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.

Note 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

Basis of presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation 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 Form 10-K filed with the SEC on March 31, 2025 of the Company for the annual period ended December 31, 2024. The consolidated balance sheet as of December 31, 2024 was derived from the audited consolidated financial statements as of and for the year then ended.

Going Concern

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

Going Concern (Continued)

During the three months ended March 31, 2025 and 2024, the Company incurred losses from operations and had negative cash flow from operations. As of March 31, 2025, the Company had $2,803 in cash and cash equivalents and a working capital of $9,078. 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, or the Term Loan 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 calls for the Company to authorize a new series of convertible preferred stock of the Company designated as the Series A Preferred Stock (as defined below), which shall be convertible 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.

Total proceeds amount to $8,000 which the Company will use for working capital, general corporate purposes and mandatory payments on the Term Loan if more than $8,000 is raised. As of March 31, 2025, the Company received $3,500 of the $8,000 less $300 in costs. In addition, investors received warrants to purchase up to 4,000 shares of Series A Preferred Stock at $10,000 per share, potentially providing up to $40 million in future capital.

In addition to the Purchase Agreement, the Term Loan was amended 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.

As presented above, strategic initiatives were executed in order to alleviate the substantial doubt, such as the Company’s ability to raise funds through the Purchase Agreement, the maturity extension of the Term Loan, and the absence of any covenants, other than a $2,500 minimum cash requirement, for at least one year from the financial statement issuance date. However, the initiatives were not enough support to completely alleviate the Company’s going concern. Due to no other concessions being made by the lenders in terms of future debt and interest due, except for extending payments into 2026 and the maturity date by one year, and due to the inherent uncertainty surrounding the realization of projected revenues from new markets, management concluded that there is significant doubt about the Company’s ability to continue as a going concern.

In addition, the Company may need to raise additional debt and/or equity financings to funds its operations, strategic plans, and meet its financial covenants. The Company has historically been able to raise additional capital through issuance of equity and/or debt financings and the Company intends to use its equity facility and raise additional capital as needed. However, the Company cannot guarantee that it will be able to raise additional equity, contain expenses, or increase revenue, and comply with the financial covenants under the Term Loan.

Cash and Cash Equivalents

The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2025 and December 31, 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 March 31, 2025 and December 31, 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. The Company had a reserve of $260 and $188 as of March 31, 2025 and December 31, 2024, respectively.

Assets Held for Sale

Assets held for sale are valued at the lower of the carrying amount or the net realizable value estimated at March 31, 2025. Impairment to carrying amounts are recognized to non-operating expenses in the year ending December 31, 2024. 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 Company plans to complete the sale in the second quarter of 2025.

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 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, the Company’s 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 original equipment manufacturers (“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, 2025 and December 31, 2024, the contract liability related to the Company’s customer deposits were approximately $137 and $317, respectively.

The Company recognized $306 of the contract liability as of December 31, 2024 during the three months ended March 31, 2025. During the three months ended March 31, 2024, the Company recognized $134 of the contract liability that was recorded as a January 1, 2024 beginning balance.

On July 29, 2024, Dragonfly Energy Corp. (“Legacy Dragonfly”), one of the wholly-owned subsidiaries 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 $250 in revenue related to the License Agreement for the three months ended March 31, 2025. As of March 31, 2025 and December 31, 2024, the contract liability related to the Company’s deferred revenue were approximately $4,333 and $4,583, respectively. As of March 31, 2025, the Company had $1,000 in short term deferred revenue and $3,333 in long-term deferred revenue related to the License Agreement.

Disaggregation of Revenue

The following table present the Company’s 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 the Company’s 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 its 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, 2025 and December 31, 2024 to be $588 and $514, respectively. The Company incurred warranty expense of $123 and $541 for the three months ended March 31, 2025 and 2024, respectively.

Concentrations

As of March 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.

For the three months ended March 31, 2025, sales from Customer A comprised approximately 18% of the Company’s total revenue. For the three months ended March 31, 2024, sales from Customer A comprised approximately 16% of the Company’s total revenue.

