Eos Energy Enterprises, Inc. 10-K

ITEM 9A. 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, 2022. Based upon that evaluation, the CEO and CFO have concluded, as of December 31, 2022, 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, 2022. 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, 2022 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. 47 Table of Contents 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, 2022: • 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 quarter ended December 31, 2022 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Delaware Section 205 Petition On November 12, 2020, B. Riley Principal Merger Corp. II (“BMRG”), the predecessor to the Company, held a special meeting of stockholders (the “BMRG Special Meeting”) to approve certain matters relating to the business combination between BMRG and Eos Energy Storage LLC. One of these matters was a proposal to amend and restate BMRG's certificate of incorporation in order to, among other things, increase the number of authorized shares of common stock from 125,000,000 shares of common stock, consisting of 100,000,000 shares of Class A common stock and 25,000,000 shares of Class B common stock, to 200,000,000 shares of common stock, and to reclassify all Class A common stock and Class B common stock as a single class of common stock (the “Charter Amendment Proposal”). The Charter Amendment Proposal was approved by a majority of the outstanding shares of Class A common stock and Class B common stock of BMRG as of the record date for the BMRG Special Meeting, voting together as a single class, although voting records indicate that a majority of each of the shares of Class A common stock and Class B common stock also approved the Charter Amendment Proposal. After the BMRG Special Meeting, BMRG and Eos Energy Storage LLC closed the business combination and the Company's certificate of incorporation, as amended to give effect to the Charter Amendment Proposal, became effective. 48 Table of Contents A recent ruling by the Delaware Court of Chancery introduced uncertainty as to whether Section 242(b)(2) of the Delaware General Corporation Law (the “DGCL”) would have required the Charter Amendment Proposal to be approved by separate votes of the majority of BMRG's then-outstanding shares of Class A common stock and Class B common stock. The Company had been proceeding with the understanding that the Charter Amendment Proposal and the amendment and restated certificate of incorporation are valid. In light of this recent ruling, however, to resolve potential uncertainty with respect to the Company's capital structure, the Company has filed a petition in the Delaware Court of Chancery under Section 205 of the DGCL to seek validation of the Charter Amendment Proposal. Section 205 of the DGCL permits the Court of Chancery, in its discretion, to ratify and validate potentially defective corporate acts. On February 27, 2023, the Court of Chancery approved the Company's request for relief and entered an order under Section 205 of the Delaware General Corporation Law (1) declaring the Company's Third Amended and Restated Certificate of Incorporation (the "Charter"), including the filing and effectiveness thereof, as validated and effective retroactive to the date of its filing with the Office of the Secretary of State of the State of Delaware on November 16, 2020, and all amendments effected thereby and (2) ordering that the Company's securities (and the issuance of the securities) described in the Petition and any other securities issued in reliance on the validity of the Charter are validated and declared effective, each as of the original issuance dates. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 49 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated by reference to our Proxy Statement relating to our 2023 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022. 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 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. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to our Proxy Statement relating to our 2023 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item, including Securities Authorized for Issuance Under Equity Plans, is incorporated by reference to our Proxy Statement relating to our 2023 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to our Proxy Statement relating to our 2023 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to our Proxy Statement relating to our 2023 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (1) Financial statement. 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. No financial statement schedules are submitted because either they are not applicable or because the required information is included in the consolidated financial statements or notes thereto. 50 Table of Contents (3) Exhibits. Filed as part of this Annual Report are the following exhibits: Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date 2.1 Agreement and Plan of Merger, dated as of September 7, 2020, by and among the Company, BMRG Merger Sub, LLC, BMRG Merger Sub II, LLC, Eos Energy Storage LLC, New Eos Energy LLC and AltEnergy Storage VI, LLC (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 8, 2020) Form 8-K File No. 001-39291 2.1 September 8, 2020 3.1* Third Amended and Restated Certificate of Incorporation of the Company, as amended 3.2 Second Amended and Restated Bylaws of the Company Form 8-K File No. 001-39291 3.2 May 19, 2022 4.1 Specimen Common Stock Certificate Form 8-K File No. 001-39291 4.1 November 20, 2020 4.2 Specimen Warrant Certificate Form 8-K File No. 001-39291 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. 001-39291 4.1 July 7, 2021 4.4 Warrant Agreement, dated May 19, 2020, by and between the Registrant and Continental Stock Transfer & Trust Company Form 8-K File No. 001-39291 4.1 May 22, 2020 4.5 Description of Securities Form 10-K File No. 001-39291 4.5 February 25, 2022 4.6 Indenture, dated April 7, 2022, between the Company and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 13, 2022) Form 8-K File No. 001-39291 10.1 April 13, 2022 51 Table of Contents Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date 4.7 Convertible Promissory Note, dated as of June 13, 2022, between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 4.1 June 13, 2022 4.8 Convertible Promissory Note dated as of December 29, 2022 between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 4.1 December 29, 2022 10.1 Sponsor Earnout Letter Form 8-K File No. 001-39291 10.8 November 20, 2020 10.2 Eos Energy Enterprises, Inc. 2020 Incentive Plan Form 8-K File No. 001-39291 10.10 November 20, 2020 10.3 Form of Indemnity Agreement Form 8-K File No. 001-39291 10.13 November 20, 2020 10.4 Employment Agreement, dated February 24, 2021, by and between the Company and Joseph Mastrangelo Form 8-K File No. 001-39291 99.1 March 2, 2021 10.5 Offer Letter, dated February 19, 2021, by and between the Company and Jody Markopoulos Form 8-K File No. 001-39291 10.1 March 12, 2021 10.6 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 10.7 Unit Purchase Agreement, dated April 8, 2021 Form 8-K File No. 001-39291 10.1 April 14, 2021 10.8 Form of Transition Services Agreement (Included in Exhibit 10.08) Form 8-K File No. 001-39291 10.2 April 14, 2021 10.9 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 10.10 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 52 Table of Contents Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date 10.11 Investment 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 10.12 Master Equipment Financing Agreement, dated September 30, 2021 Form 8-K File No. 001-39291 10.1 October 5, 2021 10.13 Guaranty Agreement, dated September 30, 2021 Form 8-K File No. 001-39291 10.2 October 5, 2021 10.14 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 10.15 Employment Agreement, dated December 13, 2021, by and between the Company and Randall B. Gonzales Form 8-K File No. 001-39291 10.02 December 14, 2021 10.16 Employment Letter, dated December 29, 2021 by and between the Company and John Tedone. