating subsidiaries to purchase shares of the Company’s common stock, at semi-annual intervals, with their accumulated payroll deductions. A total of 27,382 shares of the Company’s common stock were initially available for issuance under the ESPP. The share limit will automatically increase on the first trading day in January of each year by an amount equal to lesser of (1)1% of the total number of outstanding shares of the Company’s common stock on December 31 in the prior year, (2)16,667 shares, or (3) such number as determined by the Company’s board of directors.

Note 12 - Stock-Based Compensation (Continued)

A summary of the Company’s option activity and related information follows:

During the year ended December 31, 2025, no stock options were exercised. During the year ended December 31, 2024, the Company issued 124 shares as a result of exercised stock options upon the receipt of proceeds of approximately $4.

Share-based compensation expense for options and RSUs totaling $714 and $1,020 was recognized in the Company’s consolidated statements of operations for the years ended December 31, 2025 and 2024, respectively.

Of the $714 of share-based compensation incurred during the year ended December 31, 2025, $52 is allocated to cost of goods sold, $42 to research and development, $218 to selling and marketing, and $402 to general and administrative expenses. Of the $1,020 of share-based compensation incurred during the year ended December 31, 2024, $100 is allocated to cost of goods sold, $168 to research and development, $265 to selling and marketing, and $487 to general and administrative expenses.

The valuation methodology used to determine the fair value of the options issued during the year was the Black Scholes option pricing model. The Black Scholes model requires the use of a number of assumptions including volatility of the stock price, the fair value of the underlying stock, the average risk free interest rate, and the weighted average expected life of the options. The expected term was estimated using the simplified method due to lack of sufficient history of option exercises. No options were granted during the years ended December 31, 2025 and 2024.

Restricted Stock Units

On February 5, 2024, the Company granted 2,445 restricted stock units of which 1,111 vested immediately. The fair value of the 2,445 restricted stock units was $95 and an expense of $11 and $53 was recorded as compensation expense during the years ended December 31, 2025 ad 2024, respectively.

On April 12, 2024, the Company issued a total of 9,292 RSUs to the following employees: (i)6,305 RSUs to the Chief Executive Officer; (ii)2,016 RSUs to the Chief Revenue Officer; and (iii)971 RSUs to the Chief Marketing Officer. Each of the RSUs granted will vest in three equal annual installments, with the first vesting date on the one (1) year anniversary of the date of issuance and the following two vesting dates on each subsequent anniversary of the date of issuance, subject to each employees’ continued employment as of each vesting date. The fair value of the 9,292 RSUs was $376 and an expense of $125 and $91 was recorded during the years ended December 31, 2025 and 2024, respectively.

On April 12, 2024, the board of directors authorized the issuance of 2,469 RSUs to each director in connection with their service as directors for the year ended December 31, 2023. The RSUs will vest in three equal annual installments, with the first vesting date on the one (1) year anniversary date of their issuance, subject to the directors continued service on with the Company on each vesting date. The fair value of the 14,814 RSUs issued to directors in total was $600 and an expense of $127 and $145 was recorded during the years ended December 31, 2025 and 2024, respectively.

On June 24, 2024, the Company granted 242 restricted stock units. The fair value of the 242 RSUs was $19 and an expense of $5 and $2 was recorded as compensation expense during the years ended December 31, 2025 and 2024, respectively.

Restricted Stock Units (Continued)

In addition to the restricted stock unit awards, the Board also approved the following cash awards to the above referenced employees: (i) $511 to the Chief Executive Officer; (ii) $163 to the Chief Revenue Officer; and (iii) $79 to the Chief Marketing Officer. Each of the approved cash awards will not be paid out to the employees until the Company has achieved a minimum cash balance of $30,000, and are subject to each employee’s continued employment on the date of payment.

On August 19, 2024, the Company issued a total of 8,171 RSUs. Each of the RSUs granted will vest in three equal annual installments, with the first vesting date on the one (1) year anniversary of the date of issuance and the following two vesting dates on each subsequent anniversary of the date of issuance, subject to each employees’ continued employment as of each vesting date. The fair value of the 8,171 RSUs was $448 and an expense of $119 and $52 was recorded as compensation expense during the years ended December 31, 2025 and 2024, respectively.

