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 UNITED
STATES

 SECURITIES
AND EXCHANGE COMMISSION

 Washington,
D.C. 20549

 FORM

 (Mark
One)

 ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For
the fiscal year ended December 31, 2023

 OR

 TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For
the transition period from _______ to _______

 Commission
file number 001-40730

 (Exact
name of registrant as specified in its charter)

 Nevada

 85-1873463

 (State
 or other jurisdiction of

 incorporation
 or organization)

 (I.R.S.
 Employer

 Identification
 No.)

 1190
Trademark Drive, #108
 Reno, Nevada

 89521

 (Address
 of Principal Executive Offices)

 (Zip
 Code)

 (775) 622-3448

 Registrant's
telephone number, including area code

 Securities
registered pursuant to Section 12(b) of the Act:

 Title
 of each class

 Trading
 Symbol(s)

 Name
 of each exchange on which registered

 stock, par value $0.0001 per share

 DFLI

 The
 Nasdaq Global Market

 Redeemable
 Warrants, exercisable for common stock at an exercise price of $11.50 per share, subject to adjustment

 DFLIW

 The
 Nasdaq Capital Market

 Securities
registered pursuant to Section 12(g) of the Act: None.

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days. Yes No

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 Yes No

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act. (Check one):

 Large
 accelerated filer

 Accelerated
 filer

 Non-accelerated
 filer

 Smaller
 reporting company

 Emerging
 growth company

 If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.

 If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued statements.

by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to Section 240.10D-1(b).

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

 The
aggregate market value of voting stock held by non-affiliates of the Registrant on June 30, 2023, based on the closing price of $1.48
for shares of the registrant's common stock as reported by the Nasdaq Global Market, was approximately $ 45.2 million.

 As
of April 12, 2024, there were 60,260,282 shares of the registrant's common stock, par value $0.0001 per share, issued
and outstanding.

 Documents
incorporated by reference:

 Portions
of the registrant's Proxy Statement relating to the 2024 Annual Meeting of Stockholders, scheduled to be filed with the Securities
and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2023, are incorporated
by reference into Part III of this Annual Report on Form 10-K.

 TABLE
OF CONTENTS

 Page

 Item 1. Business

 Item 1A. Risk Factors

 Item 1B. Unresolved Staff Comments

 Item 1C. Cybersecurity

 Item 2. Properties

 Item 3. Legal Proceedings

 Item 4. Mine Safety Disclosures

 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 6. [Reserved]

 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 Item 8. Financial Statements and Supplementary Data

 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item 9A. Controls and Procedures

 Item 9B. Other Information

 Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections

 Item 10. Directors, Executive Officers and Corporate Governance

 Item 11. Executive Compensation

 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13. Certain Relationships and Related Transactions, and Director Independence

 Item 14. Principal Accountant Fees and Services

 Item 15. Exhibit and Financial Statement Schedules

 Item 16. Form 10-K Summary

 6 2

 SIGNATURES

 i

 Cautionary
Note Regarding Forward-Looking Statements

 This
Annual Report on Form 10-K 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 successfully increase market penetration into target markets;

 the
 addressable markets that we intend to target do not grow as expected;

 the potential for events or circumstances that result in
 our failure to timely achieve the anticipated benefits of our customer arrangements with THOR Industries and its affiliate brands
 (including Keystone RV Company (" Keystone ")), including Keystone's decision in July 2023, that, due to
 weaker demand for its products and its subsequent focus on reducing costs, it would no longer install our storage solutions as
 standard equipment, but rather return to offering those solutions as an option to dealers and consumers;

 our ability to generate revenue from future product sales 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;

 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;

 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;

 our
 ability to maintain the listing of our common stock on the Nasdaq Global Market and Public Warrants (as defined herein) on the Nasdaq
 Capital Market;

 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 equity facility;

 our
 ability to raise additional capital to fund our operations;

 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;

 our
 ability to engage target customers and successfully retain these customers for future orders;

 the
 reliance on two suppliers for our lithium iron phosphate cells and a single supplier for the manufacture of our battery management
 system;

 the
 potential impact of geopolitical events, including the Russia-Ukraine conflict and Hamas' attack on Israel, and their effects
 on our operations; and

 our
 current dependence on a single manufacturing facility.

 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 " 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 report or the date of the document incorporated by
reference into this report. We have no obligation, and expressly disclaims 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.

 ii

 Part
I

 Item
1. Business

 All
references in this report to "Dragonfly," the "Company," "we," "us," or "our"
mean Dragonfly Energy Holdings Corp. and its subsidiaries unless stated otherwise or the context otherwise indicates.

 Overview

 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 industrial and energy storage markets,
with proprietary, patented and disruptive battery cell manufacturing and non-flammable solid-state cell technology currently under development.
Our goal is to develop technology to deliver environmentally impactful solutions for energy storage to everyone globally. We believe
that the innovative design of our lithium-ion batteries is ideally suited for the demands of modern customers who rely on consumer electronics,
connected devices and smart appliances that require continuous, reliable electricity, regardless of location.

 Our
deep cycle lithium iron phosphate (" LFP ") batteries provide numerous advantages compared to incumbent products, such
as lead-acid batteries. LFP batteries are non-toxic and environmentally friendly, do not rely on scarce or controversial metals and are
a highly cost-effective storage solution. LFP batteries use lithium iron phosphate (" LiFePO4 ") as the cathode material
for lithium-ion cells rather than nickel or cobalt. Although the energy density of LFP batteries is lower, they have a longer cycle life
and experience a slower rate of capacity loss. LFP is also intrinsically safer than sulfide gases due to its thermal and chemical stability,
meaning our LFP batteries are less flammable than alternative products. As we develop our proprietary solid-state cell technology, we
believe our use of LFP will continue to provide significant advantages over the lithium-ion technology in development by most other companies
that still incorporate less stable components in their chemistries (such as sulfide gases, which are chemically unstable and form hydrogen
sulfide when exposed to air).

 We
have a dual-brand strategy for battery products, Dragonfly Energy (" Dragonfly Energy ") and Battle Born Batteries (" Battle
Born "). Battle Born branded products are primarily sold direct-to-consumers (" DTC "), while the Dragonfly
Energy brand is primarily sold to original equipment manufacturers (" OEMs "). However, with the growing popularity
and brand recognition of Battle Born, these batteries have become increasingly popular with our OEM customers. Based on the extensive
research and optimization undertaken by our team, we have developed a line of products with features including a proprietary battery
management system and an internal battery heating feature for cold temperatures, and we have recently launched our unique battery communication
system. We currently source the 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.

 We
began as an aftermarket-focused business initially targeting DTC sales in the RV market. Since 2020, we have sold over 290,000 batteries.
For the years ended December 31, 2023 and 2022, we sold 64,906 and 96,034 batteries, respectively, and had $64.5 million and $86.3 million
in sales, respectively. Historically, we have increased total sales through a combination of: increasing DTC sales of batteries for RV
applications; expanding into the marine vessels and off-grid storage markets with related DTC sales; selling batteries to RV OEMs; increasing
sales to distributors; and reselling accessories for battery systems. Our RV OEM customers currently include Keystone RV Company (" Keystone "),
who fulfills certain of its LFP battery requirements exclusively through our Supply Agreement (as defined herein), THOR Industries (" THOR "),
who has made a strategic investment in our business and with whom we intend to enter into a future, mutually agreed exclusive North American
distribution agreement with an initial term of two years (with potential annual renewals), Airstream, and REV, and we are in ongoing
discussions with a number of additional RV OEMS to further increase adoption of our products. For the year ended December 31, 2023, we
faced a number of demand headwinds associated with increased inflation and rising interest rates, which caused a significant year-over-year
decline in units produced for North American RV OEMs. The impact of these unit declines combined with the associated lower demand in
the direct-to-consumer business caused total revenue to decline for the year ended December 31, 2023 compared to the same period last
year. Based on our discussions with customers and current unit forecast projections, we expect our revenue in the RV market
to increase in 2024.

 We
currently offer several lines of batteries across our two brands, each differentiated by size, power and capacity, consisting of seven
different models, four of which come with a heated option. 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.

 Our
battery packs are designed and assembled in-house in the United States. In April 2021, we opened our current 99,000 square foot
facility in Reno, Nevada, which has allowed us to increase our production capacity and gave us the ability to increase sales to
existing customers and penetrate new markets. Our 99,000 square foot facility provides a streamlined, partially autonomous
production process for our current batteries, which comprises module assembly and battery assembly, with the availability to expand
the number of lines to handle increased volumes and the additional battery modules we intend to introduce in the near future. We
also entered into a lease for use of an approximately 64,000 square foot facility to further increase our capacity to produce our
patented dry electrode process (the " Fernley Lease Agreement "). We plan to continue to expand our production
capacity as needed and have entered into a lease for a 390,240 square foot facility in Reno, Nevada that is currently under
construction which is expected to be completed in the second half of 2024. The commencement date for the lease for this facility was
March 25, 2024, based on the construction project being identified as "substantially complete". This facility will
enable us to consolidate various operations in Reno, NV and will allow for expected expansion for new markets.

 Through
our Battle Born Batteries and Wakespeed brands, we operate in three primary consumer end markets: RVs, marine vessels, and off-grid storage
systems. We are strategically expanding into additional markets, with a focus on heavy-duty trucks, work trucks, and industrial solar
integration. Within our core markets, we focus on displacing lead-acid batteries with our technologically advanced and greener lithium-ion
solutions. Our Battle Born Batteries portfolio is designed to provide customers with a reliable, long-lasting, and highly efficient off-grid
power source for powering appliances, air conditioning, lighting, and other devices commonly found in these applications.

 We
continue to leverage our proven sales and marketing strategy to efficiently penetrate our target end markets. We prioritize customer
education through various channels, highlighting the distinct advantages of lithium-ion batteries over traditional lead-acid alternatives.
Tradeshows, rallies, and industry events serve as key platforms for direct customer engagement, featuring product demonstrations, educational
seminars, and opportunities for interaction with knowledgeable sales and technical experts. We further amplify our reach through a robust
social media program, strategically partnering with content creators and industry influencers to disseminate product benefits to targeted
audiences. Additionally, we cultivate relationships with industry publications to secure editorial coverage that informs and educates
potential customers. We also employ a targeted pay-per-click (" PPC ") advertising campaigns across various platforms,
including search engines, social media, and connected TV to efficiently convert high-intent customers at the bottom of the purchase funnel.

 Drawing
upon our success in collaborating with RV and marine OEMs, we have begun expanding into the heavy-duty trucking market. We are
leveraging our expertise in designing and supporting lithium-ion storage systems to tailor solutions meeting specific OEM
requirements. These solutions have been adopted as factory-installed features, demonstrating their value proposition for truck
fleets seeking to:

 Reduce
 diesel fuel costs: our technology delivers significant fuel savings, offering a rapid return
 on investment.

 Comply
 with anti-idling regulations: Lithium-ion batteries enable efficient power management eliminating
 the need for long haul truck drivers to idle, thus aligning with increasingly stringent regulations.

 Enhance
 sustainability efforts: Transitioning to long lasting and greener lithium-ion solutions contributes
 to improved environmental impact.

 This
strategic approach has resulted in successful pilot programs with fleets representing over 15% of the North American heavy-duty trucking
market.

 To
augment our core lithium-ion battery pack business, we rely on our research and development department. The team has successfully developed
innovative manufacturing processes for dry-electrode manufacturing of lithium-ion cells, and continues development efforts relating to
next-generation solid-state technology. Since our inception, we have built a comprehensive patent portfolio around our proprietary dry-electrode
battery manufacturing process, which eliminates the use of harmful solvents and energy-intensive drying ovens compared to traditional
methods. This translates to significant environmental and cost benefits, including reduced energy consumption, smaller space requirements,
and a lower carbon footprint.

 Moreover,
our solid-state technology in development removes the need for a liquid electrolyte, thereby addressing safety concerns related to flammability.
Our unique competitive edge lies in the combination of solid-state technology with its scalable dry-electrode manufacturing process.
This enables the rapid production of cells having an intercalation anode (like graphite or silicon), unlike many competitors reliant
on less stable lithium metal anodes. We believe this design offers superior cyclability and safety, serving as a key differentiator in
the energy storage market. Furthermore, internal production of both conventional and solid-state cells streamlines our supply chain and
enables vertical integration, ultimately driving down production costs.

 Industry
Background

 For
decades, lead-acid batteries have been the dominant player in power and energy markets worldwide. Since the introduction of the absorbed
glass mat (" AGM ") lead-acid battery in the mid-1970s, the technological advancements in lead-acid battery technology
have been limited. LFP batteries have numerous advantages over the incumbent lead-acid batteries used in today's markets:

 Environmentally
 Friendly, Socially Responsible and Safer. Lead-acid batteries that are not recycled or disposed of properly are extremely
 toxic and can cause areas of poisonous groundwater and lead buildups, impacting both humans and the environment. Research by EcoMENA
 shows that a single lead-acid battery disposed of incorrectly into a municipal solid waste collection system could contaminate 25
 tonnes of municipal solid waste and prevent recovery of organic resources due to high lead levels. Lithium-ion batteries, specifically
 LFP batteries, have no toxic elements, offering a much safer environmental alternative to lead-acid batteries. LFP batteries also
 do not rely on controversial elements such as cobalt as part of their chemistry. Compared to lead-acid batteries, there is no concern
 of "off-gassing," or the emission of noxious gases, for lithium-ion batteries, and therefore no need to take into consideration
 required ventilation or off-gas related fire risk when installing or recharging our LFP batteries.

 Longer
 Lifespan. Lithium-ion batteries have longer lifecycles compared to lead-acid batteries. LFP batteries are able to cycle (i.e.,
 discharge and charge) 3,000 to 5,000 times before hitting the 80% capacity mark. Comparatively, lead-acid batteries degrade quickly,
 only cycling 300-500 times before hitting 50% of their original capacity. Our third-party validated internal research suggests that
 if a typical AGM lead-acid battery and our LFP battery were cycled once every day, the AGM battery and our LFP battery would have
 a respective lifespan of 1.98 years and 19.18 years before reaching 80% depth of discharge (i.e., 80% of our battery would have been
 discharged relative to the overall capacity of the battery in that lifespan). In many storage applications, lithium-ion batteries
 have a lifespan exceeding the lifetime of the project with very limited maintenance requirements, compared to lead-acid batteries,
 which have a one- to two-year useful life in most applications.

 Power
 and Performance. As new technologies evolve and people consume more electricity, the importance of battery power and performance
 increases. Compared to lead-acid batteries, lithium-ion batteries can discharge power at a higher voltage and more consistently through
 the discharge cycle (i.e., until they are 100% discharged) while utilizing a smaller physical space and weighing less. In addition,
 unlike lead-acid batteries, lithium-ion batteries can be discharged below 50% capacity without causing irreparable harm to the battery.
 Lithium-ion batteries also provide the same energy capacity with one-fifth the weight of a standard lead-acid battery. Lithium-ion
 batteries are also significantly more reliable and efficient, especially in cold temperatures, allowing for year-round all-climate
 usage.

 Charging.
 Lead-acid batteries were the first rechargeable batteries on the market. However, due to new advancements in energy density
 (i.e., the amount of energy stored by mass volume) and charge/discharge rates, lithium-ion batteries now significantly outperform
 traditional lead-acid batteries. LFP batteries currently charge five times faster than their lead-acid counterparts, with even faster
 charging rates expected for the next generation of lithium-ion cells. With the appropriate battery management system, lithium-ion
 batteries can be charged in cold temperatures, something lead-acid batteries are unable to do, resulting in two to three times more
 power delivered.

 Maintenance-Free.
 LFP batteries provide the benefit of being a maintenance-free option compared to lead-acid batteries. Unlike lead-acid batteries
 which have no battery management system to regulate current flow and charging rates, all our LFP battery packs include a proprietary
 battery management system that regulates current and provides temperature, short circuit and cold charging protection. Our LFP batteries
 also do not require cleaning or water, eliminating the need for periodic maintenance found in today's lead-acid batteries.
 While our LFP batteries are generally designed to replace and physically fit into racks made for existing lead-acid batteries, our
 batteries can be installed in any position and without the need for venting.

 End
Markets

 Current
Markets

 According
to a Frost and Sullivan report commissioned by us in 2021 (" Frost & Sullivan "), the total addressable market (" TAM ")
of our three current end markets is estimated to be approximately $12 billion by 2025.

 Recreational
 Vehicles. The growth of the RV market is expected to continue to drive demand for LFP storage batteries. According to the
 2022 RV Industry Association (" RVIA ") Annual Report, 22% of RV buyers are between the ages of 18 and 34. In addition,
 nearly a third of the respondents in the study (31%) are first-time owners, underscoring the growth of the industry in the past decade.
 RV interiors are becoming more modern as customers adopt the full-time RV lifestyle, with additional appliances and electronics being
 installed, increasing the need for reliable power. According to the RVIA and THOR Industries, North American RV shipments have had
 an estimated 10-year compound annual growth rate (" CAGR ") of 5.6% from 2012 to 2022. The need for greater power
 and power storage capabilities to power interiors is driving a shift towards the use of LFP batteries. Incumbent lead-acid batteries
 are heavy, take up a lot of space, have inefficient power discharge and require ventilation. Our product addresses all of these problems
 by allowing for shorter charge times, weighing one-fifth of a standard lead-acid battery, providing a reliable and consistent source
 of power and being maintenance-free. Our market focus has traditionally been on motorized RVs (i.e., drivable RVs), however, OEMs
 have begun to introduce batteries into towable units (i.e., RVs that require another vehicle to drive them), which has created a
 growing subsector in the RV market for LFP batteries. According to the RVIA's 2021 RV Market Report, approximately 91% of wholesale
 RV units shipped in 2021 were towable units, representing a significant growth opportunity for LFP batteries.

 Marine
 Vessels. As boating becomes more popular in North America, the need for a reliable, non-flammable energy storage system is
 becoming increasingly apparent. According to the 2020 Recreational Boating Statistics and the 2020 National Recreational Boating
 Safety Survey, in 2018 over 84 million Americans participated in some form of boating activity, with a total of over 11.8 million
 boats on the water as of 2020, of which 93% are power boats. We believe that the marine vessel market will grow to approximately
 $8 billion by 2025. Similar to the RV market, customers are becoming more technologically advanced and are adding more electronics
 to their vessels, in turn driving demand for larger and more reliable energy storage, such as LFP batteries. Tightening marina regulations
 are also driving the need for electric docking motors on more vessels and increasing the focus on safety, which LFP batteries are
 well-suited to address.

 Off-Grid
 Residences. Many people are turning to off-grid housing and, as individuals and governments become more conscious of their
 carbon footprint, a shift towards renewable energy sources for off-grid housing will be increasingly popular. Solar installations
 continue to see an increase globally, with global PV installations projected to rise from 144 GW (DC) in 2020 to 334 GW (DC) in 2030
 according to Bloomberg. According to the Solar Energy Industries Association (" SEIA "), approximately 11% of solar
 installations in 2021 were supplemented with a battery system for efficient storing of excess energy generated during daylight hours.
 However, the number of new behind-the-meter solar systems with supporting battery systems is projected to rise to over 29% by 2025.
 LFP batteries are able to solve the weakest part of renewable energy adoption, which is the lack of consistent, reliable and efficient
 energy storage that is safer than alternative energy storage options currently on the market. As this shift towards clean energy
 becomes more prominent and cost-effective, the LFP battery market will be able to penetrate the largely untapped off-grid markets.

 Addressable
Adjacent Markets

 Our
addressable markets are areas with significant growth potential that we will be positioned to penetrate as customers turn towards LFP
and other lithium-ion batteries as replacements for traditional lead-acid batteries. As these medium- and long-term markets mature, we
intend to deploy our solid-state technology, once developed, while concurrently continuing to further displace the incumbent lead-acid
technology. According to Frost & Sullivan, our TAM is estimated to be $85 billion by 2025.

 Heavy
 Duty Truck. The heavy-duty truck market encompasses a broad range of vehicles designed for extensive commercial and industrial
 use, such as long-haul transport, construction, and logistics. With more than 300,000 Class 8 units sold in 2022, the market demonstrates
 a robust demand for vehicles that are integral to the backbone of global commerce and infrastructure projects. As the demand for
 more efficient, sustainable, and reliable transportation solutions grows, the use of Auxiliary Power Units (" APUs ")
 in heavy duty trucks is becoming increasingly significant. APUs provide an alternative energy source for powering onboard systems
 and maintaining cabin comfort during rest periods, without the need for the main engine to run—thereby reducing fuel consumption
 and emissions. Additionally, the market opportunity extends to the electrification of Transport Refrigeration Units (" TRUs ")
 on trailers and smaller class refrigerated vehicles, which are crucial for the cold chain logistics sector. This shift towards electrification
 is driven by the need for more sustainable and efficient cooling solutions, reducing the carbon footprint of refrigerated transport.
 The expansion of global trade and the continuous push for lower emissions standards are driving the demand for heavy duty trucks
 equipped with APUs, as well as for the electrification of TRUs, highlighting a considerable market opportunity. This trend emphasizes
 the potential for advanced battery technologies not only as an environmental solution but also as a competitive advantage in the
 heavy-duty truck and refrigerated transport markets, offering a substantial retrofitting and market penetration opportunity for battery
 manufacturers and suppliers with the requisite expertise and product offerings.

 Industrial
 / Material Handlings / Work Truck. The industrial vehicle market includes work trucks, material handling and warehousing
 equipment and compact construction equipment. As industrial vehicles increase in terms of automation and incorporate more onboard
 tools, the need for a long-lasting, reliable and environmentally friendly energy source grows. The continuous growth of e-commerce
 is increasing the demand for warehousing and automated equipment. According to material handling equipment manufacturer Hyster-Yale
 Materials Handling, in 2021 the global market volume in units for lift trucks was approximately 2.3 million, most of which were powered
 by traditional lead-acid batteries, presenting a large retrofitting opportunity for LFP batteries.

 Specialty
 Vehicles. According to Mordor Intelligence, as of 2019, approximately 40% of the specialty vehicle market in the United States
 consists of medical and healthcare vehicles and approximately 30% consists of law enforcement and public safety vehicles. The market
 for emergency vehicles has grown as the baby boomer generation continues to age, and there has been increased demand for electrified
 devices and equipment on board these emergency vehicles. Our LFP batteries are well-suited to capture this market as they offer a
 more reliable power source with longer lifecycles compared to lead-acid batteries. In addition, LFP batteries are safer, lighter
 and modular, allowing for more tools to be stored on-board emergency vehicles without sacrificing the performance of the battery
 system.

 Emergency
 and Standby Power. Demand for reliable emergency and standby power sources is expected to continue to drive demand for effective
 power storage for residential, commercial and industrial uses. Power outages in the United States cost an estimated $150 billion
 per year, according to the Department of Energy, increasing the demand for uninterrupted power sources. The need for reliable emergency
 and standby power exists in both hazardous and non-hazardous environments and is particularly acute in areas where the existing grid
 service is subject to intermittencies or is otherwise inefficient (including as a result high peak electricity usage, grid and related
 equipment age or severe weather and other environmental factors). LFP batteries are able to offset grid-related intermittencies and
 inefficiencies and assist in providing grid stabilization. Importantly, LFP batteries achieve these benefits in a clean, reliable
 and safe manner by supplanting or reducing the use of fossil fuel backup generators.

 Telecom.
 Demand for mobile data continues to increase and network providers are investing heavily in 5G networks, particularly in
 unserved and underserved regions, to support this demand. According to the CTIA's 2021 annual survey, there were 417,215 cell
 sites in the United States in 2020. Batteries provide backup power to these sites when external power is interrupted. While lead-acid
 batteries are commonly used as backup batteries today, the compact nature of lithium-ion batteries, together with the fact that they
 are safer and more environmentally friendly, make them ideal alternatives as new wireless sites are built and the older wireless
 sites require upgrades. LFP batteries are maintenance free and have a longer lifespan, allowing for a more efficient and reliable
 power source for large wireless sites. The ability to monitor the battery systems remotely enables telecom operators to reduce onsite
 maintenance checks, thereby reducing overall operational costs while ensuring network uptime.

 Rail.
 Rail transportation is a large potential market, with an estimated U.S. market size of $110.1 billion in 2023, according
 to IBISWorld. Many railroad operators have invested in infrastructure and equipment upgrades in recent years, in an attempt to boost
 capacity and productivity. As noted in a study conducted by the International Energy Analysis Department and the Lawrence Berkeley
 National Laboratory, a shift from fossil fuel-based rail cars to emission-free power sources will greatly affect the economic and
 environmental impact from the rail industry. Two suggested pathways from this study were (1) electrifying railway tracks and using
 emission-free electricity which requires significant storage combined with renewable electricity on the grid, and (2) adding battery
 storage cars to diesel-electric trains. A battery-electric rail sector would provide more than 200GWh of modular and mobile storage,
 which could in turn provide grid services and improve the resilience of the power system.

 Data
 Centers. Data centers have seen strong growth in recent years, with over 5,000 data centers in the United States as of September
 2023 according to Statista. Constant technological advancements and larger amounts of data generated and stored by companies for
 increasingly longer periods of time are driving growth in the importance, and the amount, of physical space dedicated to data centers.
 As software companies, such as Google and Oracle, continue to develop new technologies, such as artificial intelligence, data centers
 where the computer and storage functions are co-located also continue to grow. As the industry seeks to cut operating costs, become
 more efficient and minimize dedicated physical space, we expect there to be a shift towards light, compact lithium-ion batteries
 that can reduce overall costs and provide a reliable power supply without sacrificing performance. Lithium-ion batteries are designed
 to operate in environments with higher ambient temperatures than incumbent energy storage methods (such as lead-acid batteries).
 This ability for lithium-ion batteries to withstand and operate at higher temperatures can also reduce cooling costs.

 On-grid
 Storage. On-grid energy storage is used on a large-scale platform within an electrical power grid in conjunction with variable
 renewable energy sources such as solar and wind projects. These storage units (including large-scale stationary batteries) store
 energy when electricity is plentiful, and discharge energy at peak times when electricity is scarce. Because of the low cost of fossil
 fuels, the adoption of large-scale batteries has been slow. However, according to the U.S. Energy Information Administration 2021
 report on battery storage in the United States, lithium-ion battery installations in large-scale storage grew from less than 50 MWh
 of energy capacity annual additions in 2010 to approximately 400 MWh in 2019. As lithium-ion battery production scales, the related
 cost of storage for all lithium-ion batteries will decline and the cost of renewable energy (including associated storage costs)
 is expected to approach $0.05 per kWh, which is the amount required to be cost competitive with the price of power from the electrical
 grid. We believe our ability to cost-effectively develop and manufacture LFP solid-state batteries will position renewable energy
 projects deploying these batteries to reach "grid parity" sooner.

 Our
Competitive Strengths

 We
believe that we possess the largest share in the markets we operate in due to our following business strengths, which distinguish us
in this competitive landscape and position us to capitalize on the anticipated continued growth in the energy storage market:

 Premier
 Lithium-Ion Battery Technology. Each of our innovative batteries features custom designed components to enhance power and
 performance in any application or setting. Our batteries feature LFP chemistry that is environmentally friendly, does not heat up
 or swell when charging or discharging, and generates more power in less physical space than competing lead-acid batteries. Unlike
 our competitors, our internal heating technology keeps our batteries within optimal internal conditions without drawing unnecessary
 energy and sustaining minimal energy drain. To protect our products, our batteries possess a proprietary battery management system
 that shuts off the ability to charge at 24 degrees Fahrenheit. This technology increases performance in cold weather conditions while
 possessing a unique heating solution that does not require an external energy source.

 Extensive,
 Growing Patent Portfolio. We have developed and filed patent applications on commercially relevant aspects of our business
 including chemical compositions systems and production processes. To date, we have owned 44 issued patents, with an additional 48
 patent applications pending, in the United States, Canada, Australia, Korea, Japan, India, China, and Europe (with individual patents
 in Germany, France and the United Kingdom).

 Proven
 Go-To-Market Strategy. We have successfully established a DTC platform and have developed strong working relationships with
 major OEMs and fleets in the RV, marine and heavy trucking markets. We custom design and engineer storage systems for new and existing
 applications. We see opportunities to continue to leverage our success in the aftermarket to expand our relationships to other leading
 OEMs, fleets, and distributors while further enhancing our DTC offerings. Extensive informational videos and exceptional customer
 service provide sales, technical and hands-on service support to facilitate consumer transition from traditional lead-acid or incumbent
 lithium-ion batteries to our products.

 Established
 Customer Base with Brand Recognition. We have a growing customer base of more than 23,000 customers featuring OEMs, distributors,
 upfitters and end consumers across diverse end markets and applications including RV, marine vessels and off-grid residences. Customer
 demand and brand recognition of Battle Born batteries from an aftermarket sales perspective have helped drive significant adoption
 from OEMs and fleets with visibility for future growth through further expansion of our existing relationships.

 High
 Quality Manufacturing Process. Unlike competitors that outsource their manufacturing processes, our batteries are designed,
 assembled and tested in the United States, ensuring that our manufacturing process is thoroughly tested and our batteries are of
 the highest quality as a result of governmental regulations for performance and safety.

 Drop-in
 Replacement. Our battery modules are largely designed to be "drop-in replacements" for traditional lead-acid
 batteries, which means that they are designed to fit standard RV or marine vessel configurations without any adjustments. Our target
 applications are powering devices and appliances in larger vehicles and low speed industrial vehicles. We offer a full line of compatible
 components and accessories to simplify the replacement process and provide consumers with customer service to ensure a seamless transition
 to our significantly safer and environmentally friendly battery. Over their lifetime, our batteries are significantly cheaper from
 both an absolute cost and a cost per energy perspective. These lifetime costs, at current costs and capacity, will naturally drop
 as we continue to take advantage of economies of scale.

 Our
Growth Strategy

 We
intend to leverage our competitive strengths, technology leadership and market share position to pursue our growth strategy through the
following:

 Expand
 Product Offerings. In the short-term, our aim is to further diversify our product offerings to give consumers, as well as
 OEMs and distributors, more options for additional applications. We intend to launch and scale production of additional 12 voltage
 and 24 voltage batteries and we have recently introduced 48 voltage battery systems, which we believe will extend our market reach
 in each of our targeted end markets. Additionally, in January 2023, we launched Dragonfly IntelLigence, a proprietary monitoring
 and communication system that allows us to monitor, optimize, and in some cases compile data on battery banks. We believe the natural
 evolution of our product offering is to become a system integrator for solar and other energy storage solutions.

 Expand
 End Markets. We have identified additional end markets that we believe in the medium- to longer-term will increasingly look
 to alternative energy solutions, such as LFP batteries. Markets, such as long-haul trucking, standby power, industrial vehicles,
 specialty vehicles and utility-grade storage, are in the early stages of adoption of lithium-ion batteries (including LFP batteries),
 and we aim to be at the forefront of this movement by continuing to develop and produce products with these end users in mind.

 Commercialize
 our Dry Electrode Cell Manufacturing Technology. In July 2023, we completed the construction of our proprietary and patented
 cell 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 are currently producing
 sample cells for prospective customers across a variety of chemistries and end-markets and expect to begin scaling production in
 the second half of 2024.

 Develop
 and Commercialize Solid-State Technology. We believe solid-state technology presents a significant advantage to all products
 currently on the market, with the potential to be lighter, smaller, safer and cheaper. Once we have optimized the chemistry of our
 LFP solid-state batteries to enhance conductivity and power, we intend to scale up for mass production of separate solid-state batteries
 for various applications and use cases.

 Our
Products and Technology

 Chemistry
Comparison

 Lead-acid
batteries were the first form of rechargeable battery to be developed and modified across different platforms for a variety of uses,
from powering small electronics to use for energy storage in back-up power supplies in cell phone towers. Since the development in the
1970s of AGM lead-acid batteries, a form of sealed lead-acid battery that enables operation in any position, there has been limited innovation
in lead-acid battery technology. The push to develop longer-lasting, lower-cost, more environmentally-friendly and faster-charging batteries
has led to the development of lithium-ion batteries and, within the lithium-ion battery market, different chemistries.

 There
are several dominant battery chemistries in the lithium-ion market that can be used for different purposes. Two widely adopted chemistries
found in the market today are nickel manganese cobalt (" NMC "), and nickel cobalt aluminum (" NCA ").
The higher energy density and shorter cycle life found in NMC and NCA batteries are suitable for markets where fast charging and high
energy density are required, such as electric vehicle (" EV ") powertrains and consumer electronics. LFP batteries are
best suited for energy storage markets where long life and affordability are paramount, such as RV, marine vessel, off-grid storage,
onboard tools, material handling, utility-grade storage, telecom, rail and data center markets.

 NMC
batteries are highly dependent on two metals that present significant constraints — nickel, which is facing an industry-wide
shortage, and cobalt, a large percentage of which comes from conflict-ridden countries. According to an article by McKinsey & Company
titled " Lithium and Cobalt: A tale of two commodities ", global forecasts for cobalt show supply shortages arising
as early as 2022, slowing down NMC battery growth. Both of these elements are also subject to commodity price fluctuations, making NMC
and NCA batteries less cost-effective than LFP batteries. LFP batteries do not contain these elements and materials can be sourced domestically,
and are therefore not subject to these shortages, geopolitical concerns or commodity price fluctuations. In fact, LFP batteries have
no toxic elements, offering a much safer environmental alternative. The temperature threshold for thermal runaway (i.e., lithium-ion
battery overheating that can result in an internal chemical reaction) is higher for LFP batteries as compared to NMC and NCA batteries,
making LFP batteries less flammable and safer.

 LFP
batteries have a useful life of approximately 10 to 15 years compared to one to two years for lead-acid batteries, and typically charge
up to five times faster. LFP batteries are also not constrained by weight (having the same energy capacity at one-fifth of the weight)
or temperature (having the ability to generate power even in low temperatures and to not swell or heat up when charging or discharging)
and are generally maintenance free.

 In
the electric vehicle market, the race to provide the highest energy density facilitating frequent, rapid acceleration, greatest range
and fastest charging battery — all while competing on cost — is where many new battery companies
are prioritizing their efforts. Success in the electric vehicle market requires use of chemistries capable of optimization to these requirements.
In our targeted stationary storage markets, the ideal solution requires a safe, long-lasting battery in terms of discharge/charge cycles
with a focus on providing a steady power stream. LFP batteries are better suited for the stationary storage market compared to NMC and
NCA batteries, as LFP batteries are safer and have a significantly longer life cycle making them more cost-effective. The market for
utility grade storage, particularly for clean energy projects, and the related adoption of lithium-ion batteries (including LFP batteries)
is expected to increase as the fully-loaded cost of energy (production and storage) approaches cost parity with inexpensive fossil fuel
energy provided through the electric grid. Compared to NMC and NCA batteries, LFP batteries are at or much closer to grid parity.

 Dry
Electrode Cell Manufacturing Technology

 Since
our inception, we have been developing proprietary dry-electrode manufacturing processes for which we have issued patents and pending
patent applications, where appropriate. Dry-electrode manufacturing eliminates the use of toxic and expensive solvents and energy-intensive
drying ovens in the cell manufacturing process. This in turn reduces the energy usage, space requirements, carbon footprint, and overall
cost as compared to conventional slurry-based methods. Furthermore, the manufacturing technology is chemistry agnostic – meaning
it can produce battery cells across a variety of different chemistries and application use cases. In July 2023, we completed the construction
of our dry-electrode manufacturing pilot line. 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 are currently producing sample cells
for prospective customers across a variety of chemistries and end-markets and expect to begin scaling production in the second half of
2024.

 Solid-State
Cells

 LFP
batteries are not without their disadvantages. While less flammable than other chemistries, the existence of a flammable liquid electrolyte
still poses safety risks. Like all liquid-based lithium-ion batteries, LFP batteries have a potential to produce solid lithium dendrites,
icicle-like formations which can pierce the physical separators in LFP batteries, which are necessary in LFP batteries to separate the
positively charged liquid electrolyte from the negatively charged liquid electrolyte, and which, over time, will degrade the performance
of LFP batteries and potentially result in fire-related risks. The next phase in the development of lithium-ion batteries is solid-state
cell development, which contains a solid, rather than a liquid, electrolyte, eliminating many of the current disadvantages to LFP batteries
while increasing the safety of the battery cells. We believe that the development of our solid-state technology will provide us with
a unique competitive advantage.

 Compared
to current lithium-ion technology, where lithium-ions cross a liquid electrolyte barrier between a battery's anode (negative electrode)
and cathode (positive electrode), solid-state batteries aim to use a solid electrolyte to regulate the lithium-ions. As a battery charges
and discharges, an electrochemical reaction occurs creating a flow of electrical energy between the cathode, electrolyte and anode as
the electrodes lose and reacquire electrons. In addition to the use of non-toxic electrode components, the removal of a liquid electrolyte
will eliminate the risk of fire, making solid-state cells inherently safe. The move to a non-liquid electrolyte also means that solid-state
batteries will be, on average, smaller and lighter than existing lithium-ion batteries. The process for manufacturing our solid-state
cells is described below under "— Research and Development ".

 Our
Products

 We
provide various industries with clean, reliable, and efficient power solutions through our comprehensive product portfolio. These products
and solutions are sold to both OEMs and retail customers.

 Our
lead product line is Battle Born Batteries product line, respected for its exceptional performance and durability. When compared to traditional
lead-acid options, Battle Born Batteries deliver two to three times the power in the same physical space, one-fifth the weight for equal
usable power, and up to five times faster charging. Additionally, these batteries have extended lifespans of 3,000-5,000 cycles, translating
to ten to fifteen years of reliable use under typical conditions. This longevity is backed by our 10-year warranty, showcasing our commitment
to quality. The Battle Born Batteries product line currently features various sizes and configurations including models with proprietary
built-in heating for cold weather charging and Dragonfly IntelLigence, a communication technology that unlocks real-time monitoring,
instant notifications, various protocol integration and superior battery protection. A focus on safety is central to our products, and
all Battle Born Battery products utilize LiFePO4 chemistry, the safest lithium-ion chemistry available on the market. Additionally, our
battery products undergo rigorous testing under stringent industry standards like UL Standard 2054, IEC 62133, UN 38.3 and IP65 to ensure
safety and reliability.

 Looking
beyond batteries, we also offer a diverse range of power products.

 Our
 Wakespeed Advanced Alternator Regulator, WS500, utilizes current, voltage, and temperature to deliver precise and effective charging
 of battery banks via an alternator. Its intelligent control leverages advanced multi-PID engine technology to ensure the most accurate
 charging available, simplifying installation, configuration, and operation. The WS500 offers superior protection for both lead-acid
 and lithium battery chemistries, making it a valuable investment for optimizing power management and extending battery life.

 The
 Battle Born Batteries Lithium Power Pack Series features all-in-one power solutions for RVs, vans, and other mobile, off-grid, and
 industrial applications. These pre-wired, ready-to-go systems make the upgrade to lithium simple with easy installation into RVs
 or other applications. Designed with the dimensions and mounting points of traditional generators in mind, Lithium Power Packs are
 made to be quiet, sustainable, and simple drop-in replacements, allowing customers to eliminate generator fuel and noise. Custom
 configurations of Lithium Power Pack products are available for dealers and OEMs to size these all-in-one solutions to their specific
 needs.

 Designed
 for the demanding world of heavy-duty trucking, our Battle Born All-Electric APU leverages a lithium battery system to empower drivers
 with long lasting power for their hotel loads. This upgrade eliminates the need for idling and its associated fuel costs and emissions—this
 APU provides power to run a truck's HVAC, appliances, and electronics during mandatory rest periods. The Battle Born All Electric
 APU is pre-assembled and pre-wired, seamlessly integrating into a truck's frame rails.

 Additionally,
as a distributor of leading brands like Victron, Schneider, and REDARC, we act as a one-stop shop for full system integration, catering
to both OEMs and retail customers. Our complete offering allows customers to benefit from clean and sustainable power, extended lifespans,
reduced costs, increased efficiency, and seamless integration - all backed by expert service and support.

 Battery
Management System

 Our
proprietary battery management system is developed and tested in-house. It offers a complete solution for monitoring and controlling
our complex battery systems and is designed to protect battery cells from damage in various scenarios. We believe our battery management
system is industry-leading for a number of reasons:

 it
 enables batteries to draw power under 135 degrees Fahrenheit, and is designed to cut off charging at 24 degrees Fahrenheit to protect
 cells;

 it
 actively monitors the rate of change of currents to detect and prevent short circuiting, and also protects against potential ground
 faults;

 it
 allows for up to an average of 300 amps continuously, 500 amp surges for 30 seconds, and momentary, half second maximum capacity
 surges;

 it
 enables batteries to recharge even if completely drained;

 it
 utilizes larger resistors to ensure balanced loads to improve performance and extend useful life; and

 it
 facilitates scalability by enabling batteries to be combined in parallel and in series.

