Dragonfly Energy Holdings Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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 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 unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These condensed consolidated financial statements should be read along with the Annual Report on Form 10-K filed with the SEC on March 30, 2026 of the Company for the annual period ended December 31, 2025. The consolidated balance sheet as of December 31, 2025 was derived from the audited consolidated financial statements as of and for the year then ended.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and present the consolidated financial statements of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

During the three months ended March 31, 2026 and 2025, the Company incurred losses from operations and had negative cash flow from operations. As of March 31, 2026, the Company had $8,637 in cash and cash equivalents and a working capital of $23,399. 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 2025, the Company completed several capital raising and debt restructuring transactions, resulting in aggregate net cash proceeds of approximately $90,930 and modifications to its term loan that extended the maturity to October 2027, deferred principal and interest payments, reduced outstanding principal (including partial cancellation and conversion of principal into preferred stock), and established minimum liquidity covenants. On January 30, 2026, the Company also entered into an at-the-market equity offering program under which it may, at its discretion and subject to market conditions, issue and sell up to $50 million of its common stock from time to time. Refer to Annual Report on Form 10-K for the period ended December 31, 2025 for additional information regarding these equity offerings and term loan amendments.

Management has evaluated the conditions and events described above in relation to the Company’s obligations coming due within one year after the date these condensed consolidated financial statements are issued. Based on this evaluation, the capital raise and debt restructuring activities completed in 2025 and early 2026, including access to the at-the-market equity offering program, and the Company’s ability to maintain covenant compliance with a monthly liquidity minimum of $5,000, management has concluded that although substantial doubt was initially raised, its plans have alleviated substantial doubt about the Company’s ability to continue as a going concern within one year after the date these condensed consolidated financial statements are issued.

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. The Company had a reserve of $560 and $300 as of March 31, 2026 and December 31, 2025, respectively.

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.

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 March 31, 2026 and December 31, 2025, the contract liability related to the Company’s customer deposits were approximately $118 and $121, respectively.

The Company recognized $121 of the contract liability as of December 31, 2025 during the three months ended March 31, 2026. During the three months ended March 31, 2025, the Company recognized $306 of the contract liability that was recorded as a January 1, 2025 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. The $5,000 initial licensing fee is being recognized as revenue on a straight-line basis over five years. The Company has recorded $250 in revenue related to the license agreement during the three months ended March 31, 2026. As of March 31, 2026 and December 31, 2025, the contract liability related to the Company’s deferred revenue was approximately $3,333 and $3,583, respectively.

Disaggregation of Revenue

The following table present our disaggregated revenues by distribution channel:

Product Warranty

The Company offers assurance type warranties from 5 to 10 years on its products. The Company estimates the costs associated with the warranty obligation using historical data of warranty claims and costs incurred to satisfy those claims. The Company estimates, based upon a review of historical warranty claim experience, the costs that may be incurred under its warranties and record a liability in the amount of such estimate at the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of our recorded warranty liability and adjust the accrual as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing assurance type warranties and has determined that the estimated outstanding warranty obligation at March 31, 2026 and December 31, 2025 to be $861 and $867, respectively. The Company incurred warranty expense of $98 and $123 for the three months ended March 31, 2026 and 2025, respectively.

The following table reflects the activity in the Company’s warranty obligation for the three months ended March 31, 2026:

Concentrations

As of March 31, 2026, receivables from Customer A, Customer B, and Customer C comprised approximately 12%,10%, and 10%, respectively, of accounts receivable. As of December 31, 2025, receivables from Customer D comprised approximately 31% of accounts receivable. There are no other significant accounts receivable concentration.

Sales from Customer D comprised approximately 14% of the Company’s total revenue for the three months ended March 31, 2026. Sales from Customer D comprised approximately 18% of the Company’s total revenue for the three months ended March 31, 2025.

As of March 31, 2026, payables to Vendor A and Vendor B comprised approximately 43% and 10%, respectively, of accounts payables. As of December 31, 2025, payables to Vendor A, Vendor C, and Vendor D comprised approximately 36%,16%, and 12%, respectively, of accounts payables.

For the three months ended March 31, 2026, Vendor A and Vendor E accounted for approximately 13% and 10%, respectively, of the Company’s total purchases. For the three months ended March 31, 2025, Vendor A accounted for approximately 21% of the Company’s total purchases.