Concentrations (Continued)

As of March 31, 2025, payables to Vendor A and Vendor C comprised approximately 27% and 18%, respectively, of accounts payables. As of December 31, 2024, payables to Vendor A, Vendor B, and Vendor C comprised approximately 33%,11%, and 12%, respectively, of accounts payables.

For the three months ended March 31, 2025, Vendor A accounted for approximately 21% of the Company’s total purchases. For the three months ended March 31, 2024, Vendor B accounted for approximately 12% 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 12). The fair value method requires the Company to estimate the fair value of stock-based payment awards to employees and non-employees on the date of grant using an option pricing model. Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option pricing model and recognized as expense on a straight line basis over the requisite service period, which is the vesting period. Restricted stock unit awards are valued based on the closing trading value of the Company’s common stock on the date of grant and then amortized on a straight-line basis over the requisite service period of the award. The Company measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.

Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, expected dividend yield, expected term, risk free rate of return, and the estimated fair value of the underlying common stock. Due to the lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the lithium ion battery industry. The Company uses the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company accounts for forfeitures as they occur.

Income Taxes

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss, credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates.

The Company recognizes a tax benefit for an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company had a liability of $55 and $55 as of March 31, 2025 and December 31, 2024, respectively, of uncertain tax positions.

The Company’s accounting policy is to include penalties and interest related to income taxes if any, in selling, general and administrative expenses. The Company regularly assesses the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Net Loss 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:

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.

Derivative Accounting

The Company evaluates its financial instruments, including preferred stock and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives pursuant to ASC 815, Derivatives and Hedging. Warrants are assessed for classification as either equity or liabilities based on their specific terms and applicable accounting guidance. Equity-classified warrants are recorded within additional paid-in capital at their grant date fair value and are not subsequently remeasured, while liability-classified warrants are recorded at fair value on the issuance date and remeasured at each reporting period, with changes in fair value recognized in earnings. Preferred stock is evaluated to determine whether it should be classified as a liability, equity, or within mezzanine (temporary) equity. This assessment considers the presence of redemption features not solely within the Company’s control or if redemption is deemed probable. Preferred stock classified as mezzanine equity is presented between liabilities and equity on the consolidated balance sheets, with changes to the redemption value accounted for in accordance with ASC 480, Distinguishing Liabilities from Equity. If preferred stock contains embedded derivatives that are not clearly and closely related to the host instrument, such derivatives are bifurcated and measured at fair value, with changes recorded in earnings. Fair value is determined using appropriate valuation techniques, such as the Black-Scholes option pricing model or discounted cash flow analysis, considering the terms of the financial instruments and prevailing market conditions at the reporting date.

Segment Reporting

Operating segments are identified (Note 14) as components of an enterprise for which separate discrete financial information is available for evaluation by the Company’s Chief Executive Officer to make decisions with respect to resource allocation and assessment of performance. Previously, the Company recognized one operating segment. Historically, the Company reported a single operating and reportable segment, as management evaluated the business on a consolidated basis. During the fourth quarter of 2024, the Company reassessed its internal reporting structure and how management monitors operations and makes decisions. As a result of this reassessment, the Company determined that it now manages its business through two distinct operating segments. This change was driven by the development of the Company’s operations and internal decision-making processes, including the introduction of separate performance metrics and discrete financial information for each segment.

Recently issued accounting pronouncements:

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

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.

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 Condensed Consolidated Balance Sheets on a recurring basis as of March 31, 2025:

The following table presents assets and liabilities that were measured at fair value in the Condensed 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 March 31, 2025 and December 31, 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 March 31, 2025 and December 31, 2024 because of the relatively short maturity of these instruments.

The carrying value of the Term Loan as of March 31, 2025 and December 31, 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)

Level 3 Roll forward

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

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

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

**Dragonfly Energy Holdings Corp. **

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, was $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)

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

Assumptions used in determining the Company’s incremental borrowing rate include its implied credit rating and an estimate of secured borrowing rates based on comparable market data.

At March 31, 2025, 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 the Company’s incremental borrowing rate include its implied credit rating and an estimate of secured borrowing rates based on comparable market data.