 Battery
Communication System

 We
have developed a complete communication system branded Dragonfly IntelLigence, for which a U.S. non-provisional patent application and
an international PCT patent application have been filed, to be used with Dragonfly Energy OEM systems and Battle Born batteries and bundles.
This communication system will enable end customers to monitor each battery in real time, providing information on energy input and output
and current or voltage imbalances. The communication system will be able to communicate with up to 24 batteries in a bank at one time
and aggregate the data received from these batteries into a central system such as a phone or tablet. We expect to begin offering the
Dragonfly IntelLigence product line to OEMs in the second quarter of 2024 as an adjacent component and in our product bundles.

 Alternator
Regulation

 Charging
batteries in a vehicle, such as a boat or RV, often requires pulling electrical current off of the vehicle's alternator. Alternator
regulation is important to ensure that the alternator does not get unduly stressed during the current delivery to the batteries, and
that the current delivery remains within the operating limits of the onboard battery bank. The acquisition of the assets of Wakespeed
has allowed us to deliver our own proprietary solution to alternator regulation while also leveraging an established brand name. Wakespeed
is especially popular in the marine industry, and our ability to offer this complete solution sets the stage for further penetration
into marine markets.

 Product
Pipeline

 Beyond
our current battery modules, we have several LFP products in development that will enable us to access additional end markets.

 New
 Products. Our current offerings feature battery products that serve the RV, marine vessel and off-grid markets. Although
 manufacturing operations were previously capacity constrained the expansion into our new manufacturing facility will allow us to
 add production capacity and increase product offerings and scale based on demand.

 The
 majority of our current batteries are 12 volt batteries, which provide 100 amp hours of energy and are an affordable solution to
 customers utilizing smaller or lower power applications. The smaller stature and drop-in replacement nature of these batteries have
 made these popular within the RV and marine vessel markets. Through the expansion of our 12 voltage battery product offerings, we
 will be able to penetrate further into additional applications including towable RVs, truck campers and trolling motors for small
 boats.

 We
 also offer 24 voltage batteries, which currently deliver 50 amp hours, and plan to further expand our 24 voltage battery offerings
 to provide additional drop-in replacements for AGM batteries. A single 24 voltage battery is more efficient than two 12 voltage batteries
 due to the ability to power directly from the source without sacrificing power through cables and connectors. This attractive power
 source is ideal for off-grid housing, telecommunication, solar, marine and motorized home markets, providing enhanced power to larger
 scale applications. A vast majority of telecommunication cell sites utilize 24 voltage batteries, greatly expanding our addressable
 market.

 We
 intend to offer 48 voltage batteries at 100 amp hours that utilize the Dragonfly IntelLigence system to maintain balance and full
 visibility into the status of all cells. The 48 voltage batteries provide further efficiency gains with higher voltage. These higher
 voltage batteries are currently more suitable for luxury mobile homes, larger off-grid uses, and high-end marine applications. We
 aim to further expand our 48 voltage batteries' end market exposure into other highly attractive industries including standby
 power for data center and utility grade energy storage.

 System
 Integrator. A natural evolution of our business is to offer customers a system integration solution providing more efficient
 power solutions at a cost-effective price point. We currently offer components and accessories necessary to build out complete lithium
 power systems, including solar panels, chargers and inverters, system monitoring, Wakespeed's alternator regulators, accessories,
 and more. We have an in-house expert customer service team that assists customers in fully integrating their applications to our
 technologies for a seamless transition to lithium-based energy storage systems. Through our evolving technology and the customized
 architecture and application of our products, we are able to offer customers a seamless transition to creating a centralized coordinated
 system.

and Development

 Our
research and development team has built up its efforts to support two main initiatives – (1) scale up of our patented dry electrode
process for cell manufacturing and (2) the advanced manufacturing of solid-state lithium-ion batteries. We believe the dry electrode
process can be leveraged to help us vertically integrate from a pack supplier to a cell supplier – positioning ourselves for long-term
competitiveness in the given geopolitical, economic, and technological landscapes. Our innovations in dry electrode processing result
in reduced manufacturing costs, CO 2 equivalents, and factory footprint while eliminating the need for solvents like N-Methyl-2-pyrrolidone
(" NMP "). A third-party assessment conducted by Sphere Energy confirming these benefits has been completed in the first
quarter of 2024 relating to cost effectiveness and sustainability of our dry electrode battery manufacturing process (the " Sphere
Energy Assessment ").

 The
Sphere Energy Assessment concluded that our dry electrode battery manufacturing process resulted in a 9% reduced carbon footprint of
cell manufacturing with no toxic NMP solvent required, resulting in a significantly more sustainable process. This sustainability advantage is further augmented by a 71%
reduction in energy usage during electrode manufacturing using our process (spray drying, coating, calendaring) compared to
standard cell manufacturing operations (slurry casting, drying, calendaring). By removing the need for large and expensive drying ovens, our manufacturing process requires 22% less square footage. The culmination of these advantages results in a 25% reduction in emissions from energy use, making our manufacturing
process more sustainable and much more environmentally friendly as compared to conventional manufacturing methods.

 In
addition to the energy savings, the cost assessment found our process to be highly cost-effective with an estimated 5% savings
(depending on cell chemistry) on process-related costs compared to conventional methods. Importantly, these savings were calculated
without the additional cost benefits provided by domestically manufacturing battery cells such as Inflation Reduction Act tax
credits (issued by the IRS), tariffs, and shipping.

 The
dry electrode battery manufacturing process we employ uses a patented spray coating technology to adhere the anode and cathode
electrodes, eliminating the need for large, energy-intensive equipment such as slurry coaters, conveyor dryers, and NMP processing
equipment. This process is chemistry agnostic, allowing for the various applications, such as electric vehicles, consumer
electronics, and energy storage, which is expected to enable us to expand into new markets and to achieve our goal of domestically
producing nonflammable all-solid-state battery cells.

 We
have successfully produced anode and cathode electrode reels at scale using the dry electrode process and are now qualifying prototype
cells for the core business and potential partners. When compared to slurry cast electrode tapes, which is the conventional manufacturing
method, electrode tapes produced using the dry electrode process match or surpass mechanical integrity and electrochemical performance.
We are considering joint development agreements, licensing agreements, and offtake agreements as instruments of partnership with interested
parties.

 In
comparison with traditional manufacturing methods, our patented process leverages two off-the-shelf technologies to deliver the stated
cell manufacturing benefits – spray drying and electrostatic powder coating. Technical risk is reduced by using off-the-shelf equipment
and both unit operations are being optimized in 2024. A new set of spray dryers will arrive at our facility in the second quarter of
2024, enabling us to produce larger volumes of material for the electrode coating lines.

 We
have developed our patented to be chemistry agnostic and capable of producing current cell chemistries (graphite, LCO, LFP, LTO, NCA,
NMC, LTO, silicon, etc.) and next generation cell chemistries (sodium-ion, solid-state, ionic liquid electrolytes, etc.). We believe
this flexibility and our robust intellectual property protection internationally positions us well for potential partnerships with cell
manufacturers, EV companies, and other pack suppliers in need of cell capacity. The next stage in technical development is to produce
larger volumes of sample cells for qualification. These production runs will be completed with partners in the United States and at our
own facilities once the new headquarters facility is completed, which is expected to occur in the second half of 2024. We have invested
significant resources into developing an in-house comprehensive understanding of cell manufacturing – raw material qualification,
quality control such as, cell failure diagnostics, aging, and formation processes. Our research and development Lab is equipped with
over $20 million in research infrastructure to support the development of new cell chemistries, process quality control, failure diagnostics,
and more. This equipment includes quality control instruments (ex. moisture analysis, particle size analysis, peel testing and titrations)
and cutting-edge research instrumentation such as en operando nuclear magnetic resonance (" NMR "), electron microscopes
with lithium-tracking capabilities, and en operando x-ray diffraction. This infrastructure has allowed us to optimize the dry-electrode
process, allowing our team to match or surpass traditional electrode tape performance and mechanical integrity. Because our process is
dry and the active material is coated directly onto the current collector, interfacial and composite resistivity of the electrode tapes
often surpass the quality of slurry cast equivalents.

 Our
solid-state technology continues to progress as we qualify new chemistries and refine the dry electrode process for solid-state applications.
Currently, we are cycling solid-state coin cells with the aim of producing prototype pouch cells by the end of 2024. These cell chemistries
are nonflammable, solid-state, and an LFP/graphite cell chemistry. We believe these cells will be a pivotal technology in grid storage
applications once fully deployed. We intend to integrate our conventional and solid-state cells produced using our dry-electrode process
into the existing Dragonfly Energy and Battle Born Batteries product portfolios.

 Headquarters,
Manufacturing, and Production

 Our
headquarters is located in our 99,000 square foot manufacturing facility in Reno, Nevada. The lease for this building was entered
into on March 1, 2021, and expires on April 30, 2026. We do not own any real estate property. This facility leverages a
semi-automated production process for battery module and pack assembly. We currently have two production lines with another line
currently in construction. We continue to have the capability to expand our production volumes and line quantities to support
increased volumes of new products we intend to introduce soon. On February 8, 2022, we entered into a 124-month lease for an
additional 390,240 square foot warehouse, which is scheduled to complete construction in the second half of 2024 in Reno, Nevada. We intend to
utilize this facility for the existing pack assembly business and new cell manufacturing business.

 On
April 12, 2024, we entered into the Fernley Lease Agreement pursuant to which we agreed to lease an approximately 64,000 square foot
facility (the " Premises ") in Fernley, Nevada, to be used for general,
warehousing, assembly/light manufacturing, painting of products, storage fulfillment, distribution of our products, and other uses
as permitted under in the Fernley Lease Agreement.

 Our
manufacturing process is divided into two aspects – (1) module assembly and (2) battery assembly. We use a combination of trained
employees and automated processes to increase production capacity and lower costs while maintaining the same level of quality our customers
expect from our products. Module assembly is a significantly automated process, implementing custom-designed equipment and systems to
suit our production needs. This includes cycling of individual cells to detect faulty components and to enable sorting by capacity. Our
custom-designed automated welders spot weld individual cells that are assembled into specified module jigs based on the desired amp hour.
Completed modules are then fully discharged, recharged fully, and sorted by capacity. Battery assembly is performed largely by hand by
our trained employees, although we continue to look for innovative ways to integrate automation into this process. Our proprietary battery
management system is thoroughly tested for quality cutoffs, then mounted onto individual modules, before the modules are bolted into
its casing. We aim to automate the battery management system testing and installation process, which we expect could increase production
capacity fourfold. We are currently implementing an automated process for the gluing and sealing process, which would incorporate a two-robot
system for gluing and epoxying, as well as a glue pallet system to move finished batteries. After the assembled batteries are tested
and sealed, they are processed for outbound distribution.

 Supplier
Relationships

 We
have a well-established, global supply chain that underlies the sourcing of the components for our products, although we source domestically
wherever possible. We aim to maintain approximately six months' worth of all components, other than cells, which we pre-order in
advance for the year to ensure adequate supply. For nearly all of our components, other than our battery management system, we ensure
that we have alternative suppliers available. Our battery management system is sourced from a single supplier based in China who we have
a nearly 10-year relationship with and who manufactures this component exclusively for us based on our proprietary design. Our cells
are sourced from two different, carefully selected cell manufacturers in China who are able to meet our demanding quality standards.
As a result of our long-standing relationships with these suppliers, we are able to source LFP cells on favorable terms and within reasonable
lead-times.

 As
we look toward the production of our traditional and solid-state cells, we have signed a Commercial Offtake Agreement with a lithium
mining company and a lithium recycling company, both located in Nevada for the supply of lithium.

 Customers;
RV OEM Strategic Arrangements

 We
currently serve more than 23,000 customers in North America. Our existing customers consist of leading OEMs (such as Keystone, THOR,
REV Group and Airstream); distributors (who purchase large quantities of batteries from us and sell to consumers); upfitters (who augment
or customize vehicles for specific needs); and retail customers (who purchase from us directly). For the years ended December 31, 2023
and 2022, OEM sales represented 42.7% and 39.2% of our total revenues, respectively.

 We
have deep, long-standing relationships with many of our customers. We also have a diverse customer base, with our top 10 customers accounting
for 39.6% of our revenue for the year ended December 31, 2023, in which only one customer accounted for more than 10% of our revenue. Our
customers primarily utilize our products for RVs, marine vessels and off-grid residences. We work directly with OEMs to ensure compatibility
with existing designs and also collaborate on custom designs for new applications.

 The
RV market is characterized by low barriers to entry. In North America, there are two large publicly traded RV companies, THOR Industries
and REV Group, in addition to a number of independent RV OEMs. THOR and REV each own a number well-known RV OEM brands and their related
companies. These brands compete on a number of factors such as format (e.g., motorized or towable), price, design, value, quality and
service. On November 19, 2021, we entered into a long-term Manufacturing Supply Agreement with Keystone, a member of the THOR group and
the largest towable RV OEM in North America (the " Supply Agreement "). Under the Supply Agreement, we will be the exclusive
supplier to Keystone for certain of its future LFP battery requirements, solidifying our long standing relationship with Keystone.

 In
July 2022, we strengthened our ties with the THOR group of RV OEMs when (i) THOR Industries made a $15,000,000 strategic investment in
us and (ii) we agreed to enter into a future, mutually agreed distribution arrangement and joint IP development arrangement. This arrangement
helps facilitate our ongoing efforts to drive adoption of our products (leveraging the trend of LFP batteries increasingly replacing
lead-acid batteries) by, among other things, increasing the number of RV OEMs that "design in" our batteries as original
equipment and entering into arrangements with members of the various OEM dealer networks to stock our batteries for service and for aftermarket
replacement sales. Once the distribution agreement has been negotiated and signed, during a to-be-agreed transition period, we will use
commercially reasonable efforts to cease marketing and selling our products to other RV OEMs and suppliers to RV OEMs in North America.
Although the full distribution agreement with THOR has not been executed and is subject to negotiation in the future, its terms are expected
to include: (i) an initial term of 24 months, which THOR may renew for successive one-year periods; (ii) a requirement that we be the
sole provider of lithium-ion batteries to the US-based THOR family of companies for THOR sales in the United States, subject to agreed
exceptions; (iii) favored pricing for products and negotiated rebates or other incentives; (iv) a requirement that THOR and its North
American OEMs be our exclusive RV OEM customers for our products in North America, subject to agreed exceptions; and (v) agreeable terms
with respect to registered and unregistered intellectual property rights and technology rights (which do not include our existing intellectual
property, including our solid-state battery technologies and related IP rights), including necessary licenses between the parties, third
party licenses, and allocation of ownership of any intellectual property rights and/or technology rights developed as a result of development
efforts jointly undertaken between THOR and us, subject to certain limitations.

 We
continue to seek to grow our customer base within our existing segments; however, we also believe that our products are well suited to
address the needs in additional segments, including residential, commercial and/or industrial standby power, long-haul trucking, industrial
vehicles (such as forklifts, material handling equipment and compact construction equipment) and specialty vehicles (such as emergency
vehicles, utility vehicles and municipal vehicles) and we will seek to expand our market share in these segments in the future.

 Sales
and Marketing

 Our
proven sales and marketing strategy has allowed us to penetrate our current end markets efficiently. We have established a highly efficient
sales and marketing strategy, to penetrate targeted end markets and ensuring prominent visibility for our Battle Born Batteries and Wakespeed
brands. We prioritize educating our customer base about the benefits of LFP batteries as a superior investment compared to traditional
lead-acid options. Informational videos published on our website and social media platforms highlight these advantages, complemented
by written guides that assist customers in configuring, installing, and utilizing battery systems and accessories. This messaging is
further reinforced through our active presence at tradeshows, live webinars, and other in-person training events with dealers and customers,
fostering direct engagement and ensuring comprehensive product understanding. Participation in these events fosters strong relationships
with both OEMs and retail customers, keeping us attuned to evolving preferences. By leveraging this customer feedback, we collaborate
with major OEMs to design solutions tailored to new and existing applications.

 In
addition to traditional print and digital advertising, we harness the significant influence of social media platforms like YouTube, Instagram,
and Facebook, through affiliate marketing. We partner with established content creators and influencers to cultivate lasting relationships
that showcase product performance organically, beyond mere one-off promotions. Organic integration of our products in television shows,
podcasts and other similar sponsorships further amplifies brand awareness. Additionally, we foster relationships with key industry publications,
securing valuable editorial coverage that showcases our innovative power solutions and how they are used. We believe these strategic
collaborations position our brands as industry leaders within our markets and to the general public as a whole, further strengthening
brand awareness and consumer confidence.

 We
also leverage targeted pay-per-click advertising campaigns across various platforms, including search engines, social media, and connected
TV. This data-driven approach ensures efficient conversion of high-intent customers at the bottom of the purchase funnel, maximizing
return on investment and driving targeted brand awareness among potential buyers.

 Direct
relationships with retail customers remain a core value. Our user-friendly website facilitates direct purchases of Battle Born Batteries
and Wakespeed products, along with well-known third-party components, allowing customers to explore
and acquire complete system solutions in one convenient location. Furthermore, a dedicated team of in-house experts provides comprehensive
sales, technical, and service support to ensure our valued customers receive exceptional care and expertise.

 Competition

 Our
key competitors are principally traditional lead-acid battery and lithium-ion battery manufacturers, such as Samsung, CATL and Enovix,
in North America. We also compete against smaller LFP companies, who primarily either import their products or manufacture products under
a private label. Of these companies, there is no other company that has penetrated our core end markets to the same extent as we have,
and we believe that this is in large part due to the technological advantages that our products offer compared to other products in the
market. Our batteries are purpose-built to enhance the power and performance in any application or setting. We have specifically designed
our battery cases to fit into existing AGM battery racks and cabinets and offer a suite of compatible components and accessories in order
to make the replacement process simple enough for customers to do it themselves. We have optimized our technology to produce a lighter,
yet higher performing battery with a longer lifespan than incumbent lead-acid batteries. Our propriety battery management system and
internal heat technology enables our batteries to outperform not only traditional lead-acid batteries, but other lithium-ion products.

 With
regard to solid-state technology, we have two main competitors, QuantumScape and Solid Power. While both of these competitors are focused
on the development of solid-state technology for use in the propulsion of electric vehicles, we are focused on power storage applications,
which has different requirements. We believe that our proprietary processes, systems and materials provide us with a significant competitive
advantage in developing a fully solid-state, non-toxic and highly cost-effective energy solution.

 As
our solid-state technology comes to fruition and we begin to commercialize this product, we intend to become a vertically integrated
battery company, internalizing all aspects of the manufacturing and assembly process. This is comparable to companies such as Tesla,
BYD Limited and Li-Cycle. Our solid-state technology will also enable us to further penetrate the energy storage market, and we expect
to compete with technology-focused energy storage companies such as EOS Energy, ESS and STEM.

 Intellectual
Property

 The
success of our business and our technology leadership is supported by our proprietary battery technology. We have received patents and
filed patent applications in the United States and other jurisdictions to provide protection for our technology. We rely upon a combination
of patent, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements and other contractual
protections, to establish, maintain and enforce rights in our proprietary technologies. In addition, we seek to protect our intellectual
property rights through non-disclosure and invention assignment agreements with our employees and consultants and through non-disclosure
agreements with business partners and other third parties.

 As
of December 31, 2023, we owned 44 issued patents and 48 pending patent applications. The patents and patent applications cover the United
States, Canada, Australia, Korea, Japan, India, China, and Europe (with individual patents in Germany, France and the United Kingdom).
We periodically review and update our patent portfolio to protect our products and newly developed technologies. Currently, we have a
combination of issued patents and pending patent applications covering the ornamental design of our GC2 and GC3 batteries, a device and
method for monitoring battery systems, pre-coated solid-state electrolyte and electroactive powders and their methods of manufacture,
methods and systems for the dry spray deposition of materials in an electrochemical cell; a thermal fuse; battery systems implementing
a mesh network communication protocol; a power charging system for use during towing of a vehicle; and a power charging system with temperature
based charging control. These patents are expected to have expired or expire between May 2033 and 2043, absent any patent term adjustments
or extensions.

 We
periodically review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration
of our domain names and trademarks and service marks in the United States and other jurisdictions. In an effort to protect our brand,
as of December 31, 2023, we own 21 trademark registrations to cover our house marks in the United States and we have 7 pending trademark
applications relating to our design logos and slogans in the United States and we have 4 pending trademark applications internationally.

 Government
Regulation and Compliance

 We
currently operate from a dedicated leased manufacturing facility, a leased warehouse and a podcast studio, each located in Reno, Nevada
as well as a leased R&D facility in Sparks, Nevada. We have never owned any facility at which we operated. Operations at our facilities
are subject to a variety of environmental, health and safety regulations, including those governing the generation, handling, storage,
use, transportation, and disposal of hazardous materials. To conduct our operations, we have to obtain environmental, health, and safety
permits and registrations and prepare plans. We are subject to inspections and possible citations by federal, state, and local environmental,
health, and safety regulators. In transit, lithium-ion batteries are subject to rules governing the transportation of "dangerous
goods." We have policies and programs in place to assure compliance with our obligations, such as policies relating to workplace
safety, fire prevention, hazardous material management and other emergency action plans. We train our employees and conduct audits of
our operations to assess our fulfillment of these policies.

 We
are also subject to laws imposing liability for the cleanup of releases of hazardous substances. Under the law, we can be liable even
if we did not cause a release on real property that we lease. We believe we have taken commercially reasonable steps to avoid such liability
with respect to our current leased facilities.

 Employees
and Human Capital Resources

 As
of December 31, 2023, we had 156 employees; 150 full-time, 1 part-time and 5 interns. We have adopted our Code of Ethics to support and
protect our culture, and we strive to create a workplace culture in line with our values: "Tell the Truth," "Be Fair,"
"Keep Your Promises," "Respect Individuals," and "Encourage Intellectual Curiosity." As part of our
initiative to retain and develop our talent, we focus on these key areas:

 Safety — Employees
 are regularly educated in safety around their workspaces, and employees participate in volunteer roles on a safety committee, and
 in emergency readiness roles. We have a dedicated safety coordinator who tracks and measures our performance, and helps us benchmark
 our safety programs against our peers.

 Diversity,
 Equity & Inclusion — Our culture has benefitted from the diversity of our workforce from the very beginning.
 Inclusion and equity are "baked into the bricks" of our values, which our employees demonstrate every day. Our human
 resources department and all our corporate officers and directors have an open door policy, and are able to constructively communicate
 with employees to resolve issues when they arise.

 Collaboration — As
 we grow, opportunities for cross-functional collaboration are not as organic as they used to be. We have responded to that change
 by staying mindful and acting intentionally to gather cross-functional input on new initiatives and continuous improvement efforts.

 Continuous
 Improvement — We apply continuous improvement measures to processes as well as people. We encourage professional
 development of our employees, through ongoing learning, credentialing, and collaboration with their industry peers.

 Attracting
and retaining high quality talent at every level of our business is crucial to our continuing success. We have developed relationships
with the University of Nevada Reno and the Nevada System of Higher Education to further our recruitment reach. We provide competitive
compensation and benefits packages, including performance-based compensation that rewards individual and organizational achievements.

 The
Business Combination

 On
October 7, 2022 (the " Closing Date "), Chardan NexTech 2 Acquisition Corp., a Delaware company (" Chardan "),
and Dragonfly Energy Corp, a Nevada corporation (together with its consolidated subsidiaries, " Legacy Dragonfly "),
consummated the merger (the " Closing ") pursuant to the Agreement and Plan of Merger, dated as of May 15, 2022 (as
amended, the " Business Combination Agreement "), by and among Chardan, Bronco Merger Sub, Inc., a Delaware corporation
and wholly-owned subsidiary of Chardan (" Merger Sub "), and Legacy Dragonfly. Pursuant to the Business Combination
Agreement, Merger Sub merged with and into Legacy Dragonfly (the " Merger " and, together with the other transactions
contemplated by the Business Combination Agreement, the " Business Combination "), with Legacy Dragonfly continuing
as the surviving corporation in the Merger and as our wholly owned subsidiary. In connection with the Business Combination, Chardan changed
its name to Dragonfly Energy Holdings Corp.

 Prior
to the completion of the Business Combination, Chardan was a shell company. Chardan was incorporated in the state of Delaware on June
23, 2020. Chardan consummated its initial public offering at a price of $10 per unit on August 13, 2021 (the " Chardan IPO ").
Legacy Dragonfly was incorporated as a limited liability company in the State of Nevada on October 15, 2012 and reorganized as a corporation
under the laws of the State of Nevada on April 11, 2016. Following the Business Combination, our business is the business of Legacy Dragonfly.

 Merger
Consideration

 At
the Closing, by virtue of the Merger and without any action on the part of Chardan, Merger Sub, Legacy Dragonfly or the holders of any
of the following securities:

 (a)
Each outstanding share of Legacy Dragonfly's common stock, par value $0.001 per share (" Legacy Dragonfly Common Stock "),
converted into (i) a certain number of shares of our common stock, totaling 41,500,000 shares (including the conversion and assumption
of the options to purchase shares of Legacy Dragonfly Common Stock described below), which is equal to (x) $415,000,000 divided by (y)
$10.00 (the " Merger Consideration ") and (ii) the contingent right to receive Earnout Shares (as defined below) (which
may be zero) following the Closing.

 (b)
Each option to purchase shares of Legacy Dragonfly Common Stock, was assumed and converted into options to acquire shares of our common
stock. The portion of the Merger Consideration reflecting the conversion of the Legacy Dragonfly options was calculated assuming that
all of our options are net-settled. With respect to Company options received in respect of Legacy Dragonfly options that are outstanding
immediately prior to the Closing and cash exercised after the Closing, up to 627,498 additional shares of our common stock may be issued.
At the Closing, approximately 38,576,648 shares of the Merger Consideration was allocated to holders of outstanding shares of Legacy
Dragonfly Common Stock and 3,664,975 shares of the Merger Consideration was allocated to holders of the assumed Legacy Dragonfly options.

 Earnout
Merger Consideration

 In
addition to the Merger Consideration set forth above, additional contingent shares (" Earnout Shares ") may be payable
to each holder of shares of Legacy Dragonfly Common Stock in the Merger, subject to achieving specified milestones, up to an aggregate
of 40,000,000 additional shares of our common stock in three tranches.

 The
first tranche of 15,000,000 shares was issuable if our 2023 total audited revenue was equal to or greater than $250 million and our 2023
audited operating income was equal to or greater than $35 million. The second tranche of 12,500,000 shares is issuable upon achieving
a volume-weighted average trading price threshold of our common stock over any 20 trading days (which may or may not be consecutive)
within any 30 consecutive trading day period of at least $22.50 on or prior to December 31, 2026, and the third tranche of 12,500,000
shares is issuable upon achieving a volume-weighted average trading price threshold of common stock over any 20 trading days (which may
or may not be consecutive) within any 30 consecutive trading day period of at least $32.50 on or prior to December 31, 2028. To the extent
not previously earned, the second tranche is issuable if the $32.50 price target is achieved by December 31, 2028.

 Upon
the consummation of a change of control transaction during either the second milestone earnout period or the third milestone earnout
period, any earnout milestone with respect to such earnout period that has not yet been achieved shall automatically be deemed to have
been achieved if a change of control transaction is announced with an imputed share price of common stock of at least $22.50 on or prior
to the end of second earnout period or $32.50 on prior to the third earnout period.

 The
first tranche milestone was not achieved for the year ended December 31, 2023.

 PIPE
Investment

to the subscription agreement, dated as of May 15, 2022 (the " Subscription Agreement "), by and between Chardan and
Chardan NexTech Investments 2 LLC (or an affiliate thereof if assigned pursuant to the Subscription Agreement, the " Sponsor "),
the Sponsor agreed to purchase, and Chardan agreed to sell to the Sponsor, an aggregate of 500,000 shares of Chardan common stock (" Chardan
Common Stock ") for gross proceeds to Chardan of $5 million in a private placement. On September 28, 2022, the Sponsor and Chardan
Capital Markets LLC, a New York limited liability company (" CCM LLC "), entered into an assignment, assumption and
joinder agreement, pursuant to which the Sponsor assigned all of the Sponsor's rights, benefits and obligations under the Subscription
Agreement to CCM LLC.

 Under
the Subscription Agreement, the number of shares of Chardan Common Stock that CCM LLC was obligated to purchase was to be reduced by
the number of shares of Chardan Common Stock that CCM LLC purchased in the open market, provided that such purchased shares were not
redeemed, and the aggregate price to be paid under the Subscription Agreement was to be reduced by the amount of proceeds received by
us because such shares are not redeemed (the " Offset "). During the week of September 26, 2022 CCM LLC acquired in
the open market in total 485,000 shares of our common stock at purchase prices per share ranging from $10.33 to $10.38 (such shares,
the " Purchased Shares "). The Purchased Shares were not redeemed, resulting in (i) our receipt of $5,016,547 from the
trust account that held the proceeds from the Chardan IPO (based on a per share redemption price of $10.34) and (ii) a reduction in CCM
LLC's purchase commitment under the Subscription Agreement to zero in accordance with the Offset.

 Debt
Financing

 Consistent
with the commitment letter (the " Debt Commitment Letter ") dated May 15, 2022 by and between Chardan and Legacy Dragonfly,
CCM Investments 5 LLC, an affiliate of CCM LLC (" CCM 5 ", and in connection with the Term Loan, the " Chardan
Lender "), and EICF Agent LLC (" EIP " and, collectively with the Chardan Lender, the "Initial Term Loan
Lenders"), in connection with the Closing, Chardan, Legacy Dragonfly and the Initial Term Loan Lenders entered into the Term Loan,
Guarantee and Security Agreement (the " Term Loan Agreement ") setting forth the terms of a senior secured term loan
facility in an aggregate principal amount of $75 million (the " Term Loan "). The Chardan Lender backstopped its commitment
under the Debt Commitment Letter by entering into a backstop commitment letter, dated as of May 20, 2022 (the " Backstop Commitment
Letter "), with a certain third-party financing source (the " Backstop Lender " and collectively with EIP,
the " Term Loan Lenders "), pursuant to which the Backstop Lender committed to purchase from the Chardan Lender the
aggregate amount of the Term Loan held by the Chardan Lender (the " Backstopped Loans ") immediately following the issuance
of the Term Loan on the Closing Date. Pursuant to an assignment agreement, the Backstopped Loans were assigned by CCM 5 to the Backstop
Lender on the Closing Date.

to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date. The proceeds of the Term Loan
were used (i) to refinance on the Closing Date prior indebtedness, (ii) to support the Business Combination under the Business Combination
Agreement, (iii) for working capital purposes and other corporate purposes, and (iv) to pay any fees associated with transactions contemplated
under the Term Loan Agreement and the other loan documents entered into in connection therewith, including the transactions described
in the foregoing clauses (i) and (ii) and fees and expenses related to the business combination. The Term Loan amortizes in the amount
of 5% per annum beginning 24 months after the Closing Date and matures on the fourth anniversary of the Closing Date (" Maturity
Date "). The Term Loan accrues interest (i) until April 1, 2023, at a per annum rate equal to the adjusted Secured Overnight
Financing Rate (" SOFR ") plus a margin equal to 13.5%, of which 7% will be payable in cash and 6.5% will be paid in-kind,
(ii) 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, which will be paid-in-kind and (iii) at all times thereafter,
at a per annum rate equal to adjusted SOFR plus a margin ranging from 11.5% to 13.5% payable in cash, depending on the senior leverage
ratio of the consolidated company. In each of the foregoing cases, adjusted SOFR will be no less than 1%.

 We
may elect to prepay all or any portion of the amounts owed prior to the Maturity Date; provided that we provide notice to Alter Domus
(US) LLC, as administrative agent for the lenders (the " Administrative Agent "), and the amount is accompanied by the
applicable prepayment premium, if any. Prepayments of the Term Loan are required to be accompanied by a premium of 5% of the principal
amount so prepaid if made prior to the first anniversary of the Closing Date, 3% if made on and after the first anniversary but prior
to the second anniversary of the Closing Date, 1% if made after the second anniversary of the Closing Date but prior to the third anniversary
of the Closing Date, and 0% if made on or after the third anniversary of the Closing Date. If the Term Loan is accelerated following
the occurrence of an event of default, Legacy Dragonfly is required to immediately pay to lenders the sum of all obligations for principal,
accrued interest, and the applicable prepayment premium.

 In
addition to the foregoing, Legacy Dragonfly is required to prepay the Term Loan with the net cash proceeds of certain asset sales and
casualty events (subject to certain customary exceptions), with the net cash proceeds of the issuance of indebtedness that is not otherwise
permitted to be incurred under the Term Loan Agreement, upon the receipt of net cash proceeds from an equity issuance in an amount equal
to 25% of such net cash proceeds, and commencing with the fiscal year ending December 31, 2023, with the excess cash flow for each such
fiscal year in an amount equal to either 25% or 50% of such excess cash flow depending on the senior leverage ratio of the consolidated
company less the amount of any voluntary prepayments made during such fiscal year.

to the Term Loan Agreement, the obligations of Legacy Dragonfly are guaranteed by us and will be guaranteed by any of Legacy Dragonfly's
subsidiaries that are party thereto as guarantors. Pursuant to the Term Loan Agreement, the Administrative Agent was granted a security
interest in substantially all of the personal property, rights and assets of us and Legacy Dragonfly to secure the payment of all amounts
owed to lenders under the Term Loan Agreement. In addition, we entered into a Pledge Agreement (the " Pledge Agreement ")
pursuant to which we pledged to the Administrative Agent our equity interests in Legacy Dragonfly as further collateral security for
the obligations under the Term Loan Agreement.

 The
Term Loan Agreement contains affirmative and restrictive covenants and representations and warranties. We and our subsidiaries are bound
by certain affirmative covenants setting forth actions that are required during the term of the Term Loan Agreement, including, without
limitation, certain information delivery requirements, obligations to maintain certain insurance, and certain notice requirements. Additionally,
we, Legacy Dragonfly and each of our subsidiaries that are guarantors will be bound by certain restrictive covenants setting forth actions
that are not permitted to be taken during the term of the Term Loan Agreement without prior written consent, including, without limitation,
incurring certain additional indebtedness, consummating certain mergers, acquisitions or other business combination transactions, and
incurring any non-permitted lien or other encumbrance on assets. The Term Loan Agreement also contains other customary provisions, such
as confidentiality obligations and indemnification rights for the benefit of the administrative agent and lenders. The Term Loan Agreement
contains financial covenants requiring the credit parties to (a) maintain minimum liquidity (generally, the balance of unrestricted cash
and cash equivalents in our account that is subject to a control agreement in favor of the Administrative Agent) of at least $10,000,000
as of the last day of each fiscal month commencing with the fiscal month ending December 31, 2022, (b) if the daily average liquidity
for any fiscal quarter ending on December 31, 2022, March 31, 2023, June 30, 2023, or September 30, 2023 is less than $17,500,000 and
for each fiscal quarter thereafter (commencing with the fiscal quarter ending December 31, 2023), maintain a senior leverage ratio (generally,
aggregate debt minus up to $500,000 of unrestricted cash of Chardan and its subsidiaries divided by consolidated EBITDA for the trailing
twelve month period just ended) of not more than 6.75 to 1.00 for fiscal quarters ending December 31, 2022 to March 31, 2023, 6.00 to
1.00 for fiscal quarters ending June 30, 2023 to September 30, 2023, 5.00 to 1.00 for fiscal quarters ending December 1, 2023 to March
31, 2024, 4.00 to 1.00 for fiscal quarters ending June 30, 2024 to September 30, 2024, 3.25 to 1.00 for fiscal quarters ending December
31, 2024 to March 31, 2025, and 3.00 to 1.00 for fiscal quarters ending June 30, 2025 and thereafter, (c) if liquidity is less than $15,000,000
as of the last day of any fiscal quarter (commencing with the fiscal quarter ending December 31, 2022), maintain a fixed charge coverage
ratio for the trailing four fiscal quarter period of no less than 1.15:1.00 as of the last day of such fiscal quarter, and (d) if consolidated
EBITDA is less than $15,000,000 for any trailing twelve month period ending on the last day of the most recently completed fiscal quarter,
cause capital expenditures to not exceed $500,000 for the immediately succeeding fiscal quarter (subject to certain exceptions set forth
in the Term Loan Agreement).

 On
March 29, 2023 and September 29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy
the Senior Leverage Ratio and Fixed Charge Coverage Ratio tests (the " Tests ") with respect to the minimum cash requirements
under the Term Loan during the quarter ended March 31, 2023 and September 30, 2023, respectively. On December 29, 2023, we received an
additional waiver from our Administrative Agent and Term Loan Lenders (the " December 2023 Waiver ") in regards to our
compliance with the Tests as of the last day of the quarter ended December 31, 2023. On March 31, 2024, we received an additional waiver
from the Administrative Agent and the Term Loan Lenders in regard to our compliance with our liquidity requirement under the Term Loan
as of the last day of the fiscal quarter ended March 31, 2024.

 Warrant
Agreements

 In
connection with the entry into the Term Loan Agreement, and as a required term and condition thereof, we issued (i) penny warrants to
the Term Loan Lenders under the Term Loan exercisable to purchase 2,593,056 shares at an exercise price of $0.01 per share, which was
equal to approximately 5.6% of common stock calculated on an agreed fully diluted outstanding basis on the issuance date (the " Penny
Warrants ") and (ii) warrants to the Term Loan Lenders under the Term Loan exercisable to purchase 1,600,000 shares of our common
stock at an exercise price of $10.00 per share (the "$10 Warrants " and, together with the Penny Warrants, the " Warrants ").

 The
Penny Warrants have an exercise period of 10 years from the date of issuance. As of April 4, 2024, 1,996,323 shares of common stock have
been issued upon the exercise of Penny Warrants.

 The
$10 Warrants had an exercise period of five years from the date of issuance and had customary cashless exercise provisions. As of December
31, 2022, the $10 Warrants have been exercised in full and are no longer outstanding.

 The
Penny Warrants have, and the $10 Warrants had, specified anti-dilution protection against subsequent equity sales or distributions, subject
to exclusions including for issuances upon conversion exercise or exchange of securities outstanding as of the Closing Date, issuances
pursuant to agreements in effect as of the Closing Date, issuances pursuant to employee benefit plans and similar arrangements, issuances
in joint ventures, strategic arrangements or other non-financing type transactions and issuances pursuant to any public equity offerings.
In addition, no anti-dilution adjustment will be made with respect to issuances of common stock pursuant to the ChEF Equity Facility
(as defined below) (or replacement thereof) sold at a per share price above $5.00.

 The
shares issued or issuable upon exercise of the Warrants have customary registration rights, which are contained in the respective forms
of the Warrants, requiring us to file and keep effective a resale registration statement registering the resale of the shares of common
stock underlying the Warrants.

 ChEF
Equity Facility

 Consistent
with the equity facility letter agreement dated May 15, 2022 between Legacy Dragonfly and CCM 5, we entered into a purchase agreement
(the " Purchase Agreement ") and a Registration Rights Agreement (the " ChEF RRA ") with CCM LLC in
connection with the Closing. Pursuant to and on the terms of the Purchase Agreement, we have the right to sell and direct CCM to purchase
an amount of shares of our common stock, up to a maximum aggregate purchase price of $150 million, from time to time, over the term of
the equity facility (the " ChEF Equity Facility "). In addition, we appointed LifeSci Capital, LLC as a "qualified
independent underwriter" with respect to the transactions contemplated by the Purchase Agreement.

 Under
the terms of the Purchase Agreement, CCM LLC will not be obligated to (but may, at its option, choose to) purchase shares of common stock
to the extent the number of shares to be purchased would exceed the lowest of the number of shares of common stock (i) which would result
in beneficial ownership (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by CCM LLC,
together with its affiliates, of more than 9.9%, (ii) which would cause the aggregate purchase price on the applicable VWAP Purchase
Date (as defined in the Purchase Agreement) for such purchases to exceed $3 million and (iii) equal to 20% of the total number of shares
of common stock that would count towards VWAP on the applicable Purchase Date of such purchase. As of December 31, 2023, 588,500 shares
have been issued pursuant to the Purchase Agreement with CCM LLC for aggregate net proceeds to us of $1,278,566.

 The
net proceeds from any sales under the Purchase Agreement will depend on the frequency with, and prices at, which shares of common stock
are sold to CCM LLC. To the extent we sell shares of our common stock under the Purchase Agreement, we currently plan to use any proceeds
therefrom for working capital and other general corporate purposes.

 CCM
LLC is an affiliate of the Sponsor. In light of the beneficial ownership limitation set forth above, the Sponsor has agreed that the
private placement warrants held by Chardan NexTech 2 Warrant Holdings LLC (" Warrant Holdings "), also an affiliate
of the Sponsor, may not be exercised to the extent an affiliate of the Sponsor (including CCM LLC) is deemed to beneficially own, or
it would cause such affiliate to be deemed to beneficially own, more than 7.5% of our common stock.

 In
addition, pursuant to the ChEF RRA, we have agreed to provide CCM LLC with certain registration rights with respect to the shares of
common stock issued subject to the Purchase Agreement.