On August 26, 2024, the Company issued a total of 222 RSUs. Each of the RSUs granted will vest in three equal annual installments, with the first vesting date on the one (1) year anniversary of the date of issuance and the following two vesting dates on each subsequent anniversary of the date of issuance, subject to each employees’ continued employment as of each vesting date. The fair value of the 222 RSUs was $12 andno expense was recorded as compensation expense during the years ended December 31, 2025 and 2024, respectively.

On April 1, 2025 and May 19, 2025, the Company granted 376 and 88 restricted stock units, respectively. The fair value of the RSUs was $4 and $1 was recorded as compensation expense during the year ended December 31, 2025.

The following table presents the restricted stock units activity for the years ended December 31, 2025 and 2024:

As of December 31, 2025 and 2024 there were 1,017,131 and 85,441 shares, respectively, of unissued authorized and available for future awards under the 2022 Equity Incentive Plan and Employee Stock Purchase Plan.

Employee Stock Purchase Plan

The Company maintains the Dragonfly Energy Corporation, Inc. Employee Stock Purchase Plan which permits eligible employees to purchase shares at not less than 85% of the market value of the Company’s common stock on the offering date or the purchase date of the applicable offering period, whichever is lower. The plan was adopted by the Company’s Board of Directors on May 13, 2022. On April 24, 2024, the Company issued 2,720 common shares in connection with its Employee Stock Purchase Plan for a total consideration of approximately $112. The ESPP allows employees to purchase shares at a 15% discount to the lesser of the stock price at the beginning or the end of the offering period, which was October 1, 2023, and April 1, 2024, respectively. The discount resulted in an exercise price of $41.40 per share.

On April 1, 2024, the Company commenced a second offering under the Employee Stock Purchase Plan (ESPP), which ran through September 30, 2024, with the same terms as the first offering. As of September 30, 2024, the Company had issued 3,395 common shares in connection with its Employee Stock Purchase Plan for a total consideration of approximately $135. The ESPP allows employees to purchase shares at a 15% discount to the lesser of the stock price at the beginning or the end of the offering period, which was April 1, 2024, and September 30, 2024, respectively. The discount resulted in an exercise price of $39.90 per share.

On April 8, 2025, the Company issued 8,751 common shares in connection with its Employee Stock Purchase Plan for a total consideration of approximately $73. The ESPP allows employees to purchase shares at a 15% discount to the lesser of the stock price at the beginning or the end of the offering period, which was October 1, 2024 and April 1, 2025, respectively. The discount resulted in an exercise price of $8.30 per share.

On October 8, 2025, the Company issued 4,457 common shares in connection with its Employee Stock Purchase Plan for a total consideration of approximately $24. The ESPP allows employees to purchase shares at a 15% discount to the lesser of the stock price at the beginning or the end of the offering period, which was April 1, 2025 and September 30, 2025, respectively. The discount resulted in an exercise price of $5.10 per share.

Note 13 -INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered.

Pre-tax income (loss) from continuing operations for the years ended December 31, 2025 and 2024 is as follows (in thousands):

The (provision) benefit for income taxes for the years ended December 31, 2025 and 2024 was as follows (in thousands):

Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows (in thousands):

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences are as follows (in thousands):

Reconciliation between the effective tax rate on income from continuing operations and the statutory rate for the year ending December 31, 2025 and 2024, is as follows:

The tax returns of the Company are open for three years from the date of filing. At the report date, federal tax returns are open for the Company for 2022, 2023 and 2024.

In 2025, the Company paid the state of Texas in the amount of $4.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not yet evaluated if section 382 was triggered.

Subject to the limitations described below, as of December 31, 2025, the Company had federal net operating loss carryforwards of approximately $84,559 available to reduce future taxable income which do not expire, but are limited to 80% utilization against taxable income. As of December 31, 2025, the Company had state net operating loss carryforwards of approximately $38,553 available to reduce future taxable income, which start to expire in 2037. The Company also had research and development credits of $875 as of December 31, 2025 to offset future federal income taxes, which are set to expire in 2042.