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022) Form 8-K File No. 001-39291 10.1 February 14, 2022 10.17 Standby Equity Purchase Agreement, dated April 28, 2022, by and between Eos Energy Enterprises, Inc. and YA II PN, Ltd. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 28, 2022) Form 8-K File No. 001-39291 10.1 April 28, 2022 10.18 Joinder to Investment Agreement, dated May 1, 2022 among Eos Energy Enterprises, Inc., Spring Creek Capital, LLC and Wood River Capital, LLC Form 10-Q File No. 001-39291 10.3 May 9, 2022 10.19 Amendment No. 1 to the Standby Equity Purchase Agreement, dated as of April 28, 2022, between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 10.1 June 13, 2022 53 Table of Contents Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date 10.20 Supplemental Agreement, dated as of June 13, 2022, to the Standby Equity Purchase Agreement dated as of April 28, 2022 between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 10.2 June 13, 2022 10.21 Senior Secured Term Loan Credit Agreement, dated as of July 29, 2022, by and among Eos Energy Enterprises, Inc., the lenders party thereto, and ACP Post Oak Credit I LLC, as administrative agent and collateral agent. Form 8-K File No. 001-39291 10.1 August 1, 2022 10.22 Guarantee and Collateral Agreement, dated as of July 29, 2022, by and among Eos Energy Enterprises, Inc., the other grantors named therein and ACP Post Oak Credit I LLC, as collateral agent Form 8-K File No. 001-39291 10.2 August 1, 2022 10.23 Commitment Increase Agreement, dated as of August 4, 2022, by and among Eos Energy Enterprises, Inc., the guarantors party thereto, ACP Post Oak Credit I LLC, as administrative agent and lender, and certain other lenders party thereto Form 8-K File No. 001-39291 10.1 August 5, 2022 10.24 Sales Agreement, dated August 5, 2022, by and between Eos Energy Enterprises, Inc. and Cowen and Company, LLC Form 8-K File No. 001-39291 10.2 August 5, 2022 10.25 Amended Director Compensation Policy, dated as of September 7, 2022 Form 8-K File No. 001-39291 10.1 September 9, 2022 10.26 Amendment No. 2 to the Standby Equity Purchase Agreement dated as of November 14, 2022 between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 10.1 November 14, 2022 54 Table of Contents Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date 10.27 Commitment Increase Agreement, dated as of December 7, 2022, by and among Eos Energy Enterprises, Inc. the guarantors party thereto, and ACP Post Oak Credit LLC. Form 8-K File No. 001-39291 10.1 December 8, 2022 10.28 Amendment No. 3 dated as of December 29, 2022 to the Standby Equity Purchase Agreement dated as of April 28, 2022 between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 10.1 December 29, 2022 10.29 Second Supplemental Agreement dated as of December 29, 2022 to the Standby Equity Purchase Agreement dated as of April 28, 2022 between Eos Energy Enterprises, Inc. and YA II PN, LTD. Form 8-K File No. 001-39291 10.1 December 29, 2022 10.30 Separation Agreement, dated January 20, 2023, by and between the Company and Randall Gonzales Form 8-K File No. 001-39291 10.1 January 20, 203 10.31 Employment Agreement, dated January 20, 2023, by and between the Company and Nathan Kroeker Form 8-K File No. 001-39291 10.2 January 20, 203 21.1* Subsidiaries of the Company 23.1* Consent of Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on the signature page herein) 31.1* Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 55 Table of Contents Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibit Filing date 31.2* Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1*+ Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2*+ Certification of the Chief Financial Officer pursuant to 18 U.S.C. 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 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). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. * Filed herewith. + The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. 56 Table of Contents EOS ENERGY ENTERPRISES, INC Index to Financial Statements PAGE Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F- 2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 4 Consolidated Statements of Operations and Comprehe nsive Loss for the Years Ended December 31, 2022 and 2021 F- 6 Consolidated Statements of Shareholders' (Deficit) Equity for the Years E nded December 31, 2022 and 2021 F- 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F- 8 Notes to Consolidated Financial Statements F- 10 to F-44 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Eos Energy Enterprises, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Eos Energy Enterprises, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, shareholders’ (deficit) equity, and cash flows, for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our 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. F-2 Table of Contents Convertible Notes Payable - Refer to Note 13 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: • 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 an independent estimate of the inputs and compared those to the inputs used in 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 New York, NY February 28, 2023 We have served as the Company's auditor since 2017. F-3 Table of Contents EOS ENERGY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 17,076 $ 104,831 Restricted cash 2,725 861 Accounts receivable, net 1,666 1,916 Inventory, net 23,260 12,976 Vendor deposits 4,789 16,653 Notes receivable, net 36 103 Contract assets, current 1,859 1,369 Prepaid expenses 2,289 2,595 Other current assets 1,447 1,268 Total current assets 55,147 142,572 Property, plant and equipment, net 27,169 12,890 Intangible assets, net 240 280 Goodwill 4,331 4,331 Notes receivable, net 827 3,547 Operating lease right-of-use asset, net 4,316 3,468 Long-term restricted cash 11,422 — Other assets, net 3,336 2,087 Total assets $ 106,788 $ 169,175 LIABILITIES Current liabilities: Accounts payable $ 34,669 $ 12,531 Accrued expenses 15,359 7,674 Accounts payable and accrued expenses - related parties — 1,200 Operating lease liability, current 1,106 1,084 Note payable, current — 4,926 Long-term debt, current 2,872 1,644 Convertible notes payable - related party 2,688 — Contract liabilities, current 3,850 849 Other current liabilities 32 9 Total current liabilities 60,576 29,917 Long-term liabilities: Operating lease liability 4,130 3,224 Notes payable — 13,769 Long-term debt 87,321 4,727 Convertible notes payable - related party 82,950 84,148 Contract liabilities, long-term 956 — Warrants - related party 78 926 Other liabilities 3,488 17 Total long-term liabilities 178,923 106,811 Total liabilities 239,499 136,728 F-4 Table of Contents EOS ENERGY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2022 2021 Commitments