Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this report (the "Quarterly Report") to "we," "us," "our" or the "Company" refer to Dragonfly Energy Holdings Corp., a Nevada corporation. References to "Legacy Dragonfly" refer to Dragonfly Energy Corp., a Nevada corporation and one of our wholly-owned subsidiaries. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report and with our audited consolidated financial statements (and notes thereto) for the year ended December 31, 2025 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 30, 2026 (the "Annual Report"), particularly those under "Risk Factors." This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Cautionary Note Regarding Forward Looking-Statements

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as "may," "can," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "seek," "estimate," "continue," "plan," "point to," "project," "predict," "could," "intend," "target," "potential" and other similar words and expressions of the future.

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

●	our ability to service our outstanding indebtedness and comply with the financial covenants in our loan agreement, the failure of which could allow our lenders to accelerate payment under our loan agreement, which would have a material adverse effect on our ability to operate and could require us, among other things, to reduce operations, sell off our assets, seek the protection of bankruptcy courts or shut down our operations and dissolve;
●	the potential impact of the conversion and the terms of our outstanding Series B Convertible Stock (the "Series B Preferred Stock") on the market price of our common stock and our ability to redeem and make dividend payments with respect to our Series B Preferred Stock;
●	our ability to raise additional capital to fund our operations;
●	our ability to successfully increase market penetration into target markets;
●	our ability to maintain the listing of our common stock and public warrants on the Nasdaq Capital Market;
●	the failure of the addressable markets that we intend to target to grow as expected;
●	the potential for events or circumstances that result in our failure to timely achieve the anticipated benefits of our customer arrangements, including with Stevens Transport;
●	our ability to generate revenue from future product sales in our existing markets or new markets that we enter, including the trucking and industrials markets, and our ability to achieve and maintain profitability;
●	the loss of any members of our senior management team or other key personnel;
●	the loss of any relationships with key suppliers, including suppliers in China;
●	the loss of any relationships with key customers;
●	our ability to protect our patents and other intellectual property;
●	our ability to engage target customers and successfully retain these customers for future orders;
●	the failure to successfully optimize solid-state cells or to produce commercially viable solid-state cells in a timely manner or at all, or to scale to mass production;
●	the failure to produce lithium battery cells in the United States in a timely manner or at all, or to scale to mass production;
●	the outcome of pending litigation and potential product liability claims;
●	the failure to timely achieve the anticipated benefits of our licensing arrangement with Stryten Energy LLC ("Stryten");
●	changes in applicable laws or regulations, including changes in the rates of tariffs or any adjustments to the amounts payable by us to customs as a result of improperly identifying the applicable tariff rate payable on our products;
●	the possibility that we may be adversely affected by other economic, business and/or competitive factors (including an economic slowdown or inflationary pressures);
●	our ability to sell the desired amounts of shares of common stock at desired prices under our at-the-market equity offering program;
●	the accuracy of our projections and estimates regarding our expenses, capital requirements, cash utilization, and need for additional financing;
●	developments relating to our competitors and our industry;
●	the reliance on two suppliers for our lithium iron phosphate cells and a single supplier for the manufacture of our battery management system;
●	our current dependence on one manufacturing facility; and
●	the potential impact of global and macroeconomic conditions, including economic, political and social instability, including the Russia-Ukraine conflict, the India-Pakistan conflict, Hamas' attack on Israel and the Iranian conflict, and their effects on our operations.

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in such forward-looking statements. Please see "Part I-Item 1A-Risk Factors" of our Annual Report and in this Quarterly Report for additional risks which could adversely impact our business and financial performance.

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

Overview

Our Business

We are a manufacturer of non-toxic deep cycle lithium-ion batteries that caters to customers in the consumer industry (including the recreational vehicle ("RV"), marine vessel, solar and off-grid residence industries), and trucking, industrial and energy storage markets, with proprietary, patented and disruptive battery cell manufacturing and non-flammable solid-state cell technology currently under development.

Since 2020, we have sold over 391,000 batteries. For the quarters ended June 30, 2026 and June 30, 2025, we sold 9,049 and 12,134 batteries, respectively, and had $13.2 million and $16.2 million in net sales, respectively. For the six months ended June 30, 2026 and June 30, 2025, we sold 14,832 and 22,979 batteries, respectively, and had $22.9 million and $29.6 million in net sales, respectively. We currently offer several lines of batteries across our two brands, each differentiated by size, power and capacity, consisting of seven different models, which come with an option for internal heat for cold temperature operation or an option for wireless communication using our Dragonfly IntelLigence feature. As a result of changes to our marketing focus and corporate objectives, we are focusing our selling efforts of "Battle Born" branded batteries primarily to original equipment manufacturers ("OEMs") as well as directly to consumers ("DTC").

Our sales increased from $9.7 million in the quarter ended March 31, 2026 to $13.2 million in the quarter ended June 30, 2026. Our increase in sales was primarily attributable to RV OEM customers resuming more normal ordering patterns after right sizing inventory levels during the previous quarter. Nevertheless, RVIA shipment data for the quarter indicates a continuing decline, reflecting overall macroeconomic conditions. DTC sales increased despite continued macroeconomic pressures on consumer demand, reflecting typical seasonality and some recovery from the increased negative third-party online commentary regarding some of our products, which had impacted customer sentiment and contributed to variability in demand. In response to such commentary, we have initiated legal proceedings to address what we believe to be false and misleading statements made regarding our products. We expect our sales to continue to increase in the next 12 months as our customers expand the number of models in which they include our battery systems for the new model year and as we continue to grow into new markets, including trucking and industrials, with new product offerings. The acquisition of the assets associated with the Dakota Lithium brand also expands our product offerings to include other Lithium battery models and accessories, including those that focus on marine, golf cart, and power sports, in addition to RV. Moreover, we expect the focus of the Dakota Lithium brand on retail sales to restore that channel for the Company moving forward , with such assets expected to contribute material revenue beginning in the fourth quarter of 2026. We expect incremental operating cost increases in order to restore Dakota Lithium's commercial operations ahead of its expected revenue contribution.

During the second quarter of 2026, we continued to implement our corporate optimization initiative, prioritizing product development to drive near-term revenue and profit. For instance, this strategic shift is accelerating our development of purpose-built solutions for the trucking and industrial markets, resulting in the recent launch of our Battle Born DualFlow Power Pack, a practical, cost-effective hybrid electrification solution for the trucking industry. We also received a purchase order from Stevens Transport valued in excess of $3 million for approximately 500 trucks, representing one of the largest single-fleet deployments of our heavy-duty trucking solutions to date and spanning our full product portfolio. The Company also continued to advance its previously announced facility consolidation during the second quarter. While the consolidation was not fully completed by quarter-end, the Company expects to complete the principal remaining actions during the third quarter.

In addition, during the second quarter of 2026, we continued to advance our intellectual property portfolio in support of our solid-state battery development and dry electrode manufacturing platform. In April 2026, we announced that we had received an allowance from the Japan Patent Office for our application titled "Powderized Solid-State Electrolyte and Electroactive Materials," marking our first patent application allowance in Japan and covering innovations in powderized solid-state electrolyte and electroactive materials, a core component of our solid-state battery development and dry electrode manufacturing platform. In June 2026, we announced that we had received a notice of allowance from the European Patent Office for our patent application titled "Systems and Methods for Dry Powder Coating Layers of an Electrochemical Cell," which covers key elements of our proprietary dry electrode manufacturing platform, including the use of dry powder coating to form critical layers within an electrochemical cell and processes that can support electrode, separator, and solid-state electrolyte layers. We also announced in June 2026 that we had received a notice of allowance from the United States Patent and Trademark Office for our patent application titled "Powderized Solid-State Electrolyte and Electroactive Materials," which is directed toward manufacturing processes that support our solid-state battery development efforts.

We currently source the lithium iron phosphate ("LFP") cells incorporated into our batteries from a limited number of carefully selected suppliers that can meet our demanding quality standards and with whom we have developed long-term relationships.

To supplement our battery offerings, we are also a reseller of accessories for battery systems. These include chargers, inverters, monitors, controllers and other system accessories from brands such as Victron Energy, Progressive Dynamics, Magnum Energy and Sterling Power. Pursuant to the Asset Purchase Agreement dated April 22, 2022 by and among us and Thomason Jones Company, LLC ("Thomason Jones") and the other parties thereto, we also acquired the assets, including the Wakespeed Offshore brand ("Wakespeed") of Thomason Jones, allowing us to include our own alternator regulator in systems that we sell.

