Note 12 - REDEEMABLE PREFERRED STOCK

Terms

The Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) was issued in connection with the Sixth Amendment to the Term Loan, entered into on October 20, 2025. Under the related Exchange Agreement, dated November 4, 2025, $25.0 million of outstanding Term Loan principal was exchanged for 25,000 shares of Series B Preferred Stock with an aggregate liquidation preference of $25.0 million. The rights, preferences and restrictions of the Series B Preferred Stock are set forth in the 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”). All outstanding shares are held by the Term Loan Lenders (see Note 9).

The Series B Preferred Stock is non-voting and carries a base liquidation preference of $1,000 per share, plus any accrued and unpaid PIK dividends and any capitalized cash dividends (collectively, the “Applicable Preference Amount”). The Applicable Preference Amount, together with any accrued and unpaid interest thereon, constitutes the Liquidation Preference (“Liquidation Preference”). The Series B Preferred Stock ranks senior to the Company’s common stock in a liquidation.

Dividends accrue daily at 10% per annum on the Liquidation Preference, on the basis of a 360-day year and the actual number of days elapsed. They are payable quarterly in arrears on the first Trading Day (as defined in the Series B Certificate of Designation) of each fiscal quarter. 80% of each quarterly dividend is payable in cash, and 20% is paid in kind by adding it to the Liquidation Preference. A Non-Payment Event (as defined in the Series B Certificate of Designation) occurs if any accrued cash dividend remains unpaid after the second business day following the applicable dividend date. In that case:

● the unpaid amount is added to the Liquidation Preference; and

● the holders may require the Company to redeem the Series B Preferred Stock.

Each share of Series B Preferred Stock is convertible, at the holder’s option beginning six months after the original issuance date, into shares of the Company’s common stock at a fixed conversion price of $252.00 per share, as adjusted for the reverse stock splits (see Note 1). Each conversion must have a minimum aggregate value of $500,000 per conversion, and conversions are subject to customary beneficial ownership and exchange caps.

The Series B Preferred Stock is redeemable in the following circumstances, generally at a price per share equal to the greater of (i) the Liquidation Preference, including accrued but unpaid dividends, and (ii) the as-converted value determined by reference to recent volume-weighted average trading prices of the Company’s common stock:

● at the Company’s option;

● at the holders’ option two years after the original issuance date, or earlier upon a Non-Payment Event;

● at the holders’ option upon a Change of Control (as defined in the Series B Certificate of Designation);

● mandatorily, from 50% of the net proceeds of certain equity issuances by the Company.

 DRAGONFLY ENERGY HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

Note 12 - REDEEMABLE PREFERRED STOCK (CONTINUED)

Accounting

The Company evaluated the Series B Preferred Stock under ASC 480, Distinguishing Liabilities from Equity. It concluded that the Series B Preferred Stock is not a liability, because it is not mandatorily redeemable and does not otherwise meet the definition of a liability.

For purposes of ASC 815, Derivatives and Hedging, the host contract was determined to be more akin to debt. The conversion feature is not clearly and closely related to the host, but it qualifies for the equity scope exception because the conversion price is fixed, and the feature is indexed to the Company’s own stock.

Certain redemption rights are not solely within the Company’s control. The Series B Preferred Stock is therefore presented in temporary equity and was initially measured at fair value on the issuance date. It is not currently redeemable, but it is probable that it will become redeemable because the holders’ redemption right becomes exercisable with the passage of time. The Company accretes the carrying amount to the redemption value, using the interest method, through the earliest date on which the holders may require redemption, or October 7, 2027.

Accretion and dividends, both cash and paid in kind, are recognized as deemed and preferred dividends. They are recorded against additional paid-in capital, because the Company has an accumulated deficit, and they reduce income available to common stockholders. For the three and nine months ended September 30, 2026, the Company recognized accretion of $520 and $1,482 and preferred dividends of $648 and $1,912, respectively, related to the Series B Preferred Stock.

At September 30, 2026:

● the Liquidation Preference was $25,332, excluding the paid-in-kind dividend of $130 for the quarter ended September 30, 2026, which was added to the Liquidation Preference on October 1, 2026;

● accrued cash dividends of $518 for the quarter were included in dividends payable;

● the carrying amount of the Series B Preferred Stock was $24,122, and its redemption value was $25,980 (the latter includes the $518 third quarter accrued cash dividends).

Series B Preferred Stockholder Limited Waiver

On September 30, 2026, in connection with the Eighth Amendment (see Note 9), the Company and the holders of all of the outstanding shares of Series B Preferred Stock entered into the Series B Waiver, pursuant to which the holders waived, solely with respect to the dividend for the quarter ended September 30, 2026, their right to receive payment of the full cash dividend on or prior to October 1, 2026, on the following conditions:

(a) the Company pays cash dividends equal to 2% per annum on or before October 1, 2026; and

(b) the Company pays the remaining cash dividends equal to 6% per annum on or before October 30, 2026.

Paid-in-kind dividends continue to accrue at 2% per annum. If the Company makes both payments, the deferral does not constitute a Non-Payment Event or Preferred Default (as defined in the Series B Certificate of Designation). All other terms of the Series B Preferred Stock, including the dividend rate, accrual provisions, and rights and preferences of the holders, remain in effect.

The Company was charged a $450 amendment fee for the waiver, which was paid in kind and added to the Term Loan balance due. The Company concluded that the waiver did not modify the Series B Preferred Stock in a manner that transferred value to the holders, so no deemed dividend was recognized. The waiver also did not change the classification or measurement of the Series B Preferred Stock.

On October 1, 2026, the Company paid cash dividends of $129. On October 30, 2026, the Company paid the remaining cash dividends of $389.

DRAGONFLY ENERGY HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)