and Contingencies (Note 17) SHAREHOLDERS' (DEFICIT) EQUITY Common Stock, $ 0.0001 par value, 300,000,000 and 200,000,000 shares authorized, 82,653,781 and 53,786,632 shares outstanding at December 31, 2022 and 2021, respectively 9 5 Preferred stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares outstanding at December 31, 2022 and 2021 — — Additional paid in capital 513,614 448,969 Accumulated deficit ( 646,340 ) ( 416,527 ) Accumulated other comprehensive income 6 — Total shareholders' (deficit) equity ( 132,711 ) 32,447 Total liabilities and shareholders’ (deficit) equity $ 106,788 $ 169,175 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents EOS ENERGY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share amounts) For the Years Ended December 31, 2022 2021 Revenue Total revenue $ 17,924 $ 4,598 Costs and expenses Cost of goods sold 153,260 46,483 Research and development expenses 18,469 19,154 Selling, general and administrative expenses 60,623 42,998 Loss on pre-existing agreement — 30,368 Loss from write-down of property, plant and equipment 6,846 50 Grant (income) expense, net ( 16 ) 269 Total costs and expenses 239,182 139,322 Operating loss ( 221,258 ) ( 134,724 ) Other (expense) income Interest expense, net ( 7,915 ) ( 604 ) Interest expense – related party ( 10,898 ) ( 4,597 ) Remeasurement of equity method investment — ( 7,480 ) Gain on change in fair value of derivatives - related parties 11,728 19,282 Income from equity in unconsolidated joint venture — 440 (Loss) gain on debt (extinguishment)/forgiveness ( 942 ) 1,273 Other (expense) income ( 477 ) 2,194 Loss before income taxes $ ( 229,762 ) $ ( 124,216 ) Income tax expense 51 — Net loss $ ( 229,813 ) $ ( 124,216 ) Other comprehensive income Foreign currency translation adjustment, net of tax 6 — Comprehensive loss $ ( 229,807 ) $ ( 124,216 ) Basic and diluted loss per share attributable to common shareholders Basic $ ( 3.68 ) $ ( 2.36 ) Diluted $ ( 3.68 ) $ ( 2.36 ) Weighted average shares of common stock Basic 62,439,857 52,664,349 Diluted 62,439,857 52,664,349 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents EOS ENERGY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY (In thousands, except share and per share amounts) Common Stock Additional Paid in Capital Contingently Issuable Common Stock Accumulated Other Comprehensive Income Accumulated Deficit Total Shares Amount Balances on December 31, 2020 48,943,082 $ 5 $ 395,491 $ 17,600 $ — $ ( 292,311 ) $ 120,785 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 ) Balances on December 31, 2021 53,786,632 $ 5 $ 448,969 $ — $ — $ ( 416,527 ) $ 32,447 Stock-based compensation — — 13,794 — — — 13,794 Exercise of warrants 600 — 7 — — — 7 Release of restricted stock units 704,178 — — — — — — Cancellation of shares used to settle payroll tax withholding ( 203,951 ) — ( 978 ) — — — ( 978 ) Issuance of common stock under June 2022 Promissory Note 3,393,663 1 7,534 — — — 7,535 Issuance of common stock under ATM program 20,539,603 2 38,624 — — — 38,626 Issuance of common stock under SEPA 3,967,939 1 4,603 — — — 4,604 Commitment fee for SEPA settled by common stock 465,117 — 1,061 — — — 1,061 Foreign currency translation adjustment — — — — 6 — 6 Net loss — — — — — ( 229,813 ) ( 229,813 ) Balances on December 31, 2022 82,653,781 $ 9 $ 513,614 $ — $ 6 $ ( 646,340 ) $ ( 132,711 ) The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents EOS ENERGY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) December 31, 2022 2021 Cash flows from operating activities Net loss $ ( 229,813 ) $ ( 124,216 ) Adjustment to reconcile net loss to net cash used in operating activities Stock-based compensation 13,794 15,058 Depreciation and amortization 6,814 2,613 Loss from write-down of property, plant and equipment 6,846 50 Amortization of right-of-use assets 865 924 Remeasurement of equity method investment — 7,480 Income from equity in unconsolidated joint venture — ( 440 ) Interest accretion and amortization of debt issuance costs 1,886 — Interest accretion and amortization of debt issuance costs - related party 4,584 2,950 Commitment fee for SEPA settled by common stock - related party 1,061 — Loss (gain) on debt extinguishment/(forgiveness) 942 ( 1,273 ) Gain on change in fair value of derivatives - related parties ( 11,728 ) ( 19,282 ) Other 5,918 2,900 Changes in operating assets and liabilities: Prepaid expenses 304 ( 284 ) Inventory ( 10,284 ) ( 10,096 ) Accounts receivable 234 ( 1,916 ) Vendor deposits 6,808 ( 7,419 ) Contract assets ( 631 ) ( 1,369 ) Accounts payable 19,516 5,823 Accrued expenses 5,079 2,581 Accounts payable and accrued expenses-related parties ( 1,200 ) ( 1,317 ) Provision for firm purchase commitments — ( 5,475 ) Operating lease liabilities ( 785 ) ( 846 ) Contract liabilities 3,957 772 Note payable ( 19,637 ) 18,695 Other ( 1,387 ) ( 2,060 ) Net cash used in operating activities ( 196,857 ) ( 116,147 ) Cash flows from investing activities Investment in notes receivable ( 261 ) ( 4,907 ) Proceeds from notes receivable 3,163 1,320 Business acquisition, net of cash acquired — ( 160 ) Investment in joint venture — ( 4,000 ) Purchases of property, plant and equipment ( 20,072 ) ( 15,589 ) Net cash used in investing activities ( 17,170 ) ( 23,336 ) Cash flows from financing activities Proceeds from issuance of convertible notes payable – related party, net of discount 9,310 100,000 F-8 Table of Contents EOS ENERGY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) December 31, 2022 2021 Payment of debt issuance costs - related party ( 304 ) — Proceeds received from the Senior Secured Term Loan, net of discount 97,992 — Payment of debt issuance costs ( 12,398 ) ( 4,370 ) Principal payments on finance lease obligations ( 14 ) ( 11 ) Repayment of other financing — ( 94 ) Proceeds from equipment financing facility 4,216 7,000 Repayment of equipment financing facility ( 1,913 ) ( 455 ) Issuance of common stock under ATM program, net of commissions 38,626 — Issuance of common stock under SEPA 5,000 — Proceeds from exercise of stock options — 1,074 Proceeds from exercise of public warrants 7 20,099 Repurchase of shares from employees for income tax withholding purposes ( 978 ) ( 353 ) Other — 432 Net cash provided by financing activities 139,544 123,322 Effect of foreign exchange on cash, cash equivalents and restricted cash 14 — Net decrease in cash, cash equivalents and restricted cash ( 74,469 ) ( 16,161 ) Cash, cash equivalents and restricted cash, beginning of year 105,692 121,853 Cash, cash equivalents and restricted cash, end of year $ 31,223 $ 105,692 Non-cash investing and financing activities: Right-of-use operating lease assets in exchange for lease liabilities 2,112 4,351 Fixed assets acquired with finance lease 147 21 Accrued and unpaid capital expenditures 2,626 576 Issuance of convertible notes for interest paid-in-kind 6,267 2,900 Issuance of common stock under June 2022 Promissory Note 7,534 — Accrued and unpaid debt issuance costs 5,536 — Supplemental disclosures Cash paid for interest $ 5,766 $ 157 The accompanying notes are an integral part of these consolidated financial statements. F-9 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 1. Overview Eos Energy Enterprises, Inc. (the “Company,” “we,” “us,” “our,” and “Eos”) designs, develops, manufactures, and markets innovative energy storage solutions for utility-scale, microgrid, and commercial & industrial (“C&I”) applications. Eos developed a broad range of