 The
Purchase Agreement will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the later of (x) the closing
of the Business Combination and (y) effective date of the Initial Registration Statement (as defined in the Purchase Agreement), (ii)
the date on which CCM LLC shall have purchased $150 million of shares of our common stock pursuant to the Purchase Agreement, (iii) the
date on which our common stock shall have failed to be listed or quoted on Nasdaq or any successor principal market and (iv) the commencement
of certain bankruptcy proceedings or similar transactions with respect to us or all or substantially all of our property.

 Related
Agreements

 Concurrently
with the execution of the Business Combination Agreement, Chardan, Legacy Dragonfly and the Sponsor (as defined below) entered into a
sponsor support agreement.

 Indemnification
of Directors and Officers

 On
the Closing Date, in connection with the consummation of the Business Combination, we entered into indemnification agreements with each
of our directors and executive officers. These agreements, among other things, require us to indemnify our directors and executive officers
for certain expenses, including attorneys' fees, judgments and fines incurred by a director or executive officer in any action
or proceeding arising out of their services as one of our directors or executive officers or any other company or enterprise to which
the person provides services at our request.

 Registration
Rights Agreement

 On
the Closing Date, in connection with the consummation of the Business Combination Agreement, we entered into the Amended and Restated
Registration Rights Agreement (the " Insider Registration Rights Agreement ") with the Sponsor, Chardan's officers,
directors, initial stockholders, CCM LLC and Warrant Holdings, an affiliate of the Sponsor (collectively, the " Insiders ")
and certain Legacy Dragonfly stockholders for the registration of certain securities held by the Insiders.

 Other
Agreements

 On
April 4, 2022, we entered into an asset purchase agreement (" APA ") with Thomason Jones Company, LLC, a Washington
limited liability company (" TJC "), pursuant to which we acquired intellectual property rights relating to Wakespeed,
including all trademarks and certain patents, and inventory for a purchase price of approximately $444,000 which was the approximated
fair market value. William Thomason and Richard Jones, our engineer and sales representatives, each of whom was hired in connection with
the entry into the TJC APA, are the managing members of TJC.

 Separation
Agreements

 On
November 4, 2022, we announced that Sean Nichols, our former Chief Operating Officer, would be leaving the Company to pursue other interests.
His last day of employment was November 7, 2022 (the " Separation Date "). On October 25, 2022, we entered into a separation
and release agreement with Mr. Nichols that became effective and fully irrevocable on November 2, 2022, which was subsequently amended
on November 14, 2022 (as amended, the " Separation Agreement "). Pursuant to the Separation Agreement, Mr. Nichols received
a cash payment of $100,000 in one installment in December 2022 and is entitled to receive a cash payment of $1,000,000 in 24 monthly
installments commencing in December 2022. Mr. Nichols' outstanding equity awards granted by us will fully vest and, in the case
of options, will be exercisable for 12 months following the Separation Date. The Separation Agreement also provides that we will pay
a portion of Mr. Nichols' premiums to continue participation in our health insurance plans for up to 18 months following the Separation
Date. The Separation Agreement includes a general release of claims by Mr. Nichols and certain restrictive covenants in favor of us,
including non-competition and non-solicitation covenants for 12 months following the Separation Date.

 On
April 26, 2023, we entered into a separation and release of claims agreement with our former Chief Legal Officer (the " CLO ").
As consideration for the CLO's execution of the agreement, we agreed to pay the employee payments equivalent to $720,000 for wages
and benefits divided into 24 monthly payments commencing on June 1, 2023, and all outstanding equity-based compensation awards to become
fully vested. The CLO had three (3) months from the termination date to exercise the outstanding options. The three (3) month period
ended on July 26, 2023 in which the options were not exercised and the options were forfeited as a result.

 June
2023 Offering

 On
June 20, 2023, we entered into an underwriting agreement (the " Underwriting Agreement ") with Roth Capital Partners,
LLC, as representative of the several underwriters (the " Underwriters "), pursuant to which we sold to the Underwriters,
in a firm commitment underwritten public offering (the " June 2023 Offering "), an aggregate of (i) 10,000,000 shares
of our common stock, par value $0.0001, and (ii) accompanying warrants to purchase up to 10,000,000 shares of common stock (the " Investor
Warrants "), at the combined public offering price of $2.00 per share and accompanying Investor Warrant, less underwriting discounts
and commissions, and (iii) warrants to purchase up to an aggregate of 570,250 shares of common stock (the " Underwriters'
Warrants "). In addition, we granted the Underwriters a 45-day over-allotment option to purchase up to an additional 1,500,000
shares of common stock and/or Investor Warrants to purchase up to an aggregate of 1,500,000 shares of common stock at the public offering
price per security, less underwriting discounts and commissions.

 The
Investor Warrants are exercisable for five years from the closing date of the June 2023 Offering, have an exercise price of $2.00 per
share and are immediately exercisable. In the event of certain fundamental transactions, holders of the Investor Warrants will have the
right to receive the Black Scholes Value (as defined in the Investor Warrants) of their Investor Warrants calculated pursuant to the
formula set forth in the Investor Warrants, payable either in cash or in the same type or form of consideration that is being offered
and being paid to the holders of common stock. The Underwriters' Warrants are exercisable upon issuance and will expire on June
20, 2028. The initial exercise price of the Underwriters' Warrants is $2.50 per share, which equals 125% of the per share public
offering price in the June 2023 Offering. As part of the June 2023 Offering, the Underwriters partially exercised their over-allotment
option in the amount of 1,405,000 shares of common stock and Investor Warrants to purchase 1,405,000 shares of common stock. The June
2023 Offering closed on June 22, 2023. The aggregate net proceeds from this offering, including the partial overallotment option, was
approximately $21.1 million.

2023 Private Placement

 On
December 29, 2023, we obtained the December 2023 Waiver from the Term Loan Lenders in regards to our compliance with the Tests as of
the last day of the quarter ended December 31, 2023. The December 2023 Waiver provided for a one-time issuance of penny warrants (the
" Waiver Penny Warrants ") to purchase up to 1,286,671 shares of our common stock, par value $0.0001 per share (the
" Waiver Penny Warrant Shares "), at an exercise price of $0.01 per share, in connection with the Term Loan Lenders'
agreement to waive the Tests under the Term Loan for the quarter ended December 31, 2023. The Waiver Penny Warrants were immediately
exercisable upon issuance and will expire ten years from the date of issuance.

 Nevada
Reincorporation

 On
March 31, 2023 (the " Effective Date "), we changed our state of incorporation from the State of Delaware to the State
of Nevada (the " Reincorporation ") pursuant to a plan of conversion dated March 30, 2023 (the " Plan of Conversion ").
The Reincorporation was accomplished by filing: (i) a certificate of conversion with the Secretary of State of the State of Delaware
(ii) articles of conversion with the Secretary of State of the State of Nevada and (iii) articles of incorporation (the " Articles
of Incorporation ") with the Secretary of State of the State of Nevada. In connection with the Reincorporation, our board of
directors adopted new bylaws in the form attached to the Plan of Conversion (the " Bylaws ").

 The
Reincorporation was previously submitted to a vote of, and approved by, our stockholders at a special meeting of stockholders held on
February 28, 2023 (the " Special Meeting "). The Reincorporation did not affect any of our material contracts with any
third parties, and our rights and obligations under those material contractual arrangements continue to be rights and obligations of
us after the Reincorporation. The Reincorporation did not result in any change in our business, jobs, management, number of employees,
assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation). Pursuant to the Plan of Conversion,
our issued and outstanding shares of common stock were automatically converted and certificates representing shares of common stock automatically
represented shares of common stock of the reincorporated company as of the Effective Date.

 Term
Loan Waiver and Partial Repayment

 In
July 2023, upon a request from our Term Loan Lenders under the term loan agreement, we repaid $5,274,575 of principal to satisfy a portion
of its outstanding principal under the Term Loan Agreement.

 On
December 29, 2023, we obtained the December 2023 Waiver from our Administrative Agent and Term Loan in regards to our compliance with
the Tests as of the last day of the quarter ended December 31, 2023. The December 2023 Waiver provided for a one-time issuance of penny
warrants to purchase up to 1,286,671 shares of our common stock, par value $0.0001 per share, at an exercise price of $0.01 per share,
in connection with the lenders' agreement to waive the Tests under the Loan Agreement for the quarter ending December 31, 2023.
The Penny Warrants are immediately exercisable upon issuance and will expire ten years from the date of issuance.

 On
March 31, 2024, we received an additional waiver from the Administrative Agent and the Term Loan Lenders in regard to our compliance
with the liquidity requirement under the Term Loan as of the last day of the fiscal quarter ended March 31, 2024.

 Recent
Developments

 On
January 30, 2024, we issued an unsecured convertible promissory note (the " January Note ") in the principal amount
of $1.0 million (the " January Principal Amount ") to Brian Nelson, one of our directors, in a private placement in
exchange for cash in an equal amount. The January Note became due and payable in full on February 2, 2024. We were also obligated to
pay $50,000 (the " January Loan Fee ") to Mr. Nelson on February 2, 2024. We paid the January Principal Amount and the
January Loan Fee in full on February 2, 2024.

 On
February 27, 2024 we issued a convertible promissory (the " February Note ") in the amount of $1.7 million (the " February
Principal Amount ") to Mr. Nelson, in a private placement in exchange for cash in an equal amount. The February Note became
due and payable in full on March 1, 2024. We were also obligated to pay a $85,000 loan fee (the " February Loan Fee ")
to Mr. Nelson on March 1, 2024. We paid the February Principal Amount and the February Loan Fee on March 1, 2024.

 On
March 31, 2024, we received an additional waiver from the Administrative Agent and the Term Loan Lenders in regard to our compliance
with the liquidity requirement under the Term Loan as of the last day of the fiscal quarter ended March 31, 2024.

April 12, 2024, we entered into amendments to the employment agreements with our Chief Executive Officer, our Chief Revenue Officer
and our Chief Marketing Officer to amend the terms of their annual equity compensation (the " Amended Employee Agreements ").
The Amended Employee Agreements allow us to issue a combination of cash and equity awards on an annual basis up to a specified amount
($1,532,000 for our Chief Executive Officer, $490,000 for our Chief Revenue Officer and $236,000 for our Chief Marketing Officer), subject
to approval and such other terms and conditions imposed by the compensation committee of the board of directors.

 On
April 12, 2024, we issued a total of 836,295 restricted stock units (" RSUs ") under Dragonfly Energy Holdings 2022
Equity Incentive Plan (the " 2022 Plan ") to the following employees pursuant to their Amended Employee Agreements: (i) 567,407 RSUs to our Chief Executive
Officer; (ii) 181,481 RSUs to our Chief Revenue Officer; and (iii) 87,407 RSUs to our Chief Marketing Officer. In addition to the RSU awards, our Board also approved the following cash
awards to the above referenced employees: (i) $510,666.67 to our Chief Executive Officer; (ii) $163,333.33 to our Chief Revenue Officer;
and (iii) $78,667.67 to our Chief Marketing Officer. Each of the approved cash awards will not be paid out to the employees until we have
achieved a minimum cash balance of $30,000,000, and are subject to each employee's continued employment on the date of payment.

 On April 12, 2024, our Board issued each of our non-employee directors 222,222 RSUs in connection with their service
as directors for the year ended December 31, 2023. The RSUs will vest in three equal annual installments, with the first vesting date
on the one (1) year anniversary date of their issuance, subject to the directors continued service on our Board on each vesting date.

 On April 15, 2024, our Board approved an amendment to our Director Compensation Policy offering directors
long-term incentive awards that are issuable subject to the sole discretion of our compensation committee. Each such long-term incentive
award is payable in the form of cash and or equity awards. Each such award shall be determined each fiscal year and are subject to the
director's continued service with us and other conditions as our compensation committee deems appropriate. Where equity awards are
issued, such awards are subject to the terms and conditions of t he 2022 Plan.

 On
April 12, 2024, we entered into the Fernley Lease Agreement for the approximately 64,000 square foot Premises to be used for
warehousing, assembly and light manufacturing, painting, storage fulfillment, and distribution of our products.

 Corporate

 The
mailing address of our principal executive office is 1190 Trademark Dr. #108, Reno, Nevada 89521, and our telephone number is (775) 622-3448.
On March 31, 2023, we effected the Reincorporation from the State of Delaware into the State of Nevada.

 We
file periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may
be obtained, free of charge, by visiting the SEC's website at www.sec.gov that contains all of the reports, proxy and information
statements, and other information that we electronically file or furnish to the SEC. We also maintain a website at www.dragonflyenergy.com
where we make available the proxy statements, press releases, registration statements and reports on Forms 3, 4, 8-K, 10-K and 10-Q that
we (and in the case of Section 16 reports, our insiders) file with the SEC. These forms are made available as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC. Press releases are also issued via electronic transmission
to provide access to our financial and product news, and we provide notification of and access to voice and internet broadcasts of our
quarterly and annual results. Our website also includes investor presentations and corporate governance materials.

 Item
1A. Risk Factors

 An
investment in our common stock is speculative and illiquid and involves a high degree of risk including the risk of a loss of your entire
investment. You should carefully consider the risks and uncertainties described below and the other information contained in this report
and our other reports filed with the Securities and Exchange Commission (the "SEC"). The risks set forth below are not the
only ones facing us. Additional risks and uncertainties may exist that could also adversely affect our business, operations and financial
condition. If any of the following risks actually materialize, our business, financial condition and/or operations could suffer. In such
event, the value of our common stock could decline, and you could lose all or a substantial portion of the money that you pay for our
common stock.

 Summary
of Risk Factors

 Risks
Related to Our Existing Lithium-Ion Battery Operations

 Our
 business and future growth depends on the needs and success of our customers.

 We
 operate in a competitive industry. We expect that the level of competition will increase and the nature of our competitors will change
 as we develop new LFP battery products for, and enter into, new markets, and as the competitive landscape evolves.

 We
 may not succeed in our medium- and long-term strategy of entering into new end markets for LFP batteries and our success depends,
 in part, on our ability to successfully develop and manufacture new products for, and acquire customers in, these new markets and
 successfully grow our operations and production capabilities (including, in time, our ability to manufacture solid-state cells in-house).

 We
 currently rely on two suppliers to provide our LFP cells and a single supplier for the manufacture of our battery management system.
 Any disruption in the operations of these key suppliers could adversely affect our business and results of operations.

 We
 are currently, and likely will continue to be, dependent on a single manufacturing facility until the construction of our new facility
 is completed, if at all. If our facility becomes inoperable for any reason, or our automation and expansion plans do not yield the
 desired effects, our ability to produce our products could be negatively impacted.

 Risks
Related to Our Solid-State Technology Development

 We
 face significant engineering challenges in our attempts to develop and manufacture solid-state battery cells and these efforts may
 be delayed or fail which could negatively impact our business.

 We
 expect to make significant investments in our continued research and development of solid-state battery technology development, and
 we may be unable to adequately control the costs associated with manufacturing our solid-state battery cells.

 If
 our solid-state batteries fail to perform as expected, our ability to further develop, market and sell our solid-state batteries
 could be harmed.

 Risks
Related to Intellectual Property

 We
 rely heavily upon our intellectual property portfolio. If we are unable to protect our intellectual property rights, our business
 and competitive position would be harmed.

 We
 may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to
 incur substantial costs.

Risk Factors

 The
 uncertainty in global economic conditions, including the Russia-Ukraine conflict and Hamas' attack on Israel, could reduce
 consumer spending and disrupt our supply chain which could negatively affect our results of operations.

 The
 loss of one or more members of our senior management team, other key personnel or our failure to attract additional qualified personnel
 may adversely affect our business and our ability to achieve our anticipated level of growth.

 If
 we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of customer service,
 or adequately address competitive challenges.

 Changes in applicable laws or regulations could impact our operations, 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.

 Risks
Related to Our Financial Position and Capital Requirements

 Our
 business is capital intensive, and we may not be able to raise additional capital on attractive terms, if at all. Any further indebtedness
 we incur may limit our operational flexibility in the future.

 Failure
 to comply with the financial covenants in our loan agreement could allow our lenders to accelerate payment under our loan agreement,
 which would have a material adverse effect on our results of obligations and financial position and raise substantial doubt about
 our ability to continue as a going concern.

 Restrictions
 imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business and to finance
 our future operations or capital needs or to engage in acquisitions or other business activities necessary to achieve growth.

 Risks
Related to Ownership of Our Common Stock

 Future
 issuances of debt securities and equity securities may adversely affect us and may be dilutive to existing stockholders.

 We
 may issue additional shares of our common stock or other equity securities without your approval, which would dilute your ownership
 interests and may depress the market price of your shares.

 Risks
Related to Our Existing Lithium-Ion Battery Operations

 Our
business and future growth depends on the needs and success of our OEM's and similar customers.

 The
demand for our products, including sales to OEM s, ultimately depends on consumers in our current end markets (primarily owners
of RVs, marine vessels and off-grid residences). The performance and growth of these markets is impacted by numerous factors, including
macro-economic conditions, consumer spending, travel restrictions, fuel costs and energy demands (including an increasing trend towards
the use of green energy). Increases or decreases in these variables may significantly impact the demand for our products. If we fail
to accurately predict demand, we may be unable to meet our customers' needs, resulting in the loss of potential sales, or we may
produce excess products, resulting in increased inventory and overcapacity in our production facilities, increasing our unit production
cost and decreasing our operating margins.

 An
increasing proportion of our revenue has been and is expected to continue to be derived from sales to RV OEMs. 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. For example,
under our Supply Agreement with Keystone RV Company, or Keystone, the largest manufacturer of towable RVs in North America, Keystone
has agreed to fulfill certain of its LFP battery requirements exclusively through us for at least one year, with automatic annual renewals.
However, although in time we expect Keystone to be significant contributor to our projected growth in RV OEM battery sales, this arrangement
may not deliver the anticipated benefits, as there are no firm purchase commitments, sales will continue to be made on a purchase order
basis, Keystone is permitted to purchase other LFP batteries from third parties and this arrangement may not be renewed. In addition,
in July 2022, we agreed to a strategic investment by THOR Industries, or THOR, which, among other things, contemplates a future, mutually
agreed exclusive distribution agreement with THOR in North America. Although we expect that THOR will be a be significant contributor
to our projected growth in RV OEM battery sales, this arrangement may not deliver the anticipated benefits and this distribution agreement
may, in the future, preclude us from dealing with other large RV OEMs and their associated brands in North America or otherwise could
negatively impact our relationships with those RV OEMs to whom we may be permitted to supply our batteries. In July 2023, we were notified
by Keystone that, due to weaker demand for its products and their subsequent focus on reducing costs, it would no longer install our
storage solutions as standard equipment, but rather return to offering those solutions as an option to dealers and consumers. While Keystone
has not moved to a different solution or competitor, as a result in this change in strategy there was a material limiting effect on our
revenue in 2023. Increased overall RV OEM sales in the future may not materialize as expected or at all and we may fail to achieve our
targeted sales levels. Future RV OEM sales are subject to a number of risks and uncertainties, including the number of RVs that these
OEMs manufacture and sell (which can be impacted by a variety of events including those disrupting our OEM customers' operations
due to supply chain disruptions or labor constraints); the degree to which our OEM customers incorporate/design-in our batteries into
their RV product lines and renew our supply agreements; the extent to which RV owners, if applicable, opt to purchase our batteries upon
initial purchase of their RV or in the aftermarket; and our continued ability to successfully develop and introduce reliable and cost-effective
batteries meeting evolving industry standards and customer specifications and preferences. Our failure to adequately address any of these
risks may result in lost sales which could have a material adverse effect on our business, financial condition and results of operations.

 In
addition, our near-term growth depends, in part, on the continued growth of the end markets in which we currently operate. Although the
total addressable market for RVs, marine vessels and off-grid residences is estimated to reach $12 billion by 2025, these markets may
not grow as expected or at all, and we may be unable to maintain existing customers and/or attract new customers in these markets. Our
failure to maintain or expand our share of these growing markets could have a material adverse effect on our business, financial condition
and results of operations.

 We
may not be able to engage target customers successfully and convert these customers into meaningful orders in the future.

 Our
success, and our ability to increase sales and operate profitably, depends on our ability to identify target customers and convert these
customers into meaningful orders, as well as our continued development of existing customer relationships. Although we have developed
a multi-pronged sales and marketing strategy to penetrate our end markets and reach a range of customers, this strategy may not continue
to be effective in reaching or converting target customers into orders, or as we expand into additional markets. Recently, we have also
dedicated more resources to developing relationships with certain key RV OEMs, such as Keystone, which we aim to convert into collaborations
on custom designs and/or long-term contractual arrangements. We may be unable to convert these relationships into meaningful orders or
renew these arrangements going forward, which may require us to expend additional cost and management resources to engage other target
customers. However, in July 2023, we were notified by Keystone that, due to weaker demand for its products and their subsequent focus
on reducing costs, it would no longer install our storage solutions as standard equipment, but rather return to offering those solutions
as an option to dealers and consumers. While Keystone has not moved to a different solution or competitor, as a result in this change
in strategy there was a material limiting effect on our revenue in 2023.

 Our
sales to any future or current customers may decrease for reasons outside our control, including loss of market share by customers to
whom we supply products, reduced or delayed customer requirements, supply and/or manufacturing issues affecting production, reputational
harm or continued price reductions. Furthermore, in order to attract and convert customers we must continue to develop batteries that
address our current and future customers' needs. Our failure to achieve any of the foregoing could have a material adverse effect
on our business, financial condition and results of operations.

 We
operate in a competitive industry. We expect that the level of competition will increase and the nature of our competitors will change
as we develop new LFP battery products for, and enter into, new markets, and as the competitive landscape evolves. These competitive
and other factors could result in lost potential sales and lower average selling prices and profitability for our products.

 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 solid-state cells, we will experience competition with a wider range of companies. These include companies
focused on solid-state cell production, vertically integrated energy companies and other technology-focused energy storage companies.
We believe our main competitive advantage in displacing incumbent lead-acid batteries is that we produce a lighter, safer, higher performing,
cost-effective battery with a longer lifespan. We believe our go-to-market strategy, established brands, proven reliability and relationships
with OEMs and end consumers both (i) enable us to compete effectively against other battery manufacturers and (ii) position us favorably
to expand into new addressable markets. However, OEM sales typically result in lower average selling prices and related margins, which
could result in overall margin erosion, affect our growth or require us to raise our prices. As a result, we may be unable to maintain
this competitive advantage given the rapidly developing nature of the industry in which we operate.

 Our
current competitors have, and future competitors may have, greater resources than we do. Our competitors may be able to devote greater
resources to the development of their current and future technologies. These competitors may also be able to devote greater resources
to sales and marketing efforts, affording them greater access to customers, and may be able to establish cooperative or strategic relationships
amongst themselves or with third parties that may further enhance their competitive positioning. In addition, foreign producers may be
able to employ labor at significantly lower costs than producers in the United States, expand their export capacity and increase their
marketing presence in our major end markets. We expect actual and potential competitors to continue their efforts to develop alternative
battery technologies and introduce new products with more desirable, attractive features. These new technologies and products may be
introduced sooner than our offerings and could gain greater market acceptance. Although we believe we are a leader in developing solid-state
battery technology (particularly for energy storage applications) new competitors may emerge, alternative approaches to solid-state battery
technology may be developed and competitors may seek to market solid-state battery technologies better suited for other applications
such as EV's to our target markets.

 Additional
competitive and other factors may result in lost sales opportunities and declines in average sales prices and overall product profitability.
These include rapidly evolving technologies, industry standards, economic conditions and end-customer preferences. Our failure to adapt
to or address these factors as they arise could have a material adverse effect on our business, financial condition and results of operations.

 We
may not succeed in our medium- and long-term strategy of entering into new end markets for LFP batteries and our success depends, in
part, on our ability to successfully develop and manufacture new products for, and acquire customers in, these new markets and successfully
grow our operations and production capabilities (including, in time, our ability to manufacture solid-state cells in-house).

 Our
future success depends, in part, upon our ability to expand into additional end markets identified by us as opportunities for our LFP
batteries. These markets include heavy-duty trucking, industrial solar integration, specialty and work vehicles, material handling, rail,
and emergency and standby power in the medium term, and data centers, telecom and distributed on-grid storage in the longer term. Our
ability to expand into these markets depends on a number of factors, including the continued growth of these markets, having sufficient
capital to expand our product offerings (including in the longer term batteries incorporating, once developed, our solid-state cells)
and manufacturing capacity, developing products adapted to customer needs and preferences in these markets, our successful expansion
of our manufacturing capabilities in order to meet customer demand, our ability to identify and convert potential customers within these
markets and our ability to attract and retain qualified personnel to assist in these efforts. Although we intend to devote resources
and management time to understanding these new markets, we may face difficulties in understanding and accurately predicting the demographics,
preferences and purchasing habits of customers and consumers in these markets. If we fail to execute on our growth strategies in accordance
with our expectations, our sales growth would be limited to the growth of existing products and existing end markets, and this could
have a material adverse effect on our business, financial condition and results of operations.

 Further,
if we are unable to manage the growth of our operations effectively to match the growth in sales, we may incur unexpected expenses and
be unable to meet our customers' requirements, which could materially adversely affect our business, financial condition and results
of operations. A key component of our growth strategy is the expansion and automation of our manufacturing sales capacity to address
expected growing product demand and to accommodate our production of solid-state cells at scale. We have experienced supply delays in
obtaining the necessary components to implement our automated adhesive application systems, as well as our pilot production line for
our solid-state cells, and we may continue to experience component shortages in the future, which may negatively impact our ability to
achieve these aspects of our growth strategy on time or at all. The costs of our expansion and automation efforts may be greater than
expected, and we may fail to achieve anticipated cost efficiencies, which could have a material adverse effect on our business, financial
condition and results of operations. We must also attract, train and retain a significant number of skilled employees, including engineers,
sales and marketing personnel, customer support personnel and management, and the availability of such personnel may be constrained.
Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations; result in weaknesses
in our infrastructure, systems or controls; give rise to operational mistakes, financial losses, loss of productivity or business opportunities;
and result in loss of employees and reduced productivity of remaining employees, any of which could have a material adverse effect on
our business, financial condition and results of operations.

 We
currently rely on two suppliers to provide our LFP cells and a single supplier for the manufacture of our battery management system.
Any disruption in the operations of these key suppliers could adversely affect our business and results of operations.

 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, and we intend to continue to rely on these suppliers going forward.

 Our
dependence on a limited number of key third-party suppliers exposes us to challenges and risks in ensuring that we maintain adequate
supplies required to produce our LFP batteries. Although we carefully manage our inventory and lead-times, we may experience a delay
or disruption in our supply chain and/or our current suppliers may not continue to provide us with LFP cells or our battery management
systems in our required quantities or to our required specifications and quality levels or at attractive prices. Our close working relationships
with our China-based LFP cell suppliers to-date, reflected in our ability to increase our purchase order volumes (qualifying us for related
volume-based discounts) and to order and receive delivery of cells in advance of required demand, has helped us moderate or offset increased
supply-related costs associated with inflation, currency fluctuations and tariffs imposed on our battery cell imports by the U.S. government
and avoid potential shipment delays. If we are unable to enter into or maintain commercial agreements with these suppliers on favorable
terms, or if any of these suppliers experience unanticipated delays, disruptions or shutdowns or other difficulties ramping up their
supply of products or materials to meet our requirements, our manufacturing operations and customer deliveries would be seriously impacted,
potentially resulting in liquidated damages and harm to our customer relationships. Although we believe we could locate alternative suppliers
to fulfill our needs, we may be unable to find a sufficient alternative supply in a reasonable time or on commercially reasonable terms.

 Further,
our dependence on these third-party suppliers entails additional risks, including:

 inability,
 failure or unwillingness of third-party suppliers to comply with regulatory requirements;

 breach
 of supply agreements by the third-party suppliers;

 misappropriation
 or disclosure of our proprietary information, including our trade secrets and know-how;

 relationships
 that third-party suppliers may have with others, which may include our competitors, and failure of third-party suppliers to adequately
 fulfill contractual duties, resulting in the need to enter into alternative arrangements, which may not be available, desirable or
 cost-effective; and

 termination
 or nonrenewal of agreements by third-party suppliers at times that are costly or inconvenient for us.

 We
may not be able to accurately estimate future demand for our LFP batteries, and our failure to accurately predict our production requirements
could result in additional costs or delays.

 We
seek to maintain approximately a six-month supply of LFP cells and other critical components by pre-ordering in advance of expected demand.
However, our business and customer product demand is impacted by trends and factors that may be outside our control. Therefore, our ability
to predict our manufacturing requirements is subject to inherent uncertainty. Lead times for materials and components that our suppliers
order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given
time. If we fail to order sufficient quantities of product components in a timely manner, the delivery of our batteries to our customers
could be delayed, would harm our business, financial condition and results of operations.

 To
meet our delivery deadlines, we generally make significant decisions on our production level and timing, procurement, facility requirements,
personnel needs and other resources requirements based on our estimate of demand, our past dealings with such customers, economic conditions
and other relevant factors. Although we monitor our slow-moving inventory, if customer demand declines significantly, we may have excess
inventory which could result in unprofitable sales or write-offs. Expediting additional material to make up for any shortages within
a short time frame could result in increased costs and a delay in meeting orders, which would result in lower profits and negatively
impact our reputation. In either case, our results of operations would fluctuate from period to period.

 In
addition, certain of our competitors may have long-standing relationships with suppliers, which may provide them with a competitive pricing
advantage for components and reduce their exposure to volatile raw material costs, including due to inflation. As a result, we may face
market-driven downward pricing pressures in the future, which may run counter to the cost of the components required to produce our products.
During 2022 in particular, we experienced rising materials costs due to inflation, which we partially mitigated through increases in
our product prices, where we thought it to be prudent. Our customers may not view this favorably and expect us to cut our costs further
and/or to lower the price of our products. We may be unable to increase our sales volumes to offset lower prices (if we choose to implement
lower prices), develop new or enhanced products with higher selling prices or margins, or reduce our costs to levels enabling us to remain
competitive. Our failure to accomplish any of the foregoing could have a negative impact on our profitability and our business, financial
condition and results of operations may ultimately be materially adversely affected.

 We are currently, and will likely continue to
be, dependent on two manufacturing facilities until the construction of our new facility is completed, if at all. If our facility becomes
inoperable for any reason, or our automation and expansion plans do not yield the desired effects, our ability to produce our products
could be negatively impacted.

 All
of our battery assembly currently takes place at our 99,000 square foot headquarters and manufacturing facility located in Reno,
Nevada. We also entered into the Fernley Lease Agreement in April 2024 for use of an approximately 64,000 square foot facility to
further increase our capacity to produce our patented dry electrode process. We currently operate three LFP battery production
lines, which has been sufficient to meet customer demand. If one or several production lines were to become inoperable for any
period of time, we would face delays in meeting orders, which could prevent us from meeting demand or require us to incur unplanned
costs, including capital expenditures.

 Our
facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages,
utility and transportation infrastructure disruptions, acts of war or terrorism, or by public health crises, which may render it difficult
or impossible for us to manufacture our products for an extended period of time. The inability to produce our products or the backlog
that could develop if our manufacturing facility is inoperable for even a short period of time may result in increased costs, harm to
our reputation, a loss of customers or a material adverse effect on our business, financial condition or results of operations. Although
we maintain property damage and business interruption insurance, this insurance may not be sufficient to cover all of our potential losses
and may not continue to be available to us on acceptable terms, if at all.

 Over
the next several years we plan to automate additional aspects of existing LFP battery production lines, add additional LFP battery production
lines (as required) and construct and operate a pilot production line for our solid-state cells, all designed to maximize the capacity
of our manufacturing facility. We have entered a lease for a 390,240 square foot facility that is currently under construction, but is
expected to be completed in the second half of 2024; however, there is no guarantee this will be completed or that we will be able to
effectively utilize the new space. Our plans for automation and expansion may experience delays, incur additional costs or cause disruption
to our existing production lines. For example, we have experienced supply delays in obtaining the necessary components to implement our
automated adhesive application systems, as well as our pilot production line for our solid-state cells, and we may continue to experience
component shortages in the future. The costs to successfully achieve our expansion and automation goals may be greater than we expect,
and we may fail to achieve our anticipated cost efficiencies, which could have a material adverse effect on our business, financial condition
and results of operations. Furthermore, while we are generally responsible for delivering products to the customer, we do not maintain
our own fleet of delivery vehicles and outsource this function to third parties. Any shortages in trucking capacity, any increase in
the cost thereof or any other disruption to the highway systems could limit our ability to deliver our products in a timely manner or
at all.

 Lithium-ion
battery cells have been observed to catch fire or release smoke and flame, which may have a negative impact on our reputation and business.

 Our
LFP batteries use lithium iron phosphate (LiFePO4) as the cathode material for lithium-ion cells. LFP is intrinsically safer than other
battery technologies due to its thermal and chemical stability and LFP batteries are less flammable than lead-acid batteries or lithium-ion
batteries using different chemistries. On rare occasions, however, lithium-ion cells can rapidly release the energy they contain by releasing
smoke and flames in a manner that can ignite nearby materials and other lithium-ion cells. This faulty result could subject us to lawsuits,
product recalls, or redesign efforts, all of which would be time consuming and expensive. Further, negative public perceptions regarding
the suitability or safety of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, even
if such incident does not involve our products, could seriously harm our business and reputation.

 To
facilitate an uninterrupted supply of battery cells, we store a significant number of lithium-ion cells at our facility. While we have
implemented enhanced safety procedures related to the handling of the cells, any mishandling, other safety issue or fire related to the
cells could disrupt our operations. In addition, any accident, whether occurring at our manufacturing facility or from the use of our
batteries, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries or
property damage. Such damage or injury could lead to adverse publicity and potentially a product recall, which could have a material
adverse effect on our brand, business, financial condition and results of operations.

 We
may be subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully
defend or insure against such claims.

 Product
liability claims, even those without merit or that do not involve our products, could result in adverse publicity or damage to our brand,
decreased partner and end-customer demand, and could have a material adverse effect on our business, financial condition and results
of operations. The occurrence of any defects in our products could make us liable for damages and legal claims. In addition, we could
incur significant costs to correct such issues, potentially including product recalls. We face an inherent risk of exposure to claims
in the event that our products do not perform or are claimed not to have performed as expected. We also face risk of exposure to claims
because our products may be installed on vehicles (including RVs and marine vessels) that may be involved in crashes or may not perform
as expected resulting in death, personal injury or property damage. Liability claims may result in litigation, the occurrence of which
could be costly, lengthy and distracting and could have a material adverse effect on our business, financial condition and results of
operations.

 In
the future, we may voluntarily or involuntarily initiate a recall if any products prove to be defective or non-compliant with then-applicable
safety standards. Such recalls may involve significant expense and diversion of management attention and other resources, which could
damage our brand image in our target end markets, as well as have a material adverse effect on our business, financial condition and
results of operations.

 A
successful product liability claim against us could require us to pay a substantial monetary award. While we maintain product liability
insurance, the insurance that we carry may not be sufficient or it may not apply to all situations. Moreover, a product liability claim
against us or our competitors could generate substantial negative publicity about our products and business and could have a material
adverse effect on our brand, business, financial condition and results of operations.

 We
currently rely on software and hardware that is complex and technical, and we expect that our reliance will increase in the future with
the introduction of future products. If we are unable to manage the risks inherent in these complex technologies, or if we are unable
to address or mitigate technical limitations in our systems, our business could be adversely affected.

 Each
of our batteries include our proprietary battery management system, which relies on software and hardware manufactured by third parties
that is complex and technical. In addition, Dragonfly IntelLigence, our battery communications system which we recently launched in the
first quarter 2023, utilizes third-party software and hardware to store, retrieve, process and manage data. The software and hardware
utilized in these systems may contain errors, bugs, vulnerabilities or defects, which may be difficult to detect and/or manage. Although
we attempt to remedy any issues that we observe in our products as effectively and rapidly as possible, such efforts may not be timely,
may hamper production, or may not be to the satisfaction of our customers. If we are unable to prevent or effectively remedy errors,
bugs, vulnerabilities or defects in the software and hardware that we use, we may suffer damage to our brand, loss of customers, loss
of revenue or liability for damages, any of which could adversely affect our business, financial condition and results of operations.

 Risks
Related to Our Solid-State Technology Development

 We
face significant engineering challenges in our attempts to develop and manufacture solid-state battery cells and these efforts may be
delayed or fail which could reduce consumer spending which could negatively impact our business.

 Our
solid-state battery development efforts are still ongoing, and we may fail to meet our goal of commercially selling LFP batteries incorporating
our manufactured solid-state cells, or at all. We may encounter delays in the design, manufacture and launch of our solid-state battery
cells, and in increasing production to scale.

 Development
and engineering challenges could delay or prevent our production of solid-state battery cells. These difficulties may arise in connection
with current and future efforts to optimize the chemistry or physical structure of our solid-state batteries with the goal of enhancing
conductivity and power; maximizing cycling capabilities and power results; reducing costs; and developing related mass production manufacturing
processes. If we are unable to overcome developmental and engineering challenges, our solid-state battery efforts could fail.

 We
currently purchase the battery cells incorporated into our LFP batteries and have limited experience in manufacturing battery cells at
a commercial scale. To cost-effectively and rapidly manufacture our solid-state cells at scale for incorporation into our LFP batteries,
we plan to utilize currently available spray powder deposition equipment and other commercially available equipment modified to utilize
our proprietary dry spray deposition and other technologies and processes. We may experience delays or additional costs in adapting our
facility, existing production equipment and LFP battery manufacturing processes (for example, designing a dry room to accommodate our
dry spraying processes) to manufacture solid-state cells. Even if we achieve the development and volume production of our solid-state
battery that we anticipate, if the cost, cycling and power results or other technology or performance characteristics of the solid-state
battery fall short of our targets, our business and results of operations would likely be materially adversely affected.

 We
expect to make significant investments in our continued research and development of solid-state battery technology development, and we
may be unable to adequately control the costs associated with manufacturing our solid-state battery cells.

 We
will require significant capital to fund our solid-state cell research and development activities, pilot line construction and expansion
of our manufacturing capabilities to accommodate large-scale production of solid-state cells. We have not yet produced any solid-state
battery cells at volume and our forecasted cost advantage for the production of these cells at scale, compared to conventional lithium-ion
cells, will require us to achieve rates of throughput, use of electricity and consumables, yield, and rate of automation demonstrated
for mature battery, battery material, and ceramic manufacturing processes, that we have not yet achieved. We may not be able to achieve
our desired cost benefits and, in turn, we may not be able to provide our solid-state cells at a cost that is attractive to customers.
If we are unable to cost-efficiently design, manufacture, market, sell and distribute our solid-state batteries and services, our margins,
profitability and prospects would be materially and adversely affected.

 If
our solid-state batteries fail to perform as expected, our ability to further develop, market and sell our solid-state batteries could
be harmed.

 Our
solid-state battery cells may contain defects in design and manufacture that may cause them to not perform as expected or that may require
repairs, recalls and design changes. Our solid-state batteries will incorporate components that have not been used individually or in
combination in the same manner as the design of our solid-state cells, and that may result in defects and errors, particularly when produced
at scale. We may be unable to detect and fix any defects in our solid-state battery cells prior to their incorporation into our solid-state
LFP batteries and sale to potential consumers. If our solid-state batteries fail to perform as expected, we could lose customers, or
be forced to delay deliveries, terminate orders or initiate product recalls, each of which could adversely affect our sales and brand
and would have a material adverse effect on our business, financial condition and results of operations.

 We
expect to rely on machinery used in other large-scale commercial applications, modified to incorporate our proprietary technologies and
processes, in order to mass produce solid-state battery cells, which exposes us to a significant degree of risk and uncertainty in terms
of scaling production, operational performance and costs.

 We
expect to rely on machinery used in other large-scale commercial applications to mass produce our solid-state battery cells. Doing so
will require us to work closely with the equipment provider to modify this machinery to effectively integrate our proprietary solid-state
technology and processes in order to create the equipment we need for the production of solid-state cells. This integration work will
involve a significant degree of uncertainty and risk and may result in delays in scaling up production of our solid-state cells or result
in additional cost to us.

 Such
machinery is likely to suffer unexpected malfunctions from time to time and will require repairs and spare parts to resume operations,
which may not be available when needed. Unexpected malfunctions may significantly affect the intended operational efficiency of, and
therefore expected cost-efficiency associated with, our production equipment. In addition, because this machinery has not been used to
manufacture and assemble solid-state battery cells, the operational performance and costs associated with repairing and maintaining this
equipment can be difficult to predict and may be influenced by factors outside of our control, including failures by suppliers to deliver
necessary components of our products in a timely manner and at prices acceptable to us, the risk of environmental hazards and the cost
of any required remediation and damages or defects already present in the machinery.

 Operational
problems with our manufacturing equipment could result in personal injury to or death of workers, the loss of production equipment or
damage to our manufacturing facility, which could result in monetary losses, delays and unanticipated fluctuations in production. In
addition, we may be subject to administrative fines, increased insurance costs or potential legal liabilities. Any of these operational
problems could have a material adverse effect on our business, financial condition and results of operations.