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

Other Contingencies

In March 2025, the Company has agreed to pay LithiumHub a total of $2.5 million, of which approximately $0.6 million will be paid in 2025, and approximately $1.9 million will be paid in 2026, in exchange for a non-exclusive license in LithiumHub Technologies, LLC’s patents rights relating to the Patents-in-Suit. In accordance with the Settlement Agreement, the Company and LithiumHub will terminate the ongoing patent litigation between them. The Settlement Agreement includes no admission of infringement by the Company.

Note 6 -LONG TERM DEBT

Term Loan Agreement

As of March 31, 2025, the Company had an outstanding 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. The Term Loan matures on October 7, 2027 and amortizes at a rate of 5% per annum beginning in October 2024.

Prior to any amendments, the Term Loan accrues 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) is 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.

During the three months ended March 31, 2025 and 2024, the Company recognized interest expense of $3,579 and $3,701, respectively. Amortization of the debt issuance costs amounted to $1,095 and $894, respectively, for the same periods. As of December 31, 2024, the carrying value was $29,646, consisting of $69,974 in principal, plus $15,938 in capitalized PIK interest, net of $56,266 in unamortized debt discount.

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.

Note 6 - Long Term Debt (continued)

Financial Covenants

The Company is subject to restrictive financial covenants pertaining to Maximum Senior Leverage Ratio, Liquidity, Fixed Charge Coverage Ratio, and Capital Expenditures as defined in the Term Loan Agreement. As of December 31, 2024, 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.

On 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.

In evaluating the accounting treatment of the Fifth Amendment, the Company applied the guidance under ASC 470-50, “Debt—Modifications and Extinguishments.” Based on the analysis, the Company concluded that the present value of the cash flows under the Amended Term Loan differed by less than 10% from the present value of the remaining cash flows under the original Term Loan. Consequently, the amendment met the criteria for classification as a debt modification.

At March 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. For the three months ended March 31, 2025, the Company has recorded $250 in revenue related to the amortization of the License Agreement and no royalty payments have been received or earned. As of March 31, 2025, the Company has recorded $1,000 in short-term deferred revenue and $3,333 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 Commercial Officer (formerly the Company’s 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 Commercial Officer), subject to approval and such other terms and conditions imposed by the compensation committee of the board of directors.

On February 1, 2025, the Company appointed Dr. Vickram Singh, the Company’s former Senior Vice President of Technology, as its Chief Operating Officer pursuant to an employment agreement, dated February 1, 2025 (the “Employment Agreement”). Dr. Singh’s employment as the Company’s Chief Operating Officer commenced on February 4, 2025. The Employment Agreement provides for a three-year initial employment term, with automatic three-year renewal terms thereafter, subject to 90 days’ notice of nonrenewal by either party. The Employment Agreement also provides for an initial annual base salary of $350,000 (the “Base Salary”) and a discretionary annual bonus of up to 65% of the Base Salary.

Note 9 -WARRANTS

Common Stock Warrants classified as Equity

Public Warrants

The Company’s Public Warrants are classified as equity and as of March 31, 2025 and December 31, 2024, there were 1,046,948 Public Warrants issued and outstanding.

During the three months ended March 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 in Note 11 of the financial statements, (the “June 2023 Offering”) the Company issued (i) underwriters warrants to purchase up to an aggregate of 63,362 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 $22.50 per share, which equals 125% of the per share public offering price in the June 2023 Offering and (ii) warrants to purchase up to 1,111,111 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 $18.00 per share of common stock and accompanying Investor Warrant, less underwriting discounts and commissions.

The Company also granted the underwriters a 45-day over-allotment option to purchase up to an additional 166,667 shares of common stock and/or Investor Warrants to purchase up to 166,667 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 156,112 shares of common stock and Investor Warrants to purchase up to 156,112 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.

Underwriters’ Warrants:

Common Stock Warrants classified as Liability

Private Placement Warrants

There were 166,821 private warrants outstanding as of March 31, 2025 and December 31, 2024, respectively. The Company accounts for the Private Placement Warrants (the “Private Placement Warrants”) issued in connection with the Initial Public Offering (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.

