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Item 9A. Controls and Procedures

2022-02-25 compared with 2021-02-26 · 1029 added, 458 removed, 676 unchanged (69% of the section changed)

ITEM 9A.CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting resulting from our lack of (i) a formalized internal control framework, (ii) segregation of duties in the financial reporting process, (iii) review and approval of journal entries, and (iv) management review controls.

These deficiencies are a result of our previously smaller footprint as a private company and we are building our team to meet the requirements as a public company.

Management’s Remediation Initiatives

We have begun to take steps to remediate the identified material weaknesses and enhance our internal controls, and we are planning to do the following:

We have hired additional personnel and are continuing to expand our team.

We are further designing and implementing a formalized internal control framework, including over journal entries and management review controls, and appropriate measures to segregate duties in the financial reporting process.

We are continuing our efforts to improve and strengthen our control processes and procedures to fully remediate these deficiencies.

Our management and directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.

Internal Control over Financial Reporting

This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

This Annual Report also does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

As a smaller reporting company, management’s report is not subject to attestation by our registered public accounting firm.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), has carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021.

Based upon that evaluation, the CEO and CFO have concluded, as of December 31, 2021, that our disclosure controls and procedures were not effective as of such date due to the material weaknesses in internal control over financial reporting described in “Management’s Report on Internal Control Over Financial Reporting” below.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our CEO and our CFO, to allow timely decisions regarding required disclosure.

In light of the material weaknesses described below, we performed additional analyses, reconciliations, and other post-closing procedures to determine that our consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles.

Accordingly, management concluded that the consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Management’s 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) and based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”).

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and preparation of our financial statements for external reporting purposes in accordance with U.S.

generally accepted accounting principles.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud.

Effective internal controls can only provide reasonable assurance with respect to the preparation and fair presentation of financial statements.

Management, including our CEO and CFO, assessed the Company’s internal control over financial reporting and concluded that they were not effective as of December 31, 2021.

In making this assessment, management used the criteria set forth by the COSO framework.

Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2021 due to the material weaknesses resulting from our lack of a formalized internal control framework in accordance with COSO, inadequate segregation of duties in the financial reporting process, lack of review and approval of journal entries, and a lack of management review controls.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report included in Part II, Item 8 of this Annual Report on Form 10-K.

Management’s Remediation Plan

We have identified and implemented, and continue to implement, certain remediation efforts to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures.

These remediation efforts are ongoing.

The following remedial actions have been identified and initiated as of December 31, 2021:

• We hired several full-time accounting resources with appropriate levels of experience and reallocated responsibilities across the finance organization.

This measure provides for segregation of duties to ensure the appropriate level of knowledge and experience is applied based on risk and complexity of transactions and tasks under review.

• We engaged a professional accounting services firm to assist us in the design and documentation of our formal policies, processes and internal controls for complying with the Sarbanes-Oxley Act.

• We developed a project plan for the implementation of internal controls over financial reporting across the organization and have begun executing on that plan.

Specifically, we have designed certain controls across all of our business cycles and are currently integrating these controls into our processes.

The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations.

As we continue to evaluate and take actions to improve our internal control over financial reporting, we will further refine our remediation plan and take additional actions to address control deficiencies or modify certain of the remediation measures described above.

While progress has been made to enhance our internal control over financial reporting, we are still in the process of designing, implementing, documenting, and testing the effectiveness of these processes, procedures and controls.

Additional time is required to complete the implementation and to assess and ensure the sustainability of these procedures.

We will continue to devote significant time and attention to these remedial efforts.

However, the material weakness cannot be considered remediated until the applicable remedial controls are fully implemented, have operated for a sufficient period of time and management has concluded that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

Other than the actions taken as described in Management's Remediation Initiatives above to improve the Company’s internal control over financial reporting, there have been no changes in our internal control over financial reporting during the fiscal year ended December 31, 2020 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

Other than the actions taken as described in Management's Remediation Initiatives above to improve the Company’s internal control over financial reporting, there have been no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to our Proxy Statement relating to our 2022 Annual Meeting of Stockholders.

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Codes of Business Conduct and Ethics

Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees, which is available on our website at (investors.eose.com) under "Governance Documents".

Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees, which is available on our website at https://investors.eose.com under "Governance Documents".

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of our Code of Business Conduct and Ethics and by posting such information on the website address and location specified above.

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(1) Financial statement.

The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements” beginning on page F-1.

The consolidated financial statements and Reports of Independent Registered Accounting Firm are listed in the “Index to Financial Statements” beginning on page F-1.

(2) Financial Statement Schedules and Other Financial Information.

19 unchanged sentences

4.2 November 20, 2020

4.3 Eos Energy Enterprises, Inc.

5%/6% Convertible Senior PIK Toggle Note due 2026

Form 8-K File No.

4.1 July 7, 2021

4.4 Warrant Agreement, dated May 19, 2020, by and between the Registrant and Continental Stock Transfer & Trust Company

2 unchanged sentences

4.5 * Description of Securities

10.1 Business Combination Marketing Agreement, dated as of May 19, 2020 by and between the Registrant and B.

Riley FBR, Inc.

Form 8-K File No.

1.2 May 22, 2020

10.2 Letter Agreement, dated May 19, 2020, by and among the Registrant, its officers, its directors and B.

Riley Principal Sponsor Co.

Form 8-K File No.

10.1 May 22, 2020

10.3 Investment Management Trust Agreement, dated May 19, 2020, by and between the Registrant and Continental Stock Transfer & Trust Company

Form 8-K File No.

10.2 May 22, 2020

10.4 Registration Rights Agreement, dated May 19, 2020, by and between the Registrant, B.

Riley Principal Sponsor Co.

II, LLC and the Registrant’s independent directors

Form 8-K File No.

10.3 May 22, 2020

10.5 Private Placement Units Purchase Agreement, dated May 19, 2020, by and between the Registrant and B.

Riley Principal Sponsor Co.

Form 8-K File No.

10.4 May 22, 2020

10.6 Administrative Support Agreement, dated May 19, 2020, by and between the Registrant and B.

Riley Corporate Services, Inc.

Form 8-K File No.

10.6 May 22, 2020

10.7 Form of Subscription Agreement

Form 8-K File No.

10.7 November 20, 2020

10.1 Sponsor Earnout Letter

1 unchanged sentence

10.8 November 20, 2020

10.9 Registration Rights Agreement, dated November 16, 2020, by and among the Company and the securityholders party thereto.

Form 8-K File No.

10.9 November 20, 2020

10.2 Eos Energy Enterprises, Inc.

2 unchanged sentences

10.10 November 20, 2020

10.11 Employment Agreement, dated June 22, 2020, by and between the Company and Joe Mastrangelo

10.3 Employment Agreement, dated June 22, 2020, by and between the Company and Jo s e ph Mastrangelo

Form 8-K File No.

10.11 November 20, 2020

Incorporated by Reference

Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date

10.4 Employment Agreement, dated June 1, 2020, by and between the Company and Mack Treece

4 unchanged sentences

10.13 November 20, 2020

21.1 Subsidiaries of the Company

10.6 Offer Letter, dated February 19, 2021, by and between the Company and Jody Markopoulos

Form 8-K File No.

21.1 November 20, 2020

001-39291 10.1 March 12, 2021

10.7 Employment Agreement , dated March 25, 2021, by and between the Company and Sagar Kurada

Form 8-K File No.

001-39291 10.1 March 31, 2021

10.8 Unit Purchase Agreement , dated Apr il 8, 2021

Form 8-K File No.

001-39291 10.1 April 14, 2021

10.9 Form of Transition Services Agreement (Included in Exh i bit 10.

Form 8-K File No.

001-39291 10.2 April 14, 2021

10.10 Amended and Restated Registration Rights Agreement, dated May 10, 2021, by and between the Registrant, B.

Riley Principal Sponsor Co.

II, LLC and the other parties thereto

Form 8-K File No.

001-39291 4.01 May 10, 2021

10.11 Amended and Restated Registration Rights Agreement, dated May 10, 2021, by and among the Company and the security holders party thereto

Form 8-K File No.

001-39291 4.02 May 10, 2021

10.12 I nvestment Agreement , dated as of July 6, 2021 , by and among Eos Energy Enterprises, Inc.

and Spring Greek Capital, LLC

Form 8-K File No.

001-39291 10.1 July 7, 2021

10.13 Master Equipment Financing Agreemen t, dated September 30, 2021

Form 8-K File No.

001-39291 10.1 October 5, 2021

10.14 Guaranty Agreement , dated September 30, 2021

Form 8-K File No.

001-39291 10.2 October 5, 2021

10.15 Separation Agreement, dated December 13, 2021, by and between the Company and Sagar Kurada

Form 8-K File No.

001-39291 10.01 December 14, 2021

Incorporated by Reference

Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date

10.16 Employment Agreement , dated December 1 3 , 2021, by and between the Company and Randall B.

Form 8-K File No.

001-39291 10.02 December 14, 2021

21.1* Subsidiaries of the Company

24.1* Power of Attorney (included on the signature page herein)

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

Incorporated by Reference

Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

104* Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set

† Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5).

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Financial Statements

Report of Independent Registered Public Accounting Firm

Report s of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2021 and 2020

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We have audited the accompanying consolidated balance sheets of EOS Energy Enterprises, Inc.

(the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in shareholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

(the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2022, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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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 audits, 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 audits 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.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Convertible Notes Payable - Refer to Note 15 to the financial statements

Critical Audit Matter Description

The Company’s 2021 Convertible Notes contain an embedded conversion feature that is required to be bifurcated from the 2021 Convertible Notes and measured at fair value at each reporting period.

The Company estimates the fair value of the embedded conversion feature using a binomial lattice model at the inception and on subsequent valuation dates.

This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate, the effective debt yield, and expected volatility.

The effective debt yield and the expected volatility involve unobservable inputs.

Unlike the fair value of financial instruments that are readily observable and therefore more easily independently corroborated, the valuation of the embedded conversion feature is inherently subjective and involves the use of complex modeling tools.

Auditing the embedded conversion feature fair value requires a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation of the embedded conversion feature in the 2021 Convertible Notes included the following, among others:

• We tested the effectiveness of controls over the Company’s determination of fair value of the embedded conversion feature.

• With the assistance of our fair value specialists, we evaluated the reasonableness of management’s valuation methodology and the significant assumptions used in determining the fair value of the embedded conversion feature by:

◦ Testing the source information underlying the fair value of the embedded conversion feature and the mathematical accuracy of the calculation.

◦ Developing a range of independent estimates and compared those to the fair value of the embedded conversion feature.

• We evaluated the competency and objectivity of management’s expert engaged by the Company to perform the valuation of the embedded conversion feature.

/s/ Deloitte & Touche LLP

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We have served as the Company's auditor since 2017.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Eos Energy Enterprises, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Eos Energy Enterprises, Inc.

(the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 25, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s ability to continue as a going concern.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the 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 effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Material Weaknesses

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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management's assessment:

deficiencies resulting from a lack of a formalized internal control framework in accordance with COSO, inadequate segregation of duties in the financial reporting process, a lack of review and approval of journal entries, and a lack of management review controls.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect our report on such financial statements.

/s/ Deloitte & Touche LLP

February 25, 2022

EOS ENERGY ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS)

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

As of December 31, 2021 and 2020

1 unchanged sentence

Cash and cash equivalents $ 104,831 $ 121,853

Grants receivable 131 326

Inventory 214 —

Receivable on sale of state tax attributes — 4,060

Restricted cash 861 —

Accounts receivable, net 1,916 —

Inventory, net 12,976 214

Vendor deposits 16,653 2,390

Prepaid and other current assets 2,779 484

Notes receivable, net 103 —

Prepaid expenses 2,595 2,274

Other current assets 2,637 636

Total current assets 142,572 127,367

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Intangible assets, net 280 320

Goodwill 4,331 —

Investment in joint venture — 3,736

Security deposit 825 808

Other assets 363 $ —

Security deposits, net 1,239 825

Notes receivable, long-term, net 3,547 100

Operating lease right-of-use asset, net 3,468 —

Other assets, net 848 263

Total assets $ 169,175 $ 138,264

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable and accrued expenses $ 8,861 $ 6,987

Accounts payable $ 12,531 $ 3,378

Accrued expenses 7,674 5,093

Accounts payable and accrued expenses - related parties 1,200 2,517

Provision for firm purchase commitments 1,585 —

Convertible notes payable – related party — 76,559

Capital lease, current portion 11 13

Embedded derivative liability — 1,681

Provision for firm purchase commitments - related parties — 1,585

Operating lease liability, current portion 1,084 —

Notes payable, current portion 4,926 —

Long-term debt, current portion 1,644 924

Contract liabilities, current portion 77 300

Other current liabilities 858 88

Total current liabilities 29,917 13,585

Long-term liabilities

Deferred rent 762 663

Capital lease 4 17

Operating lease liability, long-term 3,224 —

Notes payable 13,769 —

Long-term debt 4,727 427

Convertible notes payable - related party 84,148 —

Warrants liability - related party 926 2,701

Other liabilities 17 766

Total long-term liabilities 106,811 3,894

EOS ENERGY ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

As of December 31, 2021 and 2020

Total liabilities 136,728 17,479

COMMITMENTS AND CONTINGENCIES (NOTE 10) — —

CONTINGENTLY REDEEMABLE PREFERRED UNITS (NOTE 14) (liquidation preference of $ — and, $ 136,816 as of December 31, 2020 and December 31, 2019, respectively)

SHAREHOLDERS' EQUITY

1 See Note 1 for discussion of reverse capitalization given effect herein

EOS ENERGY ENTERPRISES, INC

CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS)

As of December 31, 2020 and 2019

Common Stock, $ 0.0001 par value, 200,000,000 shares authorized, 53,786,632 and 48,943,082 shares outstanding at December 31, 2021 and 2020, respectively

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Accumulated deficit ( 416,527 ) ( 292,311 )

Total shareholders' equity (deficit) 123,096 ( 183,722 )

Total liabilities, contingently redeemable preferred units, and shareholders’ equity (deficit) $ 138,264 $ 13,057

The accompanying notes are an integral part of these financial statements.

Total shareholders' equity 32,447 120,785

Total liabilities and shareholders’ equity $ 169,175 $ 138,264

The accompanying notes are an integral part of these consolidated financial statements.

EOS ENERGY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS ($ IN THOUSANDS)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

For the years ended December 31, 2021, 2020 and 2019

2021 2020 2019

Total revenue $ 4,598 $ 219 $ 496

Costs and expenses

Cost of sales 5,509 8,332

Cost of goods sold 46,494 5,509 8,332

Research and development expenses 19,193 13,593 11,755

General and administrative expenses 18,883 7,710

Selling, general and administrative expenses 42,998 17,621 6,589

Loss on pre-existing agreement 30,368 1,262 1,121

Grant expense (income), net 269 913 ( 469 )

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Other income (expense)

Sale of state tax attributes — 4,060

Interest income (expense), net ( 604 ) ( 115 ) 2

Interest expense – related party ( 4,597 ) ( 23,706 ) ( 49,708 )

Loss on extinguishment of convertible notes — ( 6,111 )

Remeasurement of equity method investment ( 7,480 ) — —

Loss on extinguishment of convertible notes - related party — — ( 6,111 )

Change in fair value, embedded derivative 17,507 2,092 ( 716 )

Change in fair value, warrants liability - related party 1,775 ( 2,142 ) —

Change in fair value, Sponsor Earnout Shares — ( 8,220 ) —

Income (loss) from equity in unconsolidated joint venture 440 127 ( 178 )

Gain on debt forgiveness 1,273 — —

Sale of state tax attributes 2,194 — 4,060

Net loss $ ( 124,216 ) $ ( 70,643 ) $ ( 79,483 )

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Diluted 52,664,349 9,408,841 3,930,336

The accompanying notes are an integral part of these financial statements.

2 See Note 1 for discussion of reverse capitalization given effect herein

3 See Note 1 for discussion of reverse capitalization given effect herein

The accompanying notes are an integral part of these consolidated financial statements.

EOS ENERGY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) ($ IN THOUSANDS)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(In thousands, except share and per share amounts)

For the years ended December 31, 2021, 2020 and 2019

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Capital contribution - disgorgement of short swing profits — — 432 — — 432

Shares issued to Restricted Units holders 174,761 — — — — —

Shares issued to restricted stock units holders 174,761 — — — — —

Stock-based compensation — — 5,081 — — 5,081

4 unchanged sentences

48,943,082 $ 5 $ 395,491 $ 17,600 $ ( 292,311 ) $ 120,785

The accompanying notes are an integral part of these financial statements.