intellectual property with multiple patents covering unique battery chemistry, mechanical product design, energy block configuration and a software operating system (Battery Management System). The Company has only one operating and reportable segment. Liquidity and Going Concern As a growth company in the early commercialization stage of its lifecycle, Eos is subject to inherent risks and uncertainties associated with the development of an enterprise. In this regard, substantially all of the Company’s efforts to date have been devoted to the development and manufacturing of battery energy storage systems and complimentary products and services, recruitment of management and technical staff, deployment of capital to expand the Company’s operations to meet customer demand and raising capital to fund the Company’s development. As a result of these efforts, the Company has incurred significant losses and negative cash flows from operations since its inception and expects to continue to incur such losses and negative cash flows for the foreseeable future until such time that the Company can reach a scale of profitability to sustain its operations. In order to execute its development strategy, the Company has historically relied on outside capital through the issuance of equity, debt, and borrowings under financing arrangements (collectively “outside capital”) to fund its cost structure and expects to continue to rely on outside capital for the foreseeable future. While the Company believes it will eventually reach a scale of profitability to sustain its operations, there can be no assurance the Company will be able to achieve such profitability or do so in a manner that does not require its continued reliance on outside capital. Moreover, while the Company has historically been successful in raising outside capital, there can be no assurance the Company will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to the Company. As of the date the accompanying consolidated financial statements were issued (the “issuance date”), management evaluated the significance of the following negative financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern: • Since its inception, the Company has incurred significant losses and negative cash from operations in order to fund its development. During the year ended December 31, 2022, the Company incurred a net loss of $( 229,813 ), incurred negative cash flows from operations of $( 196,857 ), and had an accumulated deficit of $( 646,340 ) as of December 31, 2022. • As of December 31, 2022, the Company had $ 17,076 of unrestricted cash and cash equivalents available to fund the Company’s operations, no additional borrowings available to fund its operations under pre-existing financing arrangements (see Note 13, Borrowings ) and negative working capital of $( 5,429 ), inclusive of $ 5,560 of outstanding debt that is currently scheduled to mature within the next twelve months beyond the issuance date. • While the Company has available capacity under certain pre-existing arrangements to issue shares of the Company’s common stock, including under the SEPA and the ATM offering program, (see also Note 20, Shareholders’ Equity ) to aid in funding the Company’s operations, the Company’s ability to secure such funding is dependent upon certain conditions, such as investors’ willingness to purchase the Company’s common stock and at a price that is acceptable to the Company. Accordingly, as of the issuance date there is no assurance the Company will be able to secure funding under these pre-existing arrangements or on terms that are acceptable to the Company. F-10 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 1. Overview (cont.) • Similarly, while the Company has historically been successful in raising additional outside capital to fund the Company’s operations, as of the issuance date no assurance can be provided the Company will be successful in obtaining additional outside capital or on terms that are acceptable to the Company. In this regard, the Company is currently in the process of negotiating additional outside capital under the U.S. Department of Energy’s (“DOE”) Loan Guarantee Solicitation for Applications for Renewable Energy Projects and Efficient Energy Projects (the “DOE Loan Program”). As of the issuance date, the Company remains in the due diligence phase of negotiations with the DOE, however, there can be no assurance that the Company will be able to secure such loan or on terms that are acceptable to the Company. • The Company is required to remain in compliance with a quarterly minimum financial liquidity covenant under its Senior Secured Term Loan. While the Company was in compliance with this covenant as of December 31, 2022, and expects to remain in compliance as of March 31, 2023, absent the Company’s ability to secure additional outside capital, the Company may be unable to remain in compliance with this covenant beginning on June 30, 2023 and thereafter. In the event the Company is unable to remain in compliance with the minimum financial liquidity covenant and the other nonfinancial covenants required by the Senior Secured Term Loan, and the Company is further unable to cure such noncompliance or secure a waiver, Atlas may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among other things, entering into a forbearance agreement with the Company, and/or asserting its rights in the Company’s assets securing the loan. Moreover, the Company’s other lenders may exercise similar rights and remedies under the cross-default provisions of their respective borrowing arrangements with the Company. • Absent an ability to secure additional outside capital in the near term, the Company will be unable to meet its obligations as they become due over the next twelve months beyond the issuance date. • In the event the Company’s ongoing efforts to raise additional outside capital prove unsuccessful, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment in the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors, and/or allowing the Company to become insolvent. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties. 2. Summary of Significant Accounting Policies Principles of Consolidation The Company follows accounting standards established by the Financial Accounting Standards Board (“FASB”) to ensure consistent reporting of financial condition, results of operations and cash flows. References to accounting principles generally accepted in the United States (“GAAP”) in these notes are to the FASB Accounting Standards Codification™ (“ASC”) and related updates (“ASU”). The financial statements include the accounts of the Company and its subsidiaries and have been prepared in accordance with GAAP. All intercompany transactions and balances have been eliminated in consolidation. Reclassification of Prior Year Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. F-11 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies (cont.) Foreign Currency The Company follows the provisions of ASC 830, Foreign Currency Matters . The Company’s foreign subsidiaries use the local currency of their respective countries as their functional currency. The assets and liabilities of foreign operations are translated at the exchange rates in effect at the balance sheet date. The operating results of foreign operations are translated at weighted average exchange rates. The related translation gains or losses are reported as a separate component of shareholders’ (deficit) equity in accumulated other comprehensive loss. Gains and losses from foreign currency transactions, which were insignificant for years ended December 31, 2022 and 2021, are included as other income (expense) in the consolidated statements of operations and comprehensive loss. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported 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 calculation of the warranty liability and valuation of embedded derivatives within certain of our debt obligations. Allowance for Expected Credit Losses 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 expected credit losses. As of December 31, 2022 and 2021, the allowances for expected credit loss related to Accounts Receivable was $ 3 and $ 9 , respectively. The Company also has an immaterial allowance related to its Notes Receivable, net, which is included on the accompanying consolidated balance sheets. 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 acquisitions can be found in Note 3, Acquisition . Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. Embedded derivatives Some of our debt financings contain embedded derivatives, such as conversion features in our Convertible Notes- Related Party, as well as in our Yorkville Convertible Promissory Note. The Company evaluates each debt agreement to determine whether the embedded derivative feature requires bifurcation from the host liability, in which case would require to be accounted for as a derivative liability. The Company uses valuation models to estimate the fair value of the embedded derivatives. The change in fair value of the embedded derivatives is presented separately on the consolidated statements of operations and comprehensive loss. Earnings (loss) Per Share 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. See Note 20, Shareholders' Equity for further information. F-12 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies (cont.) Fair Value of Financial Instruments The carrying amounts for the Company’s financial instruments classified as current assets and liabilities, including cash and cash equivalents, restricted cash, accounts receivable, contract assets, contract liabilities 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. Goodwill Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is reviewed for impairment each year using a qualitative or quantitative process that is performed at least annually or whenever events or circumstances indicate a likely reduction in the fair value of a reporting unit below its carrying amount. Prior to performing a quantitative evaluation, an assessment of qualitative factors may be performed to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value. If it is determined that it is unlikely that the carrying value exceeds the fair value, the Company is not required to complete the quantitative goodwill impairment evaluation. If it is determined that the carrying value may exceed fair value when considering qualitative factors, a quantitative goodwill impairment evaluation is performed. When performing the quantitative evaluation, if the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the difference will be recorded. The Company completed the annual goodwill impairment test as of November 30, 2022, 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, 2022. Government Grants The Company records grants received or receivable from government agencies as an offset to the related costs for which the grants are intended to compensate the Company. The costs of satisfying the Company’s obligations under the respective grant agreements are recognized as expense when incurred. Once the expenses are approved by the government agencies the Company records the grant receivable and related grant income. Grants received from government agencies for which expenses have not been incurred are included within accrued expenses. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An assessment is performed to determine whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of any long-lived asset impairment is measured based on fair value and is charged to operations in the period in which a long-lived assets impairment is determined by management. During the fourth quarter of 2022, the Company recorded a loss from write-down of property, plant and equipment (see Note 7, Property, Plant & Equipment for further discussion) . F-13 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies (cont.) 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. 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. 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. 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. Intangible Assets, net Intangible assets are stated at their historical cost and amortized on a straight-line basis over their expected useful lives. 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. 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. Leases The Company accounts for its leases under ASU 2016-02, Leases (“ASC 842”). Under ASC 842, the 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 is 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. Leases with an initial term of 12 months or less are excluded from the scope of ROU assets and liabilities, as allowed by ASC 842. F-14 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies (cont.) The Company has lease agreements with lease and non-lease components. The Company has elected the practical expedient to account for non-lease components as part of the lease component for all asset classes. The majority of the Company's lease agreements are real estate leases. Property, Plant and Equipment, net Equipment is stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the improvements or the life of the lease. Maintenance and repair expenditures are expensed as incurred. Expenditures which significantly improve or extend the life of an asset are capitalized. Research and Development Expenses 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. Revenue Recognition Revenue is earned from the sales, installation, and commissioning of BESS, the terms of which are dictated by supply agreements the Company enters into with its customers. Revenue is recognized to depict the transfer of promised goods and/or services to customers 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. As most contracts contain multiple goods delivered to the customer at different times, the transaction price is allocated to each good based on the relative standalone selling price and revenue is recognized when or as the performance obligation is satisfied. The Company uses either the expected cost-plus margin approach or adjusted market assessment approach to estimate the standalone selling prices of its goods and services. Product Revenue Product revenue is comprised of revenue from the BESS, along with other products, including inverters and spare parts, and is recognized at the point in time at which control passes, the determination of which is made in accordance with ASC 606, based on indicators of control. Generally, passage of control will be determined based upon the shipping terms, which vary by contract. Many of the Company’s contracts with customers contain some component of variable consideration. 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. We update our estimates of variable consideration 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. 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. 