In addition to our conventional LFP batteries, we have been developing proprietary dry electrode cell manufacturing processes and solid-state cell technology. We believe that our solid-state technology design allows for a much safer, more efficient battery cell that we believe will be a key differentiator in the energy storage market.

In July 2023, we completed the construction of our proprietary and patented cell electrode manufacturing pilot line. Our patented dry deposition process is chemistry agnostic - meaning it can produce battery cells across a variety of chemistries - and is less capital intensive, uses less energy, and can produce cells in a smaller manufacturing footprint, leading to a lower total cost of manufacturing. In August 2023, we successfully demonstrated the ability to produce anode material at scale using this manufacturing process and did the same with cathode material in October 2023. We have since produced sample cells using PFAS-free binders and automotive-grade electrode loadings and C-rates, and are now working on the design and deployment of scaled-up coating equipment that can be applied to a GWh-scale factory, reflecting the shift in industry priorities from cell performance to cost-effective scalability.

As of June 30, 2026, we had cash totaling $6.3 million. Our net loss for the quarter ended June 30, 2026 was $4.4 million and our net loss for the quarter ended June 30, 2025 was $7.0 million. As discussed under "-Liquidity and Capital Resources" below we expect that we will need to raise additional funds, including through the use of the ATM (as defined below) and the issuance of equity, equity-related or debt securities or by obtaining additional credit from financial institutions to fund, together with our principal sources of liquidity, ongoing costs. If such financings are not available, or if the terms of such financings are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including not seeking potential acquisition opportunities, eliminating redundancies, or reducing or delaying our production facility expansions, reduce operations, sell off our assets, seek the protection of bankruptcy courts or shut down our operations and dissolve.

License Agreement with Stryten

On July 29, 2024, Legacy Dragonfly 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. Pursuant to the License Agreement, Battle Born LLC granted Stryten an exclusive, worldwide license to use certain trademarks relating to Legacy Dragonfly's lithium-ion battery brand, Battle Born Batteries® (the "Licensed Trademarks") for business-to-business sales of batteries to customers within the following markets: (i) automative, (ii) marine, (iii) powersports, (iv) lawn and garden, (v) golf cart, and (vi) military and defense (such industries, the "Stryten Market"). In exchange for the licensing rights, Stryten agreed to pay Battle Born LLC an initial licensing fee of five million dollars ($5,000,000) (the "Initial Licensing Fee"), which was paid on August 29, 2024.

The License Agreement provides for mid-single digit royalty payments based on net sales using the Licensed Trademarks, with a tiered structure reaching up to twenty-five million dollars ($25,000,000), at which point Stryten will be required to pay a nominal annual license fee. Additional fees will apply for battery design and contract manufacturing services outside of the License Agreement. The License Agreement is perpetual in term, unless terminated by: (i) Battle Born LLC if Stryten fails to pay the royalty payments required by the License Agreement and such royalty payments remain unpaid thirty (30) days after notice of such overdue payments (provided that Battle Born LLC uses reasonable efforts to discuss such overdue payments with Stryten), or (ii) either party (x) if the other party materially breaches the License Agreement and fails to cure such material breach within thirty (30) days of notice of such breach, (y) upon the occurrence of certain bankruptcy-related events, or (z) under certain circumstances, if the aggregate royalty payments received by Battle Born LLC under the License Agreement are less than fifteen million dollars ($15,000,000) after five (5) years.

Earnout Merger Consideration

In addition to the initial merger consideration in connection with our business combination in October of 2022, up to 444,445 additional shares of common stock ("Earnout Shares") may be issued based on achieving specified milestones in three tranches:

1.	First Tranche (166,667 shares): Issuable if 2023 total audited revenue is at least $250 million and audited operating income is at least $35 million. This milestone was not achieved for 2023.
2.	Second Tranche (138,889 shares): Issuable if the volume-weighted average trading price of common stock reaches $2,025.00 over any 20 trading days within a 30-day period, on or before December 31, 2026.
3.	Third Tranche (138,889 shares): Issuable if the volume-weighted average trading price of common stock reaches $2,925.00 over any 20 trading days within a 30-day period, on or before December 31, 2028.

If a change of control occurs during the second or third earnout periods, unachieved milestones will be automatically deemed satisfied if the share price at the time of the transaction meets or exceeds $2,025.00 for the second period or $2,925.00 for the third period.

February 2025 Registered Direct Offering and Concurrent Private Placement, Fifth Amendment to Term Loan Agreement and April 2025 Private Placement

On February 26, 2025, we entered into a securities purchase agreement with a single institutional investor, pursuant to which we sold in a registered direct offering (the "Registered Direct Offering") 18 shares of Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), at a price of $100,000 per share, initially convertible into shares of our common stock, at a conversion price of $23.32 per share of common stock. The Series A Preferred Stock was also convertible by the investor at an adjusted conversion price, subject to the applicable floor price.

Concurrently with the sale of the Series A Preferred Stock in the Registered Direct Offering, in a private placement offering pursuant to the Purchase Agreement (the "Private Placement" and, together with the Registered Direct Offering, the "Offerings"), we sold, at the initial closing of the Private Placement (the "Initial Closing" and, together with the Registered Direct Offering, the "Initial Offerings"), (i) an additional 17 shares of Series A Preferred Stock at the same offering price as the Series A Preferred Stock offered in the Registered Direct Offering, initially convertible into shares of common stock at a conversion price of $23.32 per share, and (ii) warrants (the "Private Placement Convertible Preferred Warrants") to purchase up to an aggregate of 400 shares of Series A Preferred Stock (the "Private Placement Warrant Shares"), with an exercise price of $100,000 per share of Series A Preferred Stock, and a term as described below.

The exercise price under each Private Placement Convertible Preferred Warrant was $100,000 per share of Series A Preferred Stock. Each Private Placement Convertible Preferred Warrant was exercisable for 20 shares of Series A Preferred Stock in minimum increments of $500,000. The Private Placement Convertible Preferred Warrants had a term beginning on the issuance date and ending on or prior to the earlier of (i) the thirty-three (33) month anniversary of the date the shares of common stock issued or issuable upon the conversion of the Series A Preferred Stock issued in the concurrent Private Placement were registered for resale ("Registration Effectiveness") pursuant to an effective registration statement under the Securities Act of 1933, as amended, (the "Securities Act") (such date, the "Registration Effectiveness Date") and (ii) (A) the consummation of a Change of Control (as defined in the certificate of designation) and (B) the consummation of a redemption of the then outstanding Series A Preferred Stock in full. The exercise price and number of shares of Series A Preferred Stock issuable upon exercise were subject to appropriate adjustment in the event of share dividends, share splits, reorganizations or similar events affecting shares of our common stock.

On April 28, 2025, pursuant to the Purchase Agreement, we sold to the Purchaser, in the second closing of the Private Placement (the "Second Closing") 45 Preferred Shares at a price of $100,000 per share, initially convertible into shares of common stock at a conversion price of $5.95 per share, subject to adjustment.

The net proceeds to us from the Initial Offerings and the Second Offering, after deducting the placement agent's fees and expenses and estimated offering expenses, were approximately $3.2 million and $4.2 million, respectively, excluding the net proceeds, if any, from the exercise of the Private Placement Convertible Preferred Warrants.

As a condition precedent to the closing of the Initial Offerings, on February 26, 2025, we entered into the Fifth Amendment (the "Fifth Amendment") to the Term Loan Agreement with the Term Loan Lenders. Under the Fifth Amendment, the Term Loan Lenders agreed to, among other matters (i) receive no principal or interest payments under the Term Loan Agreement through March 31, 2026, and (ii) remove certain financial covenant tests under the Term Loan, provided that we maintain cash and cash equivalents equal to at least $2.5 million through such date.

On June 23, 2025, we and the holder of Private Placement Convertible Preferred Warrants agreed to cancel such holder's Private Placement Convertible Preferred Warrants to purchase up to an aggregate of 400 shares of Series A Preferred Stock, with an exercise price of $100,000 per share of Series A Preferred Stock. As a result, the Private Placement Convertible Preferred Warrants are no longer outstanding.