4 See Note 1 for discussion of reverse capitalization given effect herein

5 See Note 2 for discussion of Sponsor Earnout Shares

6 See Note 2 for discussion of Sponsor Earnout Shares

Release of Sponsor earnout shares from restriction 859,000 — — — — —

Issuance of earnout shares 1,999,185 — 17,600 ( 17,600 ) — —

Stock-based compensation — — 15,058 — — 15,058

Exercise of options 123,837 — 1,074 — — 1,074

Exercise of warrants 1,747,746 — 20,099 — — 20,099

Release of restricted stock units 154,600 — — — — —

Cancellation of shares used to settle payroll tax withholding

( 40,818 ) — ( 353 ) — — ( 353 )

Net loss — — — — ( 124,216 ) ( 124,216 )

Balance, December 31, 2021

53,786,632 $ 5 $ 448,969 $ — $ ( 416,527 ) $ 32,447

The accompanying notes are an integral part of these consolidated financial statements.

EOS ENERGY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

For the years ended December 31, 2021, 2020 and 2019

2021 2020 2019

Cash flows from operating activities

4 unchanged sentences

Impairment of property and equipment — — 1,590

Loss from disposal of property and equipment 31 —

(Income) Loss from equity in unconsolidated joint venture ( 127 ) 178

Non-cash lease expense 924 — —

Remeasurement of equity method investment 7,480 — —

Loss (Income) from equity in unconsolidated joint venture ( 440 ) ( 127 ) 178

Accreted interest on convertible notes payable – related party 1,545 23,706 49,708

Loss on extinguishment of convertible notes — 6,111

Provision for firm purchase commitment 1,585 —

Amortization of debt issuance cost 1,405 — —

Loss on extinguishment of convertible notes- related party — — 6,111

Gain on debt forgiveness ( 1,273 ) — —

Change in fair value, embedded derivative ( 17,507 ) ( 2,092 ) 716

Change in fair value, warrants liability - related party ( 1,775 ) 2,142 —

Change in fair value, Sponsor Earnout Shares — 8,220 —

Other 2,950 31 ( 52 )

Changes in operating assets and liabilities:

Changes in operating assets and liabilities (net of assets and liabilities acquired)

Receivable on sale of state tax attributes — 4,060 ( 4,060 )

Prepaid and other assets ( 1,607 ) ( 462 )

Prepaid expenses ( 284 ) ( 1,988 ) ( 286 )

Inventory ( 10,096 ) ( 214 ) 634

Grants receivable 195 352

Accounts receivable ( 1,916 ) — —

Vendor deposits ( 7,419 ) ( 593 ) 109

Security deposit ( 17 ) ( 64 )

Accounts payable and accrued expenses 1,709 ( 2,210 )

Security deposits ( 414 ) ( 17 ) ( 64 )

Accounts payable 5,823 ( 1,796 ) ( 681 )

Accrued expenses 2,581 3,115 ( 1,529 )

Accounts payable and accrued expenses-related parties ( 1,317 ) 1,323 1,140

Contract liabilities ( 223 ) ( 468 )

Deferred rent 99 169

Other assets ( 362 ) —

Provision for firm purchase commitments ( 5,475 ) 1,585 —

Operating lease liabilities ( 846 ) — —

Notes payable 18,695 — —

Other ( 2,243 ) 90 ( 123 )

Net cash used in operating activities ( 116,147 ) ( 26,559 ) ( 23,834 )

Cash flows from investing activities

Investment in notes receivable ( 4,907 ) — —

Proceeds from notes receivable 1,320 — —

Business acquisition, net of cash acquired ( 160 ) — —

Investment in joint venture ( 4,000 ) ( 3,020 ) ( 601 )

2 unchanged sentences

Cash flows from financing activities

Capital lease payments ( 15 ) ( 72 )

Principal payments on finance (capital) lease obligations ( 11 ) ( 15 ) ( 72 )

Proceeds from issuance of convertible notes payable – related party 100,000 9,009 19,346

Proceeds of short term notes payable 191 —

Repayment of short term notes payable ( 97 ) ( 1,000 )

Payment made for debt issuance cost ( 4,370 ) — —

Proceeds from other financing — 191 —

Repayment of other financing ( 94 ) ( 97 ) ( 1,000 )

Proceeds from Paycheck Protection Program loan — 1,257 —

EOS ENERGY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

For the years ended December 31, 2021, 2020 and 2019

2021 2020 2019

Proceeds attributable to beneficial conversion features of convertible notes payable – related party — — 1,793

Proceeds from equipment financing facility 7,000 — —

Repayment of equipment financing facility ( 455 ) — —

Proceeds from capital infusion in reverse recapitalization — 142,345 —

Proceeds from exercise of stock options 1,074 — —

Proceeds from exercise of public warrants 20,099 — —

Repurchase of shares from employees for income tax withholding purposes ( 353 ) — —

Transaction cost for the reverse recapitalization — ( 10,274 ) —

Issuance of contingently redeemable preferred units — 11,759 2,031

Other 432 — —

Net cash provided by financing activities 123,322 154,175 22,098

EOS ENERGY ENTERPRISES, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS)

For the years ended December 31, 2020 and 2019

Net increase (decrease) in cash and cash equivalents 120,991 ( 4,636 )

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Net increase (decrease) in cash, cash equivalents and restricted cash ( 16,161 ) 120,991 ( 4,636 )

Cash, cash equivalents and restricted cash, beginning of year

121,853 862 5,498

Cash, cash equivalents and restricted cash, end of year

$ 105,692 $ 121,853 $ 862

Non-cash Investing and Financing Activities

Fixed assets acquired with finance lease $ 21 $ — $ —

Right-of-use operating lease assets in exchange for lease liabilities 4,351 — —

Contribution of inventory to joint venture — — 167

Accrued and unpaid capital expenditures 576 374 93

Issuance of convertible notes for interest paid-in-kind 2,900 — —

Conversion of convertible notes to common stock in connection with merger — 108,863 —

3 unchanged sentences

Cash paid for interest $ 157 $ 118 $ 6

The accompanying notes are an integral part of these financial statements.

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheets.

December 31, 2021

December 31, 2020

Cash and cash equivalents $ 104,831 $ 121,853

Restricted cash 861 —

Total cash, cash equivalents and restricted cash $ 105,692 $ 121,853

The accompanying notes are an integral part of these consolidated financial statements.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies

1 unchanged sentence

Eos Energy Enterprises, Inc.

Riley Merger Corp.

II) (the “Company” or "Eos") designs, develops, manufactures, and sells innovative energy storage solutions for the electric utilities, and commercial and industrial end users.

Riley Principal Merger Corp.

II ("BMRG")) (the “Company” or "Eos") designs, develops, manufactures, and sells innovative energy storage solutions for electric utilities, and commercial and industrial (“C&I”) end users.

Eos has developed and has received patents on an innovative battery design relying on a unique zinc oxidation/reduction cycle to generate output current and to recharge.

The Battery Management System (“BMS”) software uses proprietary Eos-developed algorithms and includes ambient and battery temperature sensors, as well as voltage and current sensors for the strings and the system.

Eos and their partners focus on a collaborative approach to jointly develop and sell safe, reliable, long-lasting low-cost turn-key alternating current (“AC”) integrated systems using Eos’s direct current (“DC”) Battery System.

The Company is also an investor in an unconsolidated joint venture (“JV”) which has the exclusive rights to manufacture the DC Battery Systems integrated with the BMS for DC Battery Systems that are sold and delivered in North America, subject to meeting certain performance targets.

The Company’s major markets are integration of battery storage with solar that is connected to the utility power grid or the customer’s solar system that is not connected to the utility power grid, battery storage systems to be used by utilities to relieve congestion in the power grids and battery storage systems to assist commercial and industrial customers in reducing their peak energy usage or participating in the utilities ancillary and demand response markets.

Eos focuses on developing and selling safe, reliable, long-lasting low-cost turn-key alternating current (“AC”) integrated systems using Eos’s direct current (“DC”) Battery System.

The Company has a manufacturing facility in Turtle Creek, Pennsylvania to manufacture the DC Battery Systems integrated with the BMS for DC Battery Systems.

The Company’s primary markets focus on integrating battery storage solutions with (1) solar systems that are connected to the utility power grid (2) solar systems that are not connected to the utility power grid (3) storage systems utilized to relieve congestion and (4) storage systems to assist C&I customers in reducing their peak energy usage or participating in the utilities ancillary and demand response markets.

The location of the Company’s major markets are seen in North America, Europe, Africa, and Asia.

Liquidity and Going Concern

The Company is in the early commercialization stage of its lifecycle and, as such, has limited revenue generating activities.

Accordingly, the Company has incurred significant recurring losses, and net operating cash outflows from operations since inception, which is attributable to its higher operating costs relative to its revenue base.

Operating expenses consist primarily of costs related to the Company’s sales of their product along with the associated research and development costs, as well as other recurring general and administrative expenses.

While management and the Company’s Board of Directors anticipate the Company will eventually reach a scale of profitability through the sale of battery energy systems and other complimentary products and services, the Company believes the current stage of the Company’s lifecycle justifies continued investment in the development and launch of products with outside capital at the expense of short-term profitability.

Accordingly, we expect to continue to incur significant losses, and net operating cash outflows from operations for the foreseeable future to fund its obligations as they become due, which includes necessary funding to scale up the Company’s operations to allow for the delivery of order backlog and additional order opportunities for its battery systems, and continued investment in research and development.

As of December 31, 2021, Eos had total assets of $ 169,175 , which includes total cash and cash equivalents of $ 104,831 , total liabilities of $ 136,728 , which includes the total amounts owed on the Company’s outstanding convertible notes payable of $ 84,148 (see Note 15), notes payable of $ 13,769 and other long-term debt of $ 6,371 and a total accumulated deficit of $( 416,527 ), which is primarily attributable to the significant recurring losses the Company has accumulated since inception.

The Company has historically relied on outside capital to fund its cost structure and expects this reliance to continue for the foreseeable future until the Company reaches a scale of profitability through its planned revenue generating activities.

However, as of the date of the accompanying financial statements were issued, management concluded that the Company did not have sufficient capital to support its current cost structure for one year after the date the accompanying financial statements were issued.

Management believes these uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.

If the Company is unable to raise additional capital, the Company may have to significantly delay, scale back or discontinue the development or commercialization of its product.

The Company has passed Part I of the application under the U.S.

Department of Energy’s Loan Guarantee Solicitation for Applications for Renewable Energy Projects and Efficient Energy Projects (the “DOE Loan Program”).

There can be no assurance that we will successfully complete Part II of the DOE Loan Program or otherwise be able to obtain this new funding, or any other new funding, on terms acceptable to us, on a timely basis, or at all.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

The accompanying consolidated financial statements have been prepared on the basis that we will continue to operate as a going-concern, which contemplates we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future.

The accompanying financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Reverse Recapitalization

1 unchanged sentence

On November 16, 2020 (the "Merger Date"), the Company consummated a reverse recapitalization (the "Merger") pursuant to which B.

Riley Merger Corp.

Riley Principal Merger Corp.

II ("BMRG") acquired Eos Energy Storage LLC pursuant to an agreement and plan for merger (the “Merger Agreement”) between the Company, BMRG Merger Sub, LLC, our wholly-owned subsidiary and a Delaware limited liability company (“Merger Sub I”), BMRG Merger Sub II, LLC, our wholly-owned subsidiary and a Delaware limited liability company (“Merger Sub II”), Eos Energy Storage LLC, a Delaware limited liability company (“EES”), New Eos Energy LLC, a wholly-owned subsidiary of EES and a Delaware limited liability company (“Newco”) and AltEnergy Storage VI, LLC, a Delaware limited liability company (“AltEnergy”).

3 unchanged sentences

Since BMRG was a non-operating public shell company, the current shareholders of EES have a relative majority of the voting power of the combined entity, the operations of EES prior to the acquisition comprises the only ongoing operations of the combined entity, and senior management of EES comprises the majority of the senior management of the combined entity, the Mergers have been accounted for as a capital transaction rather than a business combination.

According to ASC 805 Business combination, the transaction was accounted for as a reverse recapitalization consisting of the issuance of Common Stock by Eos for the net monetary assets of BMRG accompanied by a recapitalization.

According to ASC 805, Business Combinations , the transaction was accounted for as a reverse recapitalization consisting of the issuance of Common Stock by Eos for the net monetary assets of BMRG accompanied by a recapitalization.

Accordingly, the net monetary assets received by EES as a result of the Mergers with B.

4 unchanged sentences

Riley Common Stock had been issued as of the later of (i) the issuance date of the shares, or (ii) the earliest period presented in the accompanying consolidated financial statements.

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

Upon consummation of the Mergers, the former EES convertible notes and redeemable preferred units were converted to common stock of the Company.

6 unchanged sentences

All significant intercompany transactions and balances have been eliminated in the preparation of the consolidated financial statements.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

Reclassification of Prior Year Presentation

1 unchanged sentence

These reclassifications had no effect on the reported results of operations.

Adjustment has been made to the Consolidated Balance sheets for the year ended December 31, 2019, to reclassify account payable and accrued expense to related parties and vendor deposits from prepaid and other current assets.

These changes in classification also affected cash flows from operating activities for the year ended December 31, 2019 in the Consolidated Statements of Cash Flows.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

The most significant estimates in the consolidated financial statements include the warranty obligation, valuation of Contingently Issuable Common stock and Earnout shares, valuation of embedded derivatives, and fair value of consideration in business acquisition.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments purchased with original maturities of three months or less.

Restricted cash

Restricted cash as of December 31, 2021 and December 31, 2020 was approximately $ 861 and $ — , respectively, on the Company's consolidated balance sheets.

All of the restricted cash on December 31, 2021 was held by the bank as collateral for the Company's corporate credit cards and subject to withdrawal restriction.

Concentration of Credit Risk

2 unchanged sentences

The Company has not experienced any losses on such accounts.

Use of Estimates

Actual results could differ from those estimates.

The most significant estimates in the accompanying financial statements include the valuation of Contingently Issuable Common stock , derivatives, the relative fair value allocation of Phase II bridge financing proceeds, the valuation of inventory, and estimated lives used for depreciation and amortization purposes.

Income Taxes and Deferred Taxes

The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, Income Taxes (ASC 740).

Income taxes are computed under the asset and liability method reflecting both current and deferred taxes, which reflect the tax impact of all events included in the financial statements.

The balance sheet approach (i) reflects a current tax liability or asset recognized for estimated taxes payable or refundable on tax returns for the current and prior years, (ii) reflects a deferred tax liability or asset recognized for the estimated future tax effects attributable to temporary differences and carryforwards, (iii) measures current and deferred tax liabilities and assets using the enacted tax rate of which the effects of future changes in tax laws or rates are not anticipated, and (iv) reduces deferred tax assets, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

Accounts Receivable, net

The Company evaluates the creditworthiness of its customers.

If the collection of any specific receivable is doubtful, an allowance is recorded in the allowance for credit losses.

The Company had $ 1,925 and $ 35 of accounts receivable as of December 31, 2021 and 2020, with $ 9 and $ 35 of allowances for credit loss recorded, respectively.

The total allowance for credit losses was included in Accounts Receivable, Net on the consolidated balance sheets.

The activity in the allowance for credit losses was as follows:

December 31, 2021

December 31, 2020

Beginning of Period $ 35 $ —

Credit Loss Expense 9 35

Write-offs ( 35 ) —

End of Period $ 9 $ 35

Inventory, net

Inventories are stated at the lower of cost or net realizable value.

Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis.

The Company records inventory when it takes delivery and title to the product according to the terms of each supply contract.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

ASC 740 prescribes a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

Eos recognizes deferred tax assets only to the extent that management concludes these assets are more-likely-than-not to be realized.

Significant judgement is required in assessing and estimating the more-likely-than-not tax consequences of the events included in the financial statements.

Management considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense.

Eos records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (i) management determines whether it is more-likely-than-not that the tax position will be sustained on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company has determined that the uncertain income tax positions at December 31, 2020 and December 31, 2019 that do not meet the more-likely-than-not threshold under ASC 740 are $ 322 and $ — , respectively .