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. Service Revenue Service revenue includes commissioning, installation and engineering, procurement and construction revenue. As the customer simultaneously receives and consumes the benefits provided by the Company’s performance, these performance obligations are satisfied over time. The Company uses an input method to measure progress towards satisfaction. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, a provision for the entire anticipated contract loss is recorded at that time. F-15 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies (cont.) Warranty related revenue In addition to a standard two-year limited warranty against defects, the Company offers customers the option to purchase an extended warranty, a maintenance and monitoring service and/or a performance guarantee. As the standard two-year limited warranty is classified as an assurance-type warranty, based on criteria set forth in ASC 606, it is not accounted for as a separate performance obligation. The extended warranty, maintenance and monitoring service warranty and performance guarantee, however, represent distinct services and are accounted for as separate performance obligations based on a time-lapsed measure of progress resulting in a ratable recognition of revenue over the respective performance period. For these performance obligations, at any time if management determines that in the case of a particular warranty that total costs will exceed total warranty revenue, a provision for the entire anticipated warranty loss is recorded at that time and included in warranty liability on the consolidated balance sheets. Contract Assets and Contract Liabilities The Company recognizes contract assets for certain contracts in which revenue recognition performance obligations have been satisfied, however invoicing to the customer has not yet occurred. Contract liabilities primarily relate to advance consideration received from customers in advance of the Company’s 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. Payment terms are generally aligned with meeting various contractual milestones, beginning with purchase order execution and extending through manufacturing release, ready to ship, delivery and commissioning. Practical Expedients and Exemptions As permitted by ASC 606, Revenue from Contracts with Customers (“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. Segments The Company’s chief operating decision-maker (“CODM”) is its Chief Executive Officer and President. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the CODM in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, the Company has determined that it operates in one operating and one reportable segment. Stock-Based Compensation Stock-based compensation is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The Company uses the Black-Scholes option pricing model to estimate the fair value of awards, and generally these awards only have service conditions. The Company recognizes compensation cost on a straight-line basis over the requisite service period of the award, which is generally the award vesting term. For awards with performance conditions, we recognize compensation costs using an accelerated attribution method over the vesting period. Compensation costs are recognized only if it is probable that the performance condition will be satisfied. Determining the appropriate fair value model and related assumptions requires judgment, including estimating volatility of the Company’s common stock and expected terms. The expected volatility rates are estimated based on historical and implied volatilities of comparable publicly traded companies. The expected term represents the average time that the options that vest are expected to be outstanding based on the vesting provisions, which is determined through the simplified method, since the Company does not have sufficient historical experience regarding the exercise of options. The Company has elected to recognize forfeitures as incurred. F-16 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies (cont.) Warranty liability Warranty obligations are incurred in connection with the sale of the Company’s products. Costs to provide for warranty obligations are estimated and recorded as a liability at the time of recording the sale. 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, and field monitoring. Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-10, Disclosures by Business Entities about Government Assistance (“Topic 832”). The amendments in this Update require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity's financial statements. The Company adopted this standard prospectively as of January 1, 2022. The adoption of this standard update did not have a material impact on the Company’s consolidated financial statements. Accounting Pronouncements Not Yet Adopted In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . The amendments in this standard update address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. This standard update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the standard is permitted, including adoption in an interim period. T he Company has assessed the standard and concluded that this would only be applicable for acquisitions that the Company enters into prospectively only if the target company has contract assets and contract liabilities. 3. Acquisition 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 the Purchase Agreement, the Company purchased from Holtec the remaining 51 % 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. 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 (the “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 aggregate purchase price of $ 25,000 was to be paid in annual increments of $ 5,000 beginning on May 31, 2021, as evidenced by a secured promissory note secured by the assets of the Company. The Purchase Agreement also required that the Company pay to Holtec, on the closing of the Transactions, cash equal to $ 10,283 . Total payments to Holtec under this Purchase Agreement will be $ 35,283 . During the third quarter of 2022, the Company repaid all outstanding amounts under the Purchase Agreement, which resulted in a loss on debt extinguishment of $ 942 . 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. 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 the agreement, which resulted in a loss on the pre-existing agreement of $ 30,368 for the year ended December 31, 2021. F-17 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 3. Acquisition (cont.) Prior to the acquisition of the remaining 51 % ownership interest in Hi-Power, the Company accounted for its initial 49 % ownership interest in Hi-Power as an unconsolidated joint venture under the equity method of accounting. In connection with the acquisition of the remaining 51 % ownership interest in Hi-Power, the Company’s consolidated financial statements 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 since the date of acquisition. The consideration transferred for our now 100 % ownership interest in connection with the acquisition, net of intercompany balances between the Company and Hi-Power, totaled $ 418 , of which $ 205 represents the fair value of the Company’s previously held 49 % ownership interest in Hi-Power. In accordance with ASC 805, Business Combinations , the Company remeasured the 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 the previously held 49 % ownership interest. The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date: Amount Inventory $ 2,666 Vendor deposits 818 Property, plant 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 (1) $ 365 (1) Net assets acquired exclude the intercompany balance between Eos and Hi-Power and cash acquired. 