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

On June 5, 2026, we filed a Withdrawal of Designation relating to the Series A Preferred Stock (the "Withdrawal of Designation") with the Secretary of State of the State of Nevada. The Withdrawal of Designation became effective upon filing and eliminated from our Articles of Incorporation, as amended from time to time, all matters set forth in the previously filed Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Restrictions of Series A Convertible Preferred Stock.

July 2025 Offering

On July 30, 2025, we entered into an underwriting agreement with Canaccord Genuity LLC ("Canaccord"), as representative of the several underwriters named in the certain underwriting agreement, relating to an underwritten public offering (the "July 2025 Public Offering") of 2,198,000 shares of common stock, at a price to the public of $2.50 per share. On July 31, 2025, we completed the July 2025 Public Offering raising gross proceeds of approximately $5.5 million and net proceeds of $4.7 million after deducting underwriting discounts and commissions and other estimated offering expenses payable by us.

October 2025 Offerings

On October 6, 2025, we entered into an underwriting agreement with Canaccord, as representative of the several underwriters (the "First Offering Underwriters") named in the underwriting agreement dated October 6, 2025, relating to an underwritten public offering (the "First October 2025 Offering") of 2,000,000 shares of common stock at a price to the public of $12.50 per share, which includes the First Offering Underwriters' option to purchase an additional 300,000 shares of common stock, at a public offering price of $12.50 per share. On October 8, 2025, we completed the First October 2025 Offering, including the full exercise of the additional 300,000 shares of common stock, raising gross proceeds of approximately $28.8 million and net proceeds of $26.9 million after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. On October 8, 2025 upon a request from our Term Loan Lenders under the term loan agreement, we repaid $4.0 million of principal to satisfy a portion of our outstanding principal under the Term Loan Agreement.

On October 16, 2025, we entered into an additional underwriting agreement with Canaccord, as representative of the several underwriters (the "Second Offering Underwriters") named in the underwriting agreement, dated October 17, 2025 (the "Second Offering Underwriting Agreement"), relating to an underwritten public offering (the "Second October 2025 Offering") of 3,600,000 shares of common stock at a price to the public of $13.50 per share, and (ii) prefunded warrants (the "October 2025 Pre-Funded Warrants") to purchase up to 500,000 shares of common stock (the "Pre-Funded Warrant Shares") at a price to the public of $13.50 per October 2025 Pre-Funded Warrant, which represents the per share public offering price for the Shares (as defined below) less the $0.001 per share exercise price for each such Pre-Funded Warrant. During the quarter ended June 30, 2026, the October 2025 Pre-Funded Warrants were exercised in full.

Sixth Amendment to Term Loan, Series B Preferred Stock Issuance and 2025 Debt Restructuring

On October 20, 2025, we entered into the Sixth Amendment to the Term Loan Agreement with the Term Loan Lenders to, among other matters, (i) adjust the fixed interest rate of the remaining outstanding principal amount under the Term Loan Agreement to a fixed interest rate of 12% per annum, payable monthly commencing December 31, 2025 that will mature in October 2027, and (ii) waive any applicable financial covenants (except for a financial covenant requiring us to maintain cash and cash equivalents equal to or greater than $5.0 million) through December 31, 2026. In connection with the Sixth Amendment, (i) we made a prepayment of $45.0 million of outstanding indebtedness under the Term Loan Agreement from the net proceeds from the Second October 2025 Offering (the "Loan Prepayment"), (ii) the Term Loan Lenders forgave the repayment of $5.0 million of the outstanding principal under the Term Loan Agreement, (iii) we paid a fee to the Term Loan Lenders equal to approximately $450,000 in cash and $450,000 added to principal outstanding amount of the loan under the Term Loan Agreement; and (iv) we issued 25,000 shares of Series B Preferred Stock in exchange for $25.0 million outstanding principal amount of the Term Loan. The remaining outstanding principal amount under the Term Loan Agreement of approximately $19.0 million, after the repayment and forgiveness disclosed above, will have a fixed interest rate of 12% per annum, payable monthly commencing December 31, 2025 and will mature in October 2027. In addition, certain covenants under the Term Loan Agreement have been waived through December 31, 2026, and we have agreed to a minimum liquidity covenant of $5.0 million calculated on a monthly basis.

On November 4, 2025, we filed a Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Restrictions of Series B Convertible Preferred Stock (the "Series B Certificate of Designation") with the Secretary of State of the State of Nevada to establish the rights, privileges, preferences, and restrictions of the Series B Preferred Stock. As set forth in the Certificate of Designation, we designated 25,000 shares of preferred stock as Series B Preferred Stock with a stated value of $1,000 per share. The Series B Preferred Stock is convertible into shares of common stock at the option of the Term Lenders at a conversion price of $31.50 per share, or an aggregate of 793,651 shares of common stock.

On November 4, 2025, we entered into the Exchange Agreement with the Term Loan Lenders pursuant to which we issued 25,000 shares of newly created Series B Preferred Stock in exchange for $25.0 million outstanding principal amount of the Term Loan. The Series B Preferred Stock (i) is convertible into shares of common stock at the option of the Term Loan Lenders at a conversion price of $31.50 per share, or an aggregate of 793,651 shares of common stock, (ii) has a dividend of 8% per annum payable quarterly in cash and (iii) has a dividend of 2% per annum payable quarterly in kind ("PIK Dividends"), which includes the aggregate amount of all paid PIK Dividends and any accrued and unpaid PIK Dividends on the applicable dividend date. In addition, we have a right to redeem any outstanding shares of the Series B Preferred Stock at our option at the greater of (i) the stated value plus any outstanding dividends and (ii) the as-converted value of the shares of common stock underlying the Series B Preferred Stock (the "Optional Redemption Price"). The Term Loan Lenders have also agreed not to convert any shares of the Series B Preferred Stock for a period of six months following the issuance of the Series B Preferred Stock. In connection with any future equity offerings, we will be required to use 50% of the net proceeds from such offering to redeem outstanding shares of the Series B Preferred Stock at the Optional Redemption Price. In the event we have not redeemed the outstanding shares of Series B Preferred Stock by October 7, 2027 or upon the occurrence of a Non-Payment Event (as defined in the Series B Certificate of Designation), the holders will have the right to require us to redeem the Series B Preferred Stock at the Optional Redemption Price.

Equity Distribution Agreement

In January 2026, we entered into an Equity Distribution Agreement (the "Equity Distribution Agreement") with Canaccord Genuity LLC ("Canaccord") under which we may offer and sell, from time to time, shares of our common stock through an at-the-market equity offering program (the "ATM") for up to $50.0 million in gross proceeds. Subject to the terms and conditions of the Equity Distribution Agreement, Canaccord will use commercially reasonable efforts to sell shares of our common stock from time to time based upon our instructions, including any price, time or size limits specified by us. We are not obligated to sell any shares of common stock under the Equity Distribution Agreement. We will pay Canaccord a commission of 3.0% of the aggregate gross proceeds from each sale of shares of common stock and will reimburse Canaccord for certain specified expenses. During the three months ended June 30, 2026, we sold 411,100 shares of common stock pursuant to the ATM for net proceeds of approximately $0.8 million, after deducting sales agent commissions.

Dakota Lithium Asset Purchase Agreement

On July 31, 2026, Legacy Dragonfly entered into an asset purchase agreement (the "Asset Purchase Agreement") with Clean Liquidation, LLC (assignment for the benefit of creditors), pursuant to which Legacy Dragonfly acquired substantially all of the operating assets associated with the Dakota Lithium® brand and assumed certain related liabilities. The aggregate purchase price was $4.0 million, consisting of $1.0 million in cash and 1,500,000 shares of the Company's common stock issued at $2.00 per share for an aggregate value of $3.0 million. The Asset Purchase Agreement contains customary representations and warranties, covenants, indemnification provisions, and closing conditions.

In connection with the Asset Purchase Agreement, the Company entered into a Securities Receipt Agreement with certain recipients, pursuant to which the Company issued the shares in exchange for a release of secured claims against the acquired assets. The shares are subject to a 12-month lock-up period, transfer restrictions, and a restrictive legend.