See Note 10 for further information.

The Company evaluates its ending inventories for excess quantities and obsolescence.

A valuation allowance is recorded for inventories that management considers excess or obsolete.

Management considers forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments.

Once inventory is written down and a new cost basis is established, it is not written back up if demand increases.

Investment in unconsolidated joint venture

The Company accounts for its investment in its unconsolidated joint venture using the equity method of accounting as it has been determined that the Company has the ability to exercise significant influence and is not otherwise required to consolidate.

All significant decisions require unanimous consent of both joint venture members.

Under the equity method, the investment is initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint venture’s income or loss.

The Company reviews its investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable.

Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other than temporary and to estimate the investment’s fair value.

Impairment of Long-Lived Assets

10 unchanged sentences

Expenditures which significantly improve or extend the life of an asset are capitalized.

Business Combinations

The Company accounts for the acquisition of a business using the acquisition method of accounting and allocates the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, with any excess recorded as goodwill.

The operating results of acquired businesses are included in the Company’s results of operations beginning as of their effective acquisition dates.

Additional information regarding the business acquisition can be found in Note 3.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

The Company accounts for goodwill as the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value.

Goodwill is not subject to amortization;

rather, the Company tests goodwill for impairment annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below the carrying amount.

The Company has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If this is the case, the quantitative assessment is required.

If it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, the quantitative goodwill impairment test is not required.

In performing a qualitative assessment, the Company first assesses relevant factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

The Company identifies and considers the significance of relevant key factors, events, and circumstances that could affect the fair value of the reporting unit.

These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance.

The Company completed the annual goodwill impairment test as of November 30, 2021, using a qualitative assessment for the reporting unit.

The Company concluded that it is more likely than not that the fair value of the reporting unit is greater than the carrying amount, and a quantitative goodwill impairment test was not necessary.

As a result of the annual assessment, there were no impairment charges for the year ended December 31, 2021.

Revenue from Contracts with Customers

1 unchanged sentence

Revenue is recognized in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring the promised goods and/or services to the customer, when or as the Company’s performance obligations are satisfied.

For product sales of energy storage systems, the Company’s performance obligations are satisfied at the point in time when the customer obtains control of the system, which is either upon delivery of the goods at the customer’s designated location or upon the customer’s acceptance of the product after commissioning and testing at the customer’s site, depending on the specific terms of the respective contract with the customer.

In addition, the corresponding installation and commissioning services related to the systems are performance obligations satisfied over time as the respective services are performed, based on an input measure of progress as labor costs relating to the installation and commissioning services are incurred.

Further, extended warranties are offered by the Company and are identified as performance obligations that are satisfied over time, based on a time-lapsed measure of progress resulting in a ratable recognition of revenue over the respective warranty period.

Payment terms generally include advance payments to reserve capacity and/or upon issuance of the

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

customer’s purchase order, shipment readiness, with the remainder upon delivery and commissioning of the system.

Shipping and handling costs are included in cost of sales.

For product sales of energy storage systems, the Company’s performance obligations are satisfied at the point in time when the customer obtains control of the system, which is upon shipment or delivery of the goods at the customer’s designated location and varies by contracts.

In addition, the corresponding installation and commissioning services related to the systems are performance obligations satisfied over time as the respective services are performed.

Further, extended warranties, maintenance and monitoring, and degradation guarantees are offered by the Company and are identified as performance obligations that are satisfied over time, based on a time-lapsed measure of progress resulting in a ratable recognition of revenue over the respective performance period.

Transaction price is allocated to the various performance obligations based on the relative stand-alone selling prices of the promised goods and services.

Stand-alone selling prices are either determined based on cost plus a reasonable margin or an adjusted market approach.

Payment terms generally include advance payments to reserve capacity and/or upon issuance of the customer’s purchase order, shipment readiness, with the remainder upon delivery and commissioning of the system.

Shipping and handling costs are included in cost of goods sold.

Sales tax collected from customers are recorded on a net basis and therefore, not included in revenue.

Sales tax is recorded as a liability (payable) until remitted to governmental authorities.

The Company may enter into sales contracts that provide for performance obligations in addition to the sale of the product, including performance guarantees and service obligations.

Under these sales contracts, transaction price is allocated to the various performance obligations based on the relative stand-alone selling prices of the promised goods and services.

When the stand-alone selling price is not observable, revenue is determined based on a best estimate of selling price using cost plus a reasonable margin and is recognized ratably over the period of performance.

Determination of Transaction Price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer.

The Company includes any fixed charges within its contracts as part of the total transaction price.

In addition, several contracts include variable consideration such as refunds, penalties, and the customer’s right to return.

The Company has concluded that its estimation of variable consideration results in an adjustment to the transaction price such that it is probable that a significant reversal of cumulative revenue would not occur in the future.

Assessment of Estimates of Variable Consideration

Assessment of Estimates of Variable Consideration and Determination of Transaction Price

Many of the Company’s contracts with customers contain some component of variable consideration.

The Company estimates variable consideration, such as refunds, penalties, and the customer’s right to return, using the expected value method, and adjusts transaction price for its estimate of variable consideration.

Throughout the year, we update our estimate of variable consideration on a monthly basis, and adjust transaction price accordingly by recording an adjustment to net revenue and refund liability with respect to variable consideration such as penalties, refunds, and credits to customers.

Therefore, management applies the constraint in its estimation of variable consideration for inclusion in the transaction price such that it is probable that a significant reversal of cumulative revenue would not occur in the future.

The Company estimates variable consideration, such as refunds, penalties including liquidated damages, and the customer’s right to return, using the expected value method, and adjusts transaction price for its estimate of variable consideration.

Throughout the year, we update our estimates of variable consideration on a monthly basis and adjust the transaction price accordingly by recording an adjustment to net revenue and refund liability with respect to variable consideration such as penalties, refunds, and credits to customers.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

Practical Expedients and Exemptions

As permitted by ASC 606, the Company elected to use certain practical expedients in connection with the implementation of ASC 606.

The Company treats costs associated with obtaining new contracts as expenses when incurred if the amortization period of the asset the Company would recognize is one year or less.

The Company does not adjust the transaction price for significant financing components, as the Company’s contracts typically do not span more than a one year period.

The election of these practical expedients results in accounting treatments that the Company believes are consistent with historical accounting policies and, therefore, these elections of practical expedients do not have a material impact on the comparability of the financial statements as no revenue was earned during the year ended December 31, 2020 and December 31, 2019.

Royalty Revenue

The Company receives sales-based royalty payments related to the licensing of intellectual property to the Company’s JV.

The Company recognizes royalty revenues when the licensee sells products to third parties.

As permitted by ASC 606, the Company elected to use certain practical expedients.

The Company treats costs associated with obtaining new contracts as expenses when incurred if the amortization period of the asset recognized by the Company is one year or less.

The election of the practical expedients results in accounting treatments that the Company believes are consistent with historical accounting policies and, therefore, the election of practical expedients does not have a material impact on the comparability of the financial statements.

Product Warranty

Warranty obligations are incurred in connection with the sale of the Company’s products.

The Company generally provides a standard warranty for a period of one to two years , commencing upon commissioning.

The Company generally provides a standard warranty for a period of two years and optional 20-year degradation guarantee, commencing upon commissioning.

Costs to provide for warranty obligations are estimated and recorded as a liability at the time of recording the sale.

Extended warranties are identified as performance obligations in the Company’s contracts with customers, and are discussed

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

as part of revenue from contracts with customers.

Warranty reserves include management’s best estimate of the projected costs to repair or to replace any items under warranty, which is based on various factors, including the use of actual claim data to date, results of lab testing, factory quality data, field monitoring, and data on industry averages for similar products.

Extended warranties and degradation guarantee are identified as performance obligations in the Company’s contracts with customers and are discussed as part of revenue from contracts with customers.

Costs incurred in satisfying the Company’s performance obligations with respect to extended warranties are recognized as expense when incurred.

6 unchanged sentences

Research and development costs are expensed as incurred, which include materials, supplies, salaries, benefits and other costs related to research, development and testing of products.

The Company records rent expense on a straight-line basis based on the total minimum lease payments over the term of the lease.

Differences between cash paid for lease payments and rent expense are recorded as Deferred rent on the Balance Sheets.

Accounts Receivable

The Company evaluates the creditworthiness of its customers.

If the collection of any specific receivable is doubtful, an allowance is recorded in the allowance for doubtful accounts.

The Company had $ 35 and $ — of accounts receivable as of December 31, 2020 and 2019, with $ 35 and $ — of allowances for doubtful accounts recorded, respectively.

Inventories are stated at the lower of cost, which approximates cost determined on a first-in, first-out basis, or net realizable value.

The Company records inventory when it takes delivery and title to the product according to the terms of each supply contract.

The Company evaluates its ending inventories for excess quantities and obsolescence.

Inventories that management considers excess or obsolete are reserved.

Once inventory is written down and a new cost basis is established, it is not written back up if demand increases.

Investment in unconsolidated joint venture

All significant decisions require unanimous consent of both joint venture members.

Under the equity method, the investment is initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint venture’s income or loss.

Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other than temporary and to estimate the investment’s fair value.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The discount rate used to calculate the present value represents our incremental borrowing rate and is calculated based on the treasury yield curve that commensurate with the term of each lease, and a spread representative of our borrowing costs.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Leases may be classified as either operating leases or finance leases.

We have made an accounting policy election to not include leases with an initial term of 12 months or less on the balance sheets.

Prior to the adoption of ASC 842, Leases , the Company recorded rent expense on a straight-line basis based on the total minimum lease payments over the term of the lease.

Differences between cash paid for lease payments and rent expense were recorded as Deferred rent, which is included in other liabilities on the balance sheets.

See Note 21 for additional information.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

9 unchanged sentences

The Company has elected to recognize forfeitures as incurred.

Income Taxes and Deferred Taxes

The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, Income Taxes ("ASC 740").

Income taxes are computed under the asset and liability method reflecting both current and deferred taxes, which reflect the tax impact of all events included in the financial statements.

ASC 740 prescribes a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

The Company recognizes deferred tax assets only to the extent that management concludes these assets are more-likely-than-not to be realized.

Significant judgement is required in assessing and estimating the more-likely-than-not tax consequences of the events included in the financial statements.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (i) management determines whether it is more-likely-than-not that the tax position will be sustained on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company has determined that the uncertain income tax positions included in the net operating loss at December 31, 2021 and December 31, 2020 that do not meet the more-likely-than-not threshold under ASC 740 are $ 348 and $ 322 , respectively.

See Note 12 for further information.

Earnings (loss) Per Share

In accordance with the provisions of FASB ASC Topic 260, Earnings per Share , basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

In accordance with the provisions of ASC Topic 260, Earnings per Share , basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted basis.

In computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.

The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.

Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the years ended December 31, 2020 and 2019, as we incurred a net loss for such periods.

The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

For the year ended December 31

Stock Options and Restricted Units 2,185,954 392,838

Warrants 9,075,000 —

Block B Sponsor Earnout Shares subject to restrictions 859,000 —

Contingently Issuable Common Stock 2,000,000 —

Convertible Notes (if converted) — 7,655,908

Contingent redeemable preferred units — 12,964,231

See Note 23 for further information.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

The Company’s chief operating decision-maker (“CODM”) is its Chief Executive Officer and President.

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As such, the Company has determined that it operates in one operating and one reportable segment.

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and notes payable — related party and long term debt.

Accounting standards establish a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three levels.

The fair value hierarchy gives the highest priority to quoted market prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

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

Accounting standards require financial assets and liabilities to be classified based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable are considered to be representative of their fair value due to the short maturity of these instruments.

The fair value of both the Company’s convertible notes payable — related party (the “Convertible Notes”) and the embedded derivative liability are classified within Level 3 of the fair value hierarchy.

The Company’s outstanding long term debt are deemed to be at fair value as the interest rates on these debt obligations are materially consistent with prevailing rates.

The Company estimated the original fair value of the Contingently Issuable Common Stock based on a Monte Carlo simulation option-pricing model considering stock price of the Company, a risk free rate of 0.41 % and volatility of 60 % utilizing a peer group based on a five year term.

This estimate was initially recorded as a distribution to shareholders and was presented as Contingently Issuable Common Stock.

Upon the occurrence of a Triggering Event, any issuable shares would be transferred from Contingently Issuable Common Stock to common stock and Additional paid-in capital accounts.

Pursuant to the guidance under ASC 815, Derivatives and Hedging , the Sponsor Earnout Shares was classified as a Level 3 fair value measurement liability, and the increase or decrease in the fair value during the reporting period is recognized as expense or income accordingly.

The fair values of the Sponsor Earnout Shares on the Closing date were estimated using a Monte Carlo simulation based on stock price of the Company, a risk free rate of 0.41 % and volatility of 60 % utilizing a peer group based on a five year term.

The fair value of the first tranche of Sponsor Earnout Shares ("Block A") that vested on December 16, 2020 was based on the closing share price of the Company’s publicly traded stock on that date.

The fair values of the second tranche of the Sponsor Earnout Shares ("Block B) on December 16, 2020, when the Block B shares were reclassified from liability to equity, were estimated using a Monte Carlo simulation based on stock price of the Company, a risk free rate of 0.36 % and volatility of 60 % utilizing a peer group based on a five - year term.

The estimated future cash flows of the Convertible Notes were discounted using a discount rate derived from an appropriate risk-free interest rate yield curve and credit spread, and the estimated repayment date.

As the Company does not have a market observable credit spread, the Company obtained a range of potential credit spreads available from market observable information on entities with a comparable credit risk.

As of December 31, 2019, the estimated fair value of the convertible notes payable — related party is approximately $ 65,942 , as compared to the carrying value of approximately $ 76,559 .

The fair value of the embedded derivatives are determined using valuation techniques that require the use of assumptions concerning the amount and timing of future cash flows, discount rates, probability of future events and redemption dates that are beyond management’s control.

As of December 31, 2019, the fair value of the embedded derivative liability was $ 1,681 .

The carrying amounts for the Company’s financial instruments classified as current assets and liabilities, including cash and cash equivalents, restricted cash, trade accounts receivable and accrued expenses and accounts payable, approximate fair value due to their short maturities.

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Refer to Note 22 for additional information.

Recently Adopted Accounting Pronouncements

Under the Jumpstart Our Business Startups (“JOBS”) Act, the Company qualified as an emerging growth company (“EGC”) and as such, elected not to opt out of the extended transition period for complying with new or revised accounting pronouncements.

During the extended transition period, the Company was not subject to new or revised accounting standards applicable to public companies.

Based on our public float calculation at June 30, 2021, the Company is deemed a Large Accelerated Filer under the U.S.

Securities and Exchange Commission guidelines and ceased to qualify as an EGC effective December 31, 2021.

The loss of EGC status resulted in losing the reporting exemptions noted above, and in particular requires our independent registered public accounting firm to provide an attestation report on the effectiveness of our internal control over financial reporting as of and for the year ended December 31, 2021 under Section 404(b) of the Sarbanes-Oxley Act and requires the adoption of ASU 2016-02 and ASU 2016-13 for the year ended December 31, 2021.

On January 1, 2021, the Company adopted ASU 2016-02, Leases ("Topic 842"), using the transition method introduced by ASU 2018-11, which does not require revisions to comparative periods.

Adoption of the new standard resulted in the recording of lease assets and lease liabilities of $ 3,662 and $ 4,465 , respectively, as of January 1, 2021.

The difference between the lease assets and lease liabilities primarily relates to deferred rent recorded in accordance with the previous leasing guidance.

The new standard did not materially impact our consolidated statements of operations or statements of cash flows.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Nature of Operations and Summary of Significant Accounting Policies (cont.)

As of December 31, 2020, all convertible notes have been converted to common stock in connection with the Merger.

Refer to Note 12 for further discussion of the convertible notes payable — related party and the embedded derivatives.

Recent Accounting Pronouncements

Pursuant to the Jumpstart Our Business Startups Act (“ JOBS Act ”), an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies.

The Company has elected to use the extended transition period for complying with any new or revised financial accounting standards.

As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

We also intend to continue to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company.

In February 2016, the FASB issued ASU 2016-02, Leases , which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;

however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model.

The Company is an emerging growth company and would not be required to adopt this ASU No.

2016-02 until January 1, 2022.

The Company is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The amendments in ASU 2016-13 will provide more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

In November 2019, the FASB issued ASU No.