Stock-Based Compensation

The Company accounts for stock based compensation arrangements with employees and non-employee consultants using a fair value method which requires the recognition of compensation expense for costs related to all stock based payments, including stock options (Note 11). The fair value method requires the Company to estimate the fair value of stock based payment awards to employees and non-employees on the date of grant using an option pricing model. Stock based compensation costs are based on the fair value of the underlying option calculated using the Black Scholes option pricing model and recognized as expense on a straight line basis over the requisite service period, which is the vesting period. Restricted stock unit awards are valued based on the closing trading value of the Company’s common stock on the date of grant and then amortized on a straight-line basis over the requisite service period of the award. The Company measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.

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

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 as of March 31, 2026.

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.

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 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.

Segment Reporting

Operating segments are identified (Note 12) 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 throughtwo operating and reportable segments.

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 adoption of this new standard did not have a material impact on our consolidated financial statements.

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 Unaudited Condensed Consolidated Balance Sheets on a recurring basis as of March 31, 2026.

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 carrying amounts of accounts receivable and accounts payable are considered level 1 and approximate fair value as of March 31, 2026 and December 31, 2025 because of the relatively short maturity of these instruments.

The carrying value of the term loan as of March 31, 2026 and December 31, 2025 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.

There was no Level 3 activity for the three months ended March 31, 2026 and 2025.

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 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 and engineering office in Reno, 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 March 31, 2026, the future minimum lease payments under these operating leases are as follows:

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 March 31, 2026, 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 March 31, 2026 and December 31, 2025, 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.

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.

Note 6 - Long Term Debt (continued)

Term Loan Agreement (continued)

During the three months ended March 31, 2026 and 2025, the Company recognized interest expense of $576 and $3,579, respectively. Amortization of the debt issuance costs amounted to $921 and $1,095, respectively, for the same periods. As of March 31, 2026, the carrying value of the Term Loan was $10,325, consisting of $19,103 in principal net of $8,778 in unamortized debt discount. 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.

Subsequent to the original execution of the Term Loan Agreement, the Company entered into six amendments which modified terms of the facility, including, but not limited to, interest rate mechanics, the timing of principal payments, and certain financial and operational covenants. All six amendments were in effect as of March 31, 2026.

Financial Covenants

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 March 31, 2026, the future debt maturities are as follows:

Note 7 -RELATED PARTY

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.

Note 8 -WARRANTS

Common Stock Warrants classified as Equity

Public Warrants

The Company’s Public Warrants are classified as equity and as of March 31, 2026 and December 31, 2025, there were 104,695 Public Warrants issued and outstanding.

During the three months ended March 31, 2026 and 2025, no public warrants were exercised.

The following table presents a roll-forward of the Company’s equity warrants from January 1, 2026 to March 31, 2026:

Note 8 - Warrants (Continued)

Common Stock Warrants classified as Liability

Private Placement Warrants

There were 16,682 private warrants outstanding as of March 31, 2026 and December 31, 2025, 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”).

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 8). 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.

During the three months ended March 31, 2026, Original Penny Warrant holders exercised 70,267 warrants on a cashless basis, with the Company agreeing to issue 69,985 shares of Common Stock in connection with such exercise.

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.

Note 8 - Warrants (continued)

Common Stock Warrants classified as Liability (Continued)

Term Loan Warrants (continued)

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, 2026 to March 31, 2026:

NOTE 9 -REDEEMABLE PREFERRED STOCK

Series B Convertible Preferred Stock

The Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) was issued in connection with the Sixth Amendment to the Term Loan entered into on October 20, 2025, pursuant to which $25.0 million of outstanding principal was exchanged for 25,000 shares of Series B Preferred Stock with an aggregate liquidation preference of $25.0 million. The Series B Preferred Stock is non-voting and carries a base liquidation preference of $1,000 per share, plus accrued and unpaid dividends, senior to the Company’s common stock in a liquidation. Dividends accrue at 10% per annum, with 80% payable in cash and 20% payable in kind and added to the liquidation preference; any unpaid cash dividends may also be paid in kind and added to the liquidation preference.