Seventh Amendment to Term Loan

On July 31, 2026, the Company, Legacy Dragonfly, and Battle Born Battery Products, LLC entered into the Seventh Amendment (the "Seventh Amendment") to the Term Loan Agreement with the Term Loan Lenders and Alter Domus (US) LLC, as agent. Under the Seventh Amendment, among other things, (i) the Term Loan Lenders consented to the asset acquisition described above, (ii) the interest rate was modified to 14.0% per annum (from 12.0%), with all interest payable-in-kind through December 31, 2026, (iii) the commencement date for testing the maximum senior leverage ratio and fixed charge coverage ratio covenants was extended from March 31, 2027 to September 30, 2027, and (iv) the minimum liquidity covenant was modified to require minimum liquidity of $4.0 million from August 31, 2026 through January 31, 2027, and $5.0 million thereafter.

Key Factors Affecting Our Operating Results

Our financial position and results of operations depend to a significant extent on the following factors:

End Market Consumers

The demand for our products ultimately depends on demand from consumers in our current end markets. We generate sales through (1) DTC and (2) OEMs, particularly in the RV market. As our business has evolved, our growth strategy has increasingly shifted toward OEM, fleet, and industrial channels, where we can deliver integrated energy storage solutions at scale.

An increasing proportion of our sales has been and is expected to continue to be derived from sales to RV OEMs, driven by continued efforts to develop and expand sales to RV OEMs with whom we have longstanding relationships. Our RV OEM sales have been on a purchase order basis, without firm revenue commitments, and we expect that this will likely continue to be the case. Therefore, future RV OEM sales will be subject to risks and uncertainties, including the number of RVs these OEMs manufacture and sell, which in turn may be driven by the expectations these OEMs have around end market consumer demand.

Demand from end market consumers is impacted by a number of factors, including travel restrictions, fuel costs and energy demands (including an increasing trend towards the use of green energy), as well as overall macro-economic conditions and inflation. Sales of our batteries have benefited from the increased adoption of the RV lifestyle, the demand for and inclusion of additional appliances and electronics in RVs, and the accelerating trend of solar power adoption among RV customers. However, macro-economic conditions and increased competition from imported battery packs have led to a decrease in direct to consumer sales. We have focused on product diversification, including the introduction of batteries equipped with our Dragonfly IntelLigence technology and the expansion of complementary system components that support integrated power solutions across our end markets. We expect that direct to consumer sales will remain relatively flat through 2026. However, we expect growth among our existing RV OEM customers to be driven by expanded adoption of our products across additional models and configurations, as well as increased system content per unit, rather than solely by changes in overall RV shipment volumes. In addition, we anticipate increased revenue from continued expansion within existing customer relationships across other end markets, including industrial and commercial energy storage applications and the heavy-duty trucking market, where fleet customers have begun to adopt our systems and expand deployments following initial pilot programs.

Supply

We currently rely on two carefully selected cell manufacturers located in China, and a single supplier, also located in China, to manufacture our proprietary battery management system. Our close working relationships with our China-based LFP cell suppliers, reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts) and order and receive delivery of cells in anticipation of required demand, have helped us moderate increased supply-related costs associated with inflation, currency fluctuations and U.S. government tariffs imposed on our imported battery cells and to avoid potential shipment delays. To mitigate against potential adverse production events, we opted to build our inventory of key components, such as battery cells. However, as many of the supply chain challenges and delays that were prevalent over the last several years have eased, we are actively working down our inventory to more appropriate safety stock levels.

As a result of our battery chemistry and active steps we have taken to manage our inventory levels, we have not been subject to the shortages or price impacts that have been present for manufacturers of nickel manganese cobalt and nickel cobalt aluminum batteries. As we look toward the production of our solid-state cells, we have signed a Commercial Offtake Agreement with a lithium mining company located in Nevada for the supply of lithium, which we expect will enable us to further manage our cost of goods over time.

Product and Customer Mix

Our product sales consist of sales of numerous models of LFP batteries, along with accessories for battery systems (individually or bundled). These products are sold to different customer types (e.g., consumers, OEMs and distributors) and at different prices and involve varying levels of costs. In any particular period, changes in the mix and volume of particular products sold and the prices of those products relative to other products will impact our average selling price and our cost of goods sold. Despite our work to moderate increased supply-related costs, the price of our products may also increase as a result of increases in the cost of components due to inflation, currency fluctuations and tariffs. OEM sales typically result in lower average selling prices and related margins, which could result in margin erosion, negatively impact our growth or require us to raise our prices. However, this reduction is typically offset by the benefits of increased sales volumes. Sales of third-party sourced accessories typically have lower related margin. We expect accessory sales to increase as we further develop full-system design expertise and product offerings and consumers increasingly demand more sophisticated systems, rather than simple drop-in replacements. In addition to the impacts attributable to the general sales mix across our products and accessories, our results of operations are impacted by the relative margins of products sold. As we continue to introduce new products at varying price points, our overall gross margin may vary from period to period as a result of changes in product and customer mix.

Production Capacity

All of our battery assembly currently takes place at our 390,240 square foot headquarters and manufacturing facility located in Reno, Nevada. We currently operate four LFP battery production lines. Consistent with our operating history, we plan to continue to automate additional aspects of our battery production lines. Our existing facility has the capacity to add up to four additional LFP battery production lines and construct and operate a pilot production line for our solid-state cells, all designed to maximize the capacity of our manufacturing facility. Although our automation efforts are expected to reduce our costs of goods, we may not fully recognize the anticipated savings when planned and could experience additional costs or disruptions to our production activities. We have also focused on optimizing our manufacturing efficiency and throughput, enabling us to increase our production capacity without the need for increased headcount.

Competition

We compete with traditional lead-acid battery manufacturers and lithium-ion battery manufacturers, who primarily either import their products or components or manufacture products under a private label. As we continue to expand into new markets, develop new products and move towards production of our own conventional LFP cells and, in the longer term, solid state cells, we will experience competition with a wider range of companies. These competitors may have greater resources than we do and may be able to devote greater resources to the development of their current and future technologies. Our competitors may be able to source materials and components at lower costs, which may require us to evaluate measures to reduce our own costs, lower the price of our products or increase sales volumes in order to maintain our expected levels of profitability.

Research and Development

Our research and development is currently primarily focused on scaling our proprietary dry electrode process for domestic production of full LFP cells. Although we have reallocated resources from the advanced manufacturing of solid-state lithium-ion batteries in order to focus on conventional cells, we expect to return to the solid-state chemistry as capital becomes more available for these longer term projects.

Components of Results of Operations

Net Sales

Net sales are primarily generated from the sale of our LFP batteries to OEMs and directly to consumers, as well as chargers and other accessories, either individually or bundled, and recognition of deferred licensing revenue.

Cost of Goods Sold

Cost of goods sold includes the cost of cells and other components of our LFP batteries, labor and overhead, logistics and freight costs, and depreciation of manufacturing equipment.

Gross Profit

Gross profit, calculated as net sales less cost of goods sold, may vary between periods and is primarily affected by various factors including average selling prices, product costs, product mix and customer mix.

Operating Expenses

Research and development

Research and development costs include personnel-related expenses for scientists, experienced engineers and technicians as well as the material and supplies to support the development of new products and our solid-state technology.

General and administrative

General and administrative costs include personnel-related expenses attributable to our executive, finance, human resources, and engineering and product development organizations, certain facility and information technology costs, and fees for professional services.

Selling and marketing

Selling and marketing costs include outbound freight, personnel-related expenses, as well as trade show, industry event, marketing, customer support, and other indirect costs. We expect to continue to make the necessary sales and marketing investments to enable the execution of our strategy, which includes expanding into additional end markets.

Total Other Expense

Other expense consists primarily of debt extinguishment, interest expense, the change in fair value of the warrant liability and amortization of debt issuance costs.

Results of Operations

Comparisons for the three months ended June 30, 2026, and June 30, 2025

The following table sets forth our results of operations for the three months ended June 30, 2026 and June 30, 2025. This data should be read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety by reference to such financial statements and related notes.