2019-10 (“ASU 2019-10”), which extends the effective date for adoption of ASU 2016-13 for certain entities.

As a result of the provisions in ASU 2019-10, and as the Company was a smaller reporting company as of December 31, 2020, the Company will not be required to adopt ASU 2016-13 until January 1, 2023.

The Company is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.

On January 1, 2021, the Company adopted ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326), and the subsequent amendments.

The standard sets forth an expected credit loss model which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions and reasonable and supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, and certain off-balance sheet credit exposures.

The adoption of this standard did not have a material impact on our consolidated financial statements.

On January 1, 2021, the Company adopted ASU No.

2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

This ASU simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity.

Instead, the entity will account for the convertible debt or convertible preferred stock securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives.

Additionally, the guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares.

The adoption of this standard did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update No.

2 unchanged sentences

ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.

This ASU is effective for public business entities for fiscal years and interim periods beginning after December 15, 2020.

The adoption of this ASU does not have a material impact on the Company's consolidated financial statements.

The Company has adopted this ASU in the first quarter of 2021.

The adoption did not have an impact on our consolidated financial statements.

Merger Agreement and Reverse Recapitalization

3 unchanged sentences

On a special meeting of the shareholders of BMRG held on November 12, 2020, holders of 6,442,195 shares of BMRG’s common stock exercised their right to redeem those shares for cash at a price of $ 10.10 per share, for an aggregate of approximately $ 65,066 .

The per share redemption price of $ 10.10 for holders of Public Shares electing redemption was paid out of BMRG’s Trust Account, which, after taking into account the redemption but before

The per share redemption price of $ 10.10 for holders of Public Shares electing redemption was paid out of BMRG’s Trust Account, which, after taking into account the redemption but before payment of any transaction expenses, had a balance immediately prior to the Closing of approximately $ 111.6 million.

On November 16, 2020, immediately prior to the Closing, BMRG issued to a number of purchasers (each, a “PIPE Investor”) an aggregate of 4,000,000 shares of BMRG’s common stock (the “PIPE Shares”), for a purchase price of $ 10.00 per share and an aggregate purchase price of $ 40,000 .

In accounting for the reverse recapitalization, the total cash proceeds amounted to $ 142,345 and resulted in the issuance of 18,364,805 shares of Common Stock, as shown in the table below (dollars in thousands, except per share amounts).

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Merger Agreement and Reverse Recapitalization (cont.)

payment of any transaction expenses, had a balance immediately prior to the Closing of approximately $ 111.6 million.

Total Shares Available Cash

12 unchanged sentences

Following the closing of the Merger, and as additional consideration for the transaction, the Company will issue within five years from the closing date to each unitholder of EES its pro-rata proportion of a one-time issuance of an aggregate of 2,000,000 Shares (the “Earnout Shares” or "Contingently Issuable Common Stock"), within five business days after (i) the closing share price of the Company's shares traded equaling or exceeding $ 16.00 per share for any 20 trading days within any consecutive 30 -trading day period during the Earnout Period or (ii) a Change of Control (or a definitive agreement providing for a Change of Control having been entered into) during the Earnout Period (each of clauses (i) and (ii), a “Triggering Event”).

The Company estimated the original fair value of the contingently issuable shares to be $ 17,944 , which remains contingently issuable as of December 31, 2020.

The Company estimated the original fair value of the Contingently Issuable Common Stock based on a Monte Carlo simulation option-pricing model considering stock price of the Company, a risk-free rate of 0.41 % and volatility of 55 % utilizing a peer group based on a five -year term.

This estimate was initially recorded as a distribution to shareholders and was presented as Contingently Issuable Common Stock.

Upon the occurrence of a Triggering Event, any issuable shares would be transferred from Contingently Issuable Common Stock to common stock and Additional paid-in capital accounts.

The Company estimated the original fair value of the contingently issuable shares to be $ 17,944 , which remained contingently issuable as of December 31, 2020.

This balance was recorded as a distribution to shareholders and was presented as Contingently Issuable Common Stock.

3 unchanged sentences

Sponsor Earnout shares

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Merger Agreement and Reverse Recapitalization (cont.)

restrictions, under which (a) 859,000 Sponsor Earnout Shares ("Block A Sponsor Earnout Shares") are restricted from being transferred unless and until either, for a period of five years after the Closing, (i) the share price of our common stock equals or exceeds $ 12.00 per share for any 20 trading days within any consecutive 30 -trading day period or (ii) a change of control occurs for a share price equaling or exceeding $ 12.00 per share, and (b) the remaining 859,000 Sponsor Earnout Shares ("Block B Sponsor Earnout Shares") are subject to similar restrictions except that the threshold is increased from $ 12.00 to $ 16.00 .

Pursuant to the Sponsor Earnout letter signed in connection with the Merger, 1,718,000 shares of common stock issued and outstanding held by BMRG ("Sponsor Earnout Shares") were subject to certain transfer and other restrictions, under which (a) 859,000 Sponsor Earnout Shares ("Block A Sponsor Earnout Shares") are restricted from being transferred unless and until either, for a period of five years after the Closing, (i) the share price of our common stock equals or exceeds $ 12.00 per share for any 20 trading days within any consecutive 30 -trading day period or (ii) a change of control occurs for a share price equaling or exceeding $ 12.00 per share, and (b) the remaining 859,000 Sponsor Earnout Shares ("Block B Sponsor Earnout Shares") are subject to similar restrictions except that the threshold is increased from $ 12.00 to $ 16.00 .

If after the five -year period, there are no triggering events, the Sponsor Earnout Shares will be forfeited and canceled for no consideration.

If after the five -year period, only the triggering event described in clause (a) above has occurred, the remaining 859,000 Sponsor Earnout Shares described in clause (b) will be forfeited and canceled for no consideration.

The Sponsor Earnout Shares were classified as a Level 3 fair value measurement liability and $ 16,235 was recorded as initial liability on our Balance Sheet on the Merger Date.

The fair values of the Sponsor Earnout Shares on the Closing date were estimated using a Monte Carlo simulation based on stock price of the Company, a risk-free rate of 0.41 % and volatility of 55 % utilizing a peer group based on a five -year term.

Sponsor Earnout Share was valued at $ 16,020 and recorded as a liability on our balance sheet on the Merger Date.

On December 16, 2020, the Company's stock price exceeded $ 12.00 per share for 20 trading days within a consecutive 30 -trading day period.

On that date, the restrictions on all 859,000 shares of Block A Sponsor Earnout Shares were, therefore, lifted and the holders of these shares were no longer restricted from selling or transferring the shares under the Sponsor Earnout letter.

Prior to transferring these Sponsor Earnout Shares to equity on that date, the associated liability was marked to market and the change in fair value was recorded in our Statements of Operations.

Prior to transferring these Sponsor Earnout Shares to equity on that date, the associated liability was marked to market and the change in fair value was recorded in our consolidated statements of operations.

The fair value of these shares was based on the closing share price of the Company’s publicly traded stock.

1 unchanged sentence

The fair value of the Block B Sponsor Earnout Shares was estimated using a Monte Carlo simulation based on the stock price of the Company, a risk free rate of 0.36 % and volatility of 55 % utilizing a peer group based on a five -year term.

For the year ended December 31, 2020, $ 8,083 was recorded as loss from change in fair value of Sponsor Earnout Shares in our Statements of Operations.

For the year ended December 31, 2020, $ 8,220 was recorded as loss from change in fair value of Sponsor Earnout Shares in our consolidated statements of operations.

On January 22, 2021, as the Company's stock price exceeded $ 16.00 per share for 20 trading days within a consecutive 30 -trading day period, Block B Sponsor Earnout Shares was released from restriction.

On April 8, 2021, the Company entered into a unit purchase agreement (the “Purchase Agreement”) with Holtec Power, Inc.

(“Holtec”), in accordance with the terms and conditions of which the Company purchased from Holtec the remaining 51 % percent interest in HI-POWER, LLC (“Hi-Power”) that was not already owned by the Company.

Hi-Power was incorporated as a joint venture between the Company and Holtec in 2019 (refer to Note 8).

In connection with the transaction, the Company also entered into a transition services agreement and a sublease with Holtec.

The transaction closed on April 9, 2021 (“Acquisition Date”).

Following the consummation of the transactions set forth in the Purchase Agreement (the “Transactions”), Hi-Power became a 100% indirect, wholly-owned subsidiary of the Company and the obligations of the parties under the Hi-Power joint venture terminated.

The Purchase Agreement provides that the Company will pay an aggregate purchase price of $ 25,000 for 51 % interest in Hi-Power, pursuant to the following schedule:

$ 5,000 on each of May 31, 2021, May 31, 2022, May 31, 2023, May 31, 2024, and May 31, 2025, evidenced by a secured promissory note secured by the assets of the Company.

The Purchase Agreement also requires that the Company pay to Holtec, on the closing of the Transactions, an amount in cash equal to $ 10,283 .

Payments to Holtec under this Purchase Agreement totaled $ 35,283 .

The fair value of these payments was $ 33,474 at the Acquisition Date and included $ 32,750 allocated to the termination of a pre-existing agreement with Holtec and $ 724 allocated to the acquisition.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Acquisition (cont.)

The obligations and rights of both parties under the pre-existing Joint Venture Agreement were terminated at the time of acquisition and $ 32,750 of the fair value of the consideration transferred was allocated to the termination of such agreement, which resulted in a loss on the pre-existing agreement of $ 30,368 for the year ended December 31, 2021.

As of December 31, 2021, the Company had paid $ 10,283 on the date of closing and $ 5,000 notes payable due on May 31, 2021.

The present value of the remaining payments was recorded as debt, which as of December 31, 2021 includes a current portion of $ 4,926 and a long-term portion of $ 13,769 .

Prior to the acquisition of the remaining 51 % ownership interest in Hi-Power, we accounted for our initial 49 % ownership interest in Hi-Power as an unconsolidated joint venture under the equity method of accounting (refer to Note 8).

In connection with the acquisition of the remaining 51 % ownership interest in Hi-Power, our consolidated financial statements now include all of the accounts of Hi-Power, and all intercompany balances and transactions have been eliminated in consolidation.

The results of operations of Hi-Power have been included in the Company’s consolidated financial statements from the date of acquisition.

The acquisition of Hi-Power did not have a material impact on the Company’s consolidated financial statements, and therefore historical and pro forma disclosures have not been presented.

The consideration transferred for our now 100 % ownership interest in connection with this acquisition, net of intercompany balances between the Company and Hi-Power, totaled $ 418 , of which $ 205 represents the fair value of our previously held 49 % ownership interest in Hi-Power.

In accordance with ASC Topic 805-10-25-10, we remeasured our previously held 49 % ownership interest in Hi-Power at its acquisition date fair value.

As of the acquisition date, a loss of $ 7,480 was recognized in earnings for the remeasurement of our previously held 49 % ownership interest.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the Acquisition Date:

Inventory $ 2,666

Vendor deposits 818

Property and equipment, net 74

Goodwill 4,331

Accounts payable and accrued expenses ( 3,634 )

Provision for firm purchase commitments ( 3,890 )

Net assets acquired, net of cash and cash equivalents of $ 53 2

The purchase price allocation and the measurement for acquisition consideration are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary.

The provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to these acquisitions are subject to change and the final purchase price accounting could be different from the amounts presented herein.

We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

The Company expects the goodwill recognized as part of the acquisition will be deductible for U.S.

income tax purposes.

The Company also incurred insignificant non-consideration acquisition expenses including legal and accounting services related to the acquisition, which are recorded in selling, general and administrative expenses on the Company’s consolidated statements of operations.

2 Net assets acquired exclude the intercompany balance between Eos and Hi-Power and cash acquired.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Revenue Recognition

The Company primarily earns revenue from sales of its energy storage systems and services including installation and commissioning, as well as extended warranty services.

Product revenues, which were recognized at a point in time, were $ 4,562 , $ 184 and $ 496 for the years ended December 31, 2021, 2020 and 2019, respectively and service revenues, which were recognized over time, were $ 36 , $ 35 and $ — for the years ended December 31, 2021, 2020 and 2019, respectively.

For the year ended December 31, 2021, we had two customers who accounted for 36.8 % and 21.4 % of the total revenue, respectively.

For the year ended December 31, 2020, we only had two customers, who accounted for 84.1 % and 15.9 % of our revenue.

For the year ended December 31, 2019, we had three customers who accounted for 36.3 %, 31.4 % and 26.1 % of the total revenue.

Contract Balances

The following table provides information about contract liabilities from contracts with customers:

2020 December 31,

The following table provides information about contract assets and contract liabilities from contracts with customers, which are included in other current assets and other current liabilities on the consolidated balance sheets, respectively.

2021 December 31,

Contract assets $ 1,369 $ —

Contract liabilities $ 849 $ 77

Contract liabilities primarily relate to advance consideration received from customers and deferred revenue for which transfer of control occurs, and therefore revenue is recognized, as products are delivered or services are provided.

The Company recognizes contract assets resulting from the timing of revenue recognition and invoicing.

Contract liabilities primarily relate to advance consideration received from customers in advance of the Company satisfying performance obligations under contractual arrangements.

Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.

During the year ended December 31, 2020, contract liabilities decreased $ 223 .

The Company recognized $ 184 of revenue during the year ended December 31, 2020 that was included in the contract liability balance at the beginning of the period.

During the year ended December 31, 2019, contract liabilities decreased $ 418 .

Contract assets increased by $ 1,369 during the year ended December 31, 2021.

Contract liabilities increased by $ 772 during the year ended December 31, 2021.

The Company recognized $ 77 of revenue during the year ended December 31, 2021 that was included in the contract liability balance at the beginning of the period.

Contract liabilities decreased by $ 223 during the year ended December 31, 2020.

The Company recognized $ 184 and $ 58 of revenue during the years ended December 31, 2020 and 2019 that was included in the contract liability balance at the beginning of the period, respectively.

Transaction Price Allocated to Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:

Contract liabilities of $ 849 as of December 31, 2021 are expected to be recognized within the next twelve months .

The following table provides information about inventory balances:

December 31, 2021

December 31, 2020

Raw materials $ 11,898 $ —

Work-in-process 43 —

Finished goods 1,035 214

Total Inventory, net $ 12,976 $ 214

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Revenue Recognition (cont.)

December 31, 2020 2021 2022 2023 2024 Thereafter

Product Revenue $ 77 $ 0 $ 0 $ 0 $ 0

As of December 31, 2020 and 2019, we had finished goods of $ 214 and $ — .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Property and Equipment, Net

2 unchanged sentences

Equipment $ 13,489 $ 7,055 5 — 10 years

Capital lease 201 201 5 years

Finance lease 226 201 5 years

Furniture 808 211 5 — 10 years

5 unchanged sentences

Depreciation and amortization expense related to property and equipment was $ 2,573 , $ 1,518 and $ 2,083 , during the years ended December 31, 2021, 2020 and 2019, respectively.

For the year ended December 31, 2020 and 2019, impairment loss charged to Statement of Operations were $ — and $ 1,590 , respectively, primarily related to obsolete equipment relating to its prior generation battery.

These expenses are reflected in cost of sales, research and development expenses and general and administrative expenses in the Statements of Operations.

For the years ended December 31, 2021, 2020, and 2019, impairment loss charged to the consolidated statements of operations was $ — , $ — , and $ 1,590 , respectively, primarily related to obsolete equipment relating to the prior generation battery.

These expenses are reflected in cost of goods sold, research and development expenses and selling, general and administrative expenses in the consolidated statements of operations.

Intangible Assets

3 unchanged sentences

Estimated future amortization expense of intangible assets as of December 31, 2021 are as follows:

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Intangible Assets (cont.)

Thereafter 80

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Investment in Unconsolidated Joint Venture

2 unchanged sentences

Accordingly, the Company will purchase battery storage systems and spare parts from the JV.

The joint venture is in Turtle Creek, Pennsylvania.

The Company’s financial commitment is $ 4,100 in the form of a combination of cash and special purpose manufacturing equipment.

Eos’s initial ownership interest is 49 %.

The joint venture was in Turtle Creek, Pennsylvania.

The Company’s financial commitment was $ 4,100 in the form of a combination of cash and special purpose manufacturing equipment.

Eos’s initial ownership interest was 49 %.

Both the Company and Holtec sell the products manufactured by Hi-Power.