Management of the Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize the benefits of the deferred tax assets. As a result, a full valuation allowance was recorded as of December 31, 2025. The valuation allowance as of December 31, 2025 was $37,753, primarily due to the company entering into a 4 year cumulative loss position and no expectation of income for the year ended December 31, 2025. Valuation allowance total increased by $8,304. Federal portion of this number is $7,730 and the rest is a state portion of $574.

As part of the Tax Cuts and Jobs Act enacted in December 2017, taxpayers were required to capitalize research and experimental expenditures under Section 174 and amortize them over five years if incurred in the United States and over fifteen years if incurred in a foreign jurisdiction for tax years beginning on or after January 1, 2022. In 2025, the One Big Beautiful Bill (Public Law 119-21) introduced Section 174A, which permits taxpayers, for tax years beginning after December 31, 2024, to currently deduct qualifying domestic research and experimental expenditures or, at the taxpayer’s election, capitalize and amortize such expenditures over a period of not less than 60 months, while the requirement to capitalize and amortize foreign research and experimental expenditures over fifteen years remains in effect. The change in tax law reduces deferred tax assets associated with previously capitalized domestic research and experimental expenditures and increases the current deductibility of such costs for the year ended December 31, 2025. Provisions of this law did not have a material effect on our financial statements.

The roll-forward of the Company’s gross uncertain tax positions is as follows:

Note 14 -REPORTABLE SEGMENTS

The Company hastwo reportable segments: DTC and OEM. The DTC segment pertains to Battle Born, LLC branded batteries which are sold directly to consumers. The OEM segment pertains to Dragonfly branded batteries which are sold to original equipment manufacturers

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance for all of its reportable segments based on both segment gross and net profit or loss from operations.

For the DTC and OEM, the Chief Operating Decision Maker (“CODM”) uses both segment gross and net profit and loss from operations to allocate resources (including employees, property, and financial or capital resources) for each segment predominantly in the annual budget and forecasting process.

Assets information for the reported segments is not disclosed as it is not used by the Chief Operating Decision Maker CODM in evaluating the performance of, or making decisions about, the reported segments.

The Company’s reportable segments are strategic business units that offer different branded products. They are managed separately because each segment requires different technology and marketing strategies.

The Company’s CODM is the Chief Executive Officer.

The following table presents the reportable segments information as of December 31, 2025:

There were no significant customer revenues from the Company’s DTC segment for the year ended December 31, 2025.

Revenues from one customer of the Company’s OEM segment represents approximately $15,728, or 27%, of the Company’s consolidated revenues for the year ended December 31, 2025.

The following table presents the reportable segments information as of December 31, 2024:

There were no significant customer revenues from the Company’s DTC segment for the year ended December 31, 2024.

Revenues from one customer of the Company’s OEM segment represents approximately $7,310, or 14%, of the Company’s consolidated revenues for the year ended December 31, 2024.

Note 15 -SUBSEQUENT EVENTS

On January 30, 2026, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Lead Agent”), as representative of the several sales agents identified on Schedule 1 thereto, pursuant to which the Company may offer and sell, from time to time, through the Lead Agent, up to $50.0 million of shares of its common stock.

On March 15, 2026, the Company’s executive leadership team agreed to reduce their salaries by approximately 20% for the remainder of fiscal 2026, effective April 1, 2026. The adjusted salaries are as follows: Dr. Phares - $498; Mr. Seaburg - $221; Mr. Bourns - $264; and Dr. Singh - $280.

In lieu of cash compensation, the executives were granted stock options under the Company’s 2022 Plan at an exercise price of $2.99 per share: Dr. Phares -38,269 shares; Mr. Seaburg -36,607 shares; Mr. Bourns -20,303 shares; and Dr. Singh 21,534 shares. The options vest in three equal annual installments beginning April 1, 2026, subject to continued service and the terms of the Plan.

Additionally, each non-employee director agreed to a comparable 20% reduction in cash compensation for the remainder of fiscal 2026. In lieu thereof, the directors were granted and aggregated of 13,364 RSUs under the Plan, subject to the same vesting terms and continued Board service.

Subsequent to December 31, 2025, certain securityholders exercised an aggregate of 70,267 penny warrants for an aggregate of 69,985 shares of Common Stock on a cashless basis at an exercise price of $0.01 per share.