 Risks
Related to Supply Chain and Third-Party Vendors

 We
face risks associated with vendors from whom our products are sourced.

 The
products we sell rely on components and other inputs that are sourced from a variety of domestic and international vendors. We rely on
long-term relationships with our suppliers but have no significant long-term contracts with such suppliers. Our future success will depend
in large measure upon our ability to maintain our existing supplier relationships and/or to develop new ones. This reliance exposes us
to the risk of inadequate and untimely supplies of various products due to political, economic, social, health, or environmental conditions,
transportation delays, or changes in laws and regulations affecting distribution. Our vendors may be forced to reduce their production,
shut down their operations or file for bankruptcy protection, which could make it difficult for us to serve the market needs and could
have a material adverse effect on our business.

 While
we select these third-party vendors carefully, we do not control their actions or the manufacture of their products. Any problems caused
by these third-parties, or issues associated with their products or workforce, including customer or governmental complaints, breakdowns
or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, and cyber-attacks
or security breaches at a vendor could subject us to litigation and adversely affect our ability to deliver products and services to
its customers and have a material adverse effect on our results of operations and financial condition.

 We
rely on foreign manufacturers for various products that are incorporated into the products we sell. In addition, many of our domestic
suppliers purchase a portion of their products from foreign sources. As an importer, our business is subject to the risks generally associated
with doing business internationally, such as domestic and foreign governmental regulations, economic disruptions, global or regional
health epidemics, delays in shipments, transportation capacity and costs, currency exchange rates, and changes in political or economic
conditions in countries from which we purchase products. If any such factors were to render the conduct of business in particular countries
undesirable or impractical or if additional U.S. quotas, duties, tariffs, taxes, or other charges or restrictions were imposed upon the
importation of our products in the future, our financial condition and results of operations could be materially adversely affected.

 The
political landscape in the U.S. contains uncertainty with respect to tax and trade policies, tariffs and regulations affecting trade
between the U.S. and other countries. We source a portion of our merchandise from manufacturers located outside the U.S., primarily in
Asia. Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the
imposition of tariffs on imported products, could have a material adverse effect on our business, results of operations, and financial
condition.

 We
rely on manufacturers located in foreign countries, including China, for merchandise. Additionally, a portion of our domestically purchased
merchandise is manufactured abroad. Our business may be materially adversely affected by risks associated with international trade, including
the impact of current or potential tariffs by the U.S. with respect to certain consumer goods imported from China.

 We
source a portion of our merchandise from manufacturers located outside the U.S., primarily in Asia, and many of our domestic vendors
have a global supply chain. The U.S. has imposed tariffs on certain products imported into the U.S. from China and could propose additional
tariffs. The imposition of tariffs on imported products could result in reduced sales and profits. It remains unclear how tax or trade
policies, tariffs or trade relations may change under the current U.S. administration, which could adversely affect our business, results
of operations, effective income tax rate, liquidity, and net income.

 In
addition, the imposition of tariffs by the U.S. has resulted in the adoption of tariffs by China on U.S. exports and could result in
the adoption of tariffs by other countries as well. A resulting trade war could have a significant adverse effect on world trade and
the global economy.

 We continue to evaluate the impact of the effective
and potential tariffs on our supply chain, costs, sales, and profitability as well as our strategies to mitigate any negative impact,
including negotiating with our vendors, and seeking alternative sourcing options. Given the uncertainty regarding the scope and duration
of the current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the impact
on our business, results of operations, and financial condition is uncertain but could be significant. Thus, we can provide no assurance
that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful in whole or in part.
To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our
business, financial condition, and results of operations may be materially adversely affected. In 2024, we identified an underpayment
of tariffs to U.S. Customs and Border Protection (" CBP ") in the amount of approximately $1.58 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 the event CBP determines that we owe additional amounts or any penalties or determines in the future that we have not paid
the correct duties, our results of operations could be materially impacted.

 Changes
in geopolitical conditions, U.S.-China trade relations and other factors beyond our control may adversely impact our business and operating
results.

 Our
operations and performance depend, in part, on global and regional economic and geopolitical conditions, given that we have suppliers
located in China. Changes in U.S.-China trade policies, and a number of other economic and geopolitical factors both in China and abroad
could have a material adverse effect on our business, financial condition, results of operations or prospects. Such factors may include:

 instability
 in political or economic conditions, such as inflation, recession, foreign currency exchange restrictions and devaluations, restrictive
 governmental controls on the movement and repatriation of earnings and capital, and actual or anticipated military or political conflicts,
 particularly in emerging markets;

 expanded
 jurisdiction of the Committee for Foreign Investment in the U.S.; and

 intergovernmental
 conflicts or actions, such as armed conflict, trade wars, retaliatory tariffs, and acts of terrorism or war.

 As
a result of these events, our ability to obtain supplies from our China-based suppliers may be limited or adversely affected, and we
may incur operational constraints.

 A
significant disruption to the timely receipt of inventory could adversely impact sales or increase our transportation costs, which would
decrease our profits.

 We
rely on our distribution and transportation network, including third-party logistics providers, to provide goods in a timely and cost-effective
manner through deliveries to our distribution facilities from vendors and then from the distribution facilities or direct ship vendors
to our stores or customers by various means of transportation, including shipments by sea, air, rail, and truck. Any disruption, unanticipated
expense, or operational failure related to this process could negatively affect our operations. For example, unexpected delivery delays
(including delays due to weather, fuel shortages, work stoppages, global or regional health epidemics, product shortages from vendors,
or other reasons) or increases in transportation costs (including increased fuel costs or a decrease in transportation capacity for overseas
shipments) could significantly decrease our ability to provide adequate products to meet increased customer demand. In addition, labor
shortages or work stoppages in the transportation industry or long-term disruptions to the national and international transportation
infrastructure that lead to delays or interruptions of deliveries could negatively affect our business. Also, a fire, tornado, or other
disaster at one of our distribution facilities could disrupt our timely receiving, processing, and shipment of merchandise to our stores
which could adversely affect our business. While we believe there are adequate reserve quantities and alternative suppliers available,
shortages or interruptions in the receipt or supply of products caused by unanticipated demand, problems in production or distribution,
financial or other difficulties of supplies, inclement weather or other economic conditions, including the availability of qualified
drivers and distribution center team members, could adversely affect the availability, quality and cost of products, and our operating
results.

 Risks
Related to Our Intellectual Property

 We
rely heavily upon our intellectual property portfolio. If we are unable to protect our intellectual property rights, our business and
competitive position would be harmed.

 We
may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitive position. We
rely upon a combination of the intellectual property protections afforded by patent, copyright, trademark and trade secret laws in the
United States and other jurisdictions to establish, maintain and enforce rights in our proprietary technologies. In addition, we seek
to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants,
and through non-disclosure and joint development agreements with business partners and other third parties. Despite our efforts to protect
our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property. Monitoring unauthorized
use of our intellectual property is difficult and costly, and the steps we have taken or will take to prevent unauthorized use may not
be sufficient. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert management's
attention, which could harm our business, results of operations and financial condition.

 In
addition, available intellectual property laws and contractual remedies in some jurisdictions may afford less protection than needed
to safeguard our intellectual property portfolio. Intellectual property laws vary significantly throughout the world. The laws of a number
of foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Therefore, our
intellectual property rights may not be as strong, or as easily enforced, outside of the United States, and efforts to protect against
the unauthorized use of our intellectual property rights, technology and other proprietary rights may be more expensive and difficult
to undertake outside of the United States. In addition, while we have filed for and obtained certain intellectual property rights in
commercially relevant jurisdictions, we have not sought protection for our intellectual property rights in every possible jurisdiction.
Failure to adequately protect our intellectual property rights could result in competitors using our intellectual property to make, have
made, use, import, develop, have developed, sell or have sold their own products, potentially resulting in the loss of some of our competitive
advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results.

 We
may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur
substantial costs.

 Companies,
organizations or individuals, including our current and future competitors, may hold or obtain intellectual property rights that would
prevent, limit or interfere with our ability to make, have made, use, import, develop, have developed, sell or have sold our products,
which could make it more difficult for us to operate our business. From time to time, we may receive inquiries from holders of intellectual
property rights inquiring whether we are infringing their rights and/or seek court declarations that they do not infringe upon our intellectual
property rights. Entities holding intellectual property rights relating to our technology, including, but not limited to, batteries,
battery materials, encapsulated powders, spray deposition of battery materials, and alternator regulators, may bring suits alleging infringement
of such rights or otherwise asserting their rights and seeking licenses. For example, patents and patent applications owned by third
parties may present freedom to operate (" FTO ") questions with regards to the precoated feedstock materials for the
spray deposition process depending on the final material selections that are used, although we own a patent application that pre-dates
their patents and patent applications of interest such that our patent application may act as a basis for an invalidity position. However,
it is possible that a court may not agree that our patent application invalidates the patents and patent applications of interest. Any
such litigation or claims, whether or not valid or successful, could result in substantial costs and diversion of resources and our management's
attention. In addition, if we are determined to have infringed upon a third party's intellectual property rights, we may be required
to do one or more of the following:

 cease
 using, making, having made, selling, having sold, developing, having developed or importing products that incorporate the infringed
 intellectual property rights;

 pay
 substantial damages;

 obtain
 a license from the holder of the infringed intellectual property rights, which license may not be available on reasonable terms or
 at all; or

 redesign
 our processes or products, which may result in inferior products or processes.

 In
the event of a successful claim of infringement against us and our failure or inability to obtain a license to or design around the infringed
intellectual property rights, our business, prospects, operating results and financial condition could be materially adversely affected.

 Our
current and future patent applications may not result in issued patents or our patent rights may be contested, circumvented, invalidated
or limited in scope, any of which could have a material adverse effect on our ability to prevent others from commercially exploiting
products similar to ours.

 Our
current and future patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent
others from commercially exploiting products or technology similar to ours. The outcome of patent applications involves complex legal
and factual questions and the breadth of claims that will be allowed is uncertain. As a result, we cannot be certain that the patent
applications that we file will result in patents being issued, or that our current issued patents, and any patents that may be issued
to us in the future, will afford protection that covers our commercial processes, systems and products or that will afford protection
against competitors with similar products or technology. Numerous prior art patents and pending patent applications owned by others,
as well as prior art non-patent literature, exist in the fields in which we have developed and are developing our technology, which may
preclude our ability to obtain a desired scope of protection in the desired fields. In addition to potential prior art concerns, any
of our existing patents, pending patent applications, or future issued patents or patent applications may also be challenged on the basis
that they are invalid or unenforceable. Furthermore, patent applications filed in foreign countries are subject to laws, rules, and procedures
that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents
will be issued.

 Even
if our current or future patent applications succeed and patents are issued, it is still uncertain whether our current or future patents
will be contested, circumvented, invalidated or limited in scope in the future. The rights granted under any issued patents may not provide
us with meaningful protection or competitive advantages, and some foreign countries provide significantly less effective patent enforcement
than the United States. In addition, the claims under our current or future patents may not be broad enough to prevent others from developing
technologies that are similar or that achieve results similar to ours. The intellectual property rights of others could also bar us from
licensing and exploiting our current or future patents. In addition, our current or future patents may be infringed upon or designed
around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may
adversely affect our business, prospects, financial condition and operating results.

Risk Factors

 The
uncertainty in global economic conditions, including the Russia-Ukraine conflict and Hamas' attack on Israel, could reduce consumer
spending and disrupt our supply chain which could negatively affect our results of operations.

 Our
results of operations are directly affected by the general global economic conditions that impact our main end markets. The uncertainty
in global economic conditions can result in substantial volatility, which can affect our business by reducing customer spending and the
prices that our customers may be able or willing to pay for our products, which in turn could negatively impact our sales and result
in a material adverse effect on our business financial condition and results of operations.

 The
global macroeconomic environment could be negatively affected by, among other things, the resurgence of COVID-19 or other pandemics or
epidemics, instability in global economic markets, increased U.S. trade tariffs and trade disputes with other countries, instability
in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of the withdrawal of the
United Kingdom from the European Union, the Russian invasion of Ukraine, Hamas' attack on Israel, and other political tensions,
and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability in local
economies and in global financial markets.

 As
a result of sanctions imposed in relation to the Russia-Ukraine conflict, gas prices in the United States have become much more volatile
and, in some cases, risen to historic levels. This rise in price may cause a decrease in RV travel, which could ultimately negatively
impact sales of our batteries for RVs. Further escalation of the Russia-Ukraine conflict and the subsequent response, including further
sanctions or other restrictive actions, by the United States and/or other countries could also adversely impact our supply chain, partners
or customers. The extent and duration of the situation in Ukraine, resulting sanctions and resulting future market disruptions are impossible
to predict but could be significant. Any such disruptions caused by Russian military action or other actions (including cyberattacks
and espionage) or resulting actual and threatened responses to such activity, boycotts or changes in consumer or purchaser preferences,
sanctions, tariffs or cyberattacks, may impact the global economy and adversely affect commodity prices.

 Furthermore,
the cost of our components is a key element in the cost of our products. Increases in the prices of our components, including if our
suppliers choose to pass through their increased costs to us, would result in increased production costs, which may result in a decrease
in our margins and may have a material adverse effect on our business financial condition and results of operations. We have historically
offset cost increases through careful management of our inventory of supplies, ordering six months to a year in advance, and increasing
our purchase order volumes to qualify for volume-based discounts, rather than increase prices to customers. However, we may increase
prices from time to time, which may not be sufficient to offset material price inflation and which may result in loss of customers if
they believe our products are no longer competitively priced. In addition, if we are required to spend a prolonged period of time negotiating
price increases with our suppliers, we may be further delayed in receiving the components necessary to manufacture our products and/or
implement aspects of our growth strategy.

 Adverse
global conditions, including economic uncertainty, may negatively impact our financial results.

 Global
conditions, dislocations in the financial markets, any negative financial impacts affecting U.S. as a result of tax reform or changes
to existing trade agreements or tax conventions, may adversely impact our business.

 In
addition, the global macroeconomic environment could be negatively affected by, among other things, pandemics or epidemics, instability
in global economic markets, increased U.S. trade tariffs and trade disputes with other countries, instability in the global credit markets,
supply chain weaknesses, instability in the geopolitical environment as a result of the withdrawal of the United Kingdom from the European
Union, the Russian invasion of Ukraine and other political tensions, and foreign governmental debt concerns. Such challenges have caused,
and may continue to cause, uncertainty and instability in local economies and in global financial markets.

 The
loss of one or more members of our senior management team, other key personnel or our failure to attract additional qualified personnel
may adversely affect our business and our ability to achieve our anticipated level of growth.

 We
are highly dependent on the talent and services of Denis Phares, our Chief Executive Officer and Interim Chief Financial Officer, and
other senior technical and management personnel, including our executive officers, who would be difficult to replace. The loss of Dr.
Phares or other key personnel could disrupt our business and harm our results of operations, and we may not be able to successfully attract
and retain senior leadership necessary to grow our business.

 Our
future success also depends on our ability to attract and retain other key employees and qualified personnel, and our operations may
be severely disrupted if we lost their services. As we become more well known, there is increased risk that competitors or other companies
will seek to hire our personnel. The failure to attract, integrate, train, motivate, and retain these personnel could impact our ability
to successfully grow our operations and execute our strategy.

 Our
website, systems, and the data we maintain may be subject to intentional disruption, security incidents, or alleged violations of laws,
regulations, or other obligations relating to data handling that could result in liability and adversely impact our reputation and future
sales.

 We
expect to face significant challenges with respect to information security and maintaining the security and integrity of our systems,
as well as with respect to the data stored on or processed by these systems. Advances in technology, and an increase in the level of
sophistication, expertise and resources of hackers, could result in a compromise or breach of our systems or of security measures used
in our business to protect confidential information, personal information, and other data.

 The
availability and effectiveness of our batteries, and our ability to conduct our business and operations, depend on the continued operation
of information technology and communications systems, some of which we have yet to develop or otherwise obtain the ability to use. Systems
used in our business (including third-party data centers and other information technology systems provided by third parties) are and
will be vulnerable to damage or interruption. Such systems could also be subject to break-ins, sabotage and intentional acts of vandalism,
as well as disruptions and security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions
by employees, service providers, or others. Some of the systems used in our business will not be fully redundant, and our disaster recovery
planning cannot account for all eventualities. Any data security incidents or other disruptions to any data centers or other systems
used in our business could result in lengthy interruptions in our service.

 If
we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or
adequately address competitive challenges.

 We
have experienced significant growth in our business, and our future success depends, in part, on our ability to manage our business as
it continues to expand. We have dedicated resources to expanding our manufacturing capabilities, exploring adjacent addressable markets
and our solid-state cell research and development. If not managed effectively, this growth could result in the over-extension of our
operating infrastructure, management systems and information technology systems. Internal controls and procedures may not be adequate
to support this growth. Failure to adequately manage growth in our business may cause damage to our brand or otherwise have a material
adverse effect on our business, financial condition and results of operations.

 We
may expand our business through acquisitions in the future, and any future acquisition may not be accretive and may negatively affect
our business.

 As
part of our growth strategy, we may make future investments in businesses, new technologies, services and other assets that complement
our business. We could fail to realize the anticipated benefits from these activities or experience delays or inefficiencies in realizing
such benefits. Moreover, an acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures,
including disruption to our ongoing operations, management distraction, exposure to additional liabilities and increased expenses, any
of which could adversely impact our business, financial condition and results of operations. Our ability to make these acquisitions and
investments could be restricted by the terms of our current and future indebtedness and to pay for these investments we may use cash
on hand, incur additional debt or issue equity securities, each of which may affect our financial condition or the value of our stock
and could result in dilution to our stockholders. Additional debt would result in increased fixed obligations and could also subject
us to covenants or other restrictions that would impede our ability to manage our operations.

 Our
operations are subject to a variety of environmental, health and safety rules that can bring scrutiny from regulatory agencies and increase
our costs.

 Our
operations are subject to environmental, health and safety rules, laws and regulations and we may be subject to additional regulations
as our operations develop and expand. There are significant capital, operating and other costs associated with compliance with these
environmental laws and regulations. While we believe that the policies and programs we have in place are reasonably designed and implemented
to assure compliance with these requirements and to avoid hazardous substance release liability with respect to our manufacturing facility,
we may be faced with new or more stringent compliance obligations that could impose substantial costs.

 We
are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance
with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and
legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.

 We
are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations
in various jurisdictions in which we conduct or in the future may conduct activities, including the U.S. Foreign Corrupt Practices Act
(" FCPA "). The FCPA prohibits us and our officers, directors, employees and business partners acting on our behalf,
including agents, from corruptly offering, promising, authorizing or providing anything of value to a "foreign official"
for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The
FCPA also requires companies to make and keep books, records, and accounts that accurately reflect transactions and dispositions of assets
and to maintain a system of adequate internal accounting controls. A violation of these laws or regulations could adversely affect our
business, results of operations, financial condition and reputation. Our policies and procedures designed to ensure compliance with these
regulations may not be sufficient and our directors, officers, employees, representatives, consultants, agents and business partners
could engage in improper conduct for which we may be held responsible.

 Non-compliance
with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower
complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences,
remedial measures and legal expenses, all of which could materially and adversely affect our reputation, business, financial condition
and results of operations.

 From
time to time, we may be involved in legal proceedings and commercial or contractual disputes, which could have an adverse impact on our
profitability and consolidated financial position.

 We
may be involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant and which may harm
our reputation. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual
disputes, including warranty claims and other disputes with customers and suppliers; intellectual property matters; personal injury claims;
environmental issues; tax matters; and employment matters. It is difficult to predict the outcome or ultimate financial exposure, if
any, represented by these matters, and any such exposure may be material. Regardless of outcome, legal proceedings can have an adverse
impact on us because of defense and settlement costs, diversion of management resources and other factors.

 Environmental,
social and governance matters may cause us to incur additional costs.

 Some
legislatures, government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate, certain
environmental, social and governance (" ESG ") disclosure or performance. For example, the Securities and Exchange Commission
has enacted rules that will mandate certain companies to provide certain climate-related disclosures. In addition, we may face reputational
damage in the event our corporate responsibility initiatives or objectives do not meet the standards or expectations of shareholders,
prospective investors, lawmakers, listing exchanges or other stakeholders. Failure to comply with ESG-related laws, exchange policies
or stakeholder expectations could materially and adversely impact the value of our stock and related cost of capital, and limit our ability
to fund future growth, or result in increased investigations and litigation.

 Risks
Related to Being a Public Company

 We
will continue to incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect
on our business, financial condition and operating results.

 We
will continue to face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur
as a private company and these expenses may increase even more after we are no longer an "emerging growth company." The Sarbanes-Oxley
Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the
PCAOB and the securities exchanges and the listing standards of Nasdaq, impose additional reporting and other obligations on public companies.
Compliance with public company requirements will increase costs and make certain activities more time-consuming. A number of those requirements
will require us to carry out activities we have not done previously. For example, we will create new board committees, enter into new
insurance policies and adopt new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC
reporting requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified (for example,
if management or our independent registered public accounting firm identifies additional material weaknesses in the internal control
over financial reporting), we could incur additional costs rectifying those issues, the existence of those issues could adversely affect
our reputation or investor perceptions of it and it may be more expensive to obtain director and officer liability insurance. Risks associated
with our status as a public company may make it more difficult to attract and retain qualified persons to serve on our board of directors
or as executive officers. In addition, as a public company, we may be subject to stockholder activism, which can lead to substantial
costs, distract management and impact the manner in which we operate our business in ways we cannot currently anticipate. As a result
of disclosure of information in this Annual Report and in filings required of a public company, our business and financial condition
will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such
claims are successful, our business and results of operations could be materially adversely affected and even if the claims do not result
in litigation or are resolved in our favor, these claims and the time and resources necessary to resolve them could divert the resources
of our management and adversely affect our business and results of operations. The additional reporting and other obligations imposed
by these rules and regulations will increase legal and financial compliance costs and the costs of related legal, accounting and administrative
activities. These increased costs will require us to divert a significant amount of money that could otherwise be used to expand the
business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance
and reporting requirements, which could further increase costs.

 Our
management team has limited experience managing a public company.

 Most
of the members of our management team have limited experience managing a publicly traded company, interacting with public company investors
and complying with the increasingly complex laws pertaining to public companies. Our management team has limited experience operating
a public company. Our management team may not successfully or efficiently manage their new roles and responsibilities.

 Our
transition to a public company subjects us to significant regulatory oversight and reporting obligations under the federal securities
laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant
attention from our senior management and could divert their attention away from the day-to-day management of our business, which could
adversely affect our business, financial condition, and operating results.

 Risks
Related to Our Financial Position and Capital Requirements

 Our
business is capital intensive, and we may not be able to raise additional capital on attractive terms, if at all. Any further indebtedness
we incur may limit our operational flexibility in the future.

 As
of December 31, 2023, we had cash totaling $12.7 million. Our net loss for the year ended December 31, 2023 was $13.8 million and our
net loss for the year ended December 31, 2022 was $40.0 million. We will need to raise additional funds, including through the issuance
of equity, equity-related or debt securities or by obtaining 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. We cannot be certain that additional capital will be available on attractive terms, if at all, when needed,
which could be dilutive to stockholders. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked
securities, our existing stockholders could experience significant dilution. Any equity securities issued may provide for rights, preferences,
or privileges senior to those of common stockholders. If we raise funds by issuing debt securities, these debt securities would have
rights, preferences, and privileges senior to those of common stockholders. We intend to use the ChEF Equity Facility and Term Loan to
provide additional capital to us. However, market conditions and certain restrictions contained in the agreements governing the ChEF
Equity Facility and the Term Loan may limit our ability to access capital under such agreements.

 The
incurrence of additional debt could adversely impact our business, including limiting our operational flexibility by:

 making
 it difficult for us to pay other obligations;

 increasing
 our cost of borrowing from other sources;

 making
 it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, investments,
 acquisitions, debt service requirements, or other purposes;

 restricting
 us from making acquisitions or causing us to make divestitures or similar transactions;

 requiring
 us to dedicate a substantial portion of our cash flow from operations to service and repay our indebtedness, reducing the amount
 of cash flow available for other purposes;

 placing
 us at a competitive disadvantage compared to our less leveraged competitors; and

 limiting
 our flexibility in planning for and reacting to changes in our business.

 Failure
to comply with the financial covenants in our loan agreement could allow our lenders to accelerate payment under our loan agreement,
which would have a material adverse effect on our results of obligations and financial position and raise substantial doubt about our
ability to continue as a going concern.

 For
the year ended December 31, 2023, we incurred losses and had a negative cash flow from operations. As of December 31, 2023, we had
approximately $12.7 million in cash and cash equivalents and working capital of $15.5 million. As of December 31, 2023, we had $76 million outstanding under our Term Loan Agreement.
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.

 Under
the Term Loan Agreement, we are obligated to comply with certain financial covenants, which include maintaining a maximum senior leverage
ratio, minimum liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures. On March 29, 2023 and September
29, 2023, we obtained a waiver from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage
ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March
31, 2023 and September 30, 2023, respectively. On December 29, 2023, we received an additional waiver from our Administrative Agent and
Term Loan Lenders in regards to our compliance with the Tests as of the last day of the quarter ended December 31, 2023. On March 31,
2024, we received an additional waiver from the Administrative Agent and the Term Loan Lenders in regard to our compliance with the liquidity
requirement under the Term Loan as of the last day of the fiscal quarter ended March 31, 2024. It is probable that we will fail to meet
these covenants again within the next twelve months. If we are unable to comply with the financial covenants in our loan agreement, the
Term Loan Lenders have the right to accelerate the maturity of the Term Loan. These conditions raise substantial doubt about our ability
to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its
report on our 2023 consolidated financial statements, with respect to this uncertainty.

 In
addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial
covenants. We have historically been able to raise additional capital through issuance of equity and/or debt financing and we intend
to use the ChEF Equity Facility and 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. 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, which may adversely affect our business, operating results, financial condition and prospects. Further,
any future debt or equity financings may adversely affect us, including the market price of our common stock and may be dilutive to our
current stockholders. Additionally, any convertible or exchangeable securities as well as preferred stock that we issue in the future
may have rights, preferences and privileges more favorable than those of our common stock. Absent additional financing, if we are unable
to meet these covenants, we plan to work with the Term Loan Lenders to cure any future breaches. However, there can be no guarantee that
we will be able to do so.

 Substantial
doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and
warrants and we may have a more difficult time obtaining financing. Further, the perception that we may be unable to continue as a going
concern may impede our ability to raise additional funds or operate our business due to concerns regarding our ability to discharge our
contractual obligations. If we are unable to continue as a going concern, we may be forced to liquidate our assets and the values we
receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

 Restrictions
imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business and to finance our
future operations or capital needs or to engage in acquisitions or other business activities necessary to achieve growth.

 The
agreements governing our indebtedness restrict us from engaging in specified types of transactions. These restrictive covenants restrict
our ability to, among other things:

 incur
 additional indebtedness;

 create
 or incur encumbrances or liens;

 engage
 in consolidations, amalgamations, mergers, acquisitions, liquidations, dissolutions or dispositions;

 sell,
 transfer or otherwise dispose of assets; and

 pay
 dividends and distributions on, or purchase, redeem, defease, or otherwise acquire or retire for value, our stock.

 Under
the agreements governing our indebtedness, we are also subject to certain financial covenants, including maintaining minimum levels of
Adjusted EBITDA, minimum liquidity, maximum capital expenditure levels and a minimum fixed charge coverage ratio. We cannot guarantee
that we will be able to maintain compliance with these covenants or, if we fail to do so, that we will be able to obtain waivers from
the applicable lender(s) and/or amend the covenants. Even if we comply with all of the applicable covenants, the restrictions on the
conduct of our business could adversely affect our business by, among other things, limiting our ability to take advantage of financing
opportunities, mergers, acquisitions, investments, and other corporate opportunities that may be beneficial to our business.

 A
breach of any of the covenants in the agreements governing our existing or future indebtedness could result in an event of default, which,
if not cured or waived, could trigger acceleration of our indebtedness, and may result in the acceleration of or default under any other
debt we may incur in the future to which a cross- acceleration or cross-default provision applies, which could have a material adverse
effect on our business, financial condition and results of operations. In the event of any default under our existing or future credit
facilities, the applicable lenders could elect to terminate borrowing commitments and declare all borrowings and loans outstanding, together
with accrued and unpaid interest and any fees and other obligations, to be immediately due and payable. In addition, our obligations
under our indebtedness are secured by, among other things, a security interest in our intellectual property. During the existence of
an event of default under our credit agreements, the applicable lender could exercise its rights and remedies thereunder, including by
way of initiating foreclosure proceedings against any assets constituting collateral for our obligations under such credit facility.

 We
have identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely
affect our ability to report our results of operations and financial condition accurately and in a timely manner.

 Our
management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with the generally accepted accounting principles generally accepted in the United States of America (" U.S. GAAP ").
As a public company, we are required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any
changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 As described elsewhere in this Annual Report, our management identified material weaknesses in our internal control
over financial reporting as a result of our failure to capture, and record, and pay tariffs correctly related to the imported merchandise
on previously filed 2022 and 2021 financial statements. We are in the process of developing a plan to remediate these material weaknesses.

 Our efforts to remediate these material weaknesses in internal controls over financial reporting may not be successful,
and may not prevent additional material weaknesses from being identified in the future. Failure to implement and maintain effective internal
control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of
our consolidated financial statements, and could cause it to fail to meet our reporting obligations, any of which could diminish investor
confidence in us and cause a decline in our equity value. Additionally, ineffective internal controls could expose us to an increased
risk of financial reporting fraud and the misappropriation of assets, and may further subject us to potential delisting from Nasdaq, or
to other regulatory investigations and civil or criminal sanctions.

 As a public company, we are required pursuant to Section 404(a) of the Sarbanes-Oxley Act to furnish a report by
management on, among other things, the effectiveness of our internal control over financial reporting for each annual report on Form 10-K
to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in internal
control over financial reporting. If in the future we are no longer classified under the definition of an "emerging growth company,"
and/or a "non-accelerated filer", our independent registered public accounting firm will also be required, pursuant to Section
404(b) of the Sarbanes-Oxley Act, to attest to the effectiveness of our internal control over financial reporting in each annual report
on Form 10-K to be filed with the SEC. We will be required to disclose material changes made in our internal control over financial reporting
on a quarterly basis. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the
SEC, Nasdaq, or other regulatory authorities, which would require additional financial and management resources.

 We
are not currently in compliance with the continued listing requirements for The Nasdaq Global Market. If we do not regain compliance
and continue to meet the continued listing requirements, our common stock may be delisted, which could affect the market price and liquidity
for our common stock and reduce our ability to raise additional capital.

 Our
common stock and Public Warrants are currently listed on the Nasdaq Global Market and the Nasdaq Capital Market, respectively. On December
12, 2023, we received a letter (the " Notice ") from the Listing Qualifications Staff of the Nasdaq Stock Market, LLC
(" Nasdaq ") indicating that, based upon the closing bid price of its common stock for the 30 consecutive business days
preceding the date of the Notice, we are not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for
continued listing on the Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(a)(1). We were provided a compliance period of
180 calendar days from the date of the Notice, or until June 10, 2024, to regain compliance with the minimum closing bid requirement,
pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

 We
will continue to monitor the closing bid price of our common stock and seek to regain compliance with all applicable Nasdaq requirements
within the allotted compliance periods and may, if appropriate, consider available options, including implementation of a reverse stock
split, to regain compliance with the minimum closing bid requirement. If we seek to implement a reverse stock split in order to remain
listed on The Nasdaq Global Market, the announcement or implementation of such a reverse stock split could negatively affect the price
of its common stock. If we do not regain compliance within the allotted compliance periods, including any extensions that may be granted
by Nasdaq, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled to appeal that determination
to a Nasdaq hearings panel. There can be no assurance that we will regain compliance with the minimum bid price requirement during the
180-day compliance period or maintain compliance with the other Nasdaq listing requirements. A delisting could substantially decrease
trading in our common stock, adversely affect the market liquidity of our common stock as a result of the loss of market efficiencies
associated with Nasdaq and the loss of federal preemption of state securities laws, adversely affect its ability to obtain financing
on acceptable terms, if at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and
fewer business development opportunities. Additionally, the market price of our common stock may decline further and stockholders may
lose some or all of their investment.

 There
can be no assurance that we will be able to regain compliance with the minimum bid price requirement or comply with the other continued
listing standards of Nasdaq.

 Future
resales of our outstanding securities may cause the market price of our securities to drop significantly, even if our business is doing
well.

 We
have filed registration statements registering the resale of up to 47,428,544 shares and 12,266,971 warrants to purchase common stock
that may be sold and/or issued into the public markets by certain securityholders. The shares being registered for resale into the public
markets represent a substantial majority of our outstanding common stock as of December 31, 2023. The securityholders selling pursuant
to the registration statements will determine the timing, pricing and rate at which they sell such shares into the public market and
such sales could have a significant negative impact on the trading price of our common stock. Certain of the investors/lenders who have
resale rights under such registration statements may have an incentive to sell because they purchased shares and/or warrants at prices
below the Chardan IPO offering price. As such, while sales by the securityholders selling pursuant to such registration statements may
experience a positive rate of return based on the trading price at the time they sell their shares, public securityholders may not experience
a similar rate of return on the securities they purchased due to differences in the prices at which such public securityholders purchased
their shares and the trading price. Given the substantial number of shares of common stock being registered for potential resale by the
securityholders selling pursuant to such registration statements, the sale of shares by such securityholders, or the perception in the
market that the securityholders of a large number of shares intend to sell shares, may increase the volatility of the market price of
our common stock, may prevent the trading price of our securities from exceeding the Chardan IPO offering price and may cause the trading
prices of our securities to experience a further decline.

 Further,
we have registered 21,512,027 shares of common stock to be issued and sold to CCM LLC in connection with the ChEF Equity Facility. The
21,512,027 shares that may be resold and/or issued into the public markets pursuant to the ChEF Equity Facility represent approximately
36% of the shares of our common stock outstanding as of December 31, 2023. Any sales of such shares into the public market could have
a significant negative impact on the trading price of our common stock. This impact may be heightened by the fact that sales to CCM LLC
will generally be at prices below the then current trading price of our common stock. If the trading price of our common stock does not
recover or experiences a further decline, sales of shares of common stock to CCM LLC pursuant to the Purchase Agreement may be a less
attractive source of capital and/or may not allow us to raise capital at rates that would be possible if the trading price of our common
stock were higher.

 Risks
Related to Ownership of Our Common Stock

 If
securities or industry analysts do not publish research or reports about us, or publish negative reports, our stock price and trading
volume could decline.

 The
trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about
us. We will not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more of
the analysts who cover us downgrade our common stock or change their opinion, our stock price would likely decline. If one or more of
these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which
could cause our stock price or trading volume to decline.

 If
we do not meet the expectations of investors, stockholders or securities analysts, the market price of our securities may decline. In
addition, fluctuations in the price of our securities could contribute to the loss of all or part of your investment.

 The
trading price of our common stock may fluctuate substantially and may be lower than its current price. This may be especially true for
companies like ours with a small public float. If an active market for our securities develops and continues, the trading price of our
securities could be volatile and subject to wide fluctuations. The trading price of our common stock depends on many factors, including
those described in this " Risk Factors " section, many of which are beyond our control and may not be related to our
operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock. Any of the factors
listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly
below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further
decline.

 Factors
affecting the trading price of our securities may include:

 actual
 or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar
 to ours;

 in the market's expectations about our operating results;

 the
 public's reaction to our press releases, other public announcements and filings with the SEC;

 speculation
 in the press or investment community;

 actual
 or anticipated developments in our business, competitors' businesses or the competitive landscape generally;

 innovations
 or new products developed by us or our competitors;

 manufacturing,
 supply or distribution delays or shortages;

 any
 changes to our relationship with any manufacturers, suppliers, licensors, future collaborators, or other strategic partners;

 the
 operating results failing to meet the expectation of securities analysts or investors in a particular period;

 in financial estimates and recommendations by securities analysts concerning us or the market in general;

 operating
 and stock price performance of other companies that investors deem comparable to ours;

 in laws and regulations affecting our business;

 commencement
 of, or involvement in, litigation involving us;

 in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 the
 volume of our common stock available for public sale;

 any
 major change in our board of directors or management;

 sales
 of substantial amounts of our common stock by our directors, officers or significant stockholders or the perception that such sales
 could occur; and

 general
 economic and political conditions such as recessions, interest rates, "trade wars," pandemics (such as COVID-19) and
 acts of war or terrorism (including the Russia-Ukraine conflict and Hamas' attack on Israel).

 Broad
market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock
market in general and Nasdaq have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities,
may not be predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be
similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. Broad
market and industry factors, including the impact of global pandemics, as well as general economic, political and market conditions such
as recessions or interest rate changes, may seriously affect the market price of our common stock, regardless of our actual operating
performance. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and
our ability to obtain additional financing in the future.

 In
addition, in the past, following periods of volatility in the overall market and the market prices of particular companies' securities,
securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against
us, could result in substantial costs and a diversion of our management's attention and resources. Any adverse determination in
any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

 An
active trading market for our securities may not be available on a consistent basis to provide stockholders with adequate liquidity.

 We
cannot assure you that an active trading market for our common stock will be sustained. Accordingly, we cannot assure you of the liquidity
of any trading market, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares.

 The
exercise of outstanding warrants to acquire our common stock would increase the number of shares eligible for future resale in the public
market and result in dilution to our stockholders.

 The
exercise of outstanding warrants to acquire our common stock will increase the number of shares eligible for future resale in the public
market and result in dilution to our stockholders. As of April 12, 2024, there are currently (i) 9,422,529 shares of common stock issuable
upon the exercise of outstanding public warrants at an exercise price of $11.50 per share (the "Public Warrants"); (ii) 1,501,386
shares of common stock issuable upon the exercise of outstanding private warrants at an exercise price of $11.50 per share (the "Private
Warrants"); and (iii) 1,884,510 shares of common stock issuable upon exercise of outstanding Penny Warrants at an exercise price
of $0.01 per share. The $10 Warrants were exercised in full in 2022 and are no longer outstanding.

 In
addition, the Penny Warrants have price-based anti-dilution protection against subsequent equity sales or distributions at below $10.00
per share of common stock, subject to exclusions including for issuances upon conversion exercise or exchange of securities outstanding
as of October 7, 2022, the closing date of the Business Combination, issuances pursuant to agreements in effect as of the closing date
of the Business Combination, issuances pursuant to employee benefit plans and similar arrangements, issuances in joint ventures, strategic
arrangements or other non-financing type transactions and issuances pursuant to any public equity offerings. Depending on the nature
and price of any equity issuances by us, the number of shares issuable upon the exercise of such Penny Warrants could be increased and
the exercise price of the Penny Warrants could be adjusted down. Under the terms of the Penny Warrants, no adjustment will be made in
connection with any sale of shares of up to $150.0 million in gross proceeds under the Purchase Agreement (or any replacement thereof)
if the sales price is higher than $5.00 (appropriately adjusted for stock splits, combinations and the like). The Sponsor has agreed
that the Private Warrants may not be exercised to the extent the Sponsor and any affiliate of the Sponsor is deemed to beneficially own,
or it would cause the Sponsor and such affiliates to be deemed to beneficially own, more than 7.5% of our common stock.

 Our
operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating
results to fall below expectations or any guidance we may provide.

 Our
quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:

 our
 ability to engage target customers and successfully convert these customers into meaningful orders in the future;

 our
 reliance on two suppliers for LFP cells and a single supplier for the manufacture of our battery management system;

 the
 size and growth of the potential markets for our batteries and its ability to serve those markets;

 challenges
 in our attempts to develop and produce solid state battery cells;

 the
 level of demand for any products, which may vary significantly;

 future
 accounting pronouncements or changes in our accounting policies;

 macroeconomic
 conditions, both nationally and locally; and

 any
 other change in the competitive landscape of our industry, including consolidation among our competitors or partners.

 The
cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results.
As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on its past
results as an indication of our future performance.

 This
variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors
for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may
provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of
our common stock could decline substantially. Such a stock price decline could occur even when it has met any previously publicly stated
revenue or earnings guidance it may provide.

 Changes
in laws, regulations or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business, investments
and results of operations.

 We
are subject to laws, regulations and rules enacted by national, regional and local governments and Nasdaq. In particular, we are required
to comply with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations
and rules may be difficult, time consuming and costly. Those laws, regulations or rules and their interpretation and application may
also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations.
In addition, a failure to comply with applicable laws, regulations or rules, as interpreted and applied, could have a material adverse
effect on our business and results of operations.

 Our
Articles of Incorporation designates specific courts as the exclusive forum for substantially all stockholder litigation matters, which
could limit the ability of our stockholders to obtain a favorable forum for disputes with us or our directors, officers or employees.