The Company will earn five percent of the product price for any products manufactured by Hi-Power and sold by Holtec or its affiliates.

On April 9, 2021, the Company acquired the remaining 51 % ownership interest and Hi-Power became a wholly-owned subsidiary thereafter.

Refer to Note 3 for the acquisition details.

The joint venture commenced manufacturing activities in the fourth quarter of 2020.

For the year ended December 31, 2020 and 2019, contribution made to the JV were $ 3,020 and $ 768 , respectively.

The investment income (loss) recognized from the unconsolidated joint venture under the equity method of accounting was $ 127 and $( 178 ) for the year ended December 31, 2020 and 2019, respectively.

For the years ended December 31, 2021, 2020, and 2019, contributions made to the JV were $ 4,000 , $ 3,020 , and $ 768 , respectively.

The investment income (loss) recognized from the unconsolidated joint venture under the equity method of accounting was $ 440 , $ 127 , and $( 178 ) for the years ended December 31, 2021, 2020, and 2019, respectively.

Our investment in the unconsolidated joint venture as of December 31, 2021 and 2020 was $ — and $ 3,736 , respectively.

Notes Receivable, net and Variable interest entities (“VIEs”) Consideration

Notes receivable consist primarily of amounts due to us related to the financing we offered to customers.

We report notes receivable at the principal balance outstanding less an allowance for losses.

We monitor the financial condition of the notes receivable and record provisions for estimated credit losses based on the credit quality of the borrowers, current conditions as well as other reasonable and supportable forecasts about the future.

We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance.

The Company had notes receivable of $ 3,650 and $ 100 outstanding as of December 31, 2021 and 2020, respectively.

Current expected credit loss was estimated for notes receivable under ASU No.

2016-13, Financial Instruments-Credit Losses.

As of December 31, 2021 and 2020, the Company recorded an allowance for notes receivable of $ 6 and $ — , respectively.

The customers to whom we offer financing through notes receivables are VIEs.

However, the Company is not the primary beneficiary, because we do not have power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance.

The VIEs are not consolidated into the Company’s financial statements but rather disclosed in the notes to our financial statements under ASC 810-10-50-4.

The maximum loss exposure is limited to the carrying value of notes receivable as of the balances sheet dates.

Commitments and Contingencies

On June 24, 2016, Eos entered into a long-term non-cancelable operating lease for 45,000 sq.

of space for its current headquarters facility in Edison, New Jersey.

On April 26, 2017, Eos entered into a lease for an additional 18,000 sq.

of adjoining space.

These leases expire in September 2026 with renewal options up to 2036.

Further, these leases require monthly rent payments along with executory costs, which include real estate taxes, repairs, maintenance and insurance.

In addition, the terms of the leases contain cost escalations of approximately 10 % annually.

The Company also has certain non-cancelable capital lease agreements for office equipment.

Total rent expense was $ 914 and $ 930 , for the years ended December 31, 2020 and 2019, respectively, of which, $ — and $ 102 was recorded as Cost of sales;

$ 713 and $ 430 as Research and development expenses;

and $ 201 and $ 398 as General and administrative expenses in the Statement of Operations, respectively.

Future minimum lease commitments as of December 31, 2020 are as follows:

Firm Purchase Commitments

To ensure adequate and timely supply of raw material for production, the Company, from time to time, enters into non-cancellable purchase contracts with vendors.

At the end of each reporting period, the Company evaluates its non-cancellable firm purchase commitments and records a loss, if any, using the lower of cost or market approach used for inventory obsolescence.

In assessing the potential loss provision, we use the stated contract price and expected production volume under the relevant sales contract.

The Company records a purchase commitment loss if the net realizable value of the inventory is less than the cost.

As of December 31, 2021, the Company had open purchase commitments of $ 5,370 under these contracts.

Lease commitments

The Company has lease commitments under lease agreements.

Refer to Note 21 for discussion.

Probable legal proceeding

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Commitments and Contingencies (cont.)

Operating Capital

2021 $ 685 $ 14

Later years 679 —

Total minimum lease payments $ 4,805 $ 18

Less amounts representing interest 3

Present value of minimum lease payments $ 15

Firm Purchase Commitments — Related Party

In July 2020, the Company entered into an $ 8,000 non-cancellable purchase contract with its unconsolidated joint venture partner, Hi-Power LLC, to supply batteries for existing and future sales orders.

For the year ended December 31, 2020, the Company has made purchases totaling $ 5,496 , resulting in a remaining purchase commitment of $ 2,504 as of December 31, 2020 under this contract.

At the end of each reporting period, the Company evaluates its non-cancellable firm purchase commitments and records a loss, if any, using a lower of cost or market approach.

In assessing the potential loss provision, we use the stated contract price and expected production volume under the relevant sales contract.

The Company records a purchase commitment loss if the market selling price of Gen 2.3 Battery Systems sold to customers is less than the cost to manufacture the product.

As of December 31, 2020 , the Company recorded a provision for firm purchase commitments of $ 1,585 .

The related expense has been included as a component of cost of sales in the statement of operations.

Loan commitment

In December 2020, we entered into a secured debt commitment with one of our customers to provide loan for $ 1,000 which matures on December 30, 2022.

$ 100 were drawn on that commitment and recorded in other assets on the consolidated balance sheet as of December 31, 2020.

As of December 31, 2021, the Company is under investigation by U.S.

Department of Justice (“DOJ”) for underpayment of certain custom duties from the past years for the imports of supplies from oversea vendors.

As of the date of this report, no complaint has been filed against the Company.

The Company accrued $ 382 for the probable loss included in accrued expenses on the consolidated balance sheets as of December 31, 2021.

Grant Expense, Net

Eos was approved for two grants by the California Energy Commission (CEC) totaling approximately $ 7,000 .

In accordance with the grant agreements, Eos is responsible for conducting studies to demonstrate the benefits of certain energy-saving technologies to utility companies and consumers in the State of California, and is entitled to receive portions of the grants based upon expenses incurred.

During the years ended December 31, 2020 and 2019, Eos recorded grant expense (income), net of $ 913 and $( 469 ), respectively, which comprised of grant income of $ 381 and $ 984 and grant costs of $ 1,294 and $ 515 , respectively.

For the year ended December 31, 2020 and 2019, the Company has received payments totaling $ 1,531 and $ 3,209 .

As of December 31, 2020 and 2019, the Company had $ 1,136 and $ — deferred grant income, respectively, which was recorded in account payable and accrued expense on the Balance Sheets, as we as a receivable in the amount of $ 131 and $ 326 , respectively.

The expenses incurred by Eos relate to the performance of studies in accordance with the respective grant agreements, and the grants received or receivable from the CEC are recorded as an offset to the related expenses for which the grant is intended to compensate the Company.

EOS ENERGY ENTERPRISES, INC

NOTES TO FINANCIAL STATEMENTS ($ IN THOUSANDS)

Eos is subject to regulation under U.S.

The Company was approved for two grants by the California Energy Commission (CEC) totaling approximately $ 7,000 .

In accordance with the grant agreements, we are responsible for conducting studies to demonstrate the benefits of certain energy-saving technologies to utility companies and consumers in the State of California and is entitled to receive portions of the grants based upon expenses incurred by the Company.

During the years ended December 31, 2021, 2020, and 2019, we recorded grant expense (income), net of $ 269 , $ 913 , and ($ 469 ), which comprised of grant income of $ 2,025 , $ 381 , and $ 984 and grant costs of $ 2,294 , $ 1,294 , and $ 515 , respectively.

For the years ended December 31, 2021, 2020, and 2019, the Company received payments totaling $ — , $ 1,531 and $ 3,209 , respectively.

As of December 31, 2021 and 2020, the Company had $ — and $ 1,136 deferred grant income, respectively, which was recorded in accrued expense on the consolidated balance sheets, as well as a grant receivable, which was included in other current assets on the consolidated balance sheets, in the amount of $ 1,020 and $ 131 , respectively.

The expenses incurred by the Company related to the performance of studies in accordance with the respective grant agreements are offset, against the grants revenue received or receivable from the CEC for which the grant is intended to compensate the Company.

The Company is subject to regulation under U.S.

federal and U.S.

2 unchanged sentences

Earnings before income taxes

Net loss before income taxes for domestic operations for the years ended December 31, 2020 and 2019 was $( 68,754 ) and $( 79,483 ), respectively.

Net losses before income taxes for domestic operations for the years ended December 31, 2021, 2020, and 2019 were $( 124,216 ), $( 70,643 ), and $( 79,483 ) respectively.

Income expense (benefit)

Income tax expense (benefit) for the years ended December 31, 2021, 2020, and 2019 was as follows:

2021 2020 2019

Current expense (benefit):

7 unchanged sentences

Total income tax (benefit) provision $ — $ — $ —

Eos has no tax provision (benefit) for the periods ended December 31, 2020 and 2019 due the generation of taxable losses offset by a valuation allowance, discussed below, on the deferred tax assets.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Income Taxes (cont.)

The Company has no tax provision (benefit) for the periods ended December 31, 2021, 2020, and 2019 due the generation of taxable losses offset by a valuation allowance, discussed below, on the deferred tax assets.

Reconciliation of US Federal Statutory income tax rate to actual income tax rate

1 unchanged sentence

federal income tax rate to the effective tax rate is as follows:

2021 2020 2019

Income (loss) before income taxes $ ( 124,216 ) ( 70,643 ) $ ( 79,483 )

2 unchanged sentences

State and local income tax ( 6,592 ) ( 3,123 ) 1,548

Disallowed interest expense 4,564 11,903

Non-deductible convertible debt ( 3,676 ) 4,563 11,903

Non-deductible transaction cost — 66 —

Non-deductible equity cost — 1,726 —

Non-deductible warrant cost ( 373 ) 450 —

Federal R&D Credit — 3,660 ( 1,002 )

4 unchanged sentences

Effective tax rate — — —

The reported income tax provision differs from the amount computed by applying the statutory US federal income tax rate of 21% to the income before income taxes primarily due to pretax losses for which no tax benefit has been provided and nondeductible interest expense for US income tax purposes.

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Income Taxes (cont.)

On September 8, 2021, the Small Business Administration authorized full forgiveness of $ 1,273 to the Company for the Paycheck Protection Program (PPP) Loan under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

For tax purposes, this amount is excludable in taxable income and included in “Other” in the reconciliation above.

Deferred Income Taxes

Eos records deferred income taxes to reflect the net tax effects of temporary differences, if any, between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

The Company records deferred income taxes to reflect the net tax effects of temporary differences, if any, between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

The components of deferred tax assets and liabilities at December 31, 2021 and 2020 were as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Income Taxes (cont.)

Deferred tax assets:

NOL carryforwards $ 63,203 $ 40,278

Capital loss carryforwards 710 —

Tax credit carryforwards 65 1,204

Goodwill 8,471 —

Employee compensation 4,455 1,478

1 unchanged sentence

Organizational costs 162 179

Lease Liability 1,185 —

Interest Limitation 1,430 —

Inventory 1,448 —

Transaction costs 301 324

5 unchanged sentences

Investment in partnership — ( 61 )

Right of Use Asset ( 954 ) —

Note payable ( 497 ) —

Intangibles ( 77 ) —

Deferred tax liabilities ( 2,601 ) ( 1,419 )

Total deferred tax asset (liability) $ — $ —

Eos’s net deferred tax balances consist primarily of federal and state net operating losses (“NOLs”) available for carry forward, and research and development credits for the years ended December 31, 2020 and 2019.

The deferred tax balances and related disclosures above reflect the adjusted attribute carryforwards and associated deferred tax assets post-sale of the prior years’ attributes.

During 2019, the Company participated in a tax certificate transfer program with the state of New Jersey and sold a portion of its available prior year New Jersey state NOLs, in varying amounts from tax years 2016, 2017 and 2018.

The Company’s net deferred tax balances consist primarily of federal and state net operating losses (“NOLs”) available for carry forward, and research and development credits for the years ended December 31, 2021 and 2020.

During 2021, the Company participated in a tax certificate transfer program with the state of New Jersey and sold a portion of its available prior year New Jersey state NOLs, in varying amounts from tax years 2017 through 2019.

The deferred tax balances and related disclosures above reflect the adjusted attribute carryforwards and associated deferred tax assets post-sale of the prior years’ attributes.

3 unchanged sentences

In determining whether a valuation allowance is required, the Company evaluates factors such as prior earnings history, expected future earnings, reversal of existing taxable temporary differences, carry back and carry forward periods and tax planning strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.

Management has determined that it is more-likely-than not that Eos will not be able to utilize its deferred tax assets at December 31, 2020 and 2019 due to a history of cumulative losses.

As such, Eos has a valuation allowance against its net deferred tax assets.

Management has determined that it is more-likely-than not that the Company will not be able to utilize its deferred tax assets at December 31, 2021 and 2020 due to a history of cumulative losses.

As such, the Company has a valuation allowance against its net deferred tax assets.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Income Taxes (cont.)

The valuation allowance increased by $ 36,627 between December 31, 2021 and 2020.

The increase was primarily attributable to an increase in NOL and tax credit carryforwards.

The increase was primarily attributable to an increase in NOL carryforwards and tax deductible goodwill in excess of financial statement goodwill.

At December 31, 2021, the valuation allowance is $ 80,415 , of which $ 1,762 will be allocated to additional paid-in capital when released.

The remaining valuation allowance of $ 78,653 will be released through continuing operations.

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Income Taxes (cont.)

On April 8, 2021, the Company entered into a unit purchase agreement with Holtec Power Inc.

in which the Company purchased the remaining 51 % interest in HI-POWER, LLC that was not already owned by the Company.

Please refer to Note 3 for additional background on the acquisition.

tax purposes, the Company will recognize amortizable goodwill in the amount of $ 36,768 equal to the excess in consideration paid over the fair value of the acquisition.

Net Operating Losses & Tax Credits

As of December 31, 2020 and 2019, Eos has federal research and development tax credits (“R&D credit”) of approximately $ 4,603 and $ 3,733 , which begin to expire in varying amounts from 2031 – 2040 and 2032 – 2039, respectively, subject to the annual limitation described below.

In addition, Eos has state R&D credits of approximately $ 1,131 and $ 613 , which will expire in varying amounts from 2024 – 2027 and 2025 – 2026 for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, the Company has federal research and development tax credits (“R&D credit”) of approximately $ 3,733 and $ 4,603 , which begin to expire in varying amounts from 2031 – 2038 and 2031 – 2040, respectively, subject to the annual limitation described below.

In addition, the Company has state R&D credits of approximately $ 65 for the year ended December 31, 2021, which will expire in 2024, and $ 1,131 for the year ended December 31, 2020, which will expire in varying amounts between 2022 and 2026.

The Company has NOL carryforwards for tax purposes and other deferred tax assets that are available to offset future taxable income, subject to the annual limitation described below.

As of December 31, 2020 and 2019, Eos has gross federal NOL carryforwards of approximately $ 174,258 and $ 137,909 .

As of December 31, 2020, Eos has state NOL carryforwards of $ 60,206 .

As of December 31, 2021 and 2020, the Company has gross federal NOL carryforwards of approximately $ 263,270 and $ 173,868 .

As of December 31, 2021, the Company has state NOL carryforwards of $ 125,855 .

Regarding the federal NOL for the year ended December 31, 2021, $ 89,051 begins to expire in varying amounts from 2032 through 2036, while $ 174,219 has an indefinite carryforward period.

3 unchanged sentences

Based on management’s Section 382 Limitation Analysis, it is expected that all NOL carryforwards that existed as of the transaction date will be allowable under Section 382, however, the deferred tax asset on the Company’s NOL carryforward is offset by a full valuation allowance at December 31, 2020.

Based on management’s Section 383 Limitation Analysis, it is expected that $ 4,530 of federal R&D credits will expire unused.

As such, these credits have been written off as of December 31, 2020.

Based on management’s Section 383 Limitation Analysis, it is expected that as of December 31, 2021 and December 31, 2020, $ 3,733 and $ 4,603 , respectively, of federal R&D credits will expire unused.

As such, these credits have been written off as of December 31, 2021 and December 31, 2020.

In March and December, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act of 2021 (the “CAA”) were signed into law in response to the Covid-19 pandemic.

The CARES Act and the CAA provided several forms of tax law changes, though Eos does not anticipate that any will have a material impact on the financial statements.