Note 9 - Warrants (Continued)

Private Placement Warrants (Continued)

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 (the “Original Penny Warrants”)

On May 13, 2024, the Company received a waiver, or the May 2024 Waiver, in regards to its compliance with the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash requirements (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 283,334 shares of the Company’s common stock, at an exercise price of $0.09 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 expire ten 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 233,334 shares of the Company’s common stock, at an exercise price of $0.09 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 expire ten 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 333,334 shares of the Company’s common stock, at an exercise price of $0.09 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 expire ten 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 350,000 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 2,754 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 330,000 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 expire ten 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 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 Original Penny 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 March 31, 2025 and January 1, 2024 to March 31, 2024:

Private Placement Convertible Preferred Warrants classified as Liability

In February 2025, the Company issued 20 Private Placement Convertible Preferred Warrants (as defined below) as part of its initial closing of the Private Placement (see Note 10). 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 upon the earliest of: (i) 33 months after the shares of common stock issuable upon conversion of Series A Preferred Stock are registered for resale under the Securities Act, (ii) the occurrence of a Change of Control (as defined in the Certificate of Designation), or (iii) the full redemption of Series A Preferred Stock. 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. Please seeNote 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 March 31, 2025:

NOTE 10 –SERIES A 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 Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), at a price of $10,000 per share, initially convertible into shares of common stock, par value $0.0001 per share of the Company, at a conversion price of $2.332 per share of common stock.

The Company conducted an initial offering, 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 Private Placement is $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 approximately $3.2 million in net proceeds, which will be used for working capital and other general purposes.

Upon stockholder approval and registration effectiveness, the investor is required to purchase (the “Second Closing”) an additional 450 shares of Series A Preferred Stock (the “Second Closing Preferred Shares”) at the Second Closing, with terms similar to the Initial Offering, except for the conversion and floor prices, which will be determined.

The Company filed a Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Restrictions of Series A Convertible Preferred Stock of the Company (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to establish the rights, privileges, preferences, and restrictions of the Series A Preferred Stock. As set forth in the Certificate of Designation, the Company designated 5,000 shares of preferred stock as Series A Preferred Stock. The following is a summary of the principal terms of the Certificate of Designation:

General. Each share of Series A Preferred Stock has a stated value of $10,000 per share (the “Series A Stated Value”) and, when issued, the Series A Preferred Stock will be fully paid and non-assessable.

Ranking. The Series A Preferred Stock ranks senior to all other Company capital stock for dividends, distributions, and liquidation payments, unless otherwise approved by the Required Holder (as defined in the Certificate of Designation).

Dividends. Series A Preferred Stock holders are entitled to receive 8% annual dividends, starting from issuance, payable quarterly in arrears in cash or additional Series A Preferred Stock (defaulting to in-kind unless stated otherwise). If a Triggering Event (as defined in the Certificate of Designation) occurs, the rate increases to up to the lesser of 18% or maximum rate permitted under applicable law until resolved.

Conversion at Option of Holder. Holders may convert their Series A Preferred Stock into common stock at any time after issuance, subject to ownership limits and the issuable maximum, at a rate based on the Conversion Amount (as defined below), divided by the Conversion Price (as defined below), and subject to a Floor Price.

Voluntary Adjustment Right. Subject to the rules and regulations of Nasdaq, the Company has the right, at any time, with the written consent of the Required Holder, to lower the fixed conversion price to any amount and for any period of time deemed appropriate by the Company’s board of directors.

Alternate Conversion at the Holder’s Election. At the holder’s option, at any time, the holder may convert (an “Alternate Conversion”) some or all of such holder’s Series A Preferred Stock, at a conversion price equal to the lower of (i) the applicable Conversion Price as in effect on the date of such Alternate Conversion, and (ii) the greater of (x) the Floor Price and (y)90% of the lowest VWAP (as defined in the Certificate of Designation) of the common stock during the ten (10) consecutive trading day period ending and including the trading day immediately preceding the delivery or deemed delivery of the applicable conversion notice as set forth in the Certificate of Designation (the “Alternate Conversion Price”).

With respect to each share of Series A Preferred Stock, as of the applicable date of determination, the “Conversion Amount” is equal to the sum of (1)120% of (i) the Series A Stated Value plus (ii) all declared and unpaid dividends on such shares as of such date of determination plus (2) any other amounts thereon owed to such holder, pursuant to this Certificate of Designations or any other Transaction Document (as defined in the Certificate of Designation) that have not otherwise been paid or satisfied.