 Our
Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent
permitted by applicable law the Second Judicial District Court of Washoe County, Nevada is the sole and exclusive forum for any or all
actions, suits or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim: (a) brought
in our name or right or on our behalf; (b) asserting a claim for breach of any fiduciary duty owed by any of our directors, officers,
employees or agents to us or our stockholders; (c) arising or asserting a claim arising pursuant to any provision of the Nevada Revised
Statutes (the " NRS ") Chapters 78 or 92A or any provision of our Articles of Incorporation or our Bylaws; (d) to interpret,
apply, enforce or determine the validity of our Articles of Incorporation or our Bylaws; or (e) asserting a claim governed by the internal
affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it
finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and
our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our Articles
of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions, which could adversely affect our business, financial condition and results of operations.

 Our
Articles of Incorporation also provides that, unless we consent in writing to the selection of an alternative forum, the federal district
courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under
the Securities Act. This provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable
for disputes with us and our directors, officers or other employees and may have the effect of discouraging lawsuits against our directors,
officers and other employees. Furthermore, stockholders may be subject to increased costs to bring these claims, and the exclusive forum
provision could have the effect of discouraging claims or limiting investors' ability to bring claims in a judicial forum that
they find favorable.

 Our
Articles of Incorporation could discourage another company from acquiring us and may prevent attempts by our stockholders to replace
or remove our management.

 Provisions
in our Articles of Incorporation and our Bylaws may discourage, delay, or prevent, a merger, acquisition or other change in control that
stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares.
These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby
depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders
to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
As our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any
attempt by our stockholders to replace current members of our management team. These provisions provide, among other things, that:

 our
 board of directors will be divided into three classes, with each class serving staggered three-year terms, which may delay the ability
 of stockholders to change the membership of a majority of our board of directors;

 our
 board of directors has the exclusive right to expand the size of its board of directors and to elect directors to fill a vacancy
 created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders
 from being able to fill vacancies on our board of directors;

 our
 stockholders may not act by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders;

 a
 special meeting of stockholders may be called only by a majority of our board of directors, which may delay the ability of our stockholders
 to force consideration of a proposal or to take action, including the removal of directors;

 our
 Articles of Incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders
 to elect director candidates;

 our
 board of directors may alter certain provisions of our Bylaws without obtaining stockholder approval;

 the
 approval of the holders of at least sixty-six and two-thirds percent (66 2 3%) of our common shares entitled to vote at an
 election of our board of directors is required to adopt, amend, alter or repeal our Bylaws or amend, alter, change or repeal or adopt
 any provision of our Articles of Incorporation inconsistent with the provisions of our Articles of Incorporation regarding the election
 and removal of directors;

 stockholders
 must provide advance notice and additional disclosures to nominate individuals for election to our board of directors or to propose
 matters that can be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting
 a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain voting control of
 our common stock; and

 our
 board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences
 and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.

 We
are an emerging growth company and any decision to comply only with certain reduced reporting and disclosure requirements applicable
to emerging growth companies could make our common stock less attractive to investors.

 We
are an "emerging growth company," as defined in the JOBS Act. For as long as we continue to be an emerging growth company,
we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to "emerging
growth companies," including:

 not
 being required to have an independent registered public accounting firm audit our internal control over financial reporting under
 Section 404 of the Sarbanes-Oxley Act;

 reduced
 disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and

 exemptions
 from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute
 payments not previously approved.

 As
a result, the stockholders may not have access to certain information that they may deem important. Our status as an emerging growth
company will end as soon as any of the following takes place:

 the
 last day of the fiscal year in which we have at least $1.235 billion in annual revenue;

 the
 date we qualify as a "large accelerated filer," with at least $700.0 million of equity securities held by non-affiliates;

 the
 date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or

 the
 last day of the fiscal year ending after the fifth anniversary of our IPO.

 Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We may elect to take advantage of this extended transition period and as a result, our financial statements
may not be comparable with similarly situated public companies.

 We
cannot predict if investors will find our common stock less attractive if we choose to rely on any of the exemptions afforded emerging
growth companies. If some investors find our common stock less attractive because we rely on any of these exemptions, there may be a
less active trading market for our common stock and the market price of our common stock may be more volatile and may decline.

 If
we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce
timely and accurate financial statements or comply with applicable regulations could be impaired, which may adversely affect investor
confidence in us and, as a result, the market price of our common stock.

 As
a public company, we will be required to comply with the requirements of the Sarbanes-Oxley Act, including, among other things, that
we maintain effective disclosure controls and procedures and internal control over financial reporting. See " We have identified
material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our
ability to report our results of operations and financial condition accurately and in a timely manner" and Part II – Item
9A – Controls and Procedures. We are continuing to develop and refine our disclosure controls and other procedures that are
designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under
the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers.

 We
must continue to improve our internal control over financial reporting. We will be required to make a formal assessment of the effectiveness
of our internal control over financial reporting and once we cease to be an emerging growth company, we will be required to include an
attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve
compliance with these requirements within the prescribed time period, we will be engaging in a process to document and evaluate our internal
control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal
resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our internal
control over financial reporting, validate through testing that controls are functioning as documented and implement a continuous reporting
and improvement process for internal control over financial reporting. There is a risk that we will not be able to conclude, within the
prescribed time period or at all, that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes-Oxley
Act. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies
in our internal control over financial reporting that are deemed to be material weaknesses.

 Any
failure to implement and maintain effective disclosure controls and procedures and internal control over financial reporting, including
the identification of one or more material weaknesses, could cause investors to lose confidence in the accuracy and completeness of our
financial statements and reports, which would likely adversely affect the market price of our common stock. In addition, we could be
subject to sanctions or investigations by Nasdaq, the SEC and other regulatory authorities.

 Unanticipated
changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect
our financial condition and results of operations.

 We
will be subject to income taxes in the United States, and our tax liabilities will be subject to the allocation of expenses in differing
jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 in the valuation of our deferred tax assets and liabilities;

 expected
 timing and amount of the release of any tax valuation allowances;

 tax
 effects of stock-based compensation;

 costs
 related to intercompany restructurings;

 in tax laws, regulations or interpretations thereof; or

 lower
 than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings
 in jurisdictions where we have higher statutory tax rates.

 In
addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits
could have an adverse effect on our financial condition and results of operations.

 Item
1B. Unresolved Staff Comments

 Not
applicable.

 Item
1C. Cybersecurity

 Cybersecurity
Risk Management

 We,
like other companies in our industry, face several cybersecurity risks in connection with our business. Our business strategy, results
of operations, and financial condition have not, to date, been affected by risks from cybersecurity threats. During the reporting period,
we have not experienced any material cyber incidents, nor have we experienced a series of immaterial incidents, which would require disclosure.

 In
the ordinary course of our business, we use, store and process data including data of our employees, partners, collaborators, and vendors.
To effectively prevent, detect, and respond to cybersecurity threats, we maintain a cyber risk management program, which is comprised
of a wide array of policies, standards, architecture, and processes. The cyber risk management program falls under the responsibility
of our Chief Executive Officer, who in turn, manages our outsourced experts in information technology (" IT ") and cybersecurity.
Under the guidance of our Chief Executive Officer, we task reputable third-party IT experts that utilize a wide variety of software to
secure the environment. We also utilize a variety of cybersecurity software from reputable vendors in cybersecurity.

 We
have implemented a cybersecurity risk management program that is designed to identify, assess, and mitigate risks from cybersecurity
threats to this data and our systems and ensure the effectiveness of our security controls. Our cybersecurity risk management program
incorporates several components, including information security program assessments, continuous monitoring of critical risks from cybersecurity
threats using automated tools, restoration testing, periodic threat testing, and documented standards, policies, and procedures. We deploy
a wide range of security tools across the environment, require multifactor authentication across all critical systems, and implement
access control policies to further limit protect the data within the systems.

 We
periodically engage third parties to conduct risk assessments, including periodic penetration testing and other system vulnerability
analyses. As a result of these assessments and testing, we have not identified any material cybersecurity risks. We also maintain documentation
of our system hardening progress and plans. Additionally, our program requires cybersecurity training, which includes social engineering
and phishing training, on a quarterly basis, for all employees.

 Governance

 Our
Board of Directors (the " Board ") is responsible for the oversight of cybersecurity risk management. The Chief Executive
Officer reports to our Board. The Chief Executive Officer provides updates to the Board on our cybersecurity risk management program,
including any critical cybersecurity risks, ongoing cybersecurity initiatives and strategies, and applicable regulatory requirements
and industry standards on a regular basis. The Chief Executive Officer also notifies the Board of any cybersecurity incidents (suspected
or actual) and provides updates on the incidents as well as cybersecurity risk mitigation activities as appropriate.

 Item
2. Properties

 Our
headquarters is located at 1190 Trademark Drive #108, Reno, Nevada 89521 in a 99,000 square foot manufacturing facility. The lease for
this building was entered into on March 1, 2021 and expires on April 30, 2026. The current rent is $59,750 payable monthly.

 On
February 8, 2022, we entered into a 124-month lease for an additional 390,240 square foot warehouse. The building has passed
inspections and a certificate of substantial completion has been issued in Reno, Nevada. The rent under the lease $230,000 became
payable monthly on March 25, 2024 upon substantial completion of the project.

 We
maintain a warehouse facility at 12815 Old Virginia Road in Reno, Nevada. This is a 59,500 square foot facility that we use to store
and stage materials in preparation for production work. The lease for this space was entered into on December 1, 2021, and expires December
31, 2026; the current monthly rent is $49.732.

 On
April 12, 2024, we entered into the Fernley Lease Agreement, effective April 1, 2024, for the approximately 64,000 square foot
Premises located at 2275 East Newlands Road, Fernley, Nevada, to be used for general, warehousing, assembly/light manufacturing, painting
of products, storage fulfillment, distribution of our products. The Fernley Lease Agreement expires April 1, 2029. The current monthly
rent is $44,800.

 Our
Research & Development lab is a 9,600 square foot facility located in Sparks, Nevada. The lease for these premises was entered into
on July 27, 2020 and expires on July 31, 2025. The current monthly rent is $9,336.

 Our
podcast studio is a 1,772 square foot facility located in Sparks, Nevada. The lease for this space was assumed by us pursuant to the
Asset Purchase Agreement by and between us and Bourns Productions on January 1, 2022, and expired September 30, 2023. We renewed this
lease on August 1, 2023 for a one-year term that began on October 1, 2023 and will expire September 20, 2024. The current monthly rent
is $1,375. We do not own any real property.

 Item
3. Legal Proceedings

 From
time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal
proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome,
litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 Item
4. Mine Safety Disclosures

 Not
applicable.

 Part
II

 Item
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Market

 Our
common stock is currently listed on the Nasdaq Global Market under the symbol "DFLI" and our Public Warrants are currently
listed on the Nasdaq Capital Market under the symbol "DFLIW". As of April 12, 2024, the closing price of our common stock
and warrants was $0.46 and $0.03, respectively. As of April 12, 2024, there were 91 holders of record of our common stock and 2 holders
of record of our Public Warrants.

 Dividend
Policy

 We
currently intend to retain all available funds and any future earnings to fund the growth and development of our business. We have never
declared or paid any cash dividends on our common stock. We do not intend to pay cash dividends to our stockholders in the foreseeable
future. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 Any
future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition,
operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.

 Recent
Sales of Unregistered Securities

 None.

 Item
6. [Reserved]

 Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 As
a result of the completion of the Business Combination, the financial statements of Legacy Dragonfly are now the financial statements
of us. Prior to the Business Combination, we had no operating assets but, upon consummation of the Business Combination, the business
and operating assets of Legacy Dragonfly acquired by us became our sole business and operating assets. Accordingly, the financial statements
of Legacy Dragonfly and their respective subsidiaries as they existed prior to the Business Combination and reflecting our sole business
and operating assets going forward, are now the financial statements of us.

 All
statements other than statements of historical fact included in this section regarding our financial position, business strategy and
the plans and objectives of management for future operations, are forward- looking statements. When used in this section, words such
as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they relate to our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management,
as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those
contemplated by the forward- looking statements as a result of certain factors detailed herein. All subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

 Some
of the information contained in this discussion and analysis or set forth elsewhere, including information with respect to our plans
and strategy for our business include forward-looking statements that involve risks, uncertainties and assumptions. You should read the
sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" for a discussion of
important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.

 Overview

 We
are a manufacturer of non-toxic deep cycle lithium-ion batteries that are designed to displace lead acid batteries in a number of different
storage applications and end markets including RV, marine vessel, and solar and off-grid industries, with disruptive cell manufacturing
and solid-state cell technology currently under development.

 Since 2020, we have sold over 290,000 batteries. For
the years ended December 31, 2023 and 2022, we sold 64,096 and 96,034 batteries, respectively, and had $64.4 million and $86.3 million
in net sales, respectively. We currently offer a line of batteries across our "Battle Born" and "Dragonfly" brands,
each differentiated by size, power and capacity, consisting of seven different models, four of which come with a heated option. We primarily
sell "Battle Born" branded batteries directly to consumers and "Dragonfly" branded batteries to OEMs.

 Our
decrease in 2023 total sales is a reflection of weaker demand from both OEM and DTC customers in our core RV and marine markets due to
rising interest rates and inflation. Our RV OEM customers currently include Keystone, THOR, Airstream, and REV, and we are in ongoing
discussions with a number of additional RV OEMs to further increase adoption of our products. Related efforts include seeking to have
RV OEMs "design in" our batteries as original equipment and entering into arrangements with members of the various OEM dealer
networks to stock our batteries for service and for aftermarket replacement sales.

 We
currently source the lithium iron phosphate 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, solar panels, and other system accessories from brands such as Victron Energy, Progressive Dynamics, Magnum Energy and Sterling
Power.

 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.

 The
Business Combination

 On
October 7, 2022, or the Closing Date, we consummated the Business Combination. Pursuant to the Business Combination Agreement, Merger
Sub merged with and into Legacy Dragonfly, with Legacy Dragonfly surviving the merger and becoming a wholly-owned direct subsidiary of
Chardan. Thereafter, Merger Sub ceased to exist and Chardan was renamed Dragonfly Energy Holdings Corp. Legacy Dragonfly is deemed the
accounting acquirer, which means that Legacy Dragonfly's financial statements for previous periods will be disclosed in our future
periodic reports filed with the SEC. Following the Business Combination, our business is the business of Legacy Dragonfly.

 The
Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, Chardan was treated as the acquired
company for financial statement reporting purposes.

 ChEF
Equity Facility

 We
have the ChEF Equity Facility. We have chosen to be conservative because of the performance of our common stock in February and March
2023. Much of this was due to our low public float, low institutional interest (since we are pre-lockup expiration), and low visibility
in general. Moving forward, after the lockup expiration, we intend to market more heavily to institutions and expect the trading volume
to increase and the stock price to stabilize. Under these conditions, we intend to use the ChEF Equity Facility to help maintain minimum
cash balances required by the lenders as we continue to execute on growing the business through product releases, customer/market expansion,
and R&D milestones. We expect to use the ChEF Equity Facility as a regular source of funds over the next twelve months as the lock-up
on shares expires and our available share balance increases, allowing for more consistent purchases under the ChEF Equity Facility. Use
of the ChEF Equity Facility may adversely affect us, including the market price of our common stock and future issuances may be dilutive
to existing stockholders.

 June
2023 Offering

 On
June 20, 2023, we entered into the Underwriting Agreement with the Underwriters, pursuant to which we sold to the Underwriters, in a
firm commitment underwritten public offering, or the June 2023 Offering, an aggregate of (i) 10,000,000 shares of common stock, par value
$0.0001 and (ii) Investor Warrants to purchase up to 10,000,000 shares of common Stock, at the combined public offering price of $2.00
per share and accompanying Investor Warrant, less underwriting discounts and commissions, and (iii) Underwriters' Warrants to purchase
up to an aggregate of 570,250 shares of common stock. In addition, we granted the Underwriters a 45-day over-allotment option to purchase
up to an additional 1,500,000 shares of common stock and/or Investor Warrants to purchase up to an aggregate of 1,500,000 shares of Common
Stock at the public offering price per security, less underwriting discounts and commissions.

 The
Investor Warrants are exercisable for five years from the closing date of the Offering, have an exercise price of $2.00 per share and
are immediately exercisable. In the event of certain fundamental transactions, holders of the Investor Warrants will have the right to
receive the Black Scholes Value (as defined in the Investor Warrants) of their Investor Warrants calculated pursuant to the formula set
forth in the Investor Warrants, payable either in cash or in the same type or form of consideration that is being offered and being paid
to the holders of common stock. The Underwriters' Warrants are exercisable upon issuance and will expire on June 20, 2028. The
initial exercise price of the Underwriters' Warrants is $2.50 per share, which equals 125% of the per share public offering price
in the Offering. As part of the June 2023 Offering, the Underwriters partially exercised their over-allotment option in the amount of
1,405,000 shares of Common Stock and Investor Warrants to purchase 1,405,000 shares of common stock. The June 2023 Offering closed on
June 22, 2023. The aggregate net proceeds from the June 2023 Offering, including the partial overallotment option, was approximately
$20.7 million.

2023 Private Placement

 On
December 29, 2023, we received the December 2023 Waiver from the Term Loan Lenders in regards to our compliance with the Tests as of
the last day of the quarter ended December 31, 2023. The December 2023 Waiver provided for a one-time issuance of the Waiver Penny Warrants
to purchase up to 1,286,671 Waiver Penny Warrant Shares, at an exercise price of $0.01 per share, in connection with the Term Loan Lender's
agreement to waive the Tests under the Term Loan for the quarter ended December 31, 2023. The Waiver Penny Warrants were immediately
exercisable upon issuance and will expire ten years from the date of issuance.

 As
of December 31, 2023, we had cash totaling $12.7 million. Our net loss for the years ended December 31, 2023 and December 31, 2022,
were $13.8 million and $40.0 million, respectively. As a result of being a publicly traded company, we continue to need to hire
additional personnel and implement procedures and processes to address public company regulatory requirements and customary
practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and
officers' liability insurance, director fees and additional internal and external accounting and legal and administrative
resources, including increased audit and legal fees. As discussed under " —Liquidity and Capital Resources "
below we expect that we will need to raise additional funds, including through the use of the ChEF Equity Facility 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 not seeking
potential acquisition opportunities, eliminating redundancies, or reducing or delaying our production facility expansions, which may
adversely affect our business, operating results, financial condition and prospects.

 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) direct-to-customer
and (2) through OEMs, particularly in the RV market.

 An
increasing proportion of our sales has been and is expected to continue to be derived from sales to RV and other OEMs, driven by continued
efforts to develop larger and more complete storage systems. 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, in recent months
rising fuel costs and other macro-economic conditions have caused a downward shift in decisions taken by end market consumers around
spending in the RV market and in July 2023, we were notified by our largest RV OEM customer that, due to weaker demand for its
products and their subsequent focus on reducing costs, it would no longer install our storage solutions as standard equipment, but
rather return to offering those solutions as an option to dealers and consumers. While this customer is not moving to a different
solution or competitor, as a result in this change in strategy there was a material limiting effect on our revenue
in 2023. Based on our discussions with customers and current unit forecast projections, we expect our revenue
in the RV market to increase in 2024.

 Our
strategy includes plans to expand into new end markets that we have identified as opportunities for our LFP batteries, including industrial,
rail, specialty and work vehicles, material handling, solar integration, and emergency and standby power, in the medium term, and data
centers, telecom and distributed on-grid storage in the longer term. We believe that our current LFP batteries and, eventually, our solid-state
batteries, will be well-suited to supplant traditional lead-acid batteries as a reliable power source for the variety of low power density
uses required in these markets (such as powering the increasing number of on-board tools needed in emergency vehicles). The success of
this strategy requires (1) continued growth of these addressable markets in line with our expectations and (2) our ability to successfully
enter these markets. We expect to incur significant marketing costs understanding these new markets, and researching and targeting customers
in these end markets, which may not result in sales. If we fail to execute on this growth strategy in accordance with our expectations,
our sales growth would be limited to the growth of existing products and existing end markets.

 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, and we intend to continue to rely on these suppliers going forward. 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, has 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 seven different 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 99,000 square foot headquarters and manufacturing facility located in Reno, Nevada.
We currently operate three 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.

 In
addition, we have entered into a lease for an additional 390,240 square foot warehouse in Reno, Nevada, which is expected to be completed
in the second half of 2024. This facility, combined with our existing facility, will allow further scaling of our increasingly automated
battery pack assembly capabilities, expand our warehousing space, and allow for deployment of our solid-state cell manufacturing.

 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 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.

and Development

 Our
research and development is primarily focused on the advanced manufacturing of solid-state lithium-ion batteries using an LFP catholyte,
a solid electrolyte and an intercalation-based anolyte (intercalation being the reversible inclusion of a molecule or ion into layered
solids). The next stage in our technical development is to construct the battery to optimize performance and longevity to meet and exceed
industry standards for our target storage markets. Ongoing testing and optimizing of more complicated batteries incorporating layered
pouch cells will assist us in determining the optimal cell chemistry to enhance conductivity and increase the number of cycles (charge
and discharge) in the cell lifecycle. This is expected to require significant additional expense, and we may need to raise additional
funds to continue these research and development efforts.

 Components
of Results of Operations

 Net
Sales

 Net
sales is primarily generated from the sale of our LFP batteries to OEMs and consumers, as well as chargers and other accessories, either
individually or bundled.

 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.

Expenses

and development

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. As we work towards completing the development
of our solid-state lithium-ion cells and the manufacturing of batteries that incorporate this technology, we anticipate that research
and development expenses will increase significantly for the foreseeable future as we continue to invest in product development and optimizing
and producing solid-state cells.

and administrative

and administrative costs include personnel-related expenses attributable to our executive, finance, human resources, and information
technology organizations, certain facility 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 Income (Expense)

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

 Results
of Operations

 Comparisons
for the Years Ended December 31, 2023 and 2022

 The
following table sets forth our results of operations for the years ended December 31, 2023 and 2022. This data should be read together
with our financial statements and related notes included elsewhere in this Annual Report, and is qualified in its entirety by reference
to such financial statements and related notes.

 Years ended December 31,

 2023

 % Net Sales

 2022

 % Net Sales

 (in thousands)

 Net Sales

 $
 64,392

 100.0

 $
 86,251

 100.0

 Cost of Goods Sold

 48,946

 76.0

 62,633

 72.6

 Gross profit

 15,446

 24.0

 23,618

 27.4

 Operating expenses

 Research and development

 3,863

 6.0

 2,764

 3.2

 General and administrative

 26,389

 41.0

 41,566

 48.2

 Sales and marketing

 12,623

 19.6

 13,671

 15.9

 Total Operating expenses

 42,875

 66.6

 58,001

 67.2

 Loss From Operations

 (27,429
)

 (42.6
)

 (34,383
)

 (39.9
)

 Other Income (Expense)

 Other income (expense)

 0.0

 0.0

 Interest expense, net

 (16,015
)

 (24.9
)

 (6,979
)

 (8.1
)

 Change in fair market value of warrant liability

 29,582

 45.9

 5,446

 6.3

 Debt extinguishment

 -

 -

 (4,824
)

 (5.6
)

 Total Other Income (Expense)

 13,586

 21.1

 (6,317
)

 (7.3
)

 Loss Before Taxes

 (13,843
)

 (21.5
)

 (40,700
)

 (47.2
)

 Income Tax Benefit

 (26
)

 0.0

 (709
)

 (0.8
)

 $
 (13,817
)

 (21.5
)

 $
 (39,991
)

 (46.4
)

 Years ended December 31,

 2023

 2022

 (in thousands)

 DTC

 36,875

 52,446

 % Net Sales

 57.3

 60.8

 OEM

 27,517

 33,805

 % Net Sales

 42.7

 39.2

 Net Sales

 $
 64,392

 $
 86,251

 Net
Sales

 Net
sales decreased by $21.9 million, or 25.3%, to $64.4 million for the year ended December 31, 2023, as compared to $86.3 million for the
year ended December 31, 2022. This decrease was primarily due to lower DTC and OEM battery and accessory sales due to a decline in demand
in our core RV markets, and a slight decrease in average sale prices for our batteries. For the year ended December 31, 2023, OEM revenue
decreased by $6.3 million as a result of weaker overall demand in the RV market. DTC revenue decreased by $15.6 million as a result of
decreased customer demand for our products due to rising interest rates and inflation. We expect our sales to increase as the cyclical
recovery of the RV market gains momentum in the coming quarters.

 Cost
of Goods Sold

 Cost of revenue decreased by $13.7 million, or 21.9%,
to $48.9 million for the year ended December 31, 2023, as compared to $62.6 million for the year ended December 31, 2022. This decrease
was primarily due to a $13.1 million decrease in product cost due to lower unit volume, partially offset by higher material cost associated
with consuming higher priced inventory and an adjustment to customs due to tariff correction of $0.3 million, and a $0.6 million decrease
in overhead expense associated with lower labor cost due to reduced headcount. 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 $8.2 million, or 34.6%,
to $15.4 million for the year ended December 31, 2023, as compared to $23.6 million for the year ended December 31, 2022. The decrease
in gross profit was primarily due to lower unit volumes and a change in revenue mix that included a larger percentage of lower margin
OEM sales and a lower percentage of higher margin DTC sales, together with higher material costs as noted above. Gross Profit percentage
decreased by 4.3% from 27.4% in 2022 to 23.1% in 2023. Lower volume caused a reduction in absorption of labor and overhead impacting gross
profit by 2.3% along with an increase in material costs reducing gross profit by 1.1%. We expect our Gross Profit, as a percentage of
revenue, to remain relatively stable over the next 12 months.

and Development Expenses

and development expenses increased by $1.1 million, or 39.8%, to $3.9 million for the year ended December 31, 2023, as compared to $2.8
million for the year ended December 31, 2022. The increase was primarily due $0.8 million in higher material and patent expense along
with increased wages and depreciation expense associated with cell manufacturing development work. While we expect to continue to
grow its Research and Development headcount, it expects to do so at a slower rate than in prior years.

and Administrative Expenses

and administrative expenses decreased by $15.2 million, or 36.5%, to $26.4 million for the year ended December 31, 2023, as compared
to $41.6 million for the year ended December 31, 2022. This decrease was primarily due to the absence of $23.4 million of fiscal year
2022 expenses associated with the Business Combination and a decrease in employee-related costs in the amount of $2.5 million offset
by an increase in stock-based compensation costs of $4.5 million. We also incurred higher compliance, insurance, and professional fees
related to public company costs in the amount of $4.5 million, and a $1.7 million increase in investor relations expenses. We expect
General and Administrative Expenses, as a percentage of revenue, to decline over the next 12 months.

 Selling
and Marketing Expenses

 Sales and marketing expenses decreased by $1.1 million,
or 7.7%, to $12.6 million for the year ended December 31, 2023, as compared to $13.7 million for the year ended December 31, 2022. This
decrease was primarily due to a $2.0 million reduction in shipping costs due to lower unit volumes, partially offset by higher employee
related costs of $0.8 million due to increased headcount and higher stock-based compensation. We expect our Selling and Marketing Expenses
to be relatively stable over the next 12 months.

 Total Other Income (Expense)

 Other income totaled $13.6 million for the year ended
December 31, 2023 as compared to total other expense of $6.3 million for the year ended December 31, 2022. Other income in 2023 is comprised
primarily of a change in fair market value of warrant liability in the amount of $29.6 million, partially offset by interest expense of
$16.0 million related to our debt securities. Other expense in 2022 is comprised primarily of interest expense of $6.9 million related
to senior secured note of $45 million combined with debt securities of $75 million, debt extinguishment expense of $4.8 million due to
the retirement of the $45 million in senior secured notes as a result of the Business Combination, partially offset by $5.4 million in
the change of the fair market value of our warrants.

 Income Tax Benefit

 The income tax benefit for the year ended December
31, 2023, was minimal as compared to a $0.7 million benefit for the year ended December 31, 2022. The income tax benefit reflects our
expected use of losses in the period against future tax obligations. 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
$19.7 million was recorded as of December 31, 2023.

 Net
Loss

 We
experienced a net loss of $13.8 million for the year ended December 31, 2023, as compared to a net loss of $40.0 million for the year
ended December 31, 2022. As described above, this result was driven by lower sales due to reduced demand in the RV market, partially
offset by lower cost of goods sold, lower operating expenses and increased other income.

 Critical
Accounting Estimates

 Our
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States.
The preparation of these 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 in our financial statements. We
base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our 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, will be 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 were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably
likely to occur from period to period, or 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, there are other items within our financial statements that require estimation but are not deemed
critical as defined 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 policies are those most critical to the judgments and estimates used in the preparation of our
financial statements.

Valuation

 We
periodically review physical inventory for excess, obsolete, and potentially impaired items and reserves. Any such inventory is written
down to net realizable value. The reserve estimate for excess and obsolete inventory is dependent on expected future use and requires
management judgement. The level of the estimate is assessed by considering the recent sales experience, the aging of inventories, and other
factors that affect inventory obsolescence.

 We
apply relevant accounting guidance for warrants to purchase our stock based on the nature of the relationship with the counterparty.
For warrants issued to investors or lenders in exchange for cash or other financial assets, we follow guidance issued within ASC
480, Distinguishing Liabilities from Equity (" ASC 480 "), and ASC 815, Derivatives and Hedging (" ASC
815 "), to assist in the determination of whether the warrants should be classified as liabilities or equity. Warrants that
are determined to require liability classifications are measured at fair value upon issuance and are subsequently remeasured to
their then fair value at each subsequent reporting period with changes in fair value recorded in current earnings. Warrants that are
determined to require equity classifications are measured at fair value upon issuance and are not subsequently remeasured unless
they are required to be reclassified. See " Note 10—Warrants " in our accompanying consolidated financial
statements for information on the warrants. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance
and our position in the industry and changes in market interest rates which can result in materially different results.

 Equity-Based
Compensation

 We
use the Black-Scholes option-pricing model to determine the fair value of option grants. In estimating fair value, management is required
to make certain assumptions and estimates such as the expected life of units, volatility of our future share price, risk-free rates,
future dividend yields and estimated forfeitures at the initial grant date. Restricted stock unit awards are valued based on the closing
trading price of our common stock on the date of grant. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position in the industry and changes in
market interest rates which can result in materially
different results.

 Income
Taxes

 We
account for income taxes using the asset and liability method. Under this 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 using enacted
rates. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.

 We
recognize the financial statement effect of an uncertain income tax position when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination. Recognized income tax positions are measured at the largest amount that
is greater than 50% likely to be realized. A valuation allowance is recorded to reduce deferred income tax assets to an amount, which
in the opinion of management is more likely than not to be realized.

 Management
judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance
recorded against our deferred tax assets. We consider factors such as the cumulative income or loss in recent years; reversal of deferred
tax liabilities; projected future taxable income exclusive of temporary differences; the character of the income tax asset, including
income tax positions; tax planning strategies and the period over which we expect the deferred tax assets to be recovered in the determination
of the valuation allowance. In the event that actual results differ from these estimates or we adjust our estimates in the future, we
may need to adjust our valuation allowance, which could materially impact our financial position and results of operations.

 The amount of the deferred tax asset considered realizable could be adjusted if our actual results in the future
do not generate taxable income that is sufficient to allow us to utilize our deferred tax assets. Our future taxable income projections
are subject to a high degree of uncertainty and could be impacted, both positively and negatively, by changes in our business or the markets
in which we operate. A change in the assessment of the realizability of our deferred tax assets could materially impact our results of
operations.

 Non-GAAP
Financial Measures

 This
Annual Report includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. 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, ERP implementation, non-recurring debt transaction and business combination expenses.
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) income for the years ended December 31, 2023 and 2022.

 Years ended December 31,

 2023

 2022

 (in thousands)

 Net (loss)

 $
 (13,817
)

 $
 (39,991
)

 Interest Expense

 16,015

 6,979

 Taxes

 (26
)

 (709
)

 Depreciation

 1,237

 EBITDA

 3,409

 (32,830
)

 Adjusted for:

 Stock-Based Compensation (1)

 6,710

 2,467

 June 2023 Offering Costs (2)

 -

 Promissory Note Forgiveness (3)

 -

 Loss on Disposal of Assets

 Separation Agreement (4)

 1,197

 Business Combination Expenses (5)

 -

 21,337

 Debt extinguishment (6)

 -

 4,824

 Change in fair market value of warrant liability (7)

 (29,582
)

 (5,446
)

 Adjusted EBITDA

 $
 (17,127
)

 $
 (7,926
)

 (1)

 Stock-Based
 Compensation is comprised of costs associated with option and RSU grants made to our employees, consultants and board members.

 (2)

 June
 2023 Offering Costs related to the warrant liability are comprised of fees and expenses, including legal, accounting, and other expenses
 associated with this offering.

 (3)

 Promissory
 Note Forgiveness is comprised of the loan that was forgiven, prior to the Business Combination, in connection with the promissory
 note, with a maturity date of March 1, 2026, between us and John Marchetti, our Senior Vice President of Operations and our former
 Chief Financial Officer.

 (4)

 Separation
 Agreement in 2022 is comprised of $1.2 million in cash severance associated with the Separation Agreement, dated October 25, 2022,
 as amended on November 14, 2022, between us and Sean Nichols, our former Chief Operating Officer. Separation Agreement in 2023 is
 comprised of $720 in cash severance associated with separation agreement dated April 26, 2023, between us and our former Chief Legal
 Officer.

 (5)

 Business
 Combination Expenses is comprised of fees and expenses, including legal, accounting, and others associated with the Business Combination.

 (6)

 Debt
 extinguishment expenses are comprised of expenses incurred in connection with the early debt repayment of the Series 2021-6 Notes
 that occurred in conjunction with the Business Combination.

 (7)

 in fair market value of warrant liabilities represents the change in fair value from the date the warrants were issued through December
 31, 2023.

 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 December 31, 2023, we had cash
totaling $12.7 million.

 We
expect our capital expenditures and working capital requirements to increase materially in the near future, as we continue our research
and development efforts (particularly those related to solid-state lithium-ion battery development), expand our production lines, scale
up production operations and look to enter into adjacent markets for our batteries (with operating expenses expected to increase across
all major expense categories). We expect to deploy a significant amount of capital to continue our optimization and commercialization
efforts dedicated to our solid-state technology development, as well as continued investment to automate and increase the production
capacity of our existing assembly operation, expansion of our facilities and new strategic investments. To date, our focus has been on
seeking to prove the fundamental soundness of our manufacturing techniques and our solid-state chemistry. Moving forward, our solid-state
related investments will focus on chemistry optimization and establishing a pilot line for pouch cell production. Over the next two to
three years, we expect to spend in excess of $50 million on solid-state development and cell manufacturing technologies. In connection
with the contraction of our business and uncertainty around the timing of future needs, we reduced our purchase activities in 2023. As
a result, our inventory balance at December 31, 2023 decreased by $11.4 million to $38.8 million, compared to $50.2 million at December
31, 2022.

 We
expect that we will need to raise additional funds, including through the use of the ChEF Equity Facility 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, which may adversely affect our business, operating
results, financial condition and prospects. 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 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 the Term Loan, the proceeds of which were used, in part, to repay the $45 million fixed rate senior notes, and ChEF Equity
Facility. As of December 31, 2023, we had $76 million outstanding under the Term Loan.

 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, 2026, 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. On March 29, 2023 and September 29, 2023 we obtained a waiver from our Administrative Agent and the Term Loan
Lenders of our failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash
requirements under the Term Loan during the quarter ended March 31, 2023 and September 30, 2023, respectively. On December 29, 2023,
we received an additional waiver from our Administrative Agent and Term Loan Lenders in regards to our compliance with the Tests as of
the last day of the quarter ended December 31, 2023. On March 31, 2024, we received a waiver from the Administrative Agent and the Term
Loan Lenders in regard to our compliance with the liquidity requirement under the Term Loan as of the last day of the fiscal quarter
ended March 31, 2024. It is probable that we will fail to meet these covenants within the next twelve months. 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 (i) until April
1, 2023 at a per annum rate equal to adjusted SOFR is a margin equal to 13.5%, of which 7% will be payable in cash and 6.5% will be paid
in-kind, (ii) 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. In each of the foregoing case, adjusted SOFR will
be no less than 1%.

 We
may elect to prepay all or any portion of the amounts owed prior to the Maturity Date, provided that we provide notice to the Administrative
Agent and the amount is accompanied by the applicable prepayment premium, if any. Prepayments of the Term Loan are required to be accompanied
by a premium of 5% of the principal amount so prepaid if made prior to the October 7, 2023, 3% if made on and after October 7, 2023 but
prior to October 7, 2024, 1% if made after October 7, 2024 but prior to October 7, 2025, and 0% if made on or after October 7, 2025.
If the Term Loan is accelerated following the occurrence of an event of default, Legacy Dragonfly is required to immediately pay to lenders
the sum of all obligations for principal, accrued interest, and the applicable prepayment premium.

to the Term Loan Agreement, we have guaranteed the obligations of Legacy Dragonfly and such obligations will be guaranteed by any of
Legacy Dragonfly's subsidiaries that are party thereto from time to time as guarantors. Also pursuant to the Term Loan Agreement,
the Administrative Agent was granted a security interest in substantially all of the personal property, rights and assets of us as and
Legacy Dragonfly to secure the payment of all amounts owed to lenders under the Term Loan Agreement. In addition, we entered into a Pledge
Agreement pursuant to which we pledged to the Administrative Agent our equity interests in Legacy Dragonfly as further collateral security
for the obligations under the Term Loan Agreement. At the closing of the Business Combination, we issued to the Term Loan Lenders (i)
the Penny Warrants and (ii) the $10 Warrants.

to the Purchase Agreement, on the terms of and subject to the satisfaction of the conditions in the Purchase Agreement, including
the filing and effectiveness of a registration statement registering the resale by CCM LLC of the shares of common stock issued to
it under the Purchase Agreement, we will have the right from time to time at our option to direct CCM LLC to purchase up to a
specified maximum amount of shares of common stock, up to a maximum aggregate purchase price of $150 million over the term of the
ChEF Equity Facility. In connection with the ChEF Equity Facility, we filed a registration statement registering the resale of up to
21,512,027 shares that may be resold into the public markets by CCM LLC, which represented approximately 36% of the shares of our
common stock outstanding as of December 31, 2023. During the year ended December 31, 2022, we did not sell any shares of our common
stock under the ChEF Equity Facility. During the year ended December 31, 2023, we issued and sold approximately 588,500 shares of
our common stock under this facility, resulting in net cash proceeds of $1,278,566. From January 1, 2024 through April 16, 2024,
we did not issue any shares of common stock under this facility. Any sales of such shares into the public market could have a
significant negative impact on the trading price of our common stock. This impact may be heightened by the fact that sales to CCM
LLC will generally be at prices below the current trading price of our common stock. If the trading price of our common stock does
not recover or experiences a further decline, sales of shares of common stock to CCM LLC pursuant to the Purchase Agreement may be a
less attractive source of capital and/or may not allow us to raise capital at rates that would be possible if the trading price of
our common stock were higher.

 On
January 24, 2024, we issued the January Note in the Principal Amount of $1.0 million to Brian Nelson, one of our directors, in a
private placement in exchange for cash in an equal amount. The January Note became due and payable in full on February 5, 2024. We
were also obligated to pay the January Loan Fee in the amount of $50,000 to Mr. Nelson on February 5, 2024. The January Principal
Amount of the January Note and the January Loan Fee were paid in full on February 1, 2024. On February 27, 2024, we issued the
February Note to Brian Nelson in the February Principal Amount of $1.7 million in a private placement in exchange for cash in an
equal amount. The February Note became due and payable in full on March 1, 2024. We were also obligated to pay the February Loan Fee
in the amount of $85,000 to Mr. Nelson on March 1, 2024. The February Principal Amount of the February Note and the February Loan
Fee were paid in full on March 1, 2024.

 We
have also filed a registration statement registering the resale of up to 47,428,544 shares and 12,266,971 warrants to purchase common
stock that may be resold and/or issued into the public markets, which represents approximately 79% of the shares of our common stock
outstanding as of December 31, 2023. The selling securityholders will determine the timing, pricing and rate at which they sell such
shares into the public market. Although the current trading price of our common stock is below $10.00 per share, which was the sales
price for units in the Chardan IPO, certain of the selling security holders have an incentive to sell because they purchased shares and/or
warrants at prices below the initial public offering price and/or below the recent trading prices of our securities. Additionally, while
sales by such investors may experience a positive rate of return based on the trading price at the time they sell their shares, the public
securityholders may not experience a similar rate of return on the securities they purchased due to differences in the prices at which
such public securityholders purchased their shares and the trading price. Given the substantial number of shares of common stock being
registered for potential resale by the selling securityholders pursuant to such prospectus, the sale of shares by the selling securityholders,
or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, may increase the
volatility of the market price of our common stock, may prevent the trading price of our securities from exceeding the Chardan IPO offering
price and may cause the trading prices of our securities to experience a further decline.

 In June 2023, we completed the June 2023 Offering,
which provided net proceeds to us, including the partial over-allotment option exercise, of approximately $20.7 million. In July 2023,
upon a request from our lenders under the Term Loan Agreement, we repaid $5.3 million to satisfy a portion of its outstanding principal.