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 and comprehensive loss. 4. Revenue Recognition The Company's revenues comprised of the following: For the Years Ended December 31, 2022 2021 Product revenue $ 17,429 $ 4,562 Service revenue 495 36 Total revenues $ 17,924 $ 4,598 For the year ended December 31, 2022, we had one customer who accounted for 80.8 % of the total revenue. For the year ended December 31, 2021, we had two customers, who accounted for 36.8 % and 21.4 % of the total revenue. Contract Balances The following table provides information about contract assets and contract liabilities from contracts with customers. Contract assets, current and contract liabilities, current and long-term are included separately on the consolidated balance sheets and contract assets, long-term are included under other assets, net. F-18 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 4. Revenue Recognition (cont.) December 31, 2022 2021 Contract assets $ 2,000 $ 1,369 Contract liabilities $ 4,806 $ 849 Contract assets increased by $ 631 during the year ended December 31, 2022 due to recognition of revenues for which invoicing has not yet occurred. Contract liabilities increased by $ 3,957 during the year ended December 31, 2022, reflecting $ 4,639 in customer advance payments, partially offset by the recognition of $ 682 of revenue during the year ended December 31, 2022 that was included in the contract liability balance at the beginning of the period. Contract liabilities of $ 3,850 as of December 31, 2022 are expected to be recognized within the next twelve months and contract liabilities, long-term of $ 956 are expected to be recognized as revenue over approximately the next three years. Contract assets of $ 1,859 as of December 31, 2022 are expected to be recognized as accounts receivable within the next twelve months. Long-term contract assets of $ 141 are expected to be recognized as accounts receivable over approximately the next three years. 5. Cash, Cash Equivalents and Restricted Cash Restricted cash - current consists of escrow deposits related to U.S. Custom Bonds insurance and escrow deposits related to our credit card program agreements. Additionally, long-term restricted cash relates to interest that is required to be held in escrow per the Senior Secured Term Loan Agreement in an amount equal to the aggregate amount of the four immediately following interest payments owed (see Note 13, Borrowings for further discussion). Cash, cash equivalents, and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated statements of cash flows consisted of the following: December 31, 2022 2021 Cash and cash equivalents $ 17,076 $ 104,831 Restricted cash (1) 2,725 861 Long-term restricted cash 11,422 — Total cash, cash equivalents, and restricted cash $ 31,223 $ 105,692 (1) Restricted cash, current. 6. Inventory The following table provides information about inventory balances: December 31, 2022 2021 Raw materials $ 22,899 $ 11,898 Work-in-process 361 43 Finished goods — 1,035 Total Inventory, net $ 23,260 $ 12,976 F-19 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 7. Property, Plant and Equipment, Net The following table provides information about property, plant and equipment, net balances: December 31, Useful lives 2022 2021 Equipment 5 10 years $ 23,653 $ 13,489 Finance lease 5 years 379 226 Furniture 5 10 years 1,868 808 Leasehold improvements Lesser of useful life/remaining lease 6,303 2,933 Tooling 2 3 years 6,926 3,053 Total 39,129 20,509 Less: Accumulated depreciation ( 11,960 ) ( 7,619 ) Total property, plant and equipment, net $ 27,169 $ 12,890 Depreciation expense related to property, plant and equipment was $ 6,774 and $ 2,573 during the years ended December 31, 2022 and 2021, respectively. For the years ended December 31, 2022 and 2021, the Company recorded a loss from write-down of property, plant and equipment of $ 6,846 and $ 50 , respectively, mainly due to replacement of equipment, outsourcing of certain production processes, and the shift in production from the current generation Gen 2.3 BESS to the next generation Z3 battery system. 8. Intangible Assets Intangible assets consisted of various patents valued at $ 400 , which represents the cost to acquire the patents. These patents are determined to have useful lives and are amortized into the results of operations over ten years . During the years ended December 31, 2022 and 2021, the Company recorded amortization expense of $ 40 for each period, related to patents. Estimated future amortization expense of intangible assets as of December 31, 2022 are as follows: Amortization Expense 2023 $ 40 2024 40 2025 40 2026 40 2027 40 Thereafter 40 $ 240 9. Notes Receivable, Net and Variable Interest Entities (“VIEs”) Consideration Notes receivable primarily consist of amounts due to the Company related to the financing we offered to certain customers. The Company reports notes receivable at the principal balance outstanding less an allowance for losses. The estimate of credit losses is based on historical trends, customers’ financial condition and current economic trends. The Company charges interest at a fixed rate and calculates interest income by applying the effective rate to the outstanding principal balance. The Company had notes receivable, net of $ 863 and $ 3,650 outstanding as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the Company recorded an allowance for expected credit loss from the notes receivable of $ 2 and $ 6 , respectively. F-20 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 9. Notes Receivable, Net and Variable Interest Entities (“VIEs”) Consideration (cont.) The customers to whom the Company offers financing through notes receivables are VIEs. However, the Company is not the primary beneficiary, because the Company does not have power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance. Therefore, the VIEs are not consolidated into the Company’s consolidated financial statements . The maximum loss exposure is limited to the carrying value of notes receivable as of the balances sheet dates. 