The Conversion Price varies depending on the issuance circumstances of the Series A Preferred Stock and is subject to adjustments.(i) for Series A Preferred Stocks issued in the Registered Direct Offering and at the initial closing of the Private Placement, the Conversion Price is fixed at $2.332 per share (the “Initial Conversion Price”); (ii) for Series A Preferred Stocks issued at the Second Closing or upon the exercise of a Private Placement Warrant (excluding cases under points (iii) and (iv) below), the Conversion Price is the lower of (x) the Initial Conversion Price and (y) 110% of the last closing trade price on the trading day before the Second Closing, relevant Funding Date, or Exercise Date (as defined in each Private Placement Warrant); (iii) if a Series A Preferred Stock is issued upon warrant exercise when certain equity conditions are not met, the Conversion Price is the lower of (A) $3.50 and (B) 110% of the closing price on the trading day before delivery of the Exercise or Call Notice; And (iv) if warrants are exercised after the Registration Effectiveness Date (as defined in the Certificate of Designation) and the common stock has traded above $10.00 for 20 consecutive trading days, and equity conditions are not met, the Conversion Price will be 110% of the closing price on the trading day before the Exercise or Call Notice. In all cases, the Conversion Price is subject to proportional adjustments in the event of stock splits, dividends, combinations, and/or similar corporate actions and as set forth below under “Other Adjustments” below.

The Floor Price varies based on when and how the Series A Preferred Stock is issued: (i) for Series A Preferred Stocks sold in the Registered Direct Offering, the Floor Price is $1.00; (ii) for Series A Preferred Stocks sold at the initial closing of the Private Placement, it is $0.424, which represents 20% of the Nasdaq Minimum Price of the common stock on the trading day before the Purchase Agreement was signed; (iii) for Series A Preferred Stocks issued after the initial closing—including those in the Second Closing—the Floor Price is 20% of the Nasdaq Minimum Price as of the trading day immediately before issuance. If, after six months from the initial issuance date, the current Floor Price exceeds the Adjusted Floor Price (as defined in the Certificate of Designation), the Required Holder may elect to lower the Floor Price to the Adjusted Floor Price, subject to Nasdaq approval. Both the Floor Price and Adjusted Floor Price are subject to proportional adjustments for stock splits, dividends, combinations, and/or similar corporate events.

Other Adjustments. Until stockholder approval is obtained, the Company may not issue more than 1,450,489 shares of common stock upon conversion of the Series A Preferred Stock and in certain related transactions—an amount equal to 19.99% of the total outstanding shares as of February 26, 2025—subject to adjustments for stock splits, recapitalizations, and similar events (the “Issuable Maximum”). This limit applies collectively to all conversions of Series A Preferred Stock and related securities. Additionally, if the Company issues common stock at a price lower than the then-current Conversion Price (the “New Issuance Price”), the Conversion Price will be adjusted downward to the New Issuance Price.

Purchase Rights. If the Company issues options, convertible securities, or other purchase rights to acquire stock or property to all or most holders of common stock (“Purchase Rights”), holders of Series A Preferred Stock will also be entitled to receive these rights. Each holder may acquire the same Purchase Rights as if they had already converted all of their Series A Preferred Stock into common stock at the Alternate Conversion Price, subject to the Beneficial Ownership Limitation.

Liquidation Preference. Each share of Series A Preferred Stock carries a liquidation preference equal to the greater of (A) the conversion of such Series A Preferred Stock on the date of such payment and (B) the amount per share such holder would receive if such holder converted such Series A Preferred Stock into common stock immediately prior to the date of such payment.

Mandatory Redemption Triggering Event. Upon any Mandatory Triggering Event (as defined in the Certificate of Designation), the Company shall immediately redeem in cash all amounts due under the Series A Preferred Stock at a redemption price equal to the Conversion Amount to be redeemed.