 In 2024, we identified an underpayment of tariffs
to CBP in the amount of approximately $1.58 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.

 Going
Concern

 For
the year ended December 31, 2023, we incurred losses and had a negative cash flow from operations. As of December 31, 2023, we had approximately
$12.7 million in cash and cash equivalents and working capital of $15.5 million.

 Under
the Term Loan Agreement, we are obligated to comply with certain financial covenants, which include maintaining a maximum senior leverage
ratio, minimum liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures. On March 29, 2023 and September
29, 2023, we obtained waivers from our Administrative Agent and Term Loan Lenders of our failures to satisfy the fixed charge coverage
ratio and maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan for the quarters ended, March
31, 2023 and September 30, 2023. On December 29, 2023, we received an additional waiver from our Administrative Agent and Term Loan Lenders
in regard to our compliance with the Tests as of the last day of the quarter ended December 31, 2023. On March 31, 2024, we received
an additional waiver from our Administrative Agent and Term Loan Lenders in regard to our compliance with our liquidity requirement as
of the last day of the fiscal quarter ended March 31, 2024. It is probable that we will fail to meet these covenants within the next
twelve months. If we are unable to comply with the financial covenants in our loan agreement, the Term Loan Lenders have the right to
accelerate the maturity of the Term Loan. These conditions raise substantial doubt about our ability to continue as a going concern.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2023 consolidated
financial statements, with respect to this uncertainty.

 In
addition, we may need to raise additional debt and/or equity financing to fund our operations and strategic plans and meet our financial
covenants. We have historically been able to raise additional capital through issuance of equity and/or debt financing and we intend
to use the ChEF Equity Facility and 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. 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, which may adversely affect our business, operating results, financial condition and prospects. Further,
future debt or equity financings may be dilutive to our current stockholders.

 Cash
Flows for the Years ended December 31, 2023 and 2022

 Years ended December 31,

 2023

 2022

 Net Cash provided by/(used in):

 (in thousands)

 Operating Activities

 $
 (17,706
)

 $
 (45,696
)

 Investing activities

 $
 (6,885
)

 $
 (6,827
)

 Financing activities

 $
 19,523

 $
 41,674

Activities

 Net
cash used in operating activities was $17.7 million for the year ended December 31, 2023, primarily due to a net loss during the period
and the change in fair market value of the warrant liability, partially offset by a decrease in inventory as a result of management's
decision to lower overall stocking levels to adjust for more modest demand.

 Net
cash used in operating activities was $45.7 million for the year ended December 31, 2022 primarily due to a net loss during the period,
largely driven by Business Combination expenses, and an increase in purchased inventory to support future growth and to protect against
potential supply disruptions.

 Investing
Activities

 Net
cash used in investing activities was $6.9 million for the year ended December 31, 2023, as compared to $6.8 million for the year ended
December 31, 2022. The cash used in investing activities was primarily driven by capital expenditures to support our core battery business
and our ongoing efforts to develop solid-state battery technology and manufacturing processes.

 Financing
Activities

 Net
cash provided by financing activities was $19.5 million for the year ended December 31, 2023, primarily as a result of proceeds $20.7
million from the June 2023 Offering.

 Net
cash provided by financing activities was $41.7 million for the year ended December 31, 2022, primarily as a result of proceeds from
the $75.0 million term loan as part of the Business Combination, and $15.0 million from the strategic investment made by THOR, partially
offset by a $45.0 million expense for the repayment of the senior secured notes.

 Contractual
Obligations

 Our
estimated future obligations consist of short-term and long-term operating and financing lease liabilities. As of December 31, 2023,
we had $1.3 million in short-term operating and financing lease liabilities and $2.3 million in long-term operating, and financing lease
liabilities. As disclosed above, we have a Term Loan and as of December 31, 2023, the principal amount outstanding under the Term Loan
was $69.7 million.

 As
disclosed above, consistent with the Debt Commitment Letter dated May 15, 2022 by and between CCM 5, and EICF EIP, in connection with
the Closing, Chardan, Legacy Dragonfly and the Initial Term Loan Lenders entered into the Term Loan Agreement setting forth the terms
of a senior secured term loan facility in an aggregate principal amount of $75 million. The Chardan Lender backstopped its commitment
under the Debt Commitment Letter by entering into a Backstop Commitment Letter, with the Backstop Lender, pursuant to which the Backstop
Lender committed to purchase from the Chardan Lender the Backstopped Loans immediately following the issuance of the Term Loan on the
Closing Date. Pursuant to an assignment agreement, the Backstopped Loans were assigned by CCM 5 to the Backstop Lender on the Closing
Date.

to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date. The proceeds of the Term Loan
were used (i) to refinance on the Closing Date prior indebtedness, (ii) to support thine Business Combination under the Business Combination
Agreement, (iii) for working capital purposes and other corporate purposes, and (iv) to pay any fees associated with transactions contemplated
under the Term Loan Agreement and the other loan documents entered into in connection therewith, including the transactions described
in the foregoing clauses (i) and (ii) and fees and expenses related to the business combination. The Term Loan amortizes in the amount
of 5% per annum beginning 24 months after the Closing Date and matures on the fourth anniversary of the Closing Date (" Maturity
Date "). The Term Loan accrues interest (i) until April 1, 2023, at a per annum rate equal to the adjusted SOFR plus a margin
equal to 13.5%, of which 7% will be payable in cash and 6.5% will be paid in-kind, (ii) 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, which will be paid-in-kind and (iii) at all times thereafter, at a per annum rate equal to adjusted SOFR
plus a margin ranging from 11.5% to 13.5% payable in cash, depending on the senior leverage ratio of the consolidated company. In each
of the foregoing cases, adjusted SOFR will be no less than 1%.

 JOBS
Act Accounting Election

 As
an emerging growth company under the JOBS Act, we are eligible to take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies. We have elected not to opt out of such extended
transition period. Accordingly, when an accounting standard is issued or revised and it has different application dates for public or
private companies, we, as an emerging growth company, will adopt the new or revised accounting standard at the time private companies
adopt the new or revised accounting standard, unless early adoption is permitted by the accounting standard, and we elect early adoption.
This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging
growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences
in accounting standards used.

 Item
7A. Quantitative and Qualitative Disclosures about Market Risk

 Not
applicable.

 Item
8. Financial Statements and Supplementary Data

 Our
consolidated audited financial statements as of and for the years ended December 31, 2023 and December 31, 2022, together with the report
of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-2.

 Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 None.

 Item
9A. Controls and Procedures

 Evaluation
of Disclosure Controls and Procedures

 We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that
we file or submit under the Securities Exchange Act of 1934, as amended (the " Exchange Act ") is (1) recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules and forms and (2) accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 As
of December 31, 2023, our management, including with the participation of our Chief Executive Officer and Interim Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based upon the evaluation described above, our Chief Executive
Officer and Interim Chief Financial Officer concluded that, for the reasons set forth below, our disclosure controls and procedures
were not effective as of December 31, 2023.

 Management's
Annual Report on Internal Control Over Financial Reporting

 Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed under the supervision
of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial
reporting and preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

 Due
to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined
to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation.
Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result
of changes in conditions or deterioration in the degree of compliance.

 Under
the supervision and with the participation of our management, including our Chief Executive Officer and our Interim Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(" COSO ") issued in May 2013 and related COSO guidance. Based on our evaluation under this framework, management
concluded that, as of December 31, 2023, our internal control over financial reporting was not effective and could lead to a
material misstatement of account balances or disclosures.

 A material weakness is a control deficiency or combination of deficiencies
in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial
statements will not be prevented or detected and corrected on a timely basis. Our management concluded that we have material
weaknesses as a result of our failure to capture, and record, and pay tariffs correctly related to the imported merchandise
on previously filed 2022 and 2021 financial statements.

 Management's
Remediation Measures

 While we have improved our
organizational capabilities and remediated the prior year material weaknesses during 2023, a new material weakness, described above, remains
un-remediated as of December 31, 2023. Our remediation efforts will continue to take place. Management is committed to maintaining
a strong internal control environment. In response to the identified material weaknesses in the prior year, management has taken
a number of remediation actions during the year ended December 31, 2023, and are continuing its actions to remediate the 2023 material
weakness around tariffs. Remediation actions taken during the year are outlined below.

 We concluded that the material weaknesses identified in our Annual Report on Form 10-K for the year ended December
31, 2022 (discussed below) have been remediated (the " Remediated Material Weaknesses "):

 Control
Environment. We concluded that we did not maintain effective controls in the following areas: (i) insufficient number of accounting
and financial reporting resources with the appropriate level of knowledge, experience and training, (ii) ineffective identification and
assessment of risks impacting internal control over financial reporting, and (iii) ineffective evaluation and determination as to whether
the components of internal control were present and functioning.

 Control
activities. We concluded that the material weaknesses contributed to the following additional material weaknesses in business processes:
(i) designing and implementing procedures surrounding completion, accuracy and review of account reconciliations; (ii) designing and
implementing controls to assess the completeness, accuracy and accounting analysis of material contracts entered into by us; (iii) designing
and implementing controls to sufficiently supervise and review the work completed by specialist engaged by us; (iv) designing and implementing
controls to ensure the accuracy of period-end inventory count procedures to ensure proper financial reporting; and (v) designing and
implementing control procedures to ensure the accuracy of the financial statements to the underlying accounting records and ensure the
completeness of required disclosures.

the year ended December 31, 2023, we completed the implementation of the following remedial measures designed to remediate the
material weaknesses in internal control over financial reporting noted in the December 31, 2022 Form 10-K:

 Engaged
 outside resources for complex accounting matters and drafting and retaining position papers for all complex, non-recurring transactions.

 Implemented
 a risk assessment process by which management identifies risks of misstatement related to all account balances.

 Developed
 monitoring activities and protocols that will allow us to timely assess the design and the operating effectiveness of controls over
 financial reporting and make necessary changes to the design of controls, if any.

 Segregated
 key functions within our financial and information technology processes supporting our internal controls over financial reporting.

 Continued
 to enhance and formalize our accounting, business operations, and information technology policies, procedures, and controls to achieve
 complete, accurate, and timely financial accounting, reporting and disclosures.

 Enhanced
 policies and procedures to retain adequate documentary evidence for certain management review controls over certain business processes
 including precision of review and evidence of review procedures performed to demonstrate effective operation of such controls.

 Developed
 internal controls documentation, including comprehensive accounting policies and procedures over financial processes, including around
 physical inventory observations, and related disclosures.

 Adopted
 a process to identify and assess our disclosure controls and procedures, including the preparation and review of
 presentation and disclosure requirement checklists.

 We are also currently implementing additional measures to address the material weakness relating to tariffs, which
include:

 Designing new controls to capture, record, and pay tariffs related to the imported merchandise.

 This
Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over
financial reporting due to an exemption established by the JOBS Act for "emerging growth companies." In addition, we are
currently a non-accelerated filer and are therefore not required to provide an attestation report on our internal control over financial
reporting until such time as we are an accelerated filer or large accelerated filer.

 Changes
in Internal Control over Financial Reporting

 Except
for the material weakness and the remediation efforts described above, no other changes in our internal control over
financial reporting (as defined by Rules 13a015(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31,
2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.

 As
a public company, we are required pursuant to Section 404(a) of the Sarbanes-Oxley Act to furnish a report by management on, among
other things, the effectiveness of our internal control over financial reporting for each annual report on Form 10-K to be filed
with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in internal
control over financial reporting. If in the future we are no longer classified under the definition of an "emerging growth
company," and/or a "non-accelerated filer," our independent registered public accounting firm will also be
required, pursuant to Section 404(b) of the Sarbanes-Oxley Act, to attest to the effectiveness of our internal control over
financial reporting in each annual report on Form 10-K to be filed with the SEC. We will be required to disclose material changes
made in our internal control over financial reporting on a quarterly basis. Failure to comply with the Sarbanes-Oxley Act could
potentially subject us to sanctions or investigations by the SEC, Nasdaq, or other regulatory authorities, which would require
additional financial and management resources.

 Item
9B. Other Information

 (a)

 April 12, 2024, we entered into the Amended Employee Agreements with our Chief Executive Officer, our Chief Revenue Officer
 and our Chief Marketing Officer. The Amended Employee Agreements allow us to issue a combination of cash and equity awards on an
 annual basis up to a specified amount ($1,532,000 for our Chief Executive Officer, $490,000 for our Chief Revenue Officer and $236,000
 for our Chief Marketing Officer), subject to approval and such other terms and conditions imposed by the compensation committee of
 the board of directors.

 April 12, 2024, we issued a total of 836,295 RSUs under the 2022 Plan to the following employees: (i) 567,407 RSUs to our Chief
 Executive Officer; (ii) 181,481 RSUs to our Chief Revenue Officer; and (iii) 87,407 RSUs to our Chief Marketing Officer. Each of the RSUs granted will vest in three equal annual installments, with the first vesting date on the one (1)
year anniversary of the date of issuance and the following two vesting dates on each subsequent anniversary of the date of issuance, subject
to each employees' continued employment as of each vesting date. In addition to the RSU awards, our Board also approved the following
cash awards to the above referenced employees: (i) $510,666.67 to our Chief Executive Officer; (ii) $163,333.33 to our Chief Revenue Officer;
and (iii) $78,667.67 to our Chief Marketing Officer. Each of the approved cash awards will not be paid out to the employees until we have
achieved a minimum cash balance of $30,000,000, and are subject to each employee's continued employment on the date of payment.

 On April 12, 2024, our Board issued each of our non-employee directors 222,222 RSUs in connection with their
service as directors for the year ended December 31, 2023. The RSUs will vest in three equal annual installments, with the first vesting
date on the one (1) year anniversary date of their issuance, subject to the directors continued service on our Board on each vesting date.

 On April 15, 2024, our Board approved an amendment to our Director Compensation Policy offering directors
long-term incentive awards that are issuable subject to the sole discretion of our compensation committee. Each such long-term incentive
award is payable in the form of cash and or equity awards. Each such award shall be determined each fiscal year and are subject to the
director's continued service with us and other conditions as our compensation committee deems appropriate. Where equity awards are
issued, such awards are subject to the terms and conditions of the 2022 Plan.

 On
 April 12, 2024, we entered into the Fernley Lease Agreement, pursuant to which we agreed to lease the approximately
 64,000 square foot Premises located in Fernley, Nevada.

 The
 initial term of the Fernley Lease Agreement (the " Term ") is for a period of sixty (60) months, effective April
 1, 2024. The base rent for the Premises, payable monthly, is $44,800.00 for the first twelve months of the Term and is subject to
 a three percent (3.0%) increase on the anniversary of each year. We also will be responsible for twenty-five percent (25%) of any
 operating expenses, taxes and insurance expenses incurred by the Landlord in connection with the building in which the Premises are
 located (the " Expenses ") as well as utility expenses. The Expenses are subject to recalculation and
 increase upon the completion of the Initial Improvements (as defined in the Fernley Lease Agreement). The Landlord is responsible
 for completing the Initial Improvements. The Fernley Lease Agreement also contains customary default provisions allowing the Landlord
 to terminate the Fernley Lease Agreement if we fail to cure certain breaches of our obligations under the Fernley Lease Agreement
 within a specified period of time upon written notice to us. In addition, we are obligated to indemnify, and hold harmless, the Landlord
 for certain losses incurred in connection with or arising out of any injury to persons or damage to property occurring in or on the
 Premises, or resulting from any accident or other negligent or willfully wrongful act or omission of us on or about the Premises.
 Concurrent with the execution of the Fernley Lease Agreement, we paid the Landlord a security deposit of $50,422.79.

 (b)

 the fiscal quarter ended December 31, 2023, none of our directors or "officers" (as defined in Rule 16a-1(f) under the
 Exchange Act) adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement,"
 as each term is defined in Item 408(c) of Regulation S-K.

 Item
9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections

 Not
applicable.

 PART
III

 Item
10. Directors, Executive Officers, and Corporate Governance

required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

 Item
11. Executive Compensation

required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

 Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

 Item
13. Certain Relationships and Related Transactions, and Director Independence

required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

 Item
14. Principal Accounting Fees and Services

required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

 Part
IV

 Item
15. Exhibit and Financial Statement Schedules

 (a)

 The
 following documents are filed as part of this report:

 1.

 Financial
 Statements

 The
list of consolidated financial statements set forth in the accompanying Index to the Consolidated Financial Statements at page F-1 of
this Annual Report on Form 10-K is incorporated herein by reference. Such consolidated financial statements are filed as part of this
Annual Report on Form 10-K.

 2.

 Financial
 Statement Schedules

 All
schedules have been omitted because the required information is either not required, not applicable or because the information required
is included in the consolidated financial statements or notes thereto.

 3.

 Exhibits

 Incorporated
 By Reference

 Exhibit
 No.

 Description

 Form

 Exhibit

 Filing

 Date

 2.1#

 Agreement and Plan of Merger, dated as of May 15, 2022, by and among Dragonfly Energy Holdings Corp. (f/k/a Chardan NexTech Acquisition 2 Corp.), Bronco Merger Sub, Inc. and Dragonfly Energy Corp. (included as Annex A to the proxy statement/prospectus).

 S-4

 2.1

 2.2

 Amendment to Agreement and Plan of Merger, dated as of July 12, 2022, by and among Dragonfly Energy Holdings Corp. (f/k/a Chardan NexTech Acquisition 2 Corp.), Bronco Merger Sub, Inc. and Dragonfly Energy Corp.

 S-4

 2.1(a)

 2.3

 Plan of Conversion.

 2.1

 03/31/2023

 3.1

 Articles of Incorporation of Dragonfly Energy Holdings Corp.

 3.1

 03/31/2023

 3.2

 Certificate of Amendment to the Articles of Incorporation of Dragonfly Energy Holdings Corp., dated November 29, 2023.

 3.1

 11/29/2023

 3.3

 Bylaws of Dragonfly Energy Holdings Corp.

 3.2

 03/31/2023

 4.1

 Specimen Common Stock Certificate of Dragonfly Energy Holdings Corp.

 4.1

 4.2

 Form of $10 Warrant of Dragonfly Energy Holdings Corp.

 4.2

 4.3

 Form of Penny Warrant of Dragonfly Energy Holdings Corp.

 4.3

 4.4

 Warrant Agreement, dated as of October 19, 2022, between Dragonfly Energy Holdings Corp. and American Stock Transfer & Trust Company, LLC.

 S-1

 4.4

 10/21/2022

 4.5

 Specimen Warrant Certificate of Dragonfly Energy Holdings Corp.

 4.5

 4/17/2023

 4.6

 Promissory Note of the Company, dated March 5, 2023.

 4.1

 03/09/2023

 4.7

 Form of June 2023 Warrant.

 4.1

 06/21/2023

 4.8

 Form of Underwriters' Warrant.

 S-1/A

 4.8

 06/14/2023

 4.9

 Form of December 2023 Lender Penny Warrant.

 4.1

 12/29/2023

 4.10*

 Description of Securities.

 10.1

 Sponsor Support Agreement, dated as of May 15, 2022, by and among Chardan NexTech Investments 2 LLC, Dragonfly Energy Corp. and Chardan NexTech Investments 2 LLC (included as Annex E to the proxy statement/prospectus).

 S-4

 10.4

 10.2

 Commitment Letter, dated as of May 15, 2022, by and among Dragonfly Energy Holdings Corp. (f/k/a Chardan NexTech Acquisition 2 Corp.), Dragonfly Energy Corp., CCM Investments 5 LLC and EICF Agent LLC (included as Annex J to the proxy statement/prospectus).

 S-4

 10.5

 10.3

 Equity Facility Letter Agreement, dated as of May 15, 2022, by and among Dragonfly Energy Corp., Dragonfly Energy Holdings Corp. (f/k/a Chardan NexTech Acquisition 2 Corp.) and CCM Investments 5 LLC (included as Annex K to the proxy statement/prospectus).

 S-4

 10.6

 10.4

 Subscription Agreement, dated as of May 15, 2022, between Dragonfly Energy Holdings Corp. (f/k/a Chardan NexTech Acquisition 2 Corp.) and Chardan NexTech Investments 2 LLC (included as Annex F to the proxy statement/prospectus).

 S-4

 10.7

 10.5++

 Dragonfly Energy Holdings Corp. 2022 Equity Incentive Plan.

 10.5

 10.6++

 Dragonfly Energy Holdings Corp. Employee Stock Purchase Plan.

 10.6

 10.7++

 Form of Director Indemnification Agreement.

 S-4/A

 10.10

 09/14/2022

 10.8

 Multi-tenant Industrial Triple Net Lease, dated as of March 1, 2021, between Dragonfly Energy Corp. and Icon Reno Property Owner Pool 3 Nevada, LLC.

 S-4

 10.11

 10.9

 Lease, dated as of February 8, 2022, between Dragonfly Energy Corp. and Prologis, L.P.

 S-4

 10.12

 10.10#

 Purchase Agreement, dated as of October 7, 2022, between Dragonfly Energy Holdings Corp. and Chardan Capital Markets LLC.

 10.10

 10.11

 Registration Rights Agreement, dated as of October 7, 2022, between Dragonfly Energy Holdings Corp. and Chardan Capital Markets LLC.

 10.11

 10.12

 Term Loan Agreement, dated as of October 7, 2022, by and among the Dragonfly Energy Holdings Corp., Dragonfly Energy Corp., the lenders from time to time party thereto and Alter Domus (US) LLC.

 10.12

 10.13

 Pledge Agreement, dated as of October 7, 2022, by and among Dragonfly Energy Holdings Corp. and Alter Domus (US) LLC.

 10.13

 10.14++

 Employment Agreement, dated as of January 1, 2022, by and between Dragonfly Energy Corp. and Denis Phares.

 10.14

 10.15++

 Amendment to Employment Agreement, dated as of May 15, 2022, by and between Dragonfly Energy Corp. and Denis Phares.

 10.15

 10.16++

 Employment Agreement, dated as of January 1, 2022, by and between Dragonfly Energy Corp. and Sean Nichols.

 10.16

 10.17++

 Amendment to Employment Agreement, dated as of May 15, 2022, by and between Dragonfly Energy Corp. and Sean Nichols.

 10.17

 10.18++

 Employment Agreement, dated as of August 17, 2021, by and between Dragonfly Energy Corp. and John Marchetti.

 10.18

 10.19++

 Dragonfly Energy Corp. 2019 Stock Incentive Plan.

 10.19

 10.20++

 Dragonfly Energy Corp. 2021 Stock Incentive Plan.

 10.20

 10.21

 Amended and Restated Registration Rights Agreement, dated as of October 7, 2022, by and among Dragonfly Energy Holdings Corp. and each of the stockholders thereto.

 10.21

 10.22++

 Director Compensation Policy.

 S-1

 10.22

 11/4/2022

 10.23++

 Employment Agreement, dated as of October 11, 2022, by and between Dragonfly Energy Holdings Corp. and Denis Phares.

 S-1

 10.23

 11/4/2022

 10.24++

 Employment Agreement, dated as of October 11, 2022, by and between Dragonfly Energy Holdings Corp. and John Marchetti.

 S-1

 10.24

 11/4/2022

 10.25++

 First Amended and Restated Employment Agreement, dated February 24, 2023, by and between Dragonfly Energy Holdings Corp. and John Marchetti.

 10.1

 03/02/2023

 10.26

 Separation Agreement by and between Dragonfly Energy Holdings Corp. and Sean Nichols, dated October 25, 2022.

 10.26

 10.27

 First Amendment to Separation Agreement by and between Dragonfly Energy Holdings Corp. and Sean Nichols, dated November 14, 2022.

 10.27

 10.28

 Asset Purchase Agreement, dated April 22, 2022, by and among Dragonfly Energy Corp., Thomason Jones Company, LLC, William Thomason and Richard Jones.

 10.28

 10.29

 Manufacturing Supply Agreement, dated November 19, 2021, by and between Dragonfly Energy Holdings Corp. and Keystone RV Company.

 10.29

 10.30

 Asset Purchase Agreement, dated January 1, 2022, by and between Dragonfly Energy Holdings Corp. and Bourns Productions, Inc.

 10.30

 10.31

 Assignment and Assumption Agreement, dated January 1, 2022, by and between Dragonfly Energy Corp. and Bourns Productions, Inc.

 10.31

 10.32

 Assignment and Assumption of Lease Agreement, dated January 1, 2022, by and among Dragonfly Energy Corp., Bourns Productions, Inc. and Los Angeles & Steel Co.

 10.32

 10.33

 Research and Development Lab Lease, dated April 25, 2019, by and between Dragonfly Energy Corp. and BRE RS Greg Park Owner LLC.

 10.33

 10.34

 Amendment No. 1 to Research and Lab Lease, dated March 12, 2020, by and between Dragonfly Energy Corp. and DRE RS Greg Park Owner LLC.

 10.34

 10.35

 Amendment No. 2 to Research and Lab Lease, dated July 27, 2020, by and between Dragonfly Energy Corp. and DRE RS Greg Park Owner LLC.

 10.35

 10.36

 Amendment No. 3 to Research and Lab Lease, dated August 26, 2020, by and between Dragonfly Energy Corp. and DRE RS Greg Park Owner LLC.

 10.36

 10.37

 Amendment No. 4 to Research and Lab Lease, dated December 16, 2020, by and between Dragonfly Energy Corp. and BRS RS Greg Park Owner LLC.

 10.37

 10.38

 Amendment No. 5 to Research and Lab Lease, dated January 28, 2022, by and between Dragonfly Energy Corp. and BRS RS Greg Park Owner LLC.

 10.38

 10.39

 Limited Waiver, dated as of March 29, 2023, to the Term Loan, Guarantee and Security Agreement, dated as of October 7, 2022, by and among Dragonfly Energy Holdings Corp., Dragonfly Energy Corp., the lenders from time to time party thereto and Alter Domus (US) LLC.

 10.1

 03/29/2023

 10.40

 Limited Waiver, dated as of December 29, 2023, to the Term Loan, Guarantee and Security Agreement, dated as of October 7, 2022, by and among Dragonfly Energy Holdings Corp., Dragonfly Energy Corp., the lenders from time to time party thereto and Alter Domus (US) LLC.

 10.1

 12/29/2023

 10.42*++

 Employment Agreement, dated as of November 7, 2022, by and between Dragonfly Energy Holdings Corp. and Wade Seaburg.

 10.43*++

 Employment Agreement, dated as of November 7, 2022, by and between Dragonfly Energy Holdings Corp. and Tyler Bourns.

 10.44*

 Fernley Lease, dated April 12, 2024, by and between Dragonfly Energy Corp., Cottonmill Properties,
LLC, and Marlene Thier.

 10.45*++

 Amendment No. 1 to Employment Agreement, effective as of April 12, 2024, by and between Dragonfly Energy Holdings Corp. and Denis Phares.

 10.46*++

 Amendment No. 1 to Employment Agreement, effective as of April 12, 2024, by and between Dragonfly Energy Holdings Corp. and Wade Seaburg.

 10.47*++

 Amendment No. 1 to Employment Agreement, effective as of April 12, 2024, by and between Dragonfly Energy Holdings Corp. and Tyler Bourns.

 16.1

 Letter dated November 21, 2023 from BDO USA, P.C. to the Securities Exchange Commission.

 16.1

 11/21/2023

 21.1

 List of Subsidiaries.

 21.1

 23.1*

 Consent of Marcum LLP

 23.2*

 Consent of BDO USA, P. C.

 31.1*

 Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

 31.2*

 Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

 32.1**

 Certification of Chief Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.

 97.1*

 Dragonfly Energy Holdings Corp. Compensation Recovery Policy.

 101.INS*

 101.SCH*

 101.CAL*

 101.DEF*

 101.LAB*

 101.PRE*

 104*

 Cover

 *

 Filed
 herewith.

 **

 Furnished
 herewith.

 #

 Portions
 of schedules and exhibits to the agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted
 schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.

 ++

 Indicates
 a management contract or compensatory plan.

 Item
16. Form 10-K Summary

 None.

 SIGNATURES

to the requirements of the Securities Act of 1933, the registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Reno, Nevada, on the 16th day of April, 2024.

 By:

 /s/
 Denis Phares

 Denis Phares

 Chief
 Executive Officer, Interim Chief Financial Officer and President

 (Principal
 Executive Officer and Principal Financial and Accounting Officer)

to the requirements of the Securities Act of 1933, this Annual Report has been signed by the following persons in the capacities and
on the dates indicated:

 Signature

 Title

 Date

 /s/
 Denis Phares

 Chief
 Executive Officer, Interim Chief Financial Officer, President and Chairman

 April

 Denis
 Phares

 (Principal
 Executive Officer and Principal Financial and Accounting Officer)

 /s/
 Jonathan Bellows

 April

 Jonathan Bellows

 /s/ Perry Boyle

 April

 Perry Boyle

 /s/
 Karina Montilla Edmonds

 April

 Karina Montilla Edmonds

 /s/
 Luisa Ingargiola

 April

 Luisa
 Ingargiola

 /s/
 Brian Nelson

 April

 Brian
 Nelson

 /s/
 Rick Parod

 April

 Rick
 Parod

 Item
8. Financial Statements and Supplemental Data

TO CONSOLIDATED FINANCIAL STATEMENTS

 Report of Independent Registered Public Accounting Firm (PCAOB ID# 688)

 Report of Independent Registered Public Accounting Firm (PCAOB ID# 243)

 Consolidated Balance Sheets as of December 31, 2023 and 2022

 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2023 and 2022

 Statements of Cash Flows for the years ended December 31, 2023 and 2022

 Notes to Consolidated Financial Statements

 F- 1

 Report
of Independent Registered Public Accounting Firm

 To the Shareholders and Board of Directors

 of Dragonfly Energy Holdings Corp.

 Opinion on the Financial
Statements

 We have audited the accompanying
consolidated balance sheet of Dragonfly Energy Holdings Corp. (the "Company") as of December 31, 2023, the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended December 31, 2023, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended
December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 As discussed in Note 15 to the
financial statements, the 2022 financial statements have been revised to correct for the under reporting of tariffs. The financial statements
of the Company for the year ended December 31, 2022, before the effects of the adjustments to correct the errors discussed in Note 15
to the financial statements, were audited by other auditors whose report, dated April 17, 2023, expressed an unqualified opinion on those
statements and included an explanatory paragraph regarding the Company's ability to continue as a going concern. We have also audited
the adjustments described in Note 15 that were applied to revise the 2022 financial statements to correct the errors. In our opinion,
such adjustments are appropriate and have been properly applied. Except for the corrections described in Note 15 we were not engaged to
audit, review, or apply any procedures to the financial position of the Company as of December 31, 2022, and the results of its operations
and its cash flows for the year then ended, other than stated above and, accordingly, we do not express an opinion or any other form of
assurance on the 2022 financial statements taken as a whole.

 Explanatory Paragraph –
Going Concern

 The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company incurred
loss from operations and had negative cash flow from operations and concluded it is probable the Company will not comply with future covenants
of the Term Loan and does not have sufficient resources to repay the Term Loan, which raises substantial doubt about its ability to continue
as a going concern. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

 Basis for Opinion

 These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.

 Our audit included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our
opinion.

 /s/ Marcum llp

 Marcum LLP

 We served as the Company's auditor since
2023.

 New York, NY
April 16, 2024

 F- 2

 Report
of Independent Registered Public Accounting Firm

 Shareholders and Board of Directors

 Dragonfly Energy Holdings Corp.

 Reno, Nevada

 Opinion on the Consolidated
Financial Statements

 We have audited, before the
effects of the adjustments for the correction of the error described in Note 15, the accompanying consolidated balance sheet of Dragonfly
Energy Holdings Corp. (the "Company") as of December 31, 2022, the related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended (the 2022 consolidated financial statements before the effects of the adjustments discussed
in Note 15 are not presented herein). In our opinion, except for the error described in Note 15, the 2022 consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America.

 We were not engaged to audit,
review, or apply any procedures to the adjustments for the correction of the error described in Note 15 and, accordingly, we do not express
an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments
were audited by Marcum LLP.

 Going Concern

 The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has incurred losses and has a negative cash flow from operations and concluded it is probable the Company
will not comply with future covenants of the Term Loan and does not have sufficient resources to repay the Term Loan, which raises substantial
doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note
2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 Basis for Opinion

 These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 Our audit included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.

 /s/ BDO USA, LLP

 We served as the Company's auditor from 2021
to 2023.

 Spokane, Washington

 April 17, 2023

 F- 3

Balance Sheets

 (in

 2023

 2022

 Current Assets

 Cash and cash equivalents

 $
 12,713

 $
 17,781

 Accounts receivable, net of allowance for credit losses

 1,639

 1,444

 38,778

 50,189

 Prepaid expenses

 1,624

 Prepaid inventory

 1,381

 2,002

 Prepaid income tax

 Other current assets

 Total Current Assets

 55,920

 73,832

 Property and Equipment

 Machinery and equipment

 16,714

 10,214

 Office furniture and equipment

 Leasehold improvements

 1,727

 1,709

 Vehicle

 Total

 18,793

 12,393

 Less accumulated depreciation

 ( 2,824
)

 ( 1,633
)

 Property and Equipment

 15,969

 10,760

 Operating lease right of use asset, net

 3,315

 4,513

 Total Assets

 $
 75,204

 $
 89,105

 Current Liabilities

 Accounts payable

 10,258

 13,475

 Accrued payroll and other liabilities

 7,107

 6,250

 Accrued tariffs

 1,713

 Customer deposits

 Uncertain tax position liability

 Notes payable, current portion, net of debt issuance costs

 19,683

 19,242

 Operating lease liability, current portion

 1,288

 1,188

 Financing lease liability, current portion

 Total Current Liabilities

 40,377

 41,463

 Long-Term Liabilities

 Warrant liabilities

 4,463

 32,831

 Accrued expenses-long term

 Operating lease liability, net of current portion

 2,234

 3,541

 Financing lease liability, net of current portion

 Total Long-Term Liabilities

 6,915

 36,899

 Total Liabilities

 47,292

 78,362

 Commitments and Contingencies (See Note 6)

 Stockholders' Equity

 Preferred stock, 5,000,000 shares at $ 0.0001 par value, authorized, no shares issued and outstanding as of December 31, 2023 and 2022, respectively

 -

 -

 Common stock, 250,000,000 shares at $ 0.0001 par value, authorized, 60,260,282 and 43,272,728 shares issued and outstanding as of December 31, 2023 and 2022, respectively

 Additional paid in capital

 69,445

 38,461

 Accumulated deficit

 ( 41,539
)

 ( 27,722
)

 Total Stockholders' Equity

 27,912

 10,743

 Total Liabilities and Stockholders' Equity

 $
 75,204

 $
 89,105

 F- 4

Statements of Operations

 Years
Ended December 31, 2023 and 2022

 (in

 2023

 2022

 Net Sales

 $
 64,392

 $
 86,251

 Cost of Goods Sold

 48,946

 62,633

 Gross Profit

 15,446

 23,618

 Operating Expenses

 Research and development

 3,863

 2,764

 General and administrative

 26,389

 41,566

 Selling and marketing

 12,623

 13,671

 Total Operating Expenses

 42,875

 58,001

 Loss From Operations

 ( 27,429
)

 ( 34,383
)

 Other Income (Expense)

 Other income (expense)

 Interest expense, net

 ( 16,015
)

 ( 6,979
)

 Change in fair market value of warrant liability

 29,582

 5,446

 Debt extinguishment

 -

 ( 4,824
)

 Total Other Income (Expense)

 13,586

 ( 6,317
)

 Loss Before Taxes

 ( 13,843
)

 ( 40,700
)

 Income Tax Benefit

 ( 26
)

 ( 709
)

 $
 ( 13,817
)

 $
)

 Loss Per Share- Basic and Diluted

 $
 ( 0.26
)

 $
 ( 1.04
)

 Weighted Average Number of Shares – Basic and Diluted

 52,786,481

 38,565,307

 F- 5

Statements of Shareholders' Equity

 Years
Ended December 31, 2023 and 2022

 (in
thousands, except share data)

 Common Stock

 Additional

Paid-In

 Accumulated

 Shares

 Amount

 Capital

 Deficit

 Total

 Balance – January 1, 2022

 36,496,998

 3,619

 12,269

 15,892

 Net loss

 -

 -

 -

)

)

 Stock purchase agreement

 1,498,301

 -

 15,000

 -

 15,000

 Exercise of stock options

 581,351

 -

 -

 Reverse capitalization, net of transaction costs (See note 3)

 4,238,936

 -

 -

 -

 -

 Cashless exercise of liability classified warrants

 457,142

 -

 16,669

 -

 16,669

 Stock compensation expense

 -

 -

 2,467

 -

 2,467

 Balance – December 31, 2022

 43,272,728

 38,461

 ( 27,722
)

 10,743

 Balance

 43,272,728

 38,461

 ( 27,722
)

 10,743

 Net loss

 -

 -

 -

 ( 13,817
)

 ( 13,817
)

 Common stock issued in public offering (ATM), net of costs

 588,500

 -

 1,273

 -

 1,273

 Common stock issued in public offering, net of costs

 11,405,000

 7,877

 -

 7,878

 Exercise of stock options

 917,662

 -

 -

 Exercise of public warrants

 64,971

 -

 -

 Exercise of investor warrants

 273,100

 -

 -

 Cashless exercise of liability classified warrants

 3,069,323

 13,245

 -

 13,245

 Shares issued for vested restricted stock units

 641,998

 -

 -

 -

 -

 Stock compensation expense

 -

 -

 6,710

 -

 6,710

 Balance – December 31, 2023

 60,260,282

 $

 $
 69,445

 $
 ( 41,539
)

 $
 27,912

 Balance

 60,260,282

 $

 $
 69,445

 $
 ( 41,539
)

 $
 27,912

 F- 6

Statements of Cash Flows

 Years
Ended December 31, 2023 and 2022

 (in
thousands)

 2023

 2022

 Cash flows from Operating Activities

 $
 ( 13,817
)

 $
)

 Adjustments to Reconcile Net Loss to Net Cash

 Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities

 Used in Operating Activities

 Stock based compensation

 6,710

 2,467

 Debt extinguishment

 -

 4,824

 Assumption of warrant liability

 -

 1,990

 Amortization of debt discount

 1,470

 1,822

 Change in fair market value of warrant liability

 ( 29,582
)

 ( 5,446
)

 Deferred tax liability

 -

 ( 453
)

 Non-cash interest expense (paid-in kind)

 4,938

 1,192

 Provision for credit losses

 Depreciation

 1,237

 Loss on disposal of property and equipment

 Write-off of prepaid inventory

 -

 Changes in Assets and Liabilities

 Accounts receivable

 ( 309
)

 ( 769
)

 Inventories

 11,411

 ( 22,732
)

 Prepaid expenses

 ( 1,467
)

 Prepaid inventory

 5,459

 Other current assets

 1,520

 Other assets

 1,198

 1,196

 Income taxes payable

 ( 1,156
)

 Accounts payable and accrued expenses

 ( 3,527
)

 4,428

 Accrued tariffs

 Uncertain tax position liability

 ( 37
)

 Customer deposits

 ( 37
)

 ( 196
)

 Total Adjustments

 ( 3,889
)

 ( 5,705
)

 Net Cash Used in Operating Activities

 ( 17,706
)

 ( 45,696
)

 Cash Flows From Investing Activities

 Proceeds from disposal of property and equipment

 -

 Purchase of property and equipment

 ( 6,885
)

 ( 6,862
)

 Net Cash Used in Investing Activities

 ( 6,885
)

 ( 6,827
)

 F- 7

Statements of Cash Flows (continued)

 Years
Ended December 31, 2023 and 2022

 (in
thousands)

 (continued from previous page)

 2023

 2022

 Cash Flows From Financing Activities

 Proceeds from public offering

 24,177

 -

 Payments from public offering costs

 ( 1,258
)

 Proceeds from note payable, related party

 1,000

 -

 Repayment of note payable, related party

 ( 1,000
)

 -

 Proceeds from term loan

 -

 75,000

 Repayment of note payable

 ( 5,275
)

 ( 45,000
)

 Proceeds from exercise of public warrants

 -

 Payment of debt issuance costs

 -

 ( 4,032
)

 Proceeds from exercise of options

 Proceeds from stock purchase agreement

 -

 15,000

 Proceeds from exercise of investor warrants

 -

 Net Cash Provided by Financing Activities

 19,523

 41,674

 Net Decrease in Cash and cash equivalents

 ( 5,068
)

 ( 10,849
)

 Cash and cash equivalents – beginning of year

 17,781

 28,630

 Cash and cash equivalents – end of year

 $
 12,713

 $
 17,781

 Supplemental Disclosures of Cash Flow Information:

 Cash paid for income taxes

 $

 $

 Cash paid for interest

 $
 9,102

 $
 2,252

 Supplemental Non-Cash Items

 Purchases of property and equipment, not yet paid

 $

 $

 Recognition of warrant liability – Investor Warrants

 $
 13,762

 $
 -

 Recognition of warrant liability – Penny Warrants

 $

 $
 -

 Non-cash impact of cash exercise of liability classified warrants

 $

 $
 -

 Cashless exercise of liability classified warrants

 $
 12,629

 $
 16,669

 F- 8

Notes

 (in

 Note
1 – NATURE OF BUSINESS

Energy Holdings Corp. ("New Dragonfly" or the "Company") sells lithium-ion battery packs for use in a wide variety
of applications. The Company sells to distributors under the Dragonfly Energy brand name, and sells direct to consumers under the trade
name Battleborn Batteries. In addition, the Company develops technology for improved lithium-ion battery manufacturing and assembly methods.