		Three months ended June 30,
		2026				% Net Sales				2025				% Net Sales
		(in thousands)
Net Sales		$	13,159				100.0			$	16,248				100.0
Cost of Goods Sold			8,816				67.0				11,643				71.7
Gross profit			4,343				33.0				4,605				28.3
Operating expenses
Research and development			648				4.9				692				4.3
General and administrative			4,617				35.1				4,619				28.4
Sales and marketing			1,977				15.0				2,575				15.8
Total Operating expenses			7,242				55.0				7,886				48.5
Loss From Operations			(2,899	)			(22.0	)			(3,281	)			(20.2	)
Other Expense
Interest expense, net			(1,536	)			(11.7	)			(5,442	)			(33.5	)
Other income			62				0.5				-				-
Change in fair market value of warrant liability			(13	)			(0.1	)			1,689				10.4
Total Other Expense			(1,487	)			(11.3	)			(3,753	)			(23.1	)
Loss Before Taxes			(4,386	)			(33.3	)			(7,034	)			(43.3	)
Income Tax Benefit			-				-				-				-
Net Loss		$	(4,386	)			(33.3	)		$	(7,034	)			(43.3	)
Less: Preferred Stock Dividends		$	(1,131	)			(8.6	)		$	-				-
Net Loss Attributable to Common Shareholders		$	(5,517	)			(41.9	)		$	(7,034	)			(43.3	)

		Three months ended June 30,
		2026				% Net Sales				2025				% Net Sales
		(in thousands)
DTC		$	4,477				34.0			$	5,948				36.6
OEM			8,432				64.1				10,050				61.9
Licensing Revenue			250				1.9				250				1.5
Net Sales		$	13,159				100.0			$	16,248				100.0

Net Sales

Net sales decreased by $3.1 million, or 19.0%, to $13.2 million for the three months ended June 30, 2026, as compared to $16.2 million for the three months ended June 30, 2025. This decrease was primarily due to lower OEM and DTC sales. RV OEM sales declined due to a slower-than-anticipated market recovery, as reflected in RVIA shipment data for the quarter, as well as overall macroeconomic conditions. DTC sales declined due to macroeconomic pressures on consumer demand, as well as negative third-party online commentary regarding certain of our products, which we believe has adversely affected customer sentiment. We have initiated legal proceedings to address this commentary. We expect our sales to increase in the next 12 months as our customers expand the number of models they include our battery systems in for the new model year and our entrance into new markets, trucking and industrials, with new product offerings.

Cost of Goods Sold

Cost of goods sold decreased by $2.8 million, or 24.3%, to $8.8 million for the three months ended June 30, 2026, as compared to $11.6 million for the three months ended June 30, 2025. This decrease was primarily due to lower unit volume of batteries and accessories, along with $1.1 million in IEEPA tariff refund recognized as a reduction to cost of sales and $0.5 million decrease in overhead allocated to cost of goods sold. We expect our cost of goods sold to increase over the next 12 months in conjunction with the anticipated increase in revenue.

Gross Profit

Gross profit decreased by $0.3 million, or 5.7%, to $4.3 million for the three months ended June 30, 2026, as compared to $4.6 million for the three months ended June 30, 2025. The decrease in gross profit was primarily due to lower unit volume of battery and accessory sales, with an offset from the tariff refund recognized in cost of sales. Gross profit percentage increased by 4.7% to 33.0% primarily due to $1.1 million in IEEPA tariff refund recognized as a reduction to cost of sales.

Research and Development Expenses

Research and development expenses decreased by $0.1 million, or 6.5%, to $0.6 million for the three months ended June 30, 2026, as compared to $0.7 million for the three months ended June 30, 2025. This decrease was primarily due to a decrease in wage expense of $0.1 million resulting from reduced headcount. We expect research and development expenses to remain relatively stable over the next year.

General and Administrative Expenses

General and administrative expenses stayed the same at $4.6 million for the three months ended June 30, 2026 and June 30, 2025. A decrease in depreciation and professional fees in the amount of $0.2 million was offset by an increase in travel and other operating expenses. Looking forward, we anticipate that general and administrative expenses as a percentage of revenue will decrease over the next 12 months. This expectation is based on targeted cost reduction measures which have been implemented, including further reductions in professional fees, continued optimization of lease agreements, and ongoing evaluation of staffing levels.

Selling and Marketing Expenses

Sales and marketing expenses decreased by $0.6 million, or 23.2%, to $2.0 million for the three months ended June 30, 2026, as compared to $2.6 million for the three months ended June 30, 2025. This decrease was primarily due to lower employee-related costs in the amount of $0.2 million and lower marketing expenses of $0.3 million, both related to cost reduction measures implemented in the second quarter, and lower shipping costs of $0.1 million related to lower sales. We expect our Selling and Marketing Expenses to decrease over the next 12 months due to cost reduction measures implemented in the second quarter of 2026.

Total Other Income (Expense)

Other expense totaled $1.5 million for the three months ended June 30, 2026 as compared to total other expense of $3.8 million for the three months ended June 30, 2025. Other expense of $1.5 million for the three months ended June 30, 2026 was comprised primarily of interest expense related to our debt securities. Other expense of $3.8 million in three months ended June 30, 2025 was comprised primarily of interest expense of $5.5 million related to our debt securities partially offset by a change in fair market value of warrant liability in the amount of $1.7 million.

Income Tax (Benefit) Expense

There was no tax expense recorded for the three months ended June 30, 2026 or June 30, 2025. Management evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that we will not recognize the benefits of the deferred tax assets primarily due to us entering into a 3-year cumulative loss position. As a result, a full valuation allowance totaling $37.7 million was recorded as of the year ended December 31, 2025 and is unchanged as of June 30, 2026.

Net Loss

We generated a net loss of $4.4 million for the three months ended June 30, 2026, as compared to net loss of $7.0 million for the three months ended June 30, 2025. As described above, this result was driven by lower sales and lower cost of goods sold, and significantly offset by lower interest expense related to our debt securities and recognizing the IEEPA tariff refunds as a cost reduction against cost of sales.

Comparisons for the six months ended June 30, 2026 and June 30, 2025

The following table sets forth our results of operations for the six months ended June 30, 2026, and the six months ended June 30, 2025. This data should be read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety by reference to such financial statements and related notes.

		Six months ended June 30,
		2026				% Net Sales				2025				% Net Sales
		(in thousands)
Net Sales		$	22,863				100.0			$	29,604				100.0
Cost of Goods Sold			16,810				73.5				21,071				71.2
Gross profit			6,053				26.5				8,533				28.8
Operating expenses
Research and development			1,628				7.1				1,692				5.7
General and administrative			9,099				39.8				10,976				37.1
Sales and marketing			3,952				17.3				5,060				17.1
Total Operating expenses			14,679				64.2				17,728				59.9
Loss From Operations			(8,626	)			(37.7	)			(9,195	)			(31.1	)
Other Expense
Interest expense, net			(3,001	)			(13.1	)			(10,143	)			(34.3	)
Other income			123				0.5				-				-
Change in fair market value of warrant liability			493				2.2				5,507				18.6
Total Other Expense			(2,385	)			(10.4	)			(4,636	)			(15.7	)
Loss Before Taxes			(11,011	)			(48.2	)			(13,831	)			(46.7	)
Income Tax Benefit			-				-				-				-
Net Loss		$	(11,011	)			(48.2	)		$	(13,831	)			(46.7	)
Less: Preferred Stock Dividends		$	(2,226	)			(9.7	)		$	-				-
Net Loss Attributable to Common Shareholders		$	(13,237	)			(57.9	)		$	(13,831	)			(46.7	)

		Six months ended June 30,
		2026				% Net Sales				2025				% Net Sales
		(in thousands)
DTC		$	8,179				35.8			$	10,963				37.0
OEM			14,184				62.0				18,141				61.3
Licensing Revenue			500				2.2				500				1.7
Net Sales		$	22,863				100.0			$	29,604				100.0

Net Sales

Net sales decreased by $6.7 million, or 22.8%, to $22.9 million for the six months ended June 30, 2026, as compared to $29.6 million for the six months ended June 30, 2025. This decrease was primarily due to lower OEM battery and accessory sales of new models to existing customers. The decrease in DTC sales was due to ongoing macroeconomic pressures, as well as negative third-party online commentary regarding certain of our products, which we believe has adversely affected customer sentiment. We have initiated legal proceedings to address this commentary. We expect our sales to increase in the coming quarters as our customers expand the number of models they include our battery systems in for the new model year and our entrance into new markets, trucking and industrials, with new product offerings.

Cost of Goods Sold

Cost of goods sold decreased by $4.3 million, or 20.2%, to $16.8 million for the six months ended June 30, 2026, as compared to $21.1 million for the six months ended June 30, 2025. This decrease was primarily due to lower volume sales in DTC and OEM markets, as described above, along with the $1.1 million in IEEPA tariff refund recognized as a reduction to cost of sales and $0.5 million decrease in overhead allocated to cost of goods sold. We expect our Cost of goods sold to increase in conjunction with the anticipated increase in revenue over the next 12 months.

Gross Profit

Gross profit decreased by $2.5 million, or 29.1%, to $6.1 million for the six months ended June 30, 2026, as compared to $8.5 million for the six months ended June 30, 2025. The decrease in gross profit was primarily due to lower volume sales in the DTC and OEM markets, slightly offset by the IEEPA tariff refund recognized as a reduction to cost of sales.

Research and Development Expenses

Research and development expenses decreased by $0.1 million, or 3.8%, to $1.6 million for the six months ended June 30, 2026, as compared to $1.7 million for the six months ended June 30, 2025. The decrease was primarily a result of lower wage expense in the amount of $0.4 million due to reduced headcount and less expense on supplies of $0.1 million, partially offset by an increase in depreciation expense of $0.4 million due to a depreciation true up at the beginning of the year. We expect research and development expenses to remain relatively stable over the next year.

General and Administrative Expenses

General and administrative expenses decreased by $1.9 million, or 17.1%, to $9.1 million for the six months ended June 30, 2026, compared to $11.0 million for the six months ended June 30, 2025. This decrease was primarily due to a decrease in legal and professional services of $1.6 million, lower depreciation expense of $0.5 million and lower rent and other facility related costs in the amount of $0.6 million, partially offset by higher employee related costs in the amount of $0.6 million and higher insurance costs in the amount of $0.2 million. Looking forward, we anticipate that general and administrative expenses as a percentage of revenue will decrease over the next 12 months. This expectation is based on targeted cost reduction measures which have been implemented, including further reductions in professional fees, continued optimization of lease agreements, and ongoing evaluation of staffing levels.

Selling and Marketing Expenses

Sales and marketing expenses decreased by $1.1 million, or 21.9%, to $4.0 million for the six months ended June 30, 2026, as compared to $5.1 million for the six months ended June 30, 2025. This decrease was primarily due to lower employee related costs in the amount of $0.4 million and lower marketing costs in the amount of $0.3 million, both related to cost reduction measures implemented in the second quarter, and lower shipping costs of $0.4 million related to lower sales. We expect our Selling and Marketing Expenses to decrease over the next 12 months due to cost reduction measures implemented in the second quarter of 2026.

Total Other Income (Expense)

Other expense totaled $2.4 million for the six months ended June 30, 2026 as compared to other expense of $4.6 million for the six months ended June 30, 2025. Other expense for the six months ended June 30, 2026 is comprised of $3.0 million in interest expense related to our debt securities partially offset by a change in fair market value of our warrants in the amount of $0.5 million and other income of $0.1 million. Other expense for the six months ended June 30, 2025 is comprised of $10.1 million in interest expense related to our debt securities partially offset by a change in fair market value of our warrants in the amount of $5.5 million.

Income Tax (Benefit) Expense

There was no tax expense recorded for the six months ended June 30, 2026 or the six months ended June 30, 2025. Management evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that we will not recognize the benefits of the deferred tax assets primarily due to us entering into a 3-year cumulative loss position. As a result, a full valuation allowance totaling $37.7 million was recorded as of the year ended December 31, 2025 and is unchanged as of June 30, 2026.

Net Loss

We generated a net loss of $11.0 million for the six months ended June 30, 2026, as compared to net loss of $13.8 million for the six months ended June 30, 2025. As described above, this result was driven by lower sales and lower cost of goods sold, and significantly offset by lower interest expense related to our debt securities, recognizing the IEEPA tariff refunds as a cost reduction against cost of sales, and savings from our cost reduction measures implemented in the second quarter.

Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. We base our estimates on historical experience, known trends and events, and other factors we believe to be reasonable under the circumstances. These estimates form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, and actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, are reflected in the consolidated financial statements prospectively from the date of the change in the estimate.

We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that involve a significant degree of estimation uncertainty at the time the estimate is made; and (2) changes in the estimate that are reasonably likely to occur from period to period, or the use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors. In addition to the estimates described below, there are other items within our financial statements that require estimation, but that we do not consider critical under the definition above. Changes in estimates used in these and other items could have a material impact on our financial statements.

We believe that the following accounting estimates are the most critical to the judgments and assumptions used in the preparation of our financial statements because they involve significant estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition and results of operations.

Inventory Valuation

We maintain reserves for excess and obsolete inventory and for inventory that is carried at amounts in excess of its estimated realizable value. These reserves are inherently judgmental and involve significant estimates regarding expected future demand, product life cycles, pricing, and the recoverability of costs through future sales. In estimating these reserves, we consider factors such as recent sales experience, forecasted demand, the aging of inventories and specific identification of items that may be obsolete or slow-moving.

Changes in these assumptions, including adverse changes in customer demand, technological developments, or pricing pressures, could result in materially different reserve levels and related cost of goods sold in future periods. For example, a decrease in expected demand or sales prices, or an increase in the aging of inventory, could require us to increase our reserves, which would negatively affect our gross margin. Conversely, if actual demand is higher than currently estimated, our reserves could prove to be overstated, resulting in lower cost of goods sold in future periods.

Warrants

We issue warrants to purchase our common stock in connection with certain financing and other transactions. We apply the relevant guidance in ASC 480 and ASC 815 in determining whether warrants should be classified as liabilities or equity. Warrants that are classified as liabilities are initially recorded at fair value and remeasured at fair value at each reporting date, with changes in fair value recognized in earnings.

The fair value of liability-classified warrants involves significant judgment, as it is based on valuation models that incorporate various inputs, including our common stock price, expected stock price volatility, expected term, risk-free interest rates and, as applicable, other market-based or contractual features. These inputs are subject to estimation uncertainty and can change over time in response to our operating performance, changes in our capital structure, market conditions or other factors.

Because changes in these inputs directly affect the fair value of the warrants, they can result in material volatility in our reported earnings from period to period. For example, an increase in the price or volatility of our common stock generally increases the fair value of liability-classified warrants and may result in a loss recognized in our statement of operations, whereas decreases in stock price or volatility may result in a gain.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities and for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

We recognize the financial statement effect of an uncertain tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Recognized tax positions are measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We also establish a valuation allowance to reduce deferred tax assets to an amount that is more likely than not to be realized.

The assessment of the realizability of deferred tax assets and the recognition and measurement of uncertain tax positions involve significant judgment and estimation, including projections of future taxable income, the timing and character of that income, the reversal of existing temporary differences, the outcome of tax examinations and the interpretation of tax laws and regulations in multiple jurisdictions. Our projections of future taxable income are inherently uncertain and subject to change due to changes in our business, our industry, and the overall economic environment.

If actual results differ from our estimates, or if we adjust our estimates in future periods, we may need to increase or decrease our valuation allowance or adjust our uncertain tax positions, which could have a material impact on our effective tax rate, income tax expense and results of operations. For example, evidence of sustained profitability in one or more jurisdictions could result in a reduction of the valuation allowance and a related decrease in income tax expense, whereas evidence of sustained losses or unfavorable changes in tax law could result in an increase in the valuation allowance and higher income tax expense.

Leases

We recognize right-of-use assets and lease liabilities for our operating leases based on the present value of lease payments over the expected lease term. Because our leases generally do not provide an implicit rate, we estimate an incremental borrowing rate to determine the present value of lease payments. Our incremental borrowing rate is derived from market data, including current borrowing rates available to us for similar terms and collateral, as well as broader market interest rate information. We also make judgments regarding the lease term, including renewal and termination options, when it is reasonably certain that such options will be exercised.

These estimates are subjective and can significantly affect the measurement of our right-of-use assets, lease liabilities and related lease cost recognized in the statement of operations. Changes in our assessment of the incremental borrowing rate, or our expectations about exercising renewal or termination options, could result in material changes to the recorded lease liabilities and right-of-use assets and affect the pattern of lease expense recognition over time.

License Arrangement

We have entered into license arrangements under which we receive upfront compensation. We recognize this compensation as revenue over a five-year period, which we believe reflects the pattern in which control of the licensed rights and related services is transferred and the period over which we expect to realize the economic benefits of the arrangement.

The determination of the appropriate recognition pattern involves significant judgment, including our assessment of the nature and timing of performance obligations, the expected duration and level of customer engagement, and the likelihood of renewal or modification of the arrangement. These factors are inherently uncertain and may change over time as we gain more experience with the arrangements or as customer behavior evolves.