The CARES Act and the CAA provided several forms of tax law changes, though the Company does not anticipate that any will have a material impact on the financial statements.

Unrecognized Tax Benefits

The Company is subject to income taxes in the United States (federal and state).

Significant judgment is required in evaluating the Company’s tax positions and determining Eos’s provision for income taxes.

Significant judgment is required in evaluating the Company’s tax positions and determining the Company’s provision for income taxes.

During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain.

The Company records a liability for uncertain tax positions on the basis of a two-step process in which (i) management determines whether it is more-likely-than-not that the tax position will be sustained on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Eos has unrecognized tax benefits associated with uncertain tax positions as of December 31, 2020 and 2019 as follows:

The Company has unrecognized tax benefits associated with uncertain tax positions as of December 31, 2021, 2020, and 2019 as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Income Taxes (cont.)

2021 2020 2019

Gross unrecognized tax benefits as of January 1

$ 722 $ — $ —

Current year tax positions — 722 —

Prior year tax positions — — —

Reduction of prior year tax positions — —

Rate change ( 3 ) — —

Settlements — — —

1 unchanged sentence

Gross unrecognized tax benefits as of December 31 $ 719 $ 722 $ —

The total amount of gross unrecognized tax benefits was $ 719 , $ 722 and $ — for the year ended December 31, 2021, 2020 and 2019, respectively.

The decrease in gross unrecognized tax benefits in 2021 was due to a change in state deferred tax rate

Included in the balance of unrecognized tax benefits at December 31, 2021 are potential benefits of nil that, if recognized, would affect the effective tax rate on income from continuing operations.

1 unchanged sentence

Net operating losses and R&D credits generated in closed years and utilized in open years are subject to adjustment by the tax authorities.

Eos is not currently under examination by any taxing jurisdiction.

The Company regularly assesses the adequacy of its provision for income tax contingencies in accordance with ASC 740.

The Company is not currently under examination by any taxing jurisdiction.

The Company regularly assesses the adequacy of its provision for income tax contingencies in accordance with ASC 740, Income Taxes .

As a result, the Company may adjust the reserves for unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretation of relevant tax law, assessments from taxing authorities, settlements with tax authorities and lapses of statute of limitations.

Related Party Transactions

Convertible Notes Payable

During the years ended December 31, 2020 and 2019, Eos issued convertible notes payable to certain members.

Convertible Notes

During the year ended December 31, 2021, the Company issued $ 100,000 aggregate principal amount of convertible notes to Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch Industries, Inc (the “2021 Convertible Notes” or the “Notes”).

In connection with the 2021 Convertible Notes, the Company paid $ 3,000 to B.

Riley Securities, Inc., a related party, who acted as a placement agent.

During the year ended December 31, 2021, the Company intends to repay the contractual interest due on December 30, 2021 in-kind as an increase to the principal amount.

$ 2,900 of interest from the 2021 Convertible Notes was recorded as convertible notes - related party on the consolidated balance sheets.

Refer to Note 15 for more information.

During the years ended December 31, 2020 and 2019, the Company issued convertible notes payable (the “Legacy Convertible Notes”) to certain members.

Refer to Note 15 for further discussion.

1 unchanged sentence

During the years ended December 31, 2020 and 2019, the Company incurred monthly management fees to an entity owned by a board member in relation to the use of a New York City office.

Total costs incurred during the year amounted to $ 69 and $ 19 , respectively, which are included in General and administrative expense in the Statements of Operations.

Unpaid management fees of $ — and $ 73 are included in Accounts payable and accrued expenses-related parties as of December 31, 2020 and 2019, respectively.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expense-related parties as of December 31, 2020 contains $ 138 consultant fee payable to affiliate.

This line further includes $ 2,382 and $ 1,121 accruals as of December 31, 2020 and December 31, 2019 for payments under the Joint Venture agreement.

Total costs incurred during the year amounted to $ 69 and $ 19 , respectively, which were included in selling, general and administrative expenses in the consolidated statements of operations.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Related Party Transactions (cont.)

Accounts Payable and Accrued Expenses - Related Parties

Accounts payable and accrued expenses - related parties as of December 31, 2020 contains $ 138 consultant fee payable to an affiliate.

Additionally, amount payable to Holtec under the Joint Venture agreement was $ 2,382 as of December 31, 2020, which was paid off in connection with the acquisition of Hi-Power.

During the years ended December 31, 2021, 2020, and 2019, $ 30,368 , $ 1,262 , and $ 1,121 was charged to loss on pre-existing agreement, respectively.

Refer to Note 3 for the acquisition details.

Receivable from disgorgement of short swing profits

As of December 31, 2020, the Company had a receivable of $ 432 from its affiliated company B.Riley Securities, Inc resulting from disgorgement of short swing profits, which is included in Prepaid and other current assets.

See Note 16 for a detailed discussion.

As of December 31, 2020, the Company had a receivable of $ 432 from its affiliated company B.

Riley Securities, Inc resulting from disgorgement of short swing profits under Section 16 (b) of the Exchange Act, which was included in Other current assets.

This amount was recognized as an increase to Additional Paid in Capital as capital contribution from stockholder.

The Company received the full payment in January 2021.

Vendor deposits

As of December 31, 2020, vendor deposits include a balance of $ 278 deposits made to Hi-Power.

As of December 31, 2020, vendor deposits included a balance of $ 278 deposits made to Hi-Power.

Provision for firm purchase commitments

As of December 31, 2020, the Company recorded a provision for firm purchase commitments with Hi-Power of $ 1,585 .

The related expense has been included as a component of cost of goods sold in the consolidated statements of operations.

Warrants liability

The Company has private warrants issued to affiliated company owned by B.

Riley Securities, Inc.

as of December 31, 2021 and 2020.

Refer to Note 19 for details.

Settlement Agreement

As disclosed at the time of the Merger Agreement, prior to the execution and delivery of the Merger Agreement, certain unitholders of EES (“Hellman parties”) asserted claims (“Threatened Claims”) against another director and affiliated investors, including AltEnergy Storage VI, LLC (the "Securityholder Representative"), questioning the dilutive effect of certain historical security issuance on the former EES common unitholders.

Under the Merger Agreement, the Securityholder Representative had the obligation and duty to vigorously defend against the Threatened Claims, and the Company had the obligation to advance or cause to be advanced to the Securityholder Representative up to $ 5,000 of defense costs, subject to a deductible of $ 2,000 (the "Deductible"), in connection with the investigation, defense, or settlement of any Threatened Claims.

The Deductible was to be borne by the company, and any additional amounts advanced were reimbursable by the former unitholders of EES.

On December 1, 2021, a Settlement Agreement was entered into between Hellman Parties and the Securityholder Representative pursuant to which, 300,000 Eos Shares (“Settlement Shares”) would be transferred to the Hellman parties from the EES unitholders at the time of merger.

EOS ENERGY ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Related Party Transactions (cont.)

On December 28, 2021, the independent members of the Board approved a contribution of $ 1,200 towards the Settlement.

Such determination was based on the independent members of the Board’s business judgment that, among other reasons, such a contribution (i) would ensure that the Company would not have to spend the entire $ 2,000 Deductible towards the costs of defense of any litigation, (ii) would avoid the additional cost, distraction, uncertainty, and overhang of litigation relating to the Mergers, (iii) would benefit the Company’s future relationships with its long-term investors, and (iv) would generate future goodwill with such investors during an important growth stage of the Company.

As the Company’s contribution benefits certain Eos shareholders at the time of the Merger Agreement, including AltEnergy LLC and B.

Riley Financial Inc, who are considered as related parties owning more than 5 % of the equity interest in the Company, this transaction is considered a related party transaction.

On December 29, 2021, an amendment to the Settlement Agreement between the Hellman Parties and the Securityholder Representative was entered into, pursuant to which, $ 1,200 of the value represented by the Settlement Shares was to be paid in cash, representing the equivalent of 140,023 of the Settlement Shares.

The Company accrued $ 1,200 in accounts payable and accrued expenses - related party on December 31, 2021, which has been paid on January 4, 2022.

The remaining 159,977 in Settlement Shares were transferred to the Hellman parties from the former EES unitholders, on a pro rata basis, on December 29, 2021.

Accrued Expenses

As of December 31, 2021 and 2020, accrued expenses consisted of the following:

December 31, 2021

December 31, 2020

Accrued payroll $ 3,069 $ 2,146

Warranty accrual 2,112 —

Accrued legal and professional fees 826 1,023

Other 1,667 1,924

Total $ 7,674 $ 5,093

The following table summarizes product warranty activity for the year ended December 31, 2021.

December 31, 2021

Accrued warranty - beginning of period $ —

Additions for current year deliveries 2,343

Warranty costs incurred ( 231 )

Accrued warranty - end of period $ 2,112

Convertible Notes Payable

Convertible Notes Payable -Related party

During the year ended December 31, 2020 and December 31, 2019, the Company issued Convertible notes payable with aggregate principals of $ 5,469 and $ 19,524 , respectively (the “Convertible Notes”).

The Convertible Notes are secured by all assets and intellectual property of the Company.

2021 Convertible Notes

On July 6, 2021, the Company entered into an investment agreement (the “Investment Agreement”) with Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch relating to the issuance and sale to Koch of the 2021 Convertible Notes in the aggregate principal amount of $ 100,000 .

The transactions contemplated by the Investment Agreement closed on July 7, 2021 (the “Issue Date”).

The Maturity Date of the 2021 Convertible Notes is June 30, 2026, subject to earlier conversion, redemption, or repurchase.

Right after the issuance, Koch beneficially owned approximately 14 % of the Company’s outstanding common stock.

The 2021 Convertible Notes are senior unsecured obligations of the Company and rank equal in right of payment to all senior unsecured indebtedness of the Company, and will rank senior in right of payment to any indebtedness that is contractually subordinated to the 2021 Convertible Notes.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Convertible Notes Payable (cont.)

Contractual Interest Rates - The 2021 Convertible Notes were issued at par and bear interest at a rate of 5 % per year if interest is paid in cash, or, if interest is paid in-kind as an increase in the principal amount, at a rate of 6 % per year.

Interest on the 2021 Convertible Notes is payable semi-annually in arrears on June 30 and December 30.

The Company, at its option, is permitted to settle each semi-annual interest payment in cash, in-kind, or any combination thereof.

Conversion Rights - The 2021 Convertible Notes are convertible at the option of the Holder at any time prior to the maturity date at an initial conversion rate of 49.9910 shares of the Company’s common stock per $1,000 of capitalized principal (the “Holder’s Conversion Rights”).

The effective conversion price is approximately $ 20.00 per share.

The conversion rate is subject to adjustment upon the occurrence of certain dilutive events such as stock splits and combinations, stock dividends, mergers and spin-off.

For the year ended December 31, 2021, there were no adjustments to conversion rate.

As of December 31, 2021, 5,144,074 shares of the Company’s common stock were issuable upon conversion of the 2021 Convertible Notes including the principal and interest payment in-kind.

The Company has the right to settle conversions in shares of common stock, cash, or any combination thereof.

Optional Redemption - On or after June 30, 2024, the 2021 Convertible Notes will become redeemable at the Company’s option in the event the closing sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period.

The redemption price is equivalent to the principal amount of the 2021 Convertible Notes called for redemption, plus accrued and unpaid interest.

If, following the Company’s delivery of a redemption notice, the 2021 Convertible Notes are converted pursuant to the Holders’ Conversion Rights, the Company is required to make an additional cash payment to the converting Holder equal to the present value of all interest payments the Holder would have been entitled to receive had such 2021 Convertible Notes remained outstanding until June 30, 2026 (the “interest make-whole payment”).

The present value is calculated using a discount rate equal to the risk-free rate plus 50 basis points and assuming interest accrued at the cash interest rate of 5 % per year.

Contingent Redemption - Upon the occurrence of certain events, the Holder may require the Company to repurchase all or part of the principal amount of the 2021 Convertible Notes at a price equivalent to the principal amount of such 2021 Convertible Notes, plus accrued and unpaid interest.

Such events include fundamental changes to the Company’s ownership and the delisting of the Company’s common stock from the Nasdaq.

The occurrence of such events may result in the acceleration of the principal amount of the Convertible Notes, plus accrued and unpaid interest.

Embedded Derivatives - The interest make-whole payment can be triggered only in connection with an induced conversion, and therefore represents an adjustment to the settlement amount of the embedded conversion feature.

Because this adjustment is calculated in a manner in which the cash payout may exceed the time value of the embedded conversion feature, the embedded conversion feature is precluded from being considered indexed to the Company’s own stock.

Therefore, the embedded conversion feature does not qualify for the scope exceptions to derivative accounting prescribed by Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”).

The initial fair value of the embedded conversion feature was estimated to be $ 29,866 , which the Company bifurcated from the 2021 Convertible Notes and accounts for separately.

The embedded conversion feature is presented on the consolidated balance sheets as a component of the 2021 Convertible Notes.

The Company estimated the fair value of the embedded conversion feature using a binomial lattice model at the inception and on subsequent valuation dates.

This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate, the effective debt yield and expected volatility.

The effective debt yield and volatility involve unobservable inputs classified as Level 3 of the fair value hierarchy.

The assumptions used to determine the fair value of the embedded conversion feature as of July 7, 2021 (the inception) and December 31, 2021 and are as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Convertible Notes Payable (cont.)

2021 December 31, 2021

Term 5 years 4.50 years

Dividend yield — % — %

Risk-free interest rate 0.8 % 1.2 %

Volatility 55.0 % 60.0 %

Effective debt yield 13.7 % 19.0 %

As of December 31, 2021, the fair value of the embedded conversion feature was $ 12,359 .

The Company recognized a gain of $ 17,507 attributable to the change in fair value of the embedded conversion feature during the year ended December 31, 2021.

Debt Issuance Costs - The Company incurred $ 4,194 of placement, advisory and legal fees in connection with the issuance of the 2021 Convertible Notes, including $ 3,000 paid to B.

Riley Securities, Inc., a related party of the Company.

The debt issuance costs were allocated to the 2021 Convertible Notes and the embedded conversion feature in proportion to the allocation of proceeds resulting from the bifurcation of the embedded conversion feature.

$ 2,942 of the issuance costs were allocated to the 2021 Convertible Notes.

These costs were accounted for as debt issuance costs and recorded as a reduction to the carrying value of the 2021 Convertible Notes.

The remaining $ 1,252 was allocated to the embedded conversion feature.

Because the embedded conversion feature is carried at fair value, these costs were expensed as incurred and included in the interest expense line item on the consolidated statements of operations.

The following table summarizes interest expense recognized for the year ended December 31, 2021:

For the year ended December 31, 2021

Contractual interest expense $ 2,900

Amortization of debt discount 1,545

Amortization of debt issuance costs 152

Total $ 4,597

The 2021 Convertible Notes as of December 31, 2021 are comprised of the following:

December 31, 2021

Principal $ 102,900

Unamortized debt discount ( 28,321 )

Unamortized debt issuance costs ( 2,790 )

Embedded conversion feature 12,359

Aggregate carrying value $ 84,148

The Company elected to repay the contractual interest due on December 30, 2021 in-kind as an increase to the principal amount.

Therefore, $ 2,900 of contractual interest attributable to the 2021 Convertible Notes was recorded as addition to the convertible notes payable on the consolidated balance sheets.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Convertible Notes Payable (cont.)

Legacy Convertible Notes

During the years ended December 31, 2020 and 2019, the Company issued convertible notes payable with aggregate principals of $ 5,469 and $ 19,524 , respectively (the “Legacy Convertible Notes”).

The Legacy Convertible Notes are secured by all assets and intellectual property of the Company.

AltEnergy Storage Bridge, LLC (“AltEnergy”) and its affiliates have combined beneficial ownership in the Company exceeding 10% and therefore constitute a related party of the Company, pursuant to ASC 850, Related Parties .

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The remaining note holders do not meet the definition of a related party under ASC 850.

However, the Convertible Notes were issued to each of the note holders under identical terms, and AltEnergy serves as the administrative agent of all note holders under the Convertible Note agreements.

Therefore, the disclosures within Note 12 encompass all of the Convertible Notes.

However, the Legacy Convertible Notes were issued to each of the note holders under identical terms, and AltEnergy serves as the administrative agent of all note holders under the Convertible Note agreements.

Therefore, the disclosures within this section encompass the Legacy Convertible Notes.