Voting Rights. Holders of Series A Preferred Stock have no voting power, cannot vote on any matters, and cannot call or participate in shareholder meetings, except as outlined in the Certificate of Designation or required by law. The Company cannot take certain actions without the prior consent of the Required Holder, including: (a) altering the powers, preferences, or rights of the Series A Preferred Stock or amending the Certificate of Designation, (b) creating any stock class senior or pari passu to the Series A Preferred Stock, (c) amending the articles of incorporation in ways that negatively affect the Series A Preferred Stock rights, (d) changing the number of authorized Series A Preferred Stock, (e) paying dividends or making distributions on common stock, (f) purchasing or redeeming junior capital stock, (g) issuing Series A Preferred Stock outside the agreed terms, or (h) circumventing any rights set forth in the Certificate of Designation.

Change of Control Exchange. Upon a change of control of the Company, each holder may require the Company to exchange such holder’s shares of Series A Preferred Stock for consideration equal to the Conversion Amount (or (1) the Series A Stated Value thereof plus (2) all declared and unpaid dividends on such shares as of such date of determination plus (3) any other amounts thereon owed to such holder, pursuant to the Certificate of Designation or any other Transaction Document that have not otherwise been paid or satisfied, in the case of any shares of Series A Preferred Stock funded following the Announcement Time (as defined in the Certificate of Designation) but prior to the date of the change of control.

Company Optional Redemption. The Company can redeem all or part of the outstanding Series A Preferred Stock at any time by sending a written notice to each holder. The redemption price is generally the Conversion Amount, but may be the Stated Value in certain cases. If a Triggering Event has occurred, the price will be the greater of (i) the Conversion Amount or (ii) the product of the Conversion Rate and the average of the five highest daily VWAPs of the common stock from the day before the company optional redemption notice to the day before the payment is required.

Fundamental Transactions. The Certificate of Designation prevents the Company from engaging in fundamental transactions, such as mergers or business combinations, unless it (or its successor) assumes all obligations under the Certificate of Designation and Transaction Documents, or redeems all outstanding Series A Preferred Stock.

Covenants. The Certificate of Designation imposes several restrictions on the Company, including prohibiting the redemption, repurchase, or declaration of dividends on capital stock (except as required), incurring debt (except Permitted Indebtedness), entering into affiliate transactions, or creating liens without the Required Holder’s prior consent. Additionally, the Company cannot issue Series A Preferred Stock or other securities that would violate the Certificate of Designation or issue securities below the current Floor Price.

The Company evaluated the features of the Series A Preferred Stock to determine if any needed to be bifurcated as embedded derivatives. It concluded that the conversion feature is closely related to the host contract, while the redemption feature qualifies for bifurcation as a derivative. However, the initial fair value of the bifurcated derivative is immaterial because the likelihood of such redemption feature being triggered is remote. The fair value of this bifurcated derivative liability is remeasured to fair value each reporting period, with material changes, if any, recorded in the consolidated statement of operations and comprehensive loss. 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, the Series A Preferred Stock is classified as mezzanine equity.

As a result, the Company bifurcated the Series A Preferred Stock into (i) the host contract, classified within mezzanine equity, and (ii) the bifurcated derivative liability related to the redemption feature.

The proceeds from the Initial Offerings were allocated first to the fair value of the Private Placement Convertible Preferred Warrants, with the remaining balance allocated to the Series A Preferred Stock. The Private Placement Convertible Preferred Warrants do not meet equity classification requirements under ASC 815-40, so they are treated as derivative liabilities, remeasured to fair value each reporting period, with changes recorded in the consolidated statement of operations and comprehensive loss. However, as described in Note 9 above, the Company deemed the fair value of the warrants to be immaterial for initial recognition.

From the issuance date through March 31, 2025,30 shares of Series A Preferred Stock were converted into 311,887 shares of common stock. As a result, $273 (net of offering costs) was reclassified from mezzanine equity to common stock and additional paid-in capital. Subsequent to March 31, 2025,105 shares of Series A Preferred Stock were converted into 1,933,420 shares of common stock at a conversion price of $0.66 per share of common stock. As a result, $962 (net of offering costs) was reclassified from mezzanine equity to common stock and additional paid-in capital.

Note 11 -COMMON STOCK

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

For the three months ended March 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 23,160 shares for aggregate net proceeds to the Company of $63 from the period January 1, 2025 through March 31, 2025. No issuances occurred for the period of January 1, 2024 through March 31, 2024.

Note 12 -STOCK-BASED COMPENSATION

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 273,822 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)166,667 shares, or (3) such number as determined by the Company’s board of directors.