10. Accrued Expenses Accrued expenses were as follows: December 31, 2022 2021 Accrued payroll $ 2,706 $ 3,069 Warranty reserve (1) 3,836 2,112 Accrued legal and professional expenses 840 826 Provision for contract losses 2,561 — Insurance premium payable, current (2) 2,607 — Other 2,809 1,667 Total accrued expenses $ 15,359 $ 7,674 (1) Refer to the table below for the warranty reserve activity. (2) Refer to Note 13, Borrowings for additional information. The following table summarizes warranty reserve activity: For the Years Ended December 31, 2022 2021 Warranty reserve - beginning of period $ 2,112 $ — Additions for current year deliveries 2,460 2,343 Changes in the warranty reserve estimate 1,284 — Warranty costs incurred ( 2,020 ) ( 231 ) Warranty reserve - end of period $ 3,836 $ 2,112 11. Grant Expense, Net From time-to-time, the Company has entered into grant agreements with the California Energy Commission (“CEC”) for conducting studies to demonstrate the benefits of certain energy-saving technologies to utility companies and consumers in the State of California. Under such agreements, the Company is entitled to receive reimbursement of costs incurred by the Company covered by the grants. For the years ended December 31, 2022 and 2021, the Company received $ 1,007 and $ — in reimbursement payments, respectively, from the CEC. As of December 31, 2022 and 2021, the Company had grant receivables in the amounts of $ 263 and $ 1,020 , which were included in other current assets in the consolidated balance sheets. There was no deferred grant income as of December 31, 2022 and 2021. Related expenses incurred by the Company are offset against grant income earned or received from the CEC. During the years ended December 31, 2022 and 2021, grant (income) expense, net was ($ 16 ) and $ 269 , respectively. F-21 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 12. Related Party Transactions 2021 Convertible Notes Payable In July 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., a related party due to its beneficial ownership exceeding 10% of the Company's Common Shares (the “2021 Convertible Notes”). In connection with these 2021 Convertible Notes, the Company paid $ 3,000 to B. Riley Securities, Inc., also related party, who acted as a placement agent. Refer to Note 13, Borrowings, for additional information. Loss on pre-existing agreement For the year ended December 31, 2021, a loss on pre-existing agreement of $ 30,368 was recorded in connection with the acquisition of Hi-Power. See Note 3, Acquisition for additional information. Disgorgement of short swing profits For the year ended December 31, 2021, the Company received $ 432 from its then affiliated company B. Riley Securities, Inc. resulting from a disgorgement of short swing profits under Section 16 (b) of the Exchange Act. This amount was recognized as an increase to Additional paid in capital as a capital contribution from stockholder when it was earned. Warrants liability The Company issued private warrants to an affiliated company owned by B. Riley Financial, Inc. which were outstanding as of December 31, 2022 and 2021. See Note 14, Warrants Liability - Related Party for additional information. Standby Equity Purchase Agreement On April 28, 2022, the Company entered into the Standby Equity Purchase Agreement with YA II PN, Ltd. Pursuant to the SEPA, the Company has the right, but not the obligation, to sell to Yorkville shares of its common stock at the Company’s request. See Note 20, Shareholders' Equity for additional information. On June 13, 2022, the Company issued and sold a convertible promissory note with an aggregate principal amount of $ 7,500 in a private placement to Yorkville under a supplemental agreement dated as of June 13, 2022 to the SEPA. On December 29, 2022, the Company issued and sold a convertible promissory note with an aggregate principal amount of $ 2,000 in a private placement to Yorkville under a supplemental agreement dated as of December 29, 2022 to the SEPA. See Note 13, Borrowings for additional information. 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 a certain historical security issuances on the former EES common unitholders. Under the Merger Agreement, the Securityholder Representative had the obligation to 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. F-22 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 12. Related Party Transactions (cont.) On December 28, 2021, the independent members of the Board approved a contribution of $ 1,200 towards the Settlement. The approval 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, reviewed and approved as 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 was 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. 13. Borrowings The Company’s borrowings consist of the following related and third-party borrowings: December 31, 2022 December 31, 2021 Borrowing Outstanding Carrying Value* Borrowing Outstanding Carrying Value* Yorkville Convertible Promissory Note - due June 2023 $ 2,000 $ 2,688 $ — $ — 2021 Convertible Notes Payable – due June 2026 109,167 82,950 102,900 84,148 Senior Secured Term Loan - due March 2026 100,000 81,616 — — Note Payable - Hi-Power — — 20,000 18,695 Equipment financing facility - due April 2025 8,577 8,577 6,389 6,371 Total borrowings 219,744 175,831 129,289 $ 109,214 Current portion 5,560 5,560 6,570 6,570 Total borrowings, non-current $ 214,184 $ 170,271 $ 122,719 $ 102,644 * Carrying value includes unamortized deferred financing costs, unamortized discounts, and fair value of embedded derivative liabilities. Yorkville Convertible Promissory Notes - Related Party On June 13, 2022, the Company issued and sold a convertible promissory note (the “June 2022 Promissory Note”) with a stated principal amount of $ 7,500 in a private placement to Yorkville under a Supplemental Agreement to the SEPA (the “Supplemental Agreement”). The June 2022 Promissory Note had a maturity date of September 15, 2022, and was issued with a 2 % original issue discount, debt issuance costs of $ 125 , bears interest only upon the occurrence of an Event of Default (as defined in the SEPA) for so long as it remains uncured. Upon the occurrence of an Event of Default, interest will begin to accrue at a rate of 15 % per year. The June 2022 Promissory Note gives Yorkville the right, but not the obligation, to convert principal and accrued interest into shares of the Company’s common stock at a conversion price of $ 2.21 any time prior to the maturity date, subject to terms and conditions of the June 2022 Promissory Note. In July and August 2022, pursuant to the terms of the Supplemental Agreement, Yorkville delivered six Investor Notices requiring the Company to issue and sell an aggregate of 3,393,663 shares of common stock at a price of $ 2.21 per share to Yorkville, in order to offset all outstanding amounts owed to Yorkville under the June 2022 Promissory Note. Interest expense on the June 2022 Promissory Note was $ 309 for the year ended December 31, 2022. As of December 31, 2022, the outstanding balance of the June 2022 Promissory Note was zero . F-23 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. Borrowings (cont.) On December 29, 2022, the Company issued a convertible promissory note (the "December 2022 Promissory Note") with an aggregate principal amount of $ 2,000 in a private placement to Yorkville under a second supplemental agreement to the SEPA. The December 2022 Promissory Note has a maturity date of June 29, 2023, and was issued with an original issue discount of 2 %, debt issuance costs of $ 179 , and an annual interest rate of 5 % which shall increase to an annual rate of 15 % upon an Event of Default (as defined in the SEPA) for so long as it remains uncured. The December 2022 Promissory Note is convertible into shares of the Company’s common stock at a conversion price equal to the lower of $ 1.1779 or 96.5 % of the lowest daily volume weighted average price of the Company’s common stock during the seven consecutive trading days immediately preceding the conversion date (the "Conversion Price"). Mandatory Payments - If, any time after the Issuance Date, and from time to time thereafter, the daily VWAP is less than the Floor Price for five consecutive Trading Days (the last such day of each such occurrence, a “Triggering Date”), then the Company shall make weekly payments in an amount equal to the sum of (i) $ 1,000,000 of Principal (or the outstanding Principal if less than such amount), (ii) the "Payment Premium" - defined