Phase I Convertible Notes Payable -related party

The Convertible Notes were issued on various dates through two phases.

The Legacy Convertible Notes were issued on various dates through two phases.

The first phase with aggregate principal of $ 13,529 was issued from February 2019 to May 2019 (the “Phase I Notes”), of which $ 4,137 was issued to AltEnergy.

18 unchanged sentences

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Convertible Notes Payable (cont.)

In conjunction with the Phase II Note issuance, the Phase I maturity date was extended to October 31, 2019.

In conjunction with the Phase II Note issuance (discussed below), the Phase I maturity date was extended to October 31, 2019.

The term extension was considered a troubled debt restructuring and did not result in a substantial modification and was accounted for as a continuation of the existing Phase I Notes.

1 unchanged sentence

2019 Phase II Convertible Notes Payable -Related party

Convertible Notes with aggregate principal of $ 5,995 were issued from June 2019 to December 2019 (the “2019 Phase II Notes”), of which $ 2,017 was issued to AltEnergy.

Legacy Convertible Notes with aggregate principal of $ 5,995 were issued from June 2019 to December 2019 (the “2019 Phase II Notes”), of which $ 2,017 was issued to AltEnergy.

The terms of the Phase II Notes are identical to the Phase I Notes, except as follows:

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2020 Phase II Convertible Notes Payable - Related party

During the year up to the Closing date, the Company issued Convertible Notes (the “2020 Phase II Notes”) concurrently with EES Preferred Units to certain investors for aggregate cash proceeds of $ 10,768 , including 2020 Phase II Notes of $ 10,598 with terms identical to the 2019 Phase II Notes, and $ 170 of Phase I Notes.

During the year up to the Closing date, the Company issued Legacy Convertible Notes (the “2020 Phase II Notes”) concurrently with EES Preferred Units to certain investors for aggregate cash proceeds of $ 10,768 , including 2020 Phase II Notes of $ 10,598 with terms identical to the 2019 Phase II Notes, and $ 170 of Phase I Notes.

The proceeds were allocated to the 2020 Phase II Notes and EES Preferred Units based on their relative fair values at the date of issuance.

2 unchanged sentences

Refer to Note 18 for further discussion regarding the EES Preferred Units.

Beneficial Conversion Features

The conversion option on the Phase I Notes generated a beneficial conversion feature (BCF).

A BCF arises when a debt or equity security is issued with an embedded conversion option that is in the money at inception

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Convertible Notes Payable (cont.)

because the conversion option has an effective strike price that is less than the fair value of the underlying equity security at the commitment date.

Beneficial Conversion Features

The conversion option on the Phase I Notes generated a beneficial conversion feature (BCF).

A BCF arises when a debt or equity security is issued with an embedded conversion option that is in the money at inception because the conversion option has an effective strike price that is less than the fair value of the underlying equity security at the commitment date.

The Company recognized this BCF by allocating the intrinsic value of the conversion option to the Preferred Units, which resulted in a discount on the Phase I Notes.

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In the event of a Qualified Financing occurring prior to July 31, 2019, the Phase I notes can be repaid at a 1.5 x or 2.0 x Liquidation Amount, thereby resulting in an embedded derivative at issuance.

For the year ended December 31, 2020, embedded derivative assets with initial fair value of $ 411 was recognized.

Embedded derivative assets with initial fair value of $ 181 and embedded derivative liabilities with initial fair value of $ 1,145 were recognized during 2019.

The fair value of both the Company’s Legacy Convertible Notes and the embedded derivative liability are classified within Level 3 of the fair value hierarchy.

For the year ended December 31, 2020, embedded derivative liabilities with initial fair value of $ 411 was recognized.

Embedded derivative assets with the initial fair value of $ 181 and the embedded derivative liabilities with initial fair value of $ 1,145 were recognized during 2019.

These amounts were recorded as discounts on the Convertible Notes.

As of December 31, 2019, the embedded derivatives were classified as current liabilities on the consolidated balance sheet and had fair values of $ 1,681 .

As of December 31, 2019, the embedded derivatives were classified as current liabilities on the consolidated balance sheets and had fair values of $ 1,681 .

The embedded derivatives were fair valued through the Merger date.

During the year ended December 31, 2020 and 2019, a change in fair value of embedded derivative gain of $ 2,092 and a loss of $ 716 has been recognized, respectively.

During the years ended December 31, 2020 and 2019, a change in fair value of the embedded derivative resulted in a gain of $ 2,092 and a loss of $ 716 , respectively.

The fair value of the embedded derivative was zero as of December 31, 2020 as a result of the conversion of the notes in connection of the Merger.

11 unchanged sentences

Subsequent Measurement

With respect to the Phase I Notes, the holders’ put option is immediately exercisable at the 1.5 times the principal amount of the Notes.

Pursuant to ASC 470-10, which states that notes with demand features should be stated at or near the amount of cash that could be required to satisfy, a corresponding portion of the discount was amortized into interest expense immediately following issuance.

With respect to the Phase I Notes, the holders’ put option was immediately exercisable at the 1.5 times the principal amount of the Notes.

Pursuant to ASC 470-10, which states that notes with demand features should be stated at or near the amount of cash that could be required to satisfy the obligation, therefore, a corresponding portion of the discount was amortized into interest expense immediately following issuance.

Additionally, the discount attributable to the BCF was immediately amortized into interest expense at issuance.

The remaining discount on the Phase I Notes was amortized into interest expense using the effective interest method through July 31, 2019, the date at which the note becomes payable at 3.0 times the outstanding principal amount.

Discounts on the Phase II Notes were amortized into interest expense using the effective interest method through the stated maturity date of October 31, 2019.

On October 31, 2019, the Company defaulted under the Phase

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Convertible Notes Payable (cont.)

II note agreements, at which time the note holders’ put option became exercisable.

Discounts on the Phase II Notes were amortized into interest expense using the effective interest method through the stated maturity date of October 31, 2019.

On October 31, 2019, the Company defaulted under the Phase II note agreements, at which time the note holders’ put option became exercisable.

Accordingly, discounts on Phase II Notes issued subsequent to October 31, 2019 were immediately amortized into interest expense upon issuance.

1 unchanged sentence

The Phase II Notes were issued with annual effective interest rates in excess of 1,200 %.

During the year ended December 31, 2020 and 2019, the Company recognized interest expense of $ 23,706 and $ 49,708 related to the Convertible Notes, respectively.

In connection with the business combination, the convertible notes were then exchanged for the common stock of the Company per the “Conversion upon Qualified Financing” term discussed above.

During the years ended December 31, 2020, and 2019, the Company recognized interest expense of $ 23,706 and $ 49,708 related to the Convertible Notes, respectively.

In connection with the business combination discussed in Note 2, the Legacy Convertible Notes were then exchanged for the common stock of the Company per the “Conversion upon Qualified Financing” term discussed above.

10,886,300 shares of common stock were issued to the notes holders based on the liquidation amount of $ 108.9 million as of the Merger date and purchase price of $ 10 per shares agreed upon in the Merger agreement.

8 unchanged sentences

Convertible notes payable, net $ 41,097 $ 67,766 $ 108,863

As of December 31, 2019, the total principal and accrued interest on the Phase I Notes, 2019 Phase II Notes, and 2020 Phase II Notes is equal to the applicable Liquidation Amount of 3.0 , 6.0 , and 6.0 times the outstanding principal, respectively.

The balances attributable to the 2019 Convertible Notes on December 31, 2019 were as follows:

Phase 1 Phase 2 December 31, 2019

Convertible notes payable $ 40,587 $ 35,973 $ 76,560

Discount, original issuance ( 20,946 ) ( 23,982 ) ( 44,928 )

Discount, embedded derivative 181 ( 1,145 ) ( 964 )

Discount, fair value of preferred units — ( 2,031 ) ( 2,031 )

Discount, beneficial conversion features ( 1,799 ) — ( 1,799 )

Discount, accumulated amortization 22,564 27,158 49,722

Convertible notes payable, net $ 40,587 $ 35,973 $ 76,560

As of December 31, 2019, aggregate Phase I and Phase II Notes attributable to AltEnergy totaled $ 24,415 .

EOS ENERGY ENTERPRISES, INC

NOTES TO FINANCIAL STATEMENTS ($ IN THOUSANDS)

Notes Payable

In connection with the Hi-Power acquisition (Refer to Note 3), the Company agreed to pay an aggregate purchase price of $ 25,000 .

$ 5,000 of the $ 25,000 purchase price was paid in May 2021.

The fair value of the notes payable was estimated using active market quotes, based on our current incremental borrowing rates for similar types of borrowing arrangements, which were Level 2 inputs.

Based on the analysis performed, the carrying value of the remaining payments of the notes payable was recorded as debt, which includes a current portion of $ 4,926 and a long-term portion of $ 13,769 as of December 31, 2021.

Long-term Debt

The following is a summary of the Company’s long-term indebtedness (in thousands):

The following is a summary of the Company’s long-term indebtedness:

December 31, 2021 December 31, 2020

Paycheck Protection Program loan payable

Equipment financing facility 6,371 —

long-term debt, current portion

( 1,644 ) ( 924 )

Long-term debt

$ 4,727 $ 427

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Long-term Debt (cont.)

Paycheck Protection Program

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Forgiveness of this loan is only available for principal that is used for the limited purposes that qualify for forgiveness under the Small Business Administration’s (the “SBA”) requirements.

To obtain forgiveness, the Company must request it and must provide documentation in accordance with the Small Business Administration (the “SBA”) requirements, and certify that the amounts the Company is requesting to be forgiven qualify under those requirements.

Forgiveness of the loan is dependent upon approval of the SBA.

To obtain forgiveness, the Company must certify that the loan was used in accordance with the requirements and provide supporting documentation.

The Company used all proceeds from the PPP Loan to retain our employees, maintain payroll, lease and utility obligations and pay other operational expenses to support business continuity throughout the Covid-19 pandemic.

During the third quarter of 2021, the Company was approved for loan forgiveness by the SBA.

Consequently, during the year ended December 31, 2021, the Company recorded a gain on debt forgiveness of $ 1,273 on the consolidated statements of operations.

Equipment Financing Facility

On September 30, 2021, the Company entered into an agreement (the “Equipment Financing Agreement”) with Trinity Capital Inc.

("Trinity") for a $ 25,000 equipment financing facility (the "Equipment Financing Facility"), the proceeds of which will be used to acquire certain manufacturing equipment, subject to Trinity's approval.

Upon execution of the Equipment Financing Agreement, the Company borrowed $ 7,000 (the “Initial Draw”) against the $ 25,000 commitment.

The remaining commitment of $ 18,000 is fundable upon the Company's request no later than September 30, 2022, in increments of not less than $ 500 , (each a “Draw”).

$ 188 of commitment fee was paid at the closing, with $ 53 recorded as debt issuance cost for the Initial Draw and $ 135 recorded as prepaid expenses.

On September 30, 2022, any unused portion of the remaining commitment will be subject to a non-utilization fee equal to 3 % of the unused amount.

Each Draw is executed under a separate payment schedule (a “Schedule”) that constitutes a separate financial instrument.

The financing fees included in each Schedule are established through monthly payment factors determined by Trinity.

Such monthly payment factors are based on the Prime Rate reported in The Wall Street Journal in effect on the first day of the month in which a Schedule is executed.

The Prime Rate applicable to the Initial Draw is 3.25 %.

The monthly payment factors will be adjusted for each subsequent Schedule, using the then existing Prime Rate, but no less than the monthly payment factor set forth in the Initial Draw.

Debt issuance costs of $ 175 were withheld by Trinity from the Initial Draw.

The Initial Draw is payable in monthly installments of $ 204 ending March 31, 2025, along with an end-of-term fee of $ 70 due on March 31, 2025.

The effective interest rate is 14.3 %.

The Company may repay the Initial Draw prior to March 31, 2025 by terminating the Equipment Financing Agreement.

On the proposed termination date, the Company is required to pay Trinity an amount equal to the sum of all monthly installments that would have otherwise become payable through the maturity date, the end-of-term payment, and, if applicable, the non-utilization fee.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Long-term Debt (cont.)

The Initial Draw is collateralized by certain equipment and other property held at the Hi-Power manufacturing facility.

Subsequent Draws will be collateralized by the equipment financed through the respective draws.

In connection with the Equipment Financing Agreement, the Company executed a corporate guaranty in favor of Trinity.

As the guarantor, the Company unconditionally and irrevocably guarantees the obligation under the Financing Agreement.

As of December 31, 2021, $ 1,644 of the principal was recorded as a current liability on the consolidated balance sheets.

For the year ended December 31, 2021, the Company recognize $ 157 as interest expense attributable to the Equipment Financing Agreement.

Contingently Redeemable Preferred Units

As of December 31, 2019, the Company had outstanding Series C, Series D, and 2019 Bridge Preferred Units ("EES Preferred Units), which were issued at $ 1.10 , $ 1.75 , and $ 0.50 per unit, respectively.

For the year ended December 31, 2020, and 2019, the Company had Series C, Series D, and 2019 Bridge Preferred Units ("EES Preferred Units) issued at $ 1.10 , $ 1.75 , and $ 0.50 per unit, respectively.

Pursuant to the EES LLC Agreement, the rights and privileges of the EES Preferred Members were as follows:

4 unchanged sentences

• Agree or enter into a merger, sale of a material portion of the Assets, or other corporate reorganization or acquisition or any other transaction resulting in a change of control of EES;

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Contingently Redeemable Preferred Units (cont.)

• Create or authorize the creation of any debt security, guarantee, or instrument with similar effect in excess of $ 1,000,000 , outside the normal course of business;

10 unchanged sentences

Therefore, the carrying value had not been remeasured to the Preferred Liquidation Preference.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Contingently Redeemable Preferred Units (cont.)

The occurrence of a Company Sale requires the approval of both the Board of Directors and Preferred Members.

Therefore, the liquidation provisions are considered contingent redemption provisions as there are certain elements that are not solely within the control of the Company.

Accordingly, the Preferred Units have been presented in the mezzanine section of the consolidated balance sheet.

Accordingly, the Preferred Units have been presented in the mezzanine section of the consolidated balance sheets.

Conversion — The Preferred Units are convertible at any time, at the option of the holder, into EES Common Units of the Company.

8 unchanged sentences

The Company recognized $ 2,031 attributable to the 2019 EES Bridge Preferred Units based on the allocated fair value of cash proceeds.

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Contingently Redeemable Preferred Units (cont.)

Upon the issuance of 2019 EES Bridge Preferred Units, the down round provision was triggered for the Series C and Series D EES Preferred Units whereby the conversion price was adjusted from $ 1.10 and $ 1.75 , respectively to $ 0.50 per EES Common Unit, which resulted in approximately 144,200,000 additional EES Common Units being issuable upon conversion of the Series C and Series D EES Preferred Units.

17 unchanged sentences

14,727,844 shares of the Company's common stock were issued to the EES Preferred Units holders.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Warrants Liability - Related Party

The Company’s outstanding warrants were issued by BMRG in connection with its initial public offering (the “Public Warrants”) and concurrent private placement (the “Private Warrants” and, together with the Public Warrants, the “Warrants”) on May 22, 2020.

Upon consummation of the Merger on November 16, 2020, the Public Warrants and Private Placement Warrants were set to become exercisable on May 22, 2021 for shares of the Company’s common stock with the same terms and exercise provisions prior to the Merger.

The Private Placement Warrants meet the definition of a derivative.

On the basis of the SEC Division of Corporation Finance’s April 12, 2021 Public Statement-Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACS”), the Private Placement Warrants do not meet the scope exception as prescribed by ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity .

Accordingly, the Company recognized the Private Placement Warrants as of the Merger Date on November 16, 2020 at fair value and classified them as a liability in the Company’s consolidated balance sheets.

Thereafter, changes in fair value are recognized in earnings as a derivative gain (loss) in the Company’s consolidated statements of operations.

The Private Placement Warrants are classified as Level 2 financial instruments in the fair value hierarchy.

They are valued on the basis of the quoted price of the Public Warrants, adjusted for insignificant differences between the Public Warrants and Private Placement Warrants.

325,000 Private Placement Warrants were outstanding with a fair value of $ 926 and $ 2,701 as of December 31, 2021 and 2020, respectively.

The change in fair value for the years ended December 31, 2021, 2020 and 2019 amounted to $ 1,775 , $( 2,142 ), and $ — , respectively, which has been recognized in Change in fair value, warrants liability - related party in the Company’s consolidated statements of operations .

