Note 9 - LONG TERM DEBT

Term Loan Agreement

As of September 30, 2026 and December 31, 2025, the Company had an outstanding term loan (the “Term Loan”) under a Term Loan, Guarantee and Security Agreement (the “Term Loan Agreement”), dated October 7, 2022, with Alter Domus (US) LLC, as agent, and certain lenders (the “Term Loan Lenders”). As amended, the Term Loan matures on October 7, 2027 and requires monthly installments based on 0.4167% of the principal amount of the Term Loan outstanding beginning December 1, 2025. The obligations under the Term Loan Agreement are secured by a first priority lien on substantially all of the Company’s assets, including certain mortgaged properties.

Prior to any amendments, the Term Loan accrued interest based on the Company’s senior leverage ratio. From inception through September 30, 2024, interest accrued at a per annum rate equal to adjusted secured overnight financing rate (“SOFR”) (subject to a floor of 1.0%) plus 7.0% payable in cash, plus an additional 4.5% to 6.5% payable in kind, depending on the Company’s senior leverage ratio. Effective April 1, 2024, interest payable to lenders subject to the regulations of the U.S. Small Business Administration (the “SBA”) (with $30,846 of principal outstanding as of that date) was limited to 14.0% per annum, excluding default interest permitted under applicable SBA regulations. From October 1, 2024 through March 31, 2025, interest on the non-SBA regulated portion continued to accrue at adjusted SOFR plus 7.0% payable in cash, and 4.5% to 6.5% payable in kind. Beginning April 1, 2025, interest on all outstanding balances was payable entirely in cash, at a rate equal to adjusted SOFR plus a margin ranging from 11.5% to 13.5%, depending on the Company’s senior leverage ratio. In February 2025, the Company entered into the Fifth Amendment to the Term Loan (the “Fifth Amendment”), which extended the loan’s maturity date by one year to October 2027 and deferred all principal and interest payments until April 2026. Effective October 20, 2025, the Company entered into the Sixth Amendment to the Term Loan (the “Sixth Amendment”), which adjusted the interest rate on the remaining outstanding principal amount under the Term Loan Agreement to a fixed rate of 12% per annum, payable monthly commencing December 31, 2025, with maturity in October 2027. The interest rate was subsequently modified by the Seventh Amendment, as described below.

DRAGONFLY ENERGY HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

Note 9 - LONG TERM DEBT (CONTINUED)

Term Loan Agreement (continued)

During the three months ended September 30, 2026 and 2025, the Company recognized interest expense of $640 and $3,927, respectively. During the nine months ended September 30, 2026 and 2025, the Company recognized interest expense of $1,790 and $11,233, respectively. Amortization of the debt issuance costs amounted to $1,153 and $2,456, respectively, for the three months ended September 30, 2026 and 2025. Amortization of the debt issuance costs amounted to $3,106 and $5,240, respectively, for the nine months ended September 30, 2026 and 2025. As of September 30, 2026, the carrying value of the Term Loan was $12,483, consisting of $19,526 in principal net of $7,043 in unamortized debt discount. As of December 31, 2025, the carrying value of the Term Loan was $9,645, consisting of $19,344 in principal net of $9,699 in unamortized debt discount.

Subsequent to the original execution of the Term Loan Agreement, the Company entered into eight amendments which modified terms of the facility, including, but not limited to, interest rate mechanics, the timing of principal payments, and certain financial and operational covenants.

Seventh Amendment

On July 31, 2026, the Company entered into the Seventh Amendment (the “Seventh Amendment”) to the Term Loan in connection with the Asset Purchase Agreement, pursuant to which Legacy Dragonfly acquired substantially all of the operating assets associated with the Dakota Lithium® brand. The aggregate purchase price was $4,000, consisting of $3,000 of the Company’s common stock and $1,000 in cash. For accounting purposes, the shares are measured at fair value on the Acquisition Date based on the $9.36 closing price of the Company’s common stock on that date, resulting in a value of $1,755 in common stock and total consideration of $2,755. Refer to Note 6 for more information. 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 (from 12%) and is payable entirely in kind rather than in cash. The Seventh Amendment also reduces the minimum liquidity requirement to $4,000 at each month-end from August 31, 2026 through January 31, 2027, after which the minimum liquidity requirement increases to $5,000, 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 $15,000 at quarter-end. Interest has been paid in kind beginning August 2026. During the three and nine months ended September 30, 2026, $445 of PIK interest was added to the principal balance of the Term Loan under the Seventh Amendment.