 On
October 7, 2022, a merger transaction between Chardan NexTech Acquisition 2 Corporation ("CNTQ"), Dragonfly Energy Corp.
("Legacy Dragonfly"), and Bronco Merger Sub, Inc. ("Merger Sub") was completed pursuant to which Merger Sub was
merged with and into Legacy Dragonfly, with Legacy Dragonfly surviving the merger. As a result of the merger, Legacy Dragonfly became
a wholly owned subsidiary of New Dragonfly.

 Although
New Dragonfly was the legal acquirer of Legacy Dragonfly in the merger, Legacy Dragonfly is deemed to be the accounting acquirer, and
the historical financial statements of Legacy Dragonfly became the basis for the historical financial statements of New Dragonfly upon
the closing of the merger. New Dragonfly together with its wholly owned subsidiary, Dragonfly Energy Corp., is referred to hereinafter
as the "Company".

 Furthermore,
the historical financial statements of Legacy Dragonfly became the historical financial statements of the Company upon the consummation
of the merger. As a result, the financial statements included in this Annual Report reflect (i) the historical operating results of Legacy
Dragonfly prior to the merger; (ii) the combined results of CNTQ and Legacy Dragonfly following the close of the merger; (iii) the assets
and liabilities of Legacy Dragonfly at their historical cost and (iv) the Legacy Dragonfly's equity structure for all periods presented,
as affected by the recapitalization presentation after completion of the merger. See Note 3 – Reverse Capitalization for further
details of the merger.

 On
March 31, 2023, the Company changed its state of incorporation from the State of Delaware to the State of Nevada (the "Reincorporation")
pursuant to a plan of conversion dated March 30, 2023 (the "Plan of Conversion"). Pursuant to the Plan of Conversion, the
issued and outstanding shares of common stock of the Company were automatically converted into common stock of the reincorporated company
at the effective time of the Reincorporation.

 On
November 29, 2023, the Company filed an amendment to the articles of incorporation with the State of Nevada, to increase the number
of authorized shares of its common stock to 250,000,000
shares. The par value remained at $ 0.0001
per share.

 Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

 Basis
of presentation

 The
accompanying consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and in accordance with generally accepted accounting principles generally accepted in the United States of America ("U.S. GAAP") and present the consolidated financial statements of the
Company and its wholly owned subsidiary.

 Principles
of consolidation

 The
accompanying consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP and present the consolidated financial statements of the Company and
its wholly owned subsidiary. All significant intercompany transactions and balances are eliminated in consolidation.

 F- 9

 Notes

 (in

 Note

 Going
Concern

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

 For
the year ended December 31, 2023 and 2022, the Company incurred loss from operations and had negative cash flow from operations. As of
December 31, 2023, the Company had $ 12,713 in cash and cash equivalents and working capital of $ 15,543. The Company's ability to
achieve profitability and positive cash flow depends on its ability to increase revenue, contain its expenses and maintain compliance
with the financial covenants in its outstanding indebtedness agreements.

 In
connection with the Company's senior secured term loan facility in an aggregate principal amount of $ 75,000 (the "Term Loan"),
the Company is obligated to comply with certain financial covenants, which include maintaining a maximum senior leverage ratio, minimum
liquidity, a springing fixed charge coverage ratio, and maximum capital expenditures (See Note 7). On March 29, 2023, the Company
obtained a waiver from the Term Loan administrative agent and lenders of its failures to satisfy the fixed charge coverage ratio and
maximum senior leverage ratio with respect to the minimum cash requirements under the Term Loan during the quarter ended March 31, 2023.
On September 29, 2023 and December 29, 2023, the Company obtained a second and third waiver from the Term Loan administrative agent and
lenders of its failures to satisfy the fixed charge coverage ratio and maximum senior leverage ratio with respect to the minimum cash
requirements under the Term Loan during the quarters ended September 30, 2023 and December 31, 2023. On March 31, 2024, the Company obtained a waiver from the Term Loan administrative agent and lenders of its failures
to satisfy the liquidity test during the quarter ended March 31, 2023. If the Company is unable to obtain
a waiver or if the Company is unable to comply with such covenants, the lenders have the right to accelerate the maturity of the Term
Loan. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

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

 Recently
adopted accounting pronouncements:

 In
June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently
issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023. These standards replace
the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measure at amortized cost
to be presented at the net amount expected to be collected. The Company determined that this change did not have a material impact to
the financial statements or financial statement disclosures.

 Recently
issued accounting pronouncements:

 In
November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires, among
other updates, enhanced disclosures about significant segment expenses that are regularly provided to the CODM, as well as the aggregate
amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning
after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption.
Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related
disclosures

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

 F- 10

 Notes

 (in

 Note

 Cash
and Cash Equivalents

 The
Company considers all short-term debt securities when purchased with a maturity of three months or less to be cash equivalents. As of
December 31, 2023 and 2022, the Company held no Cash Equivalents.

 From
time to time the Company has amounts on deposit with financial institutions that exceed federally insured limits. The Company has not
experienced any significant losses in such accounts.

 Accounts
Receivable

 The
Company's trade receivables are recorded when billed and represent claims against third parties that will be settled in cash. Generally,
payment is due from customers within 30- 90 days of the invoice date and the contracts do not have significant financing components.
Trade accounts receivables are recorded gross and are net of any applicable allowance. The allowance for credit losses as of December
31, 2023 and 2022 were not material.

 Inventories
 (Note 5), which consist of raw materials and finished goods, are stated at the lower of cost (first in, first out) or net realizable
value, net of reserves for obsolete inventory. We continually analyze our slow moving and excess inventories. Based on historical and
projected sales volumes and anticipated selling prices, we established reserves. Inventory that is in excess of current and projected
use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete
are written down to net realizable value. The Company had a reserve of $ 67 and $ 0 as of December 31, 2023 and 2022, respectively.

 Property
and Equipment

 Property
and equipment are stated at cost, including the cost of significant improvements and renovations. Costs of routine repairs and maintenance
are charged to expense as incurred. Depreciation and amortization are calculated by the straight line method over the estimated useful
lives for owned property, or, for leasehold improvements, over the shorter of the asset's useful life or term of the lease. Depreciation
expense for the years ended December 31, 2023 and 2022 was $ 1,237 and $ 891, respectively.

OF VARIOUS CLASSES OF PROPERTY AND EQUIPMENT
AND ESTIMATED USEFUL LIVES

 The
various classes of property and equipment and estimated useful lives are as follows:

 Office
 furniture and equipment

 to 7 years

 Vehicles

 years

 Machinery
 and equipment

 to 7 years

 Leasehold
 improvements

 Shorter
 of Useful Life or Remaining Term of Lease

 Use
of Estimates

 The
preparation of financial statements in conformity with U.S GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The
Company utilizes the use of estimates in its calculations for the reserve for obsolete or slow moving inventory, warrant liability, equity
based compensation, and income taxes.

 F- 11

 Notes

 (in

 Note

 Impairment
of Long-Lived Assets

 The
Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying amount of these asset may not be recoverable. Recoverability of these assets is measured by comparison of
the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. When
indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the
assets' carrying value, the related assets will be written down to fair value. There were no impairments of the Company's
long-lived assets for the periods presented.

 The
Company applies relevant accounting guidance for warrants to purchase the Company's stock based on the nature of the relationship
with the counterparty. For warrants issued to investors or lenders in exchange for cash or other financial assets, the Company follows
guidance issued within ASC 480, Distinguishing Liabilities from Equity ("ASC 480"), and ASC 815, Derivatives and Hedging
("ASC 815"), to assist in the determination of whether the warrants should be classified as liabilities or equity. Warrants
that are determined to require liability classification are measured at fair value upon issuance and are subsequently remeasured to their
then fair value at each subsequent reporting period with changes in fair value recorded in current earnings. Warrants that are determined
to qualify for equity classification are measured at fair value upon issuance and are not subsequently remeasured unless they are required
to be reclassified.

 Commitments
and Contingencies

 Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable
that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies
are expensed as incurred.

 Revenue
Recognition

 Under
Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the
consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements
that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it
is entitled to in exchange for the goods or services it transfers to the customer.

 Revenue
is recognized when control of the promised goods is transferred to the customer or reseller, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods and services. Revenue associated with products holding rights of return
are recognized when the Company concludes there is not a risk of significant revenue reversal in the future periods for the expected
consideration in the transaction. There are no material instances including discounts and refunds where variable consideration is constrained
and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in time for standard promised goods at
the time of shipment when title and risk of loss pass to the customer.

 The
Company may receive payments at the onset of the contract before delivery of goods for customers in the retail channel. Payment terms
for distributors and OEMs are typically due within 30 - 90 days after shipment. In such instances, the Company records a customer deposit
liability. The Company recognizes these contract liabilities as sales after the revenue criteria are met. As of December 31, 2023 and
2022, the contract liability related to the Company's customer deposits approximated $ 201 and $ 238, respectively.

 F- 12

 Notes

 (in

 Note

 The
Company recognized $ 230
of the contract liability pertaining to the year ended December 31, 2022 during the year ended December 31, 2023. After the year
ended December 31, 2023, the residual balance of $ 8 was recognized during the quarter ending March 31, 2024. The entire contract
liability balance of $ 434
as of January 1, 2022 was recognized as revenue during the year ended December 31, 2022.

 Disaggregation
of Revenue

 The
following table present our disaggregated revenues by distribution channel:

OF DISAGGREGATED REVENUES BY DISTRIBUTION CHANNEL

 Sales

 2023

 2022

 December 31,

 Sales

 2023

 2022

 Direct to Customer

 36,875

 52,446

 Original equipment manufacturer

 27,517

 33,805

 Total

 $
 64,392

 $
 86,251

the year ended December 31, 2023, the Company deemed it more appropriate to classify Retail and Distributor revenues as a single
line item referred to as direct-to-consumer revenue. The Company has combined previously reported retail and distributor amounts to
direct-to-consumer revenue to conform with current year presentation. The consolidation into direct-to-consumer revenue is motivated
by the Company's strategic perspective on its operations and better represents how it evaluates their sales
channels.

 Shipping
and Handling

 Shipping
and handling fees paid by customers are recorded within net sales, with the related expenses recorded in cost of sales. Shipping and
handling costs associated with outbound freight are included in sales and marketing expenses. Shipping and handling costs associated
with outbound freight totaled $ 3,466 and $ 5,440 for the years ended December 31, 2023 and 2022, respectively.

 Product
Warranty

 The
Company offers assurance type warranties from 5 to 10 years on its products. The Company estimates the costs associated with the warranty
obligation using historical data of warranty claims and costs incurred to satisfy those claims. The Company estimates, based upon a review
of historical warranty claim experience, the costs that may be incurred under our warranties and record a liability in the amount of
such estimate at the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical
and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability
and adjust the accrual as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing
assurance type warranties and has determined that the estimated outstanding warranty obligation on December 31, 2023 and 2022 to be $ 307
and $ 328, respectively.

OF WARRANTY OBLIGATION

 2023

 2022

 December 31,

 2023

 2022

 Beginning warranty obligation

 $

 $
 -

 Provision of warranty expense

 Settlement of warranty claims

 ( 418
)

 -

 Ending warranty obligation

 $

 $

 Concentrations

 Receivables
from two customers comprised approximately 28 % and 10 %, respectively, of accounts receivable as of December 31, 2023. Receivables from
 three customers comprised approximately 18 %, 10 % and 10 %, respectively, of accounts receivable as of December 31, 2022. There are no
other significant accounts receivable concentration.

 Sales
from one customer comprised approximately 16 % of revenue for the year ended December 31, 2023. Sales from one customer accounted for
approximately 22 % of revenue for the year ended December 31, 2022.

 Payables
to one vendor comprised approximately 65 % of accounts payables as of December 31, 2023. Payables to one vendor comprised approximately
 61 % of accounts payables as of December 31, 2022.

 For
the year ended December 31, 2023, one vendor accounted for approximately 14 % of the Company's total purchases.

 F- 13

 Notes

 (in

 Note

 Concentrations
(continued)

 For
the year ended December 31, 2022, one vendor accounted for approximately 28 % of the Company's total purchases.

Financing Costs

 The
incremental cost, including the fair value of warrants, directly associated with obtaining debt financing is capitalized as deferred
financing costs upon the issuance of the debt and amortized over the term of the related debt agreement using the effective-interest
method with such amortized amounts included as a component of interest expense in the consolidated statement of operations. Unamortized
deferred financing costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related
debt obligation.

and Development

 The
Company expenses research and development costs as incurred. Research and development expenses include salaries, contractor and consultant
fees, supplies and materials, as well as costs related to other overhead such as depreciation, facilities, utilities, and other departmental
expenses. The costs we incur with respect to internally developed technology and engineering services are included in research and development
expenses as incurred as they do not directly relate to acquisition or construction of materials, property or intangible assets that have
alternative future uses.

 Advertising

 The
Company expenses advertising costs as they are incurred and are included in selling and marketing expenses. Advertising expenses amounted
to $ 2,167 and $ 2,334 for the years ended December 31, 2023 and 2022, respectively.

 Stock-Based
Compensation

 The
Company accounts for stock based compensation arrangements with employees and non employee consultants using a fair value method which
requires the recognition of compensation expense for costs related to all stock based payments, including stock options (Note 12). The
fair value method requires the Company to estimate the fair value of stock based payment awards to employees and non employees on the
date of grant using an option pricing model. Stock based compensation costs are based on the fair value of the underlying option calculated
using the Black Scholes option pricing model and recognized as expense on a straight line basis over the requisite service period, which
is the vesting period. Restricted stock unit awards are valued based on the closing trading value of the Company's common stock
on the date of grant and then amortized on a straight-line basis over the requisite service period of the award. The Company measures
equity based compensation awards granted to non employees at fair value as the awards vest and recognizes the resulting value as compensation
expense at each financial reporting period.

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

 F- 14

 Notes

 (in

 Note

 Income
Taxes

income tax assets and liabilities (Note 15) are determined based on the estimated future tax effects of net operating loss, credit carryforwards
and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at
the current enacted tax rates.

 The
Company recognizes a tax benefit for an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by taxing authorities, based on the technical merits of the position. The Company has a liability of $ 91 and $ 128 as of
December 31, 2023 and 2022, respectively, of uncertain tax positions.

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

 Net
(Loss) Earnings per Common Share

 Basic
net (loss) earnings per share is calculated by dividing net (loss) earnings by the weighted-average number of common shares outstanding
during the period. Diluted net (loss) earnings per share is calculated using the weighted-average number of common shares outstanding
during the period and, if dilutive, the weighted-average number of potential shares of common stock.

 The
weighted-average number of common shares included in the computation of diluted net (loss) earnings gives effect to all potentially dilutive
common equivalent shares, including outstanding stock options and warrants.

stock equivalent shares are excluded from the computation of diluted net (loss) earnings per share if their effect is antidilutive. In
periods in which the Company reports a net loss, diluted net loss per share is generally the same as basic net loss per share since dilutive
common shares are not assumed to have been issued if their effect is anti-dilutive.

 The
following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because
their effect was anti-dilutive:

 SCHEDULE OF POTENTIAL SHARES OF COMMON STOCK EXCLUDED FROM DILUTED NET LOSS PER SHARE

 December 31,

 2023

 December 31,

 2022

 24,510,575

 16,708,414

 Restricted stock units

 47,000

 180,000

 Options

 2,364,787

 3,642,958

 Weighted average number of common shares-basic

 26,922,362

 20,531,372

 As
the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the
continuation of the pre-merger Legacy Dragonfly financial statements; Dragonfly equity has been retroactively adjusted to the earliest
period presented to reflect the legal capital of the legal acquirer, CNTQ. As a result, net (loss) earnings per share was also retrospectively
adjusted for periods ended prior to the Merger. See–Note 3 - Reverse Capitalization for details and discussion of the retrospective
adjustment of net loss per share.

 Leases

 At
the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and
circumstances present in the arrangement including the use of an identified asset(s) and the Company's control over the use of
that identified asset. The Company elected, as allowed under FASBASU 2016-02, Leases ("ASC 842"), to not recognize leases
with a lease term of one year or less on its balance sheet. Leases with a term greater than one year are recognized on the balance sheet
as right-of-use ("ROU") assets and current and non-current lease liabilities, as applicable.

 Segment
Reporting

segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation
by the Company's Chief Executive Officer to make decisions with respect to resource allocation and assessment of performance. To
date, the Company has viewed its operations and manages its business as one operating segment.

 Reclassification

 Certain
prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and
these accompanying notes. The reclassifications did not have a material impact on the Company's consolidated
financial statements and related disclosures. The impact on any prior period disclosures was immaterial.

 F- 15

 Notes

 (in

 Note
3 - REVERSE CAPITALIZATION

 On
October 7, 2022, Legacy Dragonfly consummated a merger with CNTQ. Legacy Dragonfly was deemed to be the accounting acquirer in the merger.
The determination was primarily based on Legacy Dragonfly's stockholders having a majority of the voting power in the combined
Company, Legacy Dragonfly having the ability to appoint a majority of the Board of Directors of the Company, Legacy Dragonfly's
existing management team comprising the senior management of the combined Company, Legacy Dragonfly comprising the ongoing operations
of the combined Company and the combined Company assumed the name "Dragonfly Energy Holdings Corp.". Accordingly, for accounting
purposes, the merger was treated as the equivalent of Legacy Dragonfly issuing stock for the net assets of CNTQ, accompanied by a recapitalization.
The net assets of CNTQ are stated at historical cost, with no goodwill or other intangible assets recorded.

 In
accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparable periods up to October
7, 2022, to reflect the number of shares of the Company's common stock, $ 0.0001 par value per share, issued to Legacy Dragonfly's
stockholders in connection with the merger. As such, the shares and corresponding capital amounts and earnings per share related to Legacy
Dragonfly's outstanding convertible preferred stock and Legacy Dragonfly's common stock prior to the merger have been retroactively
restated as shares reflecting the exchange ratio of 1.182 established in the merger. Legacy Dragonfly's convertible preferred stock
previously classified as temporary equity was retroactively adjusted, converted into common stock and reclassified to permanent equity
as a result of the reverse recapitalization.

 Immediately
before the closing of the merger, and prior to the PIPE Financing, and the funds remaining after such redemptions, totaling approximately
$ 6,265, became available to finance transaction expenses and the future operations of New Dragonfly. In connection with the merger, CNTQ
entered into agreements with new investors and existing Legacy Dragonfly investors to subscribe and purchase an aggregate of approximately
 500,000 shares of CNTQ Class A common stock (the "PIPE Financing").

 The
PIPE Financing was consummated on September 26, 2022 and resulted in gross proceeds of an additional approximately $ 5,017, prior to payment
of the transaction costs. As part of the PIPE Financing, the Company entered an initial Term Loan for an aggregate principal amount of
$ 75,000. The Company incurred debt issuance costs of $ 1,950 of original issuance discount and additional $ 2,081 of transaction costs
that were allocated to the Term Loan, resulting in net cash proceeds of $ 70,969. In addition, $ 52,956 of Term Loan warrants based on
their combined relative fair values was recorded as a debt discount resulting in initial carrying amount of debt of $ 18,013. Pursuant
to the terms of the loan agreement, the Term Loan was advanced in one tranche on the closing date and the funds were used to refinance
on the closing date prior indebtedness of $ 42,492 (including payment of make-whole interest related to early extinguishment of debt),
(ii) to support the Transaction under the Merger Agreement, (iii) for working capital purposes and other corporate purposes, and (iv)
to pay any fees associated with transactions contemplated under the Term Loan Agreement and the other loan documents entered into in
connection therewith, including the transactions described in the foregoing clauses (i) and (ii) and fees and expenses related to the
merger. The direct and incremental transaction costs of approximately $ 13,221 were allocated to all instruments assumed and issued in
the merger on a relative fair value basis. As such, the Company allocated $ 2,081 to the Term Loan, $ 9,633 to equity instruments, which
was expensed in general and administrative expenses as the offering costs exceeded the proceeds received, and $ 1,507 to the warrant liabilities
assumed and warrant liabilities issued with the term debt, which was expensed within the general and administrative expenses within the
statement of operations.

 Additionally,
pursuant to the terms of the merger, the Company assumed $ 18,072 of CNTQ accrued and unpaid transaction expenses, of which all were paid
upon consummation of the merger. As detailed below, $ 10,197 of these costs were expensed as the amount exceeded the proceeds received
and such costs were determined not be a return to investors.

 F- 16

 Notes

 (in

 Note
3 - Reverse Capitalization (Continued)

 Upon
the closing of the merger, the Company's certificate of incorporation was amended and restated to, among other things, increase
the total number of authorized shares of all classes of capital stock to 175,000,000 common shares, of which 170,000,000 were designated
as common stock and 5,000,000 were designated as preferred stock, both having a par value of $ 0.0001 per share.

 Upon
the closing of the merger, holders of Legacy Dragonfly common stock and preferred stock received shares of common stock in an amount
determined by application of the Exchange Ratio. For periods prior to the merger, the reported share and per share amounts have been
retroactively converted by applying the Exchange Ratio. The consolidated assets, liabilities, and results of operations prior to the
merger are those of Legacy Dragonfly.

 The
following table summarizes the elements of the merger allocated to the Consolidated Statements of Operations:

 SCHEDULE OF ELEMENTS OF MERGER ALLOCATED TO CONSOLIDATED STATEMENTS OF OPERATIONS

 Amounts

 Cash:
 CNTQ trust and PIPE Investors

 $
 10,979

 Cash:
 CNTQ

 Gross
 Proceeds

 11,282

 Net
 liabilities assumed in merger transaction

 ( 1,017
)

 Warrant
 liability assumed in merger

 ( 1,990
)

 CNTQ
 note payable settlement at close

 ( 400
)

 CNTQ
 transaction cost paid at close

 ( 18,072
)

 Net
 deficit assumed in recapitalization

 $
 ( 10,197
)

 Number of Shares

 Common stock, outstanding prior to merger

 3,093,348

 Less: Redemption of CNTQ shares

 ( 2,016,912
)

 CNTQ Public Shares

 1,076,436

 CNTQ Sponsor Shares

 3,162,500

 Merger and PIPE financing shares

 4,238,936

 Legacy Dragonfly shares
 (1)(2)

 38,576,650

 Total shares of common stock immediately after merger

 42,815,586

 1)
 - The number
of Legacy Dragonfly shares was determined from the shares of Legacy Dragonfly outstanding immediately prior to the closing of the merger
converted at the Exchange Ratio. All fractional shares were rounded down.

 2)
 - The preferred
shares of Legacy Dragonfly were exchanged on a 1 to 1 ratio to common stock and the shares were then exchanged for shares of Dragonfly
Energy Holdings Corp. at the Exchange Ratio.

 As
part of the reverse capitalization transaction, the Company issued public warrants, private placement warrants and Term Loan warrants.
Refer to Note 10 for a further description of the warrants.

 F- 17

 Notes

 (in

 Note
3 - Reverse Capitalization (Continued)

 Earnout

 The
former holders of shares of Legacy Dragonfly common stock (including shares received as a result of the conversion of Legacy Dragonfly
Preferred Stock into New Dragonfly Common Stock) are entitled to receive their pro rata share of up to 40,000,000 additional shares of
common stock (the "Earnout Shares"). The Earnout Shares are issuable in three tranches. The first tranche of 15,000,000 shares
is issuable if New Dragonfly's 2023 total audited revenue is equal to or greater than $ 250,000 and New Dragonfly's 2023 audited
operating income is equal to or greater than $ 35,000. The second tranche of 12,500,000 shares is issuable upon achieving a volume-weighted
average trading price threshold of at least $ 22.50 on or prior to December 31, 2026 and the third tranche of 12,500,000 is issuable upon
achieving a volume-weighted average trading price threshold of at least $ 32.50 on or prior to December 31, 2028. To the extent not previously
earned, the second tranche is issuable if the $ 32.50 price target is achieved by December 31, 2028.

 The
Company accounts for the Earnout Shares as either equity-classified or liability-classified instruments based on an assessment of the
Earnout Shares specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity ("ASC 480")
and ASC 815, as defined below. The Company has determined that the Earnout Shares are indexed to the Company's common stock and
are therefore not precluded from equity classification. Such accounting determination will be assessed at each financial statement reporting
date to determine whether equity classification remains appropriate. If the Earnout Shares are later determined to be liability-classified
instruments, the Company would recognize subsequent changes in the fair value of such Earnout Shares within earnings at each reporting
period during the earnout period. The value of the Earnout Shares was prepared utilizing a Monte Carlo simulation model. The significant
assumptions utilized in determining the fair value of Earnout Shares include the following: (1) a price for our common stock of approximately
$ 14.00; (2) a risk-free rate of 4.24 %; (3) projected revenue and EBITDA of $ 255,100 and $ 41,000, respectively; (4) expected volatility
of future annual revenue and future annual EBITDA of 42.0 % and 64.0 % respectively; (5) discount rate of 4.24 %; and (6) expected probability
of change in control of 15.0 %.

 The
accounting treatment of the Earnout Shares have been recognized at fair value upon the closing of the merger and classified in stockholders'
equity. Because the merger is accounted for as a reverse recapitalization, the recognition of the Earnout Shares has been treated as
a deemed dividend and has been recorded within additional-paid-in-capital and has no net impact on additional paid-in capital.

 Note
4 - FAIR VALUE MEASUREMENTS

 ASC
820, Fair Value Measurements and Disclosures ("ASC 820"), establishes a fair value hierarchy for instruments measured at
fair value that distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable
inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained
from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the inputs
that market participants would use in pricing the asset or liability and are developed based on the best information available in the
circumstances.

 ASC
820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions
in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

 Level
 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 Level
 2 inputs are inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly
 or indirectly.

 Level
 3 inputs are unobservable inputs that reflect the Company's own assumptions about the inputs that market participants would use
 in pricing the asset or liability.

 F- 18

 Notes

 (in

 Note
4 - Fair Value Measurements (continued)

 Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest
for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level
of any input that is significant to the fair value measurement.

 The
following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis
as of December 31, 2023 and 2022:

OF FAIR VALUE OF ASSETS AND LIABILITIES

 Carrying Amount

 Fair Value

 (Level 1)

 (Level 2)

 (Level 3)

 As of December 31, 2023

 Liabilities

 Warrant liability- Term Loan

 $
 1,014

 $
 1,014

 $
 -

 $
 -

 $
 1,014

 Warrant liability- June Public Offering

 3,434

 3,434

 -

 -

 3,434

 Warrant liability- Private Placement Warrants

 -

 -

 Total liabilities

 $
 4,463

 $
 4,463

 $
 -

 $

 $
 4,448

 The
following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis
as of December 31, 2022:

 Carrying Amount

 Fair Value

 (Level 1)

 (Level 2)

 (Level 3)

 As of December 31, 2022

 Liabilities

 Warrant liability- Term Loan

 $

 $

 $
 -

 $
 -

 $

 Warrant liability- Private placement warrants

 1,990

 1,990

 -

 1,990

 -

 Total liabilities

 $
 32,831

 $
 32,831

 $
 -

 $
 1,990

 $

 The
carrying amounts of accounts receivable and accounts payable are considered level 1 and approximate fair value as of December 31, 2023
and 2022 because of the relatively short maturity of these instruments.

 The
carrying value of the term loan as of December 31, 2023 and, 2022 approximates fair value as the interest rate does not differ significantly
from the current market rates available to the Company for similar debt and is considered level 2.

 Level
3 Rollforward

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

 F- 19

 Notes

 (in

 Note
4 - Fair Value Measurements (continued)

 Level
3 Rollforward (continued)

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

OF CHANGES FOR LEVEL 3 ITEMS MEASURED AT FAIR VALUE ON RECURRING BASIS USING SIGNIFICANT UNOBSERVABLE INPUTS

 Warrant Liability - Term Loan

 Warrant Liability- June Public Offering

 Fair value as of December 31, 2022

 $

 $
 -

 Additions

 13,762

 Warrant exercises

 ( 11,284
)

 ( 617
)

 Change in fair value, loss (gain) included in net loss (1)

 ( 19,241
)

 ( 9,711
)

 Fair value as of December 31, 2023

 $
 1,014

 $
 3,434

 Warrant Liability - Term Loan

 Fair value as of December 31, 2021

 $
 -

 Additions

 52,956

 Warrant exercises

 ( 16,669
)

 Change in fair value, loss (gain) included in net loss (1)

 ( 5,446
)

 Fair value as of December 31, 2022

 $

 (1)
 Changes in fair
value of warrant liabilities are disclosed separately in the Consolidated Statements of Operations

 Note
5 - Inventory

consists of the following:

OF INVENTORY

 31, 2023

 31, 2022

 Raw
 material

 $
 31,604

 $
 42,929

 Finished
 goods

 7,174

 7,260

 Total
 inventory

 $
 38,778

 $
 50,189

 F- 20

 Notes

 (in

 Note
6 - COMMITMENTS AND CONTINGENCIES

 Litigation

 From
time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, governmental
actions, administrative actions, investigations or claims are pending against the Company or involve the Company that, in the opinion
of the Company's management, could reasonably be expected to have a material adverse effect on the Company's business and
financial condition.

Leases

 The
Company has leases related to the main office, warehouse space, research and development lab, engineering office, and sales office, all
located in Reno, Nevada. The leases require annual escalating monthly payments ranging from $ 111 to $ 128. On February 2, 2022, the Company
entered into a 124-month lease agreement in Reno, Nevada. The lease calls for monthly base rent of $ 230, $ 23 of fixed operating expense
costs, and estimated monthly property taxes of $ 21. The monthly base rent and fixed operating expense costs are subject to escalation
of 3 % and 2.4 %, respectively, on an annual basis. As of December 31, 2023, the lease has not commenced as the Company does not have
control over the asset. Subsequent to year end the building has passed inspections and a certificate of substantial completion has been
issued. The monthly rent under the lease will begin July 24, 2024.

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

 SCHEDULE OF BREAKOUT OF OPERATING LEASES

 31, 2023

 31, 2022

 lease right-of-use assets

 $
 3,315

 $
 4,513

 Short-term
 operating lease liabilities

 1,288

 1,188

 Long-term
 operating lease liabilities

 2,234

 3,541

 Total
 operating lease liabilities

 $
 3,522

 $
 4,729

 average remaining lease term

 2.6
 years

 3.6
 years

 average discount rate

 5.2
 %

 5.2
 %

 Assumptions
used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based
on comparable market data.

 At
December 31, 2023, the future minimum lease payments under these operating leases are as follows:

 SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES

 Fiscal
 Years Ending

 31, 2024

 $
 1,435

 31, 2025

 1,435

 31, 2026

 Total
 lease payments

 3,763

 Less
 imputed interest

 Total
 operating lease liabilities

 $
 3,522

OF LEASE COST

 For
 The Years Ended December 31,

 Lease
 cost

 Classification

 2023

 2022

 Cost
 of goods sold

 $
 1,393

 $
 1,476

 and development

 and administration

 Selling
 and marketing

 Total

 $
 1,577

 $
 1,670

 All
lease costs included in the schedule above are fixed.

 F- 21

 Notes

 (in

 Note
6 - Commitments and Contingencies (continued)

 Financing
Leases

the years ended December 31, 2023 and 2022, the Company entered into a finance lease agreement for equipment to support the Company's
operations. Payments under the finance lease agreement are fixed for a term of 3 - 5 years. The leased assets are recognized in property
plant & equipment.

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

OF BREAKOUT OF FINANCE LEASES

 31, 2023

 31, 2022

 Finance
 lease right-of-use assets

 $

 $

 Short-term
 finance lease liabilities

 Long-term
 finance lease liabilities

 Total
 finance lease liabilities

 $

 $

 average remaining lease term

 2.7
 years

 4.2
 years

 average discount rate

 5.2
 %

 5.2
 %

 Assumptions
used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based
on comparable market data.

 At
December 31, 2023, the future minimum lease payments under these financing leases are as follows:

 SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER FINANCE LEASES

 Fiscal
 Years Ending

 31, 2024

 $

 31, 2025

 31, 2026

 31, 2027

 Total
 lease payments

 Less
 imputed interest

 Total
 financing lease liabilities

 $

 Other
Contingencies

 See
Note 8 for further discussion regarding contingent consideration arising from the April 2022 Asset Purchase agreement with Thomason Jones
Company, LLC.

 See
Note 3 for further discussion regarding the earnout related to the reverse capitalization transaction.

 F- 22

 Notes

 (in

 Note
7 - LONG TERM DEBT

 Financing—Trust
Indenture

 On
November 24, 2021, the Company entered into agreements to issue $ 45,000 in fixed rate senior notes ("Series 2021 6 Notes")
pursuant to a Trust Indenture held by UMB Bank, as trustee and disbursing agent, and Newlight Capital, LLC as servicer. The trust and
debt documents also required the entry into a Lender Collateral Residual Value Insurance Policy (the "Insurance Policy",
with UMB Bank as named insured for $ 45,000), and the engagement of a placement agent, which is Tribe Capital Markets, LLC.

 Upon
closing date of the financing the Company received a wire for $ 35,474, which is comprised of the gross proceeds of $ 45,000 less $ 3,188
in deposits to certain reserve accounts (see subsection labeled Reserve Accounts below), and $ 6,338 in expenses withdrawn from the gross
proceeds, which included $ 4,725 in prepaid policy premiums and related costs underlying the Insurance Policy (see subsection labeled
Collateral below), a prepaid loan monitoring fee of $ 60 and $ 1,553 in debt issuance costs.

 The
obligation for the Series 2021-6 Notes underlying the Trust Indenture is $ 45,000 in principal on the date of the closing of the financing.
The debt bears interest at 5.50 % per annum accruing monthly on a 360 day basis. Late payments will be subject to a $ 50 late fee and default
interest based on a rate 5 percentage points above the applicable interest immediately prior to such default. The Company was making
interest only payments on the unpaid principal amount in arrears, commencing December 1, 2021 and ending on November 1, 2022 (for interest
accruing from the Financing Closing Date through October 31, 2022). Beginning on December 1, 2022, the Company was obligated to repay
the debt in twenty four equal installments of principal in the amount of $ 1,875, plus accrued interest on the unpaid principal amount.
Any remaining obligations were due and payable on November 1, 2024 (the "Maturity Date"). The obligations under the Trust
Indenture will be deemed to be repaid or prepaid to the same extent, in the same amounts and at the same times as the Series 2021-6 Notes
are redeemed with funds provided except for payments made from the proceeds of the Insurance Policy (see subsection labelled Collateral
below) as such funds must be reimbursed by the Company to the insurer. During the year ended December 31, 2022, a total of $ 1,873 of
interest expense was incurred under the debt. Amortization of the debt issuance costs amounted to $ 1,783 during the year ended December
31, 2022. In connection with the merger on October 7, 2022, the Company entered into a Term Loan, Guarantee and Security Agreement (see
subsection labeled Term Loan Agreement below) and the outstanding principal balance for the Series 2021-6 Notes underlying the Trust
Indenture was paid in full.

 Term
Loan Agreement

 On
October 7, 2022, in connection with the merger, CNTQ, Legacy Dragonfly and CCM Investments 5 LLC, an affiliate of CCM LLC ("CCM
5", and in connection with the Term Loan, the "Chardan Lender"), and EICF Agent LLC ("EIP" and, collectively
with the Chardan Lender, the "Initial Term Loan Lenders") entered into the Term Loan, Guarantee and Security Agreement (the
"Term Loan Agreement") setting forth the terms of a senior secured term loan facility in an aggregate principal amount of
$ 75,000 (the "Term Loan"). The Chardan Lender backstopped its commitment under the Debt Commitment Letter by entering into
a backstop commitment letter, dated as of May 20, 2022 (the "Backstop Commitment Letter"), with a certain third party financing
source (the "Backstop Lender" and collectively with EIP, the "Term Loan Lenders"), pursuant to which the Backstop
Lender committed to purchase from the Chardan Lender the aggregate amount of the Term Loan held by the Chardan Lender (the "Backstopped
Loans") immediately following the issuance of the Term Loan on the Closing Date. Pursuant to an assignment agreement, the Backstopped
Loans were assigned by CCM 5 to the Backstop Lender on the Closing Date.

 F- 23

 Notes

 (in

 Note
7 - Long Term Debt (continued)

to the terms of the Term Loan Agreement, the Term Loan was advanced in one tranche on the Closing Date. The proceeds of the Term Loan
were used (i) to refinance on the Closing Date prior indebtedness (including the obligations underlying the Trust Indenture), (ii) to
support the Transaction under the merger Agreement, (iii) for working capital purposes and other corporate purposes, and (iv) to pay
any fees associated with transactions contemplated under the Term Loan Agreement and the other loan documents entered into in connection
therewith, including the transactions described in the foregoing clauses (i) and (ii) and fees and expenses related to the merger. The
Term Loan amortizes in the amount of 5 % per annum (or $ 937.5 on the first day of each calendar quarter) beginning 24 months after the
Closing Date and matures on the fourth anniversary of the Closing Date ("Maturity Date"). The Term Loan accrues interest
(i) until April 1, 2023, at a per annum rate equal to the adjusted Secured Overnight Financing Rate ("SOFR") plus a margin
equal to 13.5 %, of which 7 % will be payable in cash and 6.5 % will be paid in kind, (ii) 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, which will be paid in kind and (iii) at all times thereafter, at a per annum rate equal to adjusted SOFR
plus a margin ranging from 11.5 % to 13.5 % payable in cash, depending on the senior leverage ratio of the consolidated company. In each
of the foregoing cases, adjusted SOFR will be no less than 1 %.

the year ended December 31, 2023, the Company prepaid the first four installments of the Term Loan which amounted to $ 5,275 and delayed
the first principal payment to October 2025.

 In
connection with the entry into the Term Loan Agreement, and as a required term and condition thereof, the Company issued (i) the penny
warrants to the Term Loan Lenders exercisable to purchase an aggregate of 2,593,056 and (ii) the $ 10 warrants to issue warrants to the
Term Loan Lenders exercisable to purchase an aggregate of 1,600,000 shares of common stock at $ 10 per share. Refer to Note 12 for further
information.

 Unless
the obligations under the Term Loan are accelerated under the terms of the agreement, the maturity date will be October 7, 2026.

 The
Term Loan Lenders have been granted a first priority lien, and security interest in, the mortgaged properties underlying the Company's
mortgages.

the years ended December 31, 2023 and 2022, a total of $ 14,272 and $ 3,195, respectively, of interest expense was incurred under the debt.
Amortization of the debt issuance costs amounted to $ 1,471 and $ 38, respectively, during the years ended December 31, 2023 and 2022.

 The
carrying balance of $ 19,683 on December 31, 2023 consisted of $ 69,725 in principal, plus $ 6,130 PIK interest, less $ 56,172 in unamortized
debt discount related to the debt issuance costs. The carrying balance of $ 19,242 on December 31, 2022 consisted of $ 75,000 in principal,
plus $ 1,192 payment in kind interest, less $ 56,950 in unamortized debt discount related to the debt issuance costs.

 F- 24

 Notes

 (in

 Note
7 - Long Term Debt (continued)

 Term
Loan Agreement (continued)

 Financial
Covenants

 The Company is subject to restrictive financial covenants
pertaining to Maximum Senior Leverage Ratio, Liquidity, Fixed Charge Coverage Ratio, and Capital Expenditures as defined in the Term Loan
Agreement. As of December 31, 2023, the Company was not in compliance with our financial covenants pertaining to the fixed charge coverage
ratio, liquidity, and the maximum senior leverage ratio. On December 29, 2023, the Company received a waiver from its Administrative Agent
and Term Loan Lenders in regards to its compliance with the Tests as of the last day of the quarter ended December 31, 2023. If the Company
is unable to obtain a waiver or if the Company is unable to comply with such covenants, the lenders have the right to accelerate the maturity
of the Term Loan. Because of this, the entire debt is classified as current instead of long-term debt.

 At
December 31, 2023, the future debt maturities are as follows:

 SCHEDULE OF FUTURE DEBT MATURITIES

 For
 Year Ended December 31,

 2024

 -

 2025

 2026

 78,731

 Total

 79,669

 Less:
 Estimated interest paid-in-kind

 ( 3,814
)

 Total
 debt

 75,855

 Less:
 Unamortized debt issuance costs

 ( 56,172
)

 Total
 carrying amount

 19,683

 Less:
 Current portion of debt

 ( 19,683
)

 Total
 long-term debt

 $
 -

 Note
8 - ASSET PURCHASE AGREEMENT

 Thomason
Jones Company, LLC

 In
April 2022, the Company entered into an Asset Purchase Agreement with William Thomason, Richard Jones, and Thomason Jones Company, LLC
whereby the Company acquired inventory and intellectual property assets for a price not to exceed $ 700 cash plus contingent payments
of $ 1,000 each to William Thomason and Richard Jones (the "Earn Out"). The transaction was determined to be a business combination
under the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805: Business Combinations.
The Company followed the guidance under ASC 805-10-55 and determined the contingent consideration to be separate from the business combination
and the earn out to be recognized as contingent compensation to Mr. Thomason and Mr. Jones as the contingency became probable of being
met. The Company concluded the purchase price to be $ 444 and was allocated in its entirety to inventory.