The Company maintains the ESPP 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, 2025 and 2024, 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, 2025, the Company did not issue any stock options.

Share-based compensation expense for options and RSUs totaling $220 and $266 was recognized in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024, respectively.

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. Of the $266 of share-based compensation incurred during the three months ended March 31, 2024, $32 is allocated to cost of goods sold, $65 to research and development, $60 to selling and marketing, and $109 to general and administrative expenses.

Restricted Stock Units

On February 5, 2024, the Company granted 24,447 restricted stock units of which 11,111 vested immediately. The fair value of the 24,447 restricted stock units was $95 and an expense of $45 was recorded as compensation expense during the three months ended March 31, 2024.

Note 12 - Stock-Based Compensation (continued)

Restricted Stock Units (Continued)

The following table presents the restricted stock units activity for the three months ended March 31, 2025 and 2024:

As of March 31, 2025 and 2024 there were 1,227,247 and 1,220,725 shares, respectively, of unissued authorized and available for future awards under the 2022 Equity Incentive Plan and Employee Stock Purchase Plan.

Note 13 -SUPPLIER AGREEMENT

On May 9, 2023, Ioneer Rhyolite Ridge LLC, or the seller, an emerging lithium-boron producer, and the Company announced a commercial offtake agreement partnership whereby the seller is developing the Rhyolite Ridge Project which, once completed, is expected to produce 20 ktpa of lithium carbonate, and 174 ktpa of boic acid (the “project”). Beginning on the Supply Start Date which is the date the seller notifies the Company that the project is fully completed and commissioned in accordance with the engineering, procurement and construction contract, and for the duration of the supply period, the Company shall purchase and receive product from seller, on the terms and conditions of the agreement. The agreement calls for a minimum annual purchase requirement. The agreement becomes effective when the seller has informed the Company that the seller has made a positive financial investment decision in respect of the project.

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 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 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.

The following table presents the reportable segments information for the three months ended March 31, 2024:

There were no significant customer revenues from the Company’s DTC segment for the three months ended March 31, 2024.

Revenues from one customer of the Company’s OEM segment represents approximately $2,000, or 16%, of the Company’s consolidated revenues for the three months ended March 31, 2024.

Note 15 -SUBSEQUENT EVENTS

On April 28, 2025, pursuant to the Purchase Agreement, the Company sold to the Purchaser, in the Second Closing, an additional 450 shares of Series A Preferred Stock at a price of $10,000 per share, which shares of Series A Preferred Stock are initially convertible into shares of common stock at a conversion price of $0.594 per share. The Floor Price (as defined in the Certificate of Designation) for the shares of Series A Preferred Stock issued in the Second Closing is $0.10902. The gross proceeds of the Second Closing were $4.5 million, with net proceeds of $4.15 million (net of expenses).

Subsequent to March 31, 2025,105 shares of Series A Preferred Stock were converted into 1,933,420 shares of common stock.

On May 14, 2025, the Company received a letter (the “Letter”) from the Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that, based upon the Company’s non-compliance with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”), the Staff had determined to delist the Company’s securities from Nasdaq unless it timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Nasdaq Listing Rules require listed securities to maintain a minimum bid price of $1.00 per share and, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no longer meets this requirement. Pursuant to Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period due to the fact that it has effected a reverse stock split over the prior one-year period. As previously disclosed, pursuant to the written notice received from the Staff on December 12, 2024 (the “Notice”), the Company is also currently not in compliance with Nasdaq Listing Rule 5550(b)(2), which requires the Company to maintain a minimum Value of Listed Securities (“MVLS”) of $35 million for continued listing on The Nasdaq Capital Market (the “MVLS Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has until June 10, 2025, to regain compliance with the MVLS Requirement, subject to extension by Nasdaq. The Company fully intends to timely request a hearing before the Panel, at which hearing the Company will request an extension within which to evidence compliance with the Bid Price Requirement and the MVLS Requirement. The Company’s request for a hearing will stay any suspension or delisting action by the Staff pending the hearing and the expiration of any extension period granted by the Panel following the hearing. The Company intends to continue to take definitive steps in an effort to evidence compliance with the Bid Price Requirement and the MVLS Requirement.