If our expectations regarding the timing or amount of the benefits to be provided under these arrangements change, or if we modify or renew the arrangements on terms different from those originally anticipated, we may be required to adjust the recognition pattern, which could result in a material increase or decrease in revenue in one or more reporting periods.

Non-GAAP Financial Measures

This Quarterly Report includes a non-generally accepted accounting principles within the United States ("U.S. GAAP") measure that we use to supplement our results presented in accordance with U.S. GAAP. Earnings before interest tax and amortization ("EBITDA") is defined as earnings before interest and other income (expenses), income taxes, and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA adjusted for stock-based compensation, change in fair market value of warrant liabilities, non-recurring costs associated with strategic financing, reverse stock split, litigation and loss on settlement. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability between periods.

Adjusted EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other companies. This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP.

The table below presents our adjusted EBITDA, reconciled to net loss for the three and six months ended June 30, 2026, and June 30, 2025.

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
		(in thousands)								(in thousands)
Net Loss Attributable to Common Shareholders		$	(5,517	)		$	(7,034	)		$	(13,237	)		$	(13,831	)
Interest Expense			1,536				5,442				3,001				10,143
Depreciation and Amortization			453				491				1,247				1,350
EBITDA			(3,528	)			(1,101	)			(8,989)				(2,338)
Adjusted for:
Stock-Based Compensation (1)			461				190				561				411
Change in fair market value of warrant liability (2)			13				(1,689	)			(493)				(5,507)
Series B Preferred Stock Dividend			1,131				-				2,226				-
Non-Recurring/One-Time Expenses:
Litigation Expenses (3)			132				30				171				573
At-the-Market (ATM) set up Expenses(4)			131				-				270				-
Loss on Impairment of Asset(5)			-				-				6				-
Joint Venture Exploration(6)			45				-				45				-
Expenses related to Debt Restructure(7)			34				-				70				-
Prior year tariff estimate adjustment			-				287				-				287
Preferred Stock Financing Expenses			-				42				-				673
Reverse Stock Split			-				-				-				15
Adjusted EBITDA		$	(1,581	)		$	(2,241	)		$	(6,133	)		$	(5,886	)

(1)	Stock-Based Compensation is comprised of costs associated with option and RSU grants made to our employees, consultants and board members.
(2)	Change in fair market value of warrant liabilities represents the change in fair value for the three and six months ended June 30, 2026 and June 30, 2025.
(3)	In 2026, Litigation Fees includes fees and expenses related to the Berdner et al case and the Prowse case. In 2025, Litigation Fees includes legal fees and expenses and settlement related to the International Trade Commission 'ITC' Lithium Hub patent infringement case and other.
(4)	At-the-Market (ATM) set up expenses are for the equity distribution agreement with Canaccord Genuity, LLC.
(5)	Loss on Impairment of Asset is costs related to the prior year impairment of our previous main office.
(6)	Joint Venture Exploration expenses includes advisory fees, feasibility study expenses and travel.
(7)	Debt Restructure expenses including legal and professional service.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. As of June 30, 2026, we had cash totaling $6.3 million. We believe that our cash balance as of June 30, 2026, combined with our access to the ATM, will fund our operations into the second quarter of 2027.

On January 30, 2026, we entered into the Equity Distribution Agreement with Canaccord under which we may offer and sell, from time to time, shares of our common stock through an ATM for up to $50.0 million in gross proceeds, as described in the "Overview" section above. During the three months ended June 30, 2026, we sold 411,100 shares of common stock pursuant to the ATM for net proceeds of approximately $0.8 million, after deducting sales agent commissions. Subsequent to June 30, 2026, we have sold 124,975 shares of common stock for aggregate net proceeds of $148,317.

The $1.0 million cash payment associated with the acquisition of Dakota Lithium assets was facilitated by the reduction of our minimum cash covenant from $5.0 million to $4.0 million as part of the Term Loan Lenders's consent provided for in the Seventh Amendment.

We expect that we will need to raise additional funds, including through the use of the ATM and the issuance of equity, equity-related or debt securities or by obtaining additional credit from financial institutions to fund, together with our principal sources of liquidity, ongoing costs, such as research and development relating to our solid-state batteries, expansion of our facilities, and new strategic investments. If such financings are not available, or if the terms of such financings are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities, eliminating redundancies, or reducing or delaying our production facility expansions, reduce operations, sell off our assets, seek the protection of bankruptcy courts or shut down our operations and dissolve. Further, any future debt or equity financings may be dilutive to our current stockholders.

Financing Obligations and Requirements

On November 24, 2021, we issued $45.0 million of fixed rate senior notes, secured by among other things, a security interest in our intellectual property. As part of the Business Combination, we entered into a senior secured term loan facility in an aggregate principal amount of $75 million (the "Term Loan") pursuant to the Term Loan, Guarantee and Security Agreement (the "Original Term Loan Agreement" and, as amended, the "Term Loan Agreement") by and among, us, Legacy Dragonfly, Alter Domus (US) LLC, as the Agent to the lenders from time to time party thereto (such lenders, the "Term Loan Lenders"), the proceeds of which were used to repay the $45.0 million fixed rate senior notes, and ChEF Equity Facility.

As described in the "Overview" section above, under the Sixth Amendment, we (i) prepaid $45.0 million of principal using proceeds from the Second October 2025 Offering, (ii) exchanged $25.0 million of principal for redeemable Series B Preferred Stock (convertible at $31.50 per share, with 8% cash and 2% "in kind" dividends), which is redeemable in October 2027 unless otherwise converted by the holder, and (iii) had $5.0 million of principal forgiven by the Term Loan Lenders. Following these transactions, approximately $19.4 million of principal remained outstanding under the Term Loan, bearing 12% interest payable monthly and maturing in October 2027. We paid $0.9 million in fees (half in cash, half added to principal) and obtained covenant waivers through December 2026, subject to maintaining $5.0 million of minimum liquidity.

The Sixth Amendment significantly improved our liquidity by reducing total debt from $93.1 million to approximately $19.4 million and deferring near-term cash interest requirements through the preferred stock exchange and covenant waivers.

Additionally, under the Seventh Amendment, among other things, (i) the Term Loan Lenders consented to the asset acquisition described above, (ii) the interest rate was modified to 14.0% per annum (from 12.0%), with all interest payable-in-kind through December 31, 2026, (iii) the commencement date for testing the maximum senior leverage ratio and fixed charge coverage ratio covenants was extended from March 31, 2027 to September 30, 2027, and (iv) the minimum liquidity covenant was modified to require minimum liquidity of $4.0 million from August 31, 2026 through January 31, 2027, and $5.0 million thereafter.

The Term Loan proceeds were used to: (i) support the Business Combination, (ii) prepay the fixed rate senior notes at closing of the Business Combination, (iii) pay fees and expenses in connection with the foregoing, (iv) to provide additional growth capital and (v) for other general/corporate purposes. The Term Loan will mature on October 7, 2027, or the Maturity Date, and will be subject to quarterly amortization of 5% per annum beginning 24 months after issuance. The definitive documents for the Term Loan incorporate certain mandatory prepayment events and certain affirmative and negative covenants and exceptions hereto. The financial covenants for the Term Loan include a maximum senior leverage ratio covenant, a minimum liquidity covenant, a springing fixed charge coverage ratio covenant, and a maximum capital expenditures covenant. In accordance with U.S. GAAP, we reclassified our notes payable from a long-term liability to a current liability. The Term Loan accrues interest as follows: (i) until April 1, 2024, at a per annum rate equal to adjusted secured overnight financing rate ("SOFR") plus 7% payable in cash plus an amount ranging from 4.5% to 6.5%, depending on our senior leverage ratio; (ii) effective April 1, 2024 and thereafter, interest payable to certain lenders subject to regulations of the U.S. Small Business Administration ("SBA") with outstanding principal on that date of $30,846 will be limited to 14.0% per annum (except for default interest permitted under SBA regulations, as applicable); and (iii) the other outstanding principal will accrue interest from April 1, 2024 thereafter until October 1, 2024, at a per annum rate equal to adjusted SOFR plus 7% payable in cash plus an amount ranging from 4.5% to 6.5%, depending on the senior leverage ratio of the consolidated company, and at all times thereafter, at a per annum rate equal to adjusted SOFR plus a margin ranging from 11.5% to 13.5%, depending on our senior leverage ratio.