 Pursuant to the terms of the agreement dated April 2022, Dragonfly Energy Corp. agreed to a contingent compensation
arrangement with Mr. Thomason and Mr. Jones. According to this agreement, if Dragonfly Energy Corp. realizes $ 3,000 in gross sales from
products sold under the Wakespeed brand or which incorporate any portion of the Purchased Intellectual Property (IP) within twenty-four
months of the acquisition, the Company is obligated to pay each of Thomason and Jones $ 1,000. The Company may satisfy this obligation
in cash or by issuing common stock at its discretion.

 The Company has determined that this arrangement constitutes compensation for post-acquisition services. Consequently,
the Company has recognized this contingent consideration as a compensation expense, measured at its fair value at the acquisition date.
The fair value was determined using a probability-weighted expected outcome approach, considering the likelihood of reaching the gross
sales target.

 As of December 31, 2023, the Company has recognized $ 2,000 of compensation expense in connection with this arrangement.
This expense is reflected in the statement of operations under Sales and marketing expense. The total amount has been recognized as compensation
expense as of December 31, 2023, since it was deemed earned and no further service performance was required.

 F- 25

 Notes

 (in

 Note
9 - RELATED PARTY

 The
Company loaned its former Chief Financial Officer $ 469 to repay amounts owed by him to his former employer and entered into a related
Promissory Note with a maturity date of March 1, 2026. The loan was forgiven in full in March of 2022, prior to the merger and was recorded
within general and administrative expense.

 On
October 25, 2022, the Company entered into a separation and release of claims agreement with its former Chief Operating Officer ("COO").
As consideration for the COO's execution of the agreement, the Company agreed to pay the employee a lump sum payment of $ 100 which
is included in general and administrative expenses in the statements of operations, payments equivalent to $ 1,000 divided into 24 monthly
payments commencing on December 1, 2022, and all outstanding equity-based compensation awards to become fully vested and exercisable.
The COO shall have 12 months from the termination date to exercise outstanding options. The twelve (12) month period ended on November
7, 2023 in which the COO exercised 100,000 options and 77,316 options expired

 In
February 2023, the Company entered into an agreement with its former COO in which the COO waived their rights to a transaction bonus
resulting from the merger transaction (Note 1) in lieu of a Company van. The Company accounted for the cost of the van as an employee
bonus, resulting in $ 116 of general and administrative expense for the current period.

 On
March 5, 2023, the Company entered into a convertible promissory note (the "March Note") with a board member in the amount
of $ 1,000, or the March Principal Amount. Upon execution of the Note and funding of the original principal sum, a payment of $ 100 (the
"March Loan Fee") was fully earned as of the date of the March Note and was due and payable in full in cash on April 4, 2023.
The Company paid the March Principal Amount and the March Loan Fee on April 1, 2023 and April 4, 2023, respectively.

 On
April 26, 2023, the Company entered into a separation and release of claims agreement with its former Chief Legal Officer ("CLO").
As consideration for the CLO's execution of the agreement, the Company agreed to pay the employee payments equivalent to $ 720 divided
into 24 monthly payments commencing on June 1, 2023, and all outstanding equity based compensation awards to become fully vested and
exercisable at an expense of $ 76. The CLO shall have 3 months from the termination date to exercise outstanding options. The three (3)
month period ended on July 26, 2023 in which the options were not exercised and the options were forfeited as a result.

 Note
10 - WARRANTS

Stock Warrants classified as Equity

 Public

 Each
Public Warrant entitles the holder to the right to purchase one share of common stock at an exercise price of $ 11.50 per share. The Company
may elect to redeem the Public Warrants subject to certain conditions, at a price of $ 0.01 per Public Warrant if (i) 30 days' prior
written notice of redemption is provided to the holders, and (ii) the last reported sale price of the Company's common stock equals
or exceeds $ 16.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any
20 trading days within a 30-trading day period ending on the third business day prior to the date on which the Company sends the notice
of redemption to the warrant holders. On the Closing Date, there were 9,487,500 Public Warrants issued and outstanding.

 F- 26

 Notes

 (in

 Note
10 - Warrants (Continued)

Stock Warrants classified as Equity (Continued)

 Public
Warrants (Continued)

 The
measurements of the Public Warrants after the detachment of the Public Warrants from the Units are classified as Level 1 due to the use
of an observable market quote in an active market under the ticker DFLIW. For periods subsequent to the detachment of the Public Warrants
from the Units, the close price of the Public Warrant price was used as the fair value of the Warrants as of each relevant date.

the year ended December 31, 2023, the Company received proceeds from public warrant exercises of $ 747 in exchange for 64,971 common shares.
The Company did not receive any proceeds from public warrants during the year ended December 31, 2022.

 June
2023 Offering (Underwriter and Investor Warrants)

 In
connection with the entry into the underwriting agreement as further described in Note 11 of the financial statements, (the "June
2023 Offering") the Company issued (i) underwriters warrants to purchase up to an aggregate of 570,250 shares of Common Stock (the
"Underwriters' Warrants") which are exercisable upon issuance and will expire on June 20, 2028. The initial exercise
price of the Underwriters' Warrants is $ 2.50 per share, which equals 125 % of the per share public offering price in the June 2023
Offering and (ii) warrants to purchase up to 10,000,000 shares of Common Stock to the investors in the offering together with shares
of Common Stock (the "Investor Warrants"), at the combined public offering price of $ 2.00 per share of Common Stock and accompanying
Investor Warrant, less underwriting discounts and commissions. The Company also granted the underwriters a 45-day over-allotment option
to purchase up to an additional 1,500,000 shares of Common Stock and/or Investor Warrants to purchase up to 1,500,000 shares of Common
Stock at the public offering price per security, less underwriting discounts and commissions. The underwriters exercised their over-allotment
option to purchase an additional 1,405,000 shares of Common Stock and Investor Warrants to purchase up to 1,405,000 shares of Common
Stock. The Company accounts for the Investor Warrants issued in connection with the Offering in accordance with the guidance contained
in ASC 815-40. Such guidance provides that because the Investor Warrants do not meet the criteria for equity treatment thereunder, each
warrant must be recorded as a liability. This liability is subject to re-measurement at each balance sheet date. With each such re-measurement,
the warrant liabilities will be adjusted to its current fair value, with the change in fair value recognized in the Company's statement
of operations. The Company will reassess the classification at each balance sheet date. It was determined that the Underwriters'
Warrants were not precluded from equity treatment and have been accounted for as such.

 Underwriters'
Warrants:

OF UNDERWRITER WARRANTS

 Underwriters'
 Warrants Outstanding, January 1, 2023

 -

 Underwriters'
 Warrants issued

 570,250

 Underwriters'
 Warrants Outstanding, December 31, 2023

 570,250

 F- 27

ENERGY HOLDINGS CORP

 Notes

 (in

 Note
10 - Warrants (Continued)

Stock Warrants classified as Liability

 Private
Placement Warrants

 On
October 7, 2022, in connection with the merger, the Company assumed the outstanding private placement warrants of CNTQ. There were no
Private Placement Warrants outstanding prior to the merger. The Private Placement Warrants (the "Private Warrants") may not
be redeemed by the Company so long as the Private Placement Warrants are held by the initial purchasers, or such purchasers' permitted
transferees. The Private Warrants: (i) will be exercisable either for cash or on a cashless basis at the holders' option and (ii)
will not be redeemable by the Company, in either case as long as the Private Warrants are held by the initial purchasers or any of their
permitted transferees (as prescribed in the Subscription Agreement). During the year ended December 31, 2023, private placement warrant
holders exercised 3,126,472 warrants on a cashless basis, with the Company agreeing to issue 1,100,000 shares of Common Stock in connection
with such exercise. There were 1,501,386 and 4,627,858 private warrants outstanding as of December 31, 2023 and 2022, respectively. The
Company accounts for the Private Warrants issued in connection with the Initial Public Offering in accordance with the guidance contained
in ASC 815-40. Such guidance provides that because the private warrants do not meet the criteria for equity treatment thereunder, each
private warrant must be recorded as a liability. This liability is subject to re-measurement at each balance sheet date. With each such
re-measurement, the warrant liabilities will be adjusted to its current fair value, with the change in fair value recognized in the Company's
statement of operations. The Company will reassess the classification at each balance sheet date.

OF WARRANTS CLASSIFICATION AT BALANCE SHEET DATE

 Warrant Class

 Shares

 Inception Date Fair Value

 Initial Recognition Date

 Exercise Price

 Expiration Date

 Private Placement Warrants

 4,627,858

 1,990

 10/7/2022

 11.5

 8/11/2026

 The
private placement warrants are classified as Level 2 as the transfer of Private Placement Warrants to anyone who is not a permitted transferee
would result in the Private Placement Warrants having substantially similar terms as the Public Warrants (with the exception of a different
remaining life). We determined, through use of a Binomial Lattice model, that the fair value of each Private Placement Warrant less a
discount for the difference in remaining life is equivalent to that of each Public Warrant.

 Term
Loan Warrants

 In
connection with the entry into the Term Loan Agreement on October 7, 2022, and as a required term and condition thereof, the Company
issued (i) the penny warrants to the Term Loan Lenders exercisable to purchase an aggregate of 2,593,056 shares of Common Stock (the
"Penny Warrants") and (ii) the $10 warrants to issue warrants to the Term Loan Lenders exercisable to purchase an aggregate
of 1,600,000 shares of Common Stock at $ 10 per share (the "$10 Warrants" and, together with the Penny Warrants, the "Term
Loan Warrants"). The $10 Warrants were exercised on a cashless basis on October 10, 2022, with the Company issuing 457,142 shares
of Common Stock in connection with such exercise. During the year ended December 31, 2023, Penny Warrant holders exercised 2,000,000
warrants on a cashless basis, with the Company agreeing to issue 1,996,323 shares of Common Stock in connection with such exercise. During
the year ended December 31, 2023 the Company issued additional Penny Warrants to purchase 4,783 shares of Common Stock to the Term Loan
Lenders in accordance with the anti-dilution provisions of the penny warrants with respect to certain sales made by the Company under
the ChEF Equity Facility. In addition, pursuant to the Company's limited waiver agreement on December 29, 2023 between the Company
and the lenders and lending agent, the Company agreed to issue to the lenders additional penny warrants exercisable to purchase an aggregate
 1,286,671 shares of its Common Stock. The Company concluded the Penny Warrants are not considered indexed to the Company's Common
Stock and to be accounted for as liabilities under ASC 815. As such, the estimated fair value is recognized as a liability each reporting
period, with changes in the fair value recognized within income each period. There were no Term Loan Warrants outstanding prior to the
merger.

 F- 28

ENERGY HOLDINGS CORP

 Notes

 (in

 Note
10 - Warrants (continued)

Stock Warrants classified as Liability (Continued)

 The
following table provides the significant inputs to the Black-Scholes method for the fair value of the Penny Warrants:

FAIR VALUE WARRANTS

 As
 of

 As
 of
December 31, 2022

 stock price

 $
 0.54

 $
 11.09

 price

 0.01

 0.01

 Dividend
 yield

 %

 %

 Term

 9.77

 Volatility

 96.00
 %

 90.00
 %

 Risk-free
 rate

 3.90
 %

 3.90
 %

 Fair
 value

 $
 0.54

 $
 11.89

 The
following table provides the significant inputs to the Black-Scholes method for the fair value of the Investor Warrants issued in the
June 2023 Offering:

 As
 of

 stock price

 $
 0.54

 price

 $
 2.00

 Dividend
 yield

 %

 Term

 4.48

 Volatility

 106.00
 %

 Risk-free
 rate

 3.90
 %

 Fair
 value

 $
 0.31

 The
following table presents a roll-forward of the Company's warrants from January 1, 2023 to December 31, 2023:

OF ROLL FORWARD IN WARRANTS

 Private
Warrants:

 Outstanding, January 1, 2022

 -

 Assumed
 in the merger

 4,627,858

 Issued
 in conjunction with merger

 Exercised
 subsequent to the merger

 issued

 Outstanding, December 31, 2022

 4,627,858

 Outstanding, January 1, 2023

 4,627,858

 ( 3,126,472
)

 1,501,386

 Public
Warrants:

 Outstanding, January 1, 2022

 -

 Assumed
 in the merger

 9,487,500

 Outstanding, December 31, 2022

 9,487,500

 Outstanding, January 1, 2023

 9,487,500

 ( 64,971
)

 9,422,529

 F- 29

 Notes

 (in

 Note
10 - Warrants (continued)

 Term
Loan Warrants:

 Outstanding, January 1, 2022

 -

 Issued
 in conjunction with merger

 4,193,056

 Exercised
 subsequent to the merger

 ( 1,600,000
)

 Outstanding, December 31, 2022

 2,593,056

 Outstanding, January 1, 2023

 2,593,056

 ( 2,000,000
)

 issued

 1,291,454

 Outstanding, December 31, 2023

 1,884,510

 Investor
Warrants:

 Outstanding, January 1, 2023

 -

 Outstanding, Beginning

 -

 Issuance

 11,405,000

 ( 273,100
)

 outstanding, December 31, 2023

 11,131,900

 Outstanding, Ending

 11,131,900

 The
following table presents a roll forward of the aggregate fair values of the Company's warrant liabilities for which fair value
is determined by Level 3 Inputs. The only class of warrants that were determined to be Level 3 were the term loan and June Offering Investor
Warrants.

OF ROLL FORWARD OF AGGREGATE FAIR VALUES OF WARRANT LIABILITIES

 Warrant

 Liability

 January 1, 2022

 $
 -

 Issuance

 52,956

 ( 16,669
)

 in fair value of warrants

 ( 5,446
)

 December 31, 2022

 $

 January 1, 2023

 $

 Issuance

 14,460

 ( 11,901
)

 in fair value of warrants

 ( 28,952
)

 $
 4,448

 Note
11 - COMMON STOCK

 The
Company is authorized to issue up to 250,000,000 shares of common stock with $ 0.0001 par value. Common stockholders are entitled to dividends
if and when declared by the Board of Directors subject to the rights of the preferred stockholders. As of December 31, 2023 and 2022,
there were 60,260,282 and 43,272,728 shares issued and outstanding. No dividends on common stock had been declared by the Company.

 F- 30

 Notes

 (in

 Note
11 - Common Stock (continued)

 On
June 12, 2022, Dragonfly entered into a Stock Purchase Agreement with THOR Industries, whereby THOR purchased shares of Dragonfly common
stock for $ 15,000 in cash. The Stock Purchase agreement was issued in connection with a binding agreement among the parties whereby the
parties would use commercially reasonable efforts to enter into a mutually agreed distribution and joint development agreement. The final
terms of the agreement have not yet been determined.

 For
the year ended December 31, 2023 and 2022, the Company had reserved shares of common stock for issuance as follows:

 SUMMARY OF RESERVED SHARES OF COMMON STOCK FOR ISSUANCE

 31, 2023

 31, 2022

 Options
 issued and outstanding

 2,364,787

 3,642,958

 stock outstanding

 60,260,282

 43,272,728

 outstanding

 24,510,575

 16,708,414

 Earnout
 shares

 40,000,000

 40,000,000

 Shares
 available for future issuance

 4,469,280

 4,924,914

 Total

 131,604,924

 108,549,014

 ChEF
Equity Facility

 The
Company and CCM LLC entered into a purchase agreement (the "Purchase Agreement") and a Registration Rights Agreement (the
"ChEF RRA") in connection with the merger. Pursuant to the Purchase Agreement, the Company has the right to sell to CCM LLC
an amount of shares of common stock, up to a maximum aggregate purchase price of $ 150,000, from time to time, pursuant to the terms of
the Purchase Agreement.

to, on the terms of, and subject to the satisfaction of the conditions in the Purchase Agreement, including the filing and effectiveness
of a registration statement registering the resale by CCM LLC of the shares of common stock issued to it under the Purchase Agreement,
the Company will have the right from time to time at its option to direct CCM LLC to purchase up to a specified maximum amount of shares
of common stock, up to a maximum aggregate purchase price of $ 150,000, over the term of the equity facility ("ChEF Equity Facility").

 Under
the terms of the Purchase Agreement, CCM LLC will not be obligated to (but may, at its option, choose to) purchase shares of common stock
to the extent the number of shares to be purchased would exceed the lowest of the number of shares of common stock (i) which would result
in beneficial ownership (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by CCM LLC,
together with its affiliates, of more than 9.9%, (ii) which would cause the aggregate purchase price on the applicable VWAP Purchase
Date (as defined in the Purchase Agreement) for such purchases to exceed $3,000 and (iii) equal to 20% of the total number of shares
of common stock that would count towards VWAP on the applicable Purchase Date of such purchase.

 The
net proceeds from any sales under the Purchase Agreement will depend on the frequency with, and prices at, which shares of common stock
are sold to CCM LLC. To the extent the Company sells shares of common stock under the Purchase Agreement, it currently plans to use any
proceeds therefrom for working capital and other general corporate purposes.

 In
addition, pursuant to the ChEF RRA, the Company has agreed to provide CCM LLC with certain registration rights with respect to the shares
of common stock issued subject to the Purchase Agreement.

 F- 31

 Notes

 (in

 Note
11 - Common Stock (continued)

 The
Purchase Agreement will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the later of (x) the closing
of the merger and (y) effective date of the Initial Registration Statement (as defined in the Purchase Agreement), (ii) the date on which
CCM LLC shall have purchased 150,000,000 of shares of common stock pursuant to the Purchase Agreement, (iii) the date on which common
stock shall have failed to be listed or quoted on Nasdaq or any successor principal market and (iv) the commencement of certain bankruptcy
proceedings or similar transactions with respect to the Company or all or substantially all of its property.

 Under
the terms of the Purchase Agreement, the Company issued 588,500
shares pursuant to the Purchase Agreement with CCM LLC for aggregate net proceeds to the Company of $ 1,273 from
the period January 1, 2023 through December 31, 2023.

 June
2023 Offering

 In
the June 2023 Offering, the Company sold an aggregate of (i) 10,000,000 shares of its Common Stock and, (ii) accompanying Investor Warrants
to purchase up to 10,000,000 shares of Common Stock, at the combined public offering price of $ 2.00 per share and accompanying Investor
Warrant, less underwriting discounts and commissions, and (iii) the Underwriters' Warrants.

 The
Investor Warrants are exercisable for five years from the closing date of the June 2023 Offering, have an exercise price of $ 2.00 per
share and are immediately exercisable. In the event of certain fundamental transactions, holders of the Investor Warrants will have the
right to receive the Black Scholes Value (as defined in the Investor Warrants) of their Investor Warrants calculated pursuant to the
formula set forth in the Investor Warrants, payable either in cash or in the same type or form of consideration that is being offered
and being paid to the holders of Common Stock. The Underwriters' Warrants are exercisable upon issuance at an exercise price of
$ 2.50 per share and will expire on June 20, 2028.

 The
Company granted the underwriters a 45-day over-allotment option to purchase up to an additional 1,500,000 shares of Common Stock and/or
Warrants to purchase up to an aggregate of 1,500,000 shares of Common Stock at the public offering price per security, less underwriting
discounts and commissions, of which the underwriters exercised for 1,405,000 shares of Common Stock and Investor Warrants to purchase
up to 1,405,000 shares of Common Stock and the remaining was not exercised within the 45-day window.

 The
Company received gross proceeds of $ 22,810 and incurred $ 2,074 of offering related costs. The gross proceeds were first allocated to
the liability classified warrants based upon the transaction date fair value and then to the equity classified warrants with the residual
allocated to the common shares. The offering related costs were allocated based on the relative fair value of all instruments, of which
$ 1,169 was accounted for as a reduction of additional-paid-in-capital and $ 904 was recorded within general and administrative expenses.
The Company accounted for the investor warrants issued in connection with the Public Offering and the exercise of the underwriters'
over-allotment option in accordance with the guidance contained in ASC 815-40. Such guidance provides that the warrants described above
are precluded from equity classification. The fair value of the warrants were recorded as a liability in the amount of $ 13,762 on issuance
and are being fair valued at each reporting period.

 F- 32

 Notes

 (in

 Note
12 - STOCK-BASED COMPENSATION

 In
July of 2021, the Board of Directors approved the 2021 Stock Incentive Plan (the "2021 Plan" and, together with the 2019
Plan, the "Prior Plans") with a term of ten years. The Plan was administered by the Board of Directors, which was authorized
to grant, at its discretion, awards to employees, directors, and consultants. The maximum number of common shares reserved for grants
of awards under the Plan was 1,000,000 shares which was amended and increased to 2,000,000 in May of 2022. The Plan provides for the
grant of stock options (both incentive stock options and nonqualified stock options), and the grants and sale of RSUs. Shares issued
under this Plan may be drawn from authorized and unissued shares, or shares reacquired by the Company.

 In
connection with the merger, shareholders and board members approved the Dragonfly Energy Holdings 2022 Equity Incentive Plan (the "2022
Plan"). A total of 2,785,950 shares of common stock was initially reserved for issuance under the 2022 Plan, with the potential
for additional shares to be issued under the plan. The 2022 Plan replaced the Prior Plans, which the Company assumed in the merger. Following
the Closing, no additional awards will be granted under the Prior Plans, although all stock awards granted under the Prior Plans that
are outstanding immediately prior to the Closing will be assumed by the Company and continue to be subject to the terms and conditions
as set forth in the agreements evidencing such stock awards and the terms of the applicable Prior Plan.

 If
an incentive award granted under the 2022 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered
to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for future
awards under the 2022 Plan. The number of shares subject to the 2022 Plan, and the number of shares and terms of any Incentive Award
may be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, stock split, reverse
stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares, or similar
transaction.

 The
Company maintains an Employee Stock Purchase Plan ("ESPP") which is designed to allow eligible employees and the eligible
employees of our participating subsidiaries to purchase shares of our common stock, at semi-annual intervals, with their accumulated
payroll deductions. A total of 2,464,400 shares of the Company's common stock will initially be available for issuance under the
ESPP. The share limit will automatically increase on the first trading day in January of each year by an amount equal to lesser of (1)
 1 % of the total number of outstanding shares of our common stock on December 31 in the prior year, (2) 1,500,000 shares, or (3) such
number as determined by the Company's board of directors.

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

 SCHEDULE OF OPTION ACTIVITY AND RELATED INFORMATION

 Number of
 Options (1)

 Weighted-Average Exercise Price

 Weighted-Average Grant Date Fair Value

 Weighted-
 Average Remaining Contractual Life (in years)

 Aggregate intrinsic value

 Balances, January 1, 2022

 3,690,955

 $
 1.98

 $
 1.38

 8.52

 $
 6,550

 Options granted

 572,428

 3.46

 1.57

 -

 Options forfeited

 ( 39,074
)

 3.13

 1.73

 -

 Options exercised

 ( 581,351
)

 1.16

 0.89

 -

 Balances, December 31, 2022

 3,642,958

 $
 2.02

 $
 1.21

 7.90

 $
 35,898

 Balances, January 1, 2023

 3,642,958

 $
 2.02

 $
 1.21

 7.90

 $
 35,898

 Options granted

 143,607

 7.50

 3.82

 Options forfeited

 ( 504,116
)

 2.95

 1.63

 Options exercised

 ( 917,662
)

 0.64

 1.28

 Balances, December 31, 2023

 2,364,787

 $
 2.69

 $
 1.57

 7.60

 $

 At December 31, 2023

 Vested and Exercisable

 1,530,078

 $
 2.43

 7.44

 $

 Vested and expected to vest

 2,364,787

 $
 2.69

 7.60

 $

 (1)
 Number of options
and weighted average exercise price prior to the merger has been adjusted to reflect the exchange of Legacy Dragonfly's stock options
for New Dragonfly stock options at an exchange ratio of approximately 1.182 as a result of the merger. See Note 3 for further information.

 F- 33

 Notes

 (in

 Note
12 - Stock-Based Compensation (continued)

 Share-based
compensation expense for options and RSUs totaling $ 6,710 and $ 2,467 was recognized in the Company's consolidated statements of
operations for the year ended December 31, 2023 and 2022, respectively. Of the $ 6,710 of share-based compensation incurred during the
year ended December 31, 2023, $ 133 is allocated to cost of goods sold, $ 116 to research and development, $ 1,097 to selling and marketing,
and $ 5,364 to general and administrative expenses. Of the $ 2,467 of share-based compensation incurred during the year ended December
31, 2022, $ 155 is allocated to cost of goods sold, $ 149 to research and development, $ 654 to selling and marketing, and $ 1,509 to general
and administrative expenses.

 The
valuation methodology used to determine the fair value of the options issued during the year was the Black Scholes option pricing model.
The Black Scholes model requires the use of a number of assumptions including volatility of the stock price, the fair value of the underlying
stock, the average risk free interest rate, and the weighted average expected life of the options. The expected term was estimated using
the simplified method due to lack of sufficient history of option exercises.

 SCHEDULE OF VALUATION ASSUMPTIONS OF OPTIONS

 2023

 2022

 average fair value of options granted

 $
 3.82

 $
 1.57

 Risk-free
 interest rate

 4.20
 %

 2.71
 %

 Volatility

 45.0
 %

 45.0
 %

 Expected
 life (years)

 6.45

 5.68

 Dividend
 yield

 0.00
 %

 0.00
 %

 Restricted
Stock Units

 On
October 7, 2022, the Company granted 180,000 restricted stock units under the 2022 Plan which vested in full one year from the grant
date. The fair value of the restricted stock units on the date of grant was $ 2,520, which is recognized as compensation expense over
the requisite service period based on the value of the underlying shares on the date of grant. On February 10, 2023, the Company granted
 461,998 restricted stock units under the 2022 Plan which vested in full immediately upon grant. The fair value of the restricted stock
units on the date of grant was $ 3,464 and was recorded as compensation expense during the year ended December 31, 2023. The Company granted
an additional 47,000 restricted stock units which have not vested. The fair value of the 47,000 unvested restricted stock units was $ 126
and an expense of $ 22 was recorded during the year ended December 31, 2023.

 F- 34

 Notes

 (in

 Note
12 - Stock-Based Compensation (continued)

 Restricted
Stock Units (Continued)

 There
were no grants of restricted stock units prior to October 7, 2022. The following table presents the restricted stock units activity for
the year ended December 31, 2023:

OF RESTRICTED STOCK UNITS ACTIVITY

 Number
 of
Shares

 Weighted-

Average Fair

 Market Value

 Unvested
 shares at January 1, 2022

 -

 $
 -

 Granted
 and unvested

 180,000

 14.00

 Vested

 -

 -

 Unvested
 shares, December 31, 2022

 180,000

 $
 14.00

 Unvested
 shares, January 1, 2023

 180,000

 $
 14.00

 Granted
 and unvested

 508,998

 7.06

 Vested

 ( 641,998
)

 9.32

 Unvested
 shares, December 31, 2023

 47,000

 $
 2.69

 As
of December 31, 2023, there were 4,469,280 shares of unissued authorized and available for future awards under the 2022 Equity Incentive
Plan and Employee Stock Purchase Plan.

 Note
13 - SUPPLIER AGREEMENT

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

 F- 35

 Notes

 (in

 Note
14 - Income Taxes

 The
income tax expense consists of the following items:

 SCHEDULE OF INCOME TAX EXPENSE

 2023

 2022

 Current
 - Federal

 $
 ( 36
)

 $
 ( 317
)

 Current
 – State

 – Federal

 -

 ( 448
)

 – State

 -

 ( 4
)

 Total
 tax expense

 $
 ( 26
)

 $
 ( 709
)

 Components
of deferred tax assets (liabilities) are as follows:

 SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS (LIABILITIES)

 2023

 2022

 Deferred tax assets:

Start up costs

 $

 $
 -

 Lease
 liability

 1,071

 Stock
 based compensation

 1,305

 Accrued
 expenses

 1,179

 Allowance
 for bad debt

 and development credit

 Fixed
 assets and intangibles

 1,657

 Interest
 expense

 4,907

 1,595

 Prepaid
 expenses

 Net
 Operating Loss

 7,891

 3,727

 (Sec. 263A)

 tax asset

 $
 20,374

 $
 8,360

 tax liabilities:

 Right
 of Use Asset

 1,036

 tax liability

 1,036

 Net
 deferred tax asset (liability)

 19,617

 7,324

 Valuation
 Allowance

 ( 19,617
)

 ( 7,324
)

 Net
 deferred tax asset

 $
 -

 $
 -

 F- 36

 Notes

 (in

 Note
14 - Income Taxes (Continued)

 Reconciliation
between the effective tax rate on income from continuing operations and the statutory rate for the year ending December 31, 2023 and
2022, is as follows:

 SCHEDULE OF RECONCILIATION BETWEEN THE EFFECTIVE TAX RATE ON INCOME FROM CONTINUING OPERATIONS AND THE STATUTORY RATE

 2023

 2022

 Tax

 Percentage

 Tax

 Percentage

 Book
 income (loss) before taxes

 $
 ( 2,902
)

 21.00
 %

 ( 8,547
)

 21.00
 %

 Permanent
 differences (transaction costs)

 -

 -
 %

 2,185

 ( 5.37
)%

 Permanent
 differences (warrants)

 -

 -
 %

 ( 1,144
)

 2.81
 %

 Permanent
 differences (other than tax))

 ( 6,089
)

 44.07
 %

 ( 1.13
)%

 State
 taxes, net

 ( 1,233
)

 8.92
 %

 ( 722
)

 1.77
 %

 true-up

 ( 1,617
)

 11.71
 %

 ( 288
)

 0.71
 %

 and development credits

 ( 647
)

 4.68
 %

 ( 200
)

 0.49
 %

 and development capitalization

 ( 300
)

 2.17
 %

 -

 -
 %

 Uncertain
 tax positions

 ( 0.96
)%

 ( 0.31
)%

 Other

 ( 0.49
)%

 ( 0.24
)%

 Rate

 ( 1.94
)%

 in valuation allowance

 12,294

 ( 88.96
)%

 7,324

 ( 18.00
)%

 Total

 $
 ( 26
)

 ( 709
)

 tax rate

 0.20
 %

 1.74
 %

 The
tax returns of the Company are open for three years form the date of filing. At the report date, federal tax returns are open for the
Company for 2020, 2021 and 2022.

 Under
the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment
by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual
limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period
in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.
This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount
of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership
changes may further affect the limitation in future years. The Company has not yet evaluated if section 382 was triggered.

 Subject
to the limitations described below, as of December 31, 2023, the Company had federal net operating loss carryforwards of approximately
$ 34,941 available to reduce future taxable income which do not expire, but are limited to 80 % utilization against taxable income. As
of December 31, 2023, the Company had state net operating loss carryforwards of approximately $ 14,969 available to reduce future taxable
income, which start to expire in 2037. The Company also had research and development credits of $ 847 as of December 31, 2023 to offset
future federal income taxes, which are set to expire in 2042.

 Management
of the Company 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 the Company will not recognize the benefits of the deferred tax assets. As a result, a full valuation
allowance was recorded as of December 31, 2023. The valuation allowance as of December 31, 2023 was $ 19,617, primarily due to the company
entering into a 3 year cumulative loss position and no expectation of income for the year ended December 31, 2023.

 F- 37

 Notes

 (in

 Note
14 - Income Taxes (Continued)

 As
part of the Tax Cuts and Jobs Act that was enacted in December of 2017, taxpayers are required to capitalize research and development
expenses and amortize them over five years if the expense is incurred in the US and over fifteen years if incurred in a foreign jurisdiction.
The effective date for that provision is for tax years beginning on or after January 1, 2022. The new capitalization requirement increased
deferred tax assets related to research and development expenses and decreased taxable loss in the current year, both of which were offset
by a full valuation allowance.

 The
roll-forward of the Company's gross uncertain tax positions is as follows:

OF GROSS UNCERTAIN TAX POSITIONS

 Gross
 Uncertain

Tax Position

 Balance at January 1, 2022

 $
 -

 Additions for
 current year tax positions

 Balance at December 31, 2022

 Additions for current year
 tax positions

 ( 37
)

 Balance at December 31, 2023

 $

 The
Company's total uncertain tax positions decreased during the year ended December 31, 2023 because of a reserve established on federal
research and development credits generated in the current year. None of the uncertain tax positions that, if realized, would affect the
Company's effective tax rate in future periods due to a valuation allowance provided against the Company's net deferred tax
assets.

 On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR
Act") was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1 % excise tax on certain repurchases
of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations
occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1 % of the fair market value of the shares repurchased at the time of
the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value
of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions
apply to the excise tax. The U.S. Department of the Treasury (the "Treasury") has been given the authority to provide regulations
and other guidance to carry out and prevent the abuse or avoidance of the excise tax. During the year ended December 31, 2023, the Company
did not undergo any repurchases of its stock that were subject to the IR Act.

 Note
15 - Revisions of Previously Issued Financial Statements

 The Company has revised the previously issued 2022
financial statements for the underpayment of tariffs to U.S. Customs and Border Protection ("CBP") in the amount of $ 1.58 million in
the aggregate, related to the improper classification and valuation of certain of the products used in its batteries. The Company has
reported the underpayment to CBP. The underpayment of tariffs was primarily the result of utilizing an improper tariff rate. The additional
amount of the tariffs was allocated between inventory and cost of goods sold based on the status of imported items (i.e. included in the
inventories held vs included in the inventories already sold to customers).

 In
accordance with Staff Accounting Bulletin ("SAB") 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the materiality of the error from qualitative
and quantitative perspectives, and concluded that the error was immaterial to any prior annual or interim financial statements. Notwithstanding
this conclusion, management has revised the accompanying consolidated financial statements for 2022 and related notes included herein
to correct this error for the 2022 financial statements presented.

 The
following tables present the effect of correcting this error on the Company's previously issued financial statements.

 SCHEDULE OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 F- 38

 Notes

 (in

 Note
15 - Revisions of Previously Issued Financial Statements (Continued)

 As

 As

 As
 of December 31, 2022

 As

 As

 $
 49,846

 $

 $
 50,189

 Total Current Assets

 73,489

 73,832

 Total Assets

 88,761

 89,105

 Accrued tariffs

 -

 $

 $

 Total Current Liabilities

 40,531

 41,463

 Total Liabilities

 77,430

 78,362

 Total Equity

 11,332

 ( 589
)

 10,743

 As

 As

 For
 the Year ended December 31, 2022

 Statement of Operations

 As

 As

 Cost of Goods
 Sold

 $
 62,247

 $

 $
 62,633

 Gross Profit

 24,004

 ( 386
)

 23,618

 Loss From Operations

 ( 33,997
)

 ( 386
)

 ( 34,383
)

 Interest expense

 ( 6,945
)

 ( 34
)

 ( 6,979
)

 Total Other Expense

 ( 6,283
)

 ( 34
)

 ( 6,317
)

 Loss before taxes

 ( 40,280
)

 ( 420
)

 ( 40,700
)

 ( 39,571
)

 ( 420
)

)

 Loss Per Share

 ( 1.03
)

 ( 0.01
)

 ( 1.04
)

 As

 As

 For
 the Year ended December 31, 2022

 Consolidated Statement
 of Cash Flows

 As

 As

 $
 ( 39,571
)

 $
 ( 420
)

 $
)

 Change in Inventory

 ( 22,719
)

 ( 13
)

 ( 22,732
)

 Change in Accrued tariffs

 -

 Change in Cash Used in Operating Activities

 ( 45,696
)

 -

 ( 45,696
)

 As

 As

 For
 the Year ended December 31, 2022

 Statement of Shareholder' Equity

 As

 As

 Retained Earnings Balance –
 January 1, 2022

 $
 12,438

 $
 ( 169
)

 $
 12,269

 ( 39,571
)

 ( 420
)

)

 Retained Earnings Deficit – December 31, 2022

 ( 27,133
)

 ( 589
)

 ( 27,722
)

 F- 39

 Notes

 (in

 Note
17 - Subsequent Events

 On
January 26, 2024 the Company entered into a convertible promissory note (the "January Note") with a board member in the amount
of $ 1,000, or the January Principal Amount. Upon execution of the January Note and funding of the original principal sum, a payment of
$ 50 (the "January Loan Fee") was fully earned as of the date of the January Note and was due and payable in full in cash
on February 2, 2024. The Company paid the January Principal Amount and the January Loan Fee on February 1, 2024.

 On
February 27, 2024 the Company entered into a convertible promissory note (the "February Note") with a board member in the
amount of $ 1,700, or the February Principal Amount. Upon execution of the February Note and funding of the original principal sum, a
payment of $ 85 (the "February Loan Fee") was fully earned as of the date of the February Note and was due and payable in
full in cash on March 1, 2024. The Company paid the February Principal Amount and the February Loan Fee on March 1, 2024.

 On
March 31, 2024, the Company received a waiver from its Administrative Agent and Term Loan Lenders in regard to the Company's compliance
with its liquidity requirement as of the last day of the fiscal quarter ended March 31, 2024.

April 12, 2024, the Company entered into amendments to the employment agreements with its Chief Executive Officer, its Chief Revenue
Officer and its Chief Marketing Officer to amend the terms of their annual equity compensation (the "Amended Employee Agreements").
The Amended Employee Agreements allow the Company to issue a combination of cash and equity awards on an annual basis up to a specified
amount ($ 1,532 for the Chief Executive Officer, $ 490 for the Chief Revenue Officer and $ 236 for the Chief Marketing Officer),
subject to approval and such other terms and conditions imposed by the compensation committee of the board of directors.

 On April 12, 2024, the Company issued a total of 836 RSUs to the following
employees: (i) 568 RSUs to the Chief Executive Officer; (ii) 181 RSUs to the Chief Revenue Officer; and (iii) 87 RSUs to the
Chief Marketing Officer. Each of the RSUs granted will vest in three equal annual installments, with the first vesting date on the one (1)
year anniversary of the date of issuance and the following two vesting dates on each subsequent anniversary of the date of issuance, subject
to each employees' continued employment as of each vesting date. In addition to the RSU awards, the Board also approved the following
cash awards to the above referenced employees: (i) $ 511 to the Chief Executive Officer; (ii) $ 163 to the Chief Revenue Officer;
and (iii) $ 79 to the Chief Marketing Officer. Each of the approved cash awards will not be paid out to the employees until the Company
has achieved a minimum cash balance of $ 30,000, and are subject to each employee's continued employment on the date of payment.

 On April 12, 2024, the board of directors authorized the issuance
of 222 RSUs to each director in connection with their service as directors for the year ended December 31, 2023. The RSUs will vest
in three equal annual installments, with the first vesting date on the one (1) year anniversary date of their issuance, subject to the
directors continued service on with the Company on each vesting date.

 On April 15, 2024, the board of directors approved an amendment
to the Company's Director Compensation Policy offering its directors long-term incentive awards that are issuable subject to the
sole discretion of the Company's compensation committee. Each such long-term incentive award is payable in the form of cash and
or equity awards. Each such award shall be determined each fiscal year and are subject to the director's continued service with
the Company and other conditions as the Company's compensation committee deems appropriate. Where equity awards are issued, such
awards are subject to the terms and conditions of the Dragonfly Energy Holdings Corp. 2022 Equity Incentive Plan.

 On
April 12, 2024 the Company entered into a lease agreement, pursuant to which the Company agreed to lease an approximately 64 square foot facility (the "Premises")
located in Fernley, Nevada, to be used for general, warehousing, assembly/light manufacturing, painting of products,
storage fulfillment, distribution of the Company's products, and other uses as permitted under the Fernley Lease Agreement (the
"Fernley Lease Agreement"). The initial term of the Fernley Lease Agreement (the "Term") is for a period of sixty
(60) months, effective April 1, 2024. The base rent for the Premises, payable monthly, is $ 45 for the first twelve months of the
Term and is subject to a three percent ( 3.0 %) increase on the anniversary of each year. The Company also will be responsible for twenty-five
percent (25%) of any operating expenses, taxes and insurance expenses incurred by the Landlord in connection with the building in which
the Premises are located (the "Expenses") as well as utility expenses. The Expenses are subject to recalculation
and increase upon the completion of the Initial Improvements (as defined in the Fernley Lease Agreement). The Landlord is responsible
for completing the Initial Improvements. The Fernley Lease Agreement also contains customary default provisions allowing the Landlord
to terminate the Fernley Lease Agreement if the Company fails to cure certain breaches of its obligations under the Fernley Lease Agreement
within a specified period of time upon written notice to the Company. Concurrent with the execution of the Fernley Lease Agreement, the
Company paid the Landlord a security deposit of $ 50.

 F- 40