Each share of Series B Preferred Stock is convertible, at the holder’s option beginning six months after the original issuance date, into shares of the Company’s common stock at a fixed conversion price of $3.15 per share, subject to a minimum aggregate value of $500,000 per conversion (other than a final conversion) and customary beneficial ownership and exchange caps. The Series B Preferred Stock is redeemable at the Company’s option and under certain holder-option and other specified circumstances, generally at a price per share equal to the greater of (i) the liquidation preference (including accrued but unpaid dividends) and (ii) the value on an as-converted basis determined with reference to recent volume-weighted average trading prices of the Company’s common stock.

The Company evaluated the Series B Preferred Stock under ASC 480, Distinguishing Liabilities from Equity, and concluded it is not a liability because it is not mandatorily redeemable and does not otherwise meet the definition of a liability. The host contract was determined to be more akin to debt for purposes of ASC 815, Derivatives and Hedging; the conversion feature is not clearly and closely related to the host but qualifies for the equity classification scope exception because the conversion price is fixed and the instrument is indexed to the Company’s own stock. Because certain redemption rights are not solely within the Company’s control, the Series B Preferred Stock is presented as temporary equity and initially measured at fair value. The carrying amount is being accreted to the redemption value over the expected term, and dividends (cash and paid-in-kind) are recognized as preferred dividends.

For the three months ended March 31, 2026, the Company recognized accreted dividends of $468, related to the Series B Preferred Stock.

Note 10 -COMMON STOCK

Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the rights of the preferred stockholders. No dividends on common stock had been declared by the Company.

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 offering program under which the Company may, from time to time and at its discretion, offer and sell up to $50 million of its common stock. The Company is not obligated to sell any shares under the program and retains sole discretion over the timing, amount, pricing, and other terms of any sales effected through the lead agent. The program is intended to provide the Company with a flexible source of capital to support its liquidity needs and is subject to customary closing conditions, a 3% sales commission and reimbursement of specified expenses payable to the agents, and customary indemnification and contribution provisions. As of March 31, 2026, the Company did not sell any stock under the agreement.

For the three months ended March 31, 2026 and 2025, the Company had reserved shares of common stock for issuance as follows:

Note 11 -STOCK-BASED COMPENSATION

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.

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.

During the three months ended March 31, 2026 and 2025, the Company did not issue any shares of common stock under the ESPP.

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

During the three months ended March 31, 2026, the Company issued 116,713 stock options. During the three months ended March 31, 2025, the Company didnot issue any stock options.

Share-based compensation expense for options and RSUs totaling $100 and $220 was recognized in the Company’s consolidated statements of operations for the three months ended March 31, 2026 and 2025, respectively.

Note 11 - Stock-Based Compensation (continued)

Of the $100 of share-based compensation incurred during the three months ended March 31, 2026, $3 is allocated to cost of goods sold, $4 to research and development, $20 to selling and marketing, and $73 to general and administrative expenses. Of the $220 of share-based compensation incurred during the three months ended March 31, 2025, $18 is allocated to cost of goods sold, $14 to research and development, $61 to selling and marketing, and $127 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.

Restricted Stock Units

The following table presents the restricted stock units activity for the three months ended March 31, 2026:

As of March 31, 2026 and 2025 there were 1,504,929 and 122,725 shares, respectively, of unissued authorized and available for future awards under the 2022 Equity Incentive Plan and Employee Stock Purchase Plan.

Note 12 -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.

Note 12 - Reportable Segments (continued)

The following table presents the reportable segments information for the three months ended March 31, 2026:

There were no significant customer revenues from the Company’s DTC segment for the three months ended March 31, 2026.

Revenues from one customer of the Company’s OEM segment represents approximately $1,369, or 14%, of the Company’s consolidated revenues for the three months ended March 31, 2026.

Note 12 - Reportable Segments (continued)

The following table presents the reportable segments information for the three months ended March 31, 2025:

There were no significant customer revenues from the Company’s DTC segment for the three months ended March 31, 2025.

Revenues from one customer of the Company’s OEM segment represents approximately $2,300, or 18%, of the Company’s consolidated revenues for the three months ended March 31, 2025.

Note 13 -SUBSEQUENT EVENTS

Subsequent to March 31, 2026, the remaining outstanding penny warrants of 103,948 warrants were exercised in full on a cashless basis, resulting in the issuance of 103,390 shares of common stock.

Subsequent to March 31, 2026, the Company issued and sold approximately 379,700 shares of common stock under the Equity Distribution Agreement with Canaccord Genuity LLC, resulting in additional net cash proceeds of approximately $768.