The Term Loan is secured by substantially all assets of the Company, Battle Born LLC and Legacy Dragonfly, and we pledged our equity interests in Battle Born LLC and Legacy Dragonfly as additional collateral. In connection with the Business Combination, the Term Loan Lenders also received penny warrants and $10 warrants. The $10 warrants were exercised in full on October 10, 2022. During the quarter ended March 31, 2026, 70,267 penny warrants were exercised on a cashless basis, with the Company agreeing to issue 69,985 shares of common stock in connection with such exercise. During the quarter ended June 30, 2026, the remaining outstanding penny warrants were exercised in full on a cashless basis, resulting in the issuance of 103,390 shares of common stock.

In 2024, we identified an underpayment of tariffs to U.S. Customs and Border Protection ("CBP") in the amount of approximately $1.66 million in the aggregate, related to the improper classification and valuation of certain of the products used in our batteries. We have reported the underpayment to CBP. In June 2025, after a comprehensive review of this tariff calculation, an additional $0.29 million was discovered and also reported to CBP and a payment plan of $0.05 million per week was put into place. As of March 31, 2026, the entire balance of the reported tariff underpayment has been paid in full; however, we have recorded an estimated liability of approximately $0.3 million on our balance sheet related to interest that may have accrued on the underpayment. The amount and timing of any such interest obligation have not yet been confirmed by CBP, and the actual amount payable, if any, may differ from the current estimate.

Going Concern

For the quarter ended June 30, 2026, we incurred losses and had a negative cash flow from operations. As of June 30, 2026, we had approximately $6.3 million in cash and cash equivalents and a working capital of $19.9 million. Our ability to achieve profitability and positive cash flow depends on our ability to increase revenue, contain our expenses and maintain compliance with the financial covenants in our outstanding indebtedness agreements.

On February 26, 2025, 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 us to maintain cash and cash equivalents equal to or greater than $2,500) through June 30, 2026.

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, however, these warrants were cancelled on June 23, 2025.

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

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

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

Subsequent to June 30, 2026, we entered into the Seventh Amendment to the Term Loan in connection with the Asset Purchase Agreement, as described above in the Overview section. The Seventh Amendment provides additional near-term liquidity flexibility by establishing a payment-in-kind period through December 31, 2026, during which interest accrues at 14% per annum and may be satisfied entirely in kind rather than in cash. The Seventh Amendment also reduces the minimum liquidity requirement to $4 million at each month-end from August 31, 2026 through January 31, 2027, after which the minimum liquidity requirement increases to $5 million, and defers the commencement of the maximum senior leverage ratio and fixed charge coverage ratio covenants to the quarter ending September 30, 2027 (from March 31, 2027). Commencing with the fiscal quarter ending September 30, 2027, the maximum senior leverage ratio is 3.00:1.00, and a minimum fixed charge coverage ratio of 1.15:1.00 is required for the trailing four fiscal quarters if liquidity is below $15 million at quarter-end. Additionally, the Company expects to see material revenue generated in the fourth quarter of 2026 from the Asset Acquisition. The Company also expects incremental operating cost increases in order to restore Dakota Lithium's commercial operations ahead of its expected revenue contribution.

As presented above, strategic initiatives were executed in 2025 and early 2026 in order to alleviate the substantial doubt regarding our ability to continue as a going concern. These initiatives include multiple capital raises totaling a net cash increase of $90.9 million and Term Loan restructuring to reduce principal and interest owed, including a significant principal paydown, partial debt cancellation, and partial principal conversion into preferred shares, along with the at-the-market equity offering program entered into January 2026. Management has evaluated the conditions and events described above in relation to our obligations coming due within one year after the date these condensed consolidated financial statements are issued. In performing this evaluation, management considered the Company's projected operating performance and cash flows, available cash and liquidity, planned cost reductions, expected revenue-generating activities, access to the at-the-market equity offering program, and the additional liquidity flexibility provided by the Seventh Amendment, including the ability to pay interest in kind through December 31, 2026 and the modification and deferral of certain financial covenant requirements. Based on this evaluation, management expects the Company to achieve profitability and generate positive cash flows from operations within the next twelve months and has concluded that the Company is expected to have sufficient liquidity to meet its obligations as they become due over the next twelve months. Accordingly, 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.

In addition, we may need to raise additional debt and/or equity financing to fund our operations, strategic plans, meet our financial covenants under the Term Loan and our redemption obligations under the Series B Preferred Stock and repay our outstanding indebtedness under the Term Loan. We have historically been able to raise additional capital through issuance of equity and/or debt financing and we intend to raise additional capital as needed. However, we cannot guarantee that we will be able to raise additional equity, contain expenses, or increase revenue, and comply with the financial covenants under the Term Loan.

Cash Flows for the Six months ended June 30, 2026, and June 30, 2025

		Six months ended June 30,
		2026				2025
		(in thousands)
Net Cash (used in)/provided by:
Operating Activities		$	(10,641	)		$	(7,865	)
Investing activities		$	(771	)		$	(1,621	)
Financing activities		$	(578	)		$	7,370

Operating Activities

Net cash used in operating activities was $10.6 million for the six months ended June 30, 2026, primarily due to a net loss of $11.0 million with a slight offset of $0.4 million primarily due to the following changes: $4.6 million decrease in accounts payable, $3.9 million increase in inventories, $0.7 million increase in accounts receivable, and $0.3 million increase in prepaid expenses.

Net cash used in operating activities was $7.9 million for the six months ended June 30, 2025, primarily due to a net loss of $13.8 million partially offset by $7.3 million of payment in-kind interest accrued on the Term Loan.

Investing Activities

Net cash used in investing activities was $0.8 million for the six months ended June 30, 2026, as compared to net cash used in investing activities of $1.6 million for the six months ended June 30, 2025. The cash used for the six months ended June 30, 2026 was primarily for payments for the new Battleborn website, along with improvements to the battery production area and renovations to the research and development location. The cash used for the six months ended June 30, 2025 was primarily from capital expenses to support our core battery business.

Financing Activities

Net cash used by financing activities was $0.6 million for the six months ended June 30, 2026, primarily related to Series B preferred stock dividend payments and repayment of debt, partially offset by proceeds from the ATM, as compared to net cash provided by financing activities of $7.4 million for the six months ended June 30, 2025, primarily related to net proceeds of $7.3 million from the Offerings on February 26, 2025.

Contractual Obligations

Our estimated future obligations consist of short-term and long-term operating and financing lease liabilities. As of June 30, 2026, we had $2.4 million in short-term operating and financing lease liabilities and $19.4 million in long-term operating and financing lease liabilities.

As disclosed above, we have a Term Loan and as of June 30, 2026, the principal amount outstanding under the Term Loan was $18.9 million.

Additionally, we are required to pay to the holders of the Series B Preferred Stock dividends, which will accrue at 10% per annum, commencing from the Initial Issuance Date, payable (i) 80% in cash and (ii) 20% "in kind" and added the Liquidation Preference of such holder's Series B Preferred Stock. Such dividends are payable quarterly in arrears on the first trading day of each fiscal quarter commencing on the first trading day of the initial fiscal quarter after the date of issuance. Upon the occurrence of certain events, the dividend rate may automatically increase, as described in the Certificate of Designation. Additionally, in connection with any future equity offerings, we are required to use 50% of the net proceeds from such offering to redeem outstanding shares of the Series B Preferred Stock at the Optional Redemption Price. In the event we have not redeemed the outstanding shares of Series B Preferred Stock by October 7, 2027 or upon the occurrence of a Non-Payment Event (as defined in the Certificate of Designation), the holders will have the right to require us to redeem the Series B Preferred Stock at the Optional Redemption Price.

We and Chardan Capital Markets LLC, a New York limited liability company ("CCM LLC") entered into a purchase agreement (as amended, the "ChEF Purchase Agreement") and a Registration Rights Agreement in connection with our merger in October 2022 (the "Business Combination"). Pursuant to the Original Purchase Agreement, we had 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 ChEF Purchase Agreement (the "ChEF Equity Facility"), subject to certain restrictions set forth in the Term Loan Agreement (as defined below). The ChEF Purchase Agreement terminated in December 2025. As part of the expiration, the remainder of the Commitment Fee, pursuant to the purchase agreement, of $891 is due and payable to Chardan Capital Markets. This amount was expensed in fiscal year ending December 31, 2025 and remains accrued in current liabilities, specifically 'Accrued payroll and other liabilities', on the balance sheet as of June 30, 2026.