Limited Waiver and Eighth Amendment

On September 30, 2026, the Company, Legacy Dragonfly, and Battle Born LLC entered into the Limited Waiver and Eighth Amendment (the “Eighth Amendment”) to the Term Loan Agreement. Pursuant to the Eighth Amendment, (i) the Term Loan Lenders waived testing of the minimum liquidity covenant solely for the fiscal month ended September 30, 2026, (ii) the Term Loan Lenders waived any default under the Term Loan Agreement arising from the deferral of a portion of the cash dividend payable on October 1, 2026 on the Series B Preferred Stock (as defined in Note 12), provided that such cash dividend is paid in accordance with the modified payment schedule set forth in the Series B Waiver (as defined below), and (iii) the Company agreed to pay the Term Loan Lenders an amendment fee of $450, which was paid in kind by adding it to the outstanding principal balance of the Term Loan on September 30, 2026. Also on September 30, 2026, the Company and the holders of all of the outstanding shares of Series B Preferred Stock entered into a limited waiver (the “Series B Waiver”) with respect to the dividend for the quarter ended September 30, 2026. Refer to Note 12 for more information.

All eight amendments were in effect as of September 30, 2026.

DRAGONFLY ENERGY HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

Note 9 - LONG TERM DEBT (CONTINUED)

Term Loan Agreement (continued)

Accounting for the Seventh Amendment and Eighth Amendment

The Company evaluated the Seventh Amendment and Eighth Amendment under ASC 470-60, Troubled Debt Restructurings by Debtors. It concluded that the Company was experiencing financial difficulty on each amendment date, and that the lenders had granted a concession because the Company’s effective borrowing rate decreased. The Sixth Amendment was entered into on October 20, 2025, less than one year before each of these amendments. The Company therefore compared the effective borrowing rate of the restructured debt with the effective borrowing rate immediately before the Sixth Amendment, applied to the principal that remains outstanding after the October and November 2025 principal reductions. Accordingly, the Seventh Amendment and the Eighth Amendment were each accounted for as a troubled debt restructuring involving only a modification of terms. Total future cash payments under the restructured terms exceed the carrying amount of the Term Loan. As a result, the Company recognized no gain on the restructuring, the carrying amount of the Term Loan was not adjusted, and the effect of the revised terms is recognized prospectively through a new effective interest rate from each amendment date, and the $450 amendment fee is included in the restructured cash flows and will be recognized as interest expense over the remaining term. The effective interest rate on the Term Loan was 60.06% for the period from July 1 to July 31, 2026. Following the Seventh Amendment, the effective interest rate increased to 60.66% for the period from August 1 to September 30, 2026. Subsequently, following the Eighth Amendment, the effective interest rate further increased to 63.07%, effective October 1, 2026.

Legal and other direct costs of $56 incurred in connection with the amendments were expensed during the three and nine months ended September 30, 2026. No assets were transferred, and no equity interests were granted, in settlement of the Term Loan in connection with either amendment. The restructured terms do not include any contingently payable amounts.

As of September 30, 2026, the entire balance of the Term Loan was reclassified to a current liability.

Financial Covenants

The Company is currently subject to two restrictive financial covenants, one which pertains to liquidity, requiring the Company to maintain cash and cash equivalents equal to or greater than $4,000 at each month-end from August 31, 2026 through January 31, 2027 and $5,000 thereafter, and a maximum capital expenditure threshold of $5,000 per year. The financial covenants pertaining to maximum senior leverage ratio and fixed charge coverage ratio are both delayed until the quarter ending September 30, 2027. As mentioned above, as of September 30, 2026, the Company did not meet the minimum liquidity covenant and received a waiver from the Term Loan lenders.

At September 30, 2026, the future debt maturities are as follows:

 SCHEDULE OF FUTURE DEBT MATURITIES

DRAGONFLY ENERGY HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)