Stock-Based Compensation

Since 2012, Eos has issued stock options to employees and certain service providers under the 2012 Eos Equity Incentive Plan (“2012 Plan”).

In addition to stock options, the 2012 Plan provides for the issuance of other forms of stock-based compensation, including profit interests, unit appreciation rights and restricted units.

Since 2012, the Company has issued stock options to employees and certain service providers under the 2012 Eos Equity Incentive Plan (“2012 Plan”).

In addition to stock options, the 2012 Plan provides for the issuance of other forms of stock-based compensation, including profit interests, unit appreciation rights and restricted stock units.

Subsequent to the closing of the Merger, the Company approved the 2020 Equity Incentive Plan (the “2020 Incentive Plan”) and reserved 6,000,000 shares of common stock for issuance thereunder.

The Incentive Plan became effective immediately upon the Closing of the Merger and all equity granted under the 2012 Plan were converted into equivalent equity under the 2020 Incentive Plan.

As of December 31, 2020, the Company has stock options and restricted units issued under the 2020 Incentive Plan.

EOS ENERGY ENTERPRISES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

Stock-Based Compensation (cont.)

In 2021, the Company reserved an additional 498,021 shares for the 2020 Incentive Plan.

The 2020 Incentive Plan became effective immediately upon the Closing of the Merger and all equity granted under the 2012 Plan was converted into equivalent equity under the 2020 Incentive Plan.

As of December 31, 2021 and 2020, the Company has stock options and restricted stock units issued under the 2020 Incentive Plan.

Stock-based compensation expense included in the consolidated statements of operations was as follows:

For the years ended December 31

2021 2020 2019

Stock options $ 3,809 $ 4,104 $ 131

Restricted stock units 11,249 977 4

Total $ 15,058 $ 5,081 $ 135

The stock compensation has been recorded in cost of goods sold, research and development expenses and selling, general and administrative expenses in the consolidated statements of operations.

The following table summarizes stock option activity during the years ended December 31, 2021, 2020, and 2019.

1 unchanged sentence

See Note 2 for the conversion in connection with the Merger.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Stock-Based Compensation (cont.)

Shares Weighted-Average

11 unchanged sentences

2,143,636 $ 9.19 9.5

Granted 114,429 $ 18.07

Cancelled/Forfeited ( 110,768 ) $ 13.02

Exercised ( 123,837 ) $ 8.67

Options Outstanding at December 31, 2021

2,023,460 $ 9.51 6.3

Options Exercisable at December 31, 2021

1,124,199 $ 9.55 7.0

A summary of restricted stock units (RSU) activity for the year ended December 31, 2021 under our 2020 Incentive Plan is as follows:

Units Weighted-Average

Grant-Date Fair Value

RSU Outstanding at January 1, 2020 42,318 $ 13.46

Granted 2,580,670 $ 16.62

Cancelled/Forfeited ( 273,632 ) $ 14.98

Vested ( 154,600 ) $ 16.50

RSU Outstanding at December 31, 2021 2,194,756 $ 16.36

As of December 31, 2021 and 2020, 2,282,906 and 3,825,176 shares remain for future issuance, respectively.

4 unchanged sentences

The performance conditions primarily relate to the completion of project milestones, achievement of operational certifications, and the Company’s closing of financing rounds.

The Company’s Restricted Units (RU) represent the right to receive one common share, subject to vesting and transferability restrictions.

For the year ended December 31, 2020 and December 31, 2019, 123,478 and — RUs were granted.

During the same periods, 174,761 and — common shares were issued for RUs that had fully vested during the current and prior periods.

As of December 31, 2020, 42,318 RUs were outstanding and unvested.

These unvested RUs include (1) 31,188 units issued to directors of our Board which will vest at the earlier of our next annual shareholders meeting or December 8, 2021 and (2) 11,130 units issued to a member of our senior management which will be vested on December 16, 2021.

These RUs were measured at their grant-date fair value of $ 13.46 per unit and will be fully vested in 2021.

The Company recorded stock compensation expense of $ 5,081 for the year ended December 31, 2020 which includes $ 977 from RUs and $ 4,104 from stock options, respectively.

$ 135 of stock compensation was recorded for the year ended December 31, 2019, including $ 4 from RUs and $ 131 from stock options, respectively.

The stock compensation has been recorded in cost of sales, R&D expense and general and administrative expenses in the Statements of Operations.

Unrecognized stock compensation expenses amount to $ 7,416 and include $ 472 attributable to RUs, which is expected to be recognized within one year , and $ 6,944 attributable to stock option, which is expected to be recognized over the next four years .

As of December 31, 2021, within the total options outstanding, there were 51,873 performance-based stock options, all of which are expected to vest in the next four years .

Unrecognized stock compensation expenses amounted to $ 31,487 and included $ 27,980 attributable to RSUs, and $ 3,507 attributable to stock options, which are both expected to be recognized over the next four years .

The weighted average assumptions used to determine the fair value of options granted in 2021, 2020 and 2019 are as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Stock-Based Compensation (cont.)

2021 2020 2019

Volatility 58.86 % 52.99 % 58.20 %

2 unchanged sentences

Dividend yield 0 % 0 % 0 %

The RSUs issued were valued at the stock prices of the Company on the grant date.

The weighted average grant date fair value of all options granted was $ 8.08 , $ 5.38 , and $ 1.21 per option for the years ended December 31, 2021, 2020, and 2019 respectively.

Adoption of ASU 2016-02

As discussed in Note 1, on January 1, 2021, the Company adopted ASU 2016-02, "Leases (Topic 842)," and the related amendments (collectively "ASC 842").

The Company elected the modified retrospective approach, under which results and disclosures for periods before January 1, 2021 were not adjusted for the new standard and the cumulative effect of the change in accounting, is recognized through accumulated deficit at the date of adoption.

The Standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheets for all leases.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations.

The Standard provides entities with several practical expedient elections.

Among them, the Company elected the package of practical expedients that permits the Company to not reassess prior conclusions related to its leasing arrangements, lease classifications and initial direct costs.

In addition, the Company has elected the practical expedients to not separate lease and non-lease components, to use hindsight in determining the lease terms and impairment of ROU assets, and to not apply the Standard’s recognition requirements to short-term leases with a term of 12 months or less.

The adoption of the Standard did not have a material effect on the Company’s consolidated statements of operations or consolidated statements of cash flows.

Upon adoption, the Company recorded a $ 3,662 operating lease ROU asset and a $ 4,465 operating lease liability.

The adoption of the New Lease Accounting Standard had no impact on accumulated deficit.

At December 31, 2021, finance leases, which were previously classified as capital leases under ASC 840, are included in Property and equipment, net.

The adoption did not affect the balance sheet classification of the capital lease obligations (known as finance lease liabilities effective January 1, 2021).

The Company leases machinery, manufacturing facilities, office space, land, and equipment under both operating and finance leases.

The Company determines if an arrangement is a lease at inception.

A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Lease assets and lease liabilities as of December 31, 2021 were as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Leases (cont.)

Leases Classification on Balance Sheet As of December 31, 2021

ROU - operating lease assets Operating lease right-of-use asset, net $ 3,468

Finance lease assets Property and equipment, net 28

Total lease assets $ 3,496

Classification on Balance Sheet As of December 31, 2021

Operating lease liability Operating lease liability, current portion $ 1,084

Finance lease liability Other current liabilities 8

Operating lease liability Operating lease liability, long-term 3,224

Finance lease liability Other liabilities 17

Total lease liabilities $ 4,333

Operating lease costs for the years ended December 31, 2021, 2020, and 2019 were $ 1,158 , $ 959 , and $ 1,291 , respectively.

As of December 31, 2021, the weighted average remaining term (in years) for the operating lease was 4.15 years and the weighted average discount rate was 3.3 %.

The weighted average remaining term (in years) for the finance lease was 3.47 years and the weighted average discount rate was 12.5 %.

Future maturity of lease liability are as follows:

Operating lease Financing lease Total

2022 $ 1,210 $ 12 $ 1,222

2023 850 8 858

2024 916 8 924

2025 986 8 994

2026 601 1 602

Later years — — —

Total minimum lease payments $ 4,563 $ 37 $ 4,600

Less amounts representing interest 255 12 267

Present value of minimum lease payments $ 4,308 $ 25 $ 4,333

The future minimum lease payments from our 2020 Form 10-K as filed in accordance with Leases (Topic 840) in each of the next five years and thereafter are as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Leases (cont.)

Operating Capital

2021 $ 685 $ 14

Later years 679 —

Total minimum lease payments $ 4,805 $ 18

Less amounts representing interest 3

Present value of minimum lease payments $ 15

The Company leases energy storage systems to one customer with a 20 -year term through sales-type leases.

Leases offered by the Company include purchase options during the lease term with a bargain purchase option at the end of the term.

At the time of accepting a lease that qualifies as a sales-type lease, the Company records the gross amount of lease payments receivable, estimated residual value of the leased equipment and unearned finance income.

The unearned finance income is recognized interest income over the lease term using the interest method.

For the year ended December 31, 2021, the Company recognized revenue of $ 353 .

Net sales-type lease receivables of $ 347 , net of unearned finance income are recorded under other assets on the consolidated balance sheets.

Fair Value Measurement

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, the Public and Private Placement Warrants, accounts receivable, note receivable, accounts payable, and notes payable, convertible notes payable — related party and long-term debt.

Accounting standards establish a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three levels.

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

Accounting standards require financial assets and liabilities to be classified based on the lowest level of input that is significant to the fair value measurement.

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable are considered to be representative of their fair value due to the short maturity of these instruments.

The table below summarizes the fair values of certain liabilities that are included within our accompanying consolidated balance sheets, and their designations among the three fair value measurement categories:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Fair Value Measurement (cont.)

December 31, 2021

December 31, 2020

(in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Private Placement Warrants $ — $ 926 $ — $ — $ 2,701 $ —

Embedded derivative liability within the 2021 Convertible Notes $ — $ — $ 12,359 $ — $ — $ —

The following table presents a roll-forward of the activity of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2021 and 2020.

December 31, 2021

December 31, 2020

Balance at beginning of the period $ — $ 1,681

Additions 29,866 411

Change in fair value included in earnings ( 17,507 ) ( 2,092 )

Balance at end of the period $ 12,359 $ —

The estimated fair value of financial instruments not carried at fair value in the consolidated balance sheets was as follows:

Level in fair value hierarchy December 31, 2021

December 31, 2020

(in thousands) Carrying Value Fair Value Carrying Value Fair Value

Notes payable 3 $ 18,695 $ 14,607 $ — $ —

Equipment financing facility 3 $ 6,370 $ 5,951 $ — $ —

2021 Convertible Notes without embedded derivative liability 3 $ 71,789 $ 61,866 $ — $ —

Paycheck Protection Program 2 $ — $ — $ 1,257 $ 1,222

Shareholder's Equity

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At December 31, 2021 and 2020, there were 53,786,632 and 48,943,082 common stocks issued and outstanding.

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Shareholder's Equity (cont.)

Contingently Issuable Common Stock

Following the closing of the Merger, and as additional consideration for the transaction, the Company was obligated to issue within five years from the closing date to each unitholder of EES its pro-rata proportion of a one-time issuance of an aggregate of 2,000,000 Shares (the “Earnout Shares” or "Contingently Issuable Common Stock"), within 5 business days after (i) the closing share price of the Company's shares traded equaling or exceeding $ 16.00 per share for any 20 trading days within any consecutive 30 -trading day period during the Earnout Period or (ii) a Change of Control (or a definitive agreement providing for a Change of Control having been entered into) during the Earnout Period (each of clauses (i) and (ii), a “Triggering Event”).

On January 22, 2021, the Triggering Event for the issuance of the Earnout Shares occurred as the Company's stock price exceeded $ 16.00 per share for 20 trading days within a consecutive 30 -trading day period during the Earnout Period.

Accordingly, 1,999,185 Shares were issued to the unitholders of EES.

Sponsor Earnout Shares

Pursuant to the Sponsor Earnout letter signed in connection with the Merger, 1,718,000 shares of common stock issued and outstanding held by BMRG ("Sponsor Earnout Shares") were subject to certain transfer and other restrictions, under which (a) 859,000 Sponsor Earnout Shares ("Block A Sponsor Earnout Shares") were restricted from being transferred unless and until either, for a period of five years after the Closing, (i) the share price of our common stock equals or exceeds $ 12.00 per share for any 20 trading days within any consecutive 30 -trading day period or (ii) a change of control occurs for a share price equaling or exceeding $ 12.00 per share, and (b) the remaining 859,000 Sponsor Earnout Shares ("Block B Sponsor Earnout Shares") were subject to similar restrictions except that the threshold is increased from $ 12.00 to $ 16.00 .

If after the five-year period, there are no triggering events, the Sponsor Earnout Shares will be forfeited and canceled for no consideration.

If after the five-year period, only the triggering event described in clause (a) above has occurred, the remaining 859,000 Sponsor Earnout Shares described in clause (b) will be forfeited and canceled for no consideration.

On January 22, 2021, as the Company's stock price exceeded $ 16.00 per share for 20 trading days within a consecutive 30 -trading day period, Block B Sponsor Earnout Shares were released from restriction.

Treasury Stock

For the year ended December 31, 2021, the Company recorded treasury stock of $ 353 for shares withheld to pay the payroll tax liability of RSUs vested, which will be remitted in 2022.

The treasury stock was immediately retired.

The Company sold warrants to purchase 9,075,000 shares of the Company's common stock in the public offering and the private placement on May 22, 2020.

One warrant entitles the holder to purchase one whole share of common stock at a price of $ 11.50 per share.

At December 31, 2020, there were 9,075,000 warrants outstanding which will become exercisable on May 22, 2021.

At December 31, 2020, there were 8,750,000 Public Warrants outstanding which became exercisable on May 22, 2021.

For the year ended December 31, 2021, 1,747,746 Public Warrants were exercised.

At December 31, 2021, there were 7,002,254 Public Warrants outstanding.

Earnings (loss) Per Share

Basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted basis.

As we incurred a net loss for the years ended December 31, 2021 and 2020, the potential dilutive shares from stock options, restricted stock units, warrants, and convertible redeemable notes were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented.

Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the years ended December 31, 2021 and 2020.

The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

EOS ENERGY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Shareholder's Equity (cont.)

For the years ended December 31

2021 2020 2019

Stock options and restricted stock units 4,218,216 2,185,954 392,838

Warrants 7,327,254 9,075,000 —

Block B Sponsor Earnout Shares subject to restrictions — 859,000 —

Contingently Issuable Common Stock — 2,000,000 —

Convertible Notes (if converted) 5,144,074 — 7,655,908

Contingent redeemable preferred units — — 12,964,231

Disgorgement of short swing profits

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Subsequent Events

This Triggering Event resulted in the issuance of 2,000,000 shares of the Company's common stock.

In addition, the Block B Sponsor Earnout Shares (as defined in Note 2) of 859,000 shares were released upon the achievement of the daily milestone of $ 16.00 per share as discussed in Note 2.

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued.

Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

FORM 10-K SUMMARY

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EOS ENERGY ENTERPRISES, INC.

/s/ Sagar Kurada

/s/ Randall Gonzales

Chief Financial Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph Matrangelo and Sagar Kurada and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph Mastrangelo and Randall Gonzales and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Name Position Date

/s/ Joe Mastrangelo Chief Executive Officer and Director February 25, 2021

Joe Mastrangelo (Principal Executive Officer)

/s/ Sagar Kurada Chief Financial Officer February 25, 2021

Sagar Kurada (Principal Financial and Accounting Officer)

/s/ Joseph Mastrangelo Chief Executive Officer and Director February 25, 2022

Joseph Mastrangelo (Principal Executive Officer)

/s/ Randall Gonzales Chief Financial Officer February 25, 2022

Randall Gonzales (Principal Financial Officer)

/s/ John Tedone Chief Accounting Officer February 25, 2022

John Tedone (Principal Accounting Officer)

/s/ Daniel Shribman Director February 25, 2022

4 unchanged sentences

Audrey Zibelman

/s/ Claude Demby Director February 25, 2022

/s/ Russell Stidolph Director February 25, 2022

Russell Stidolph

/s/ Marian "Mimi" Walters Director February 25, 2022

Marian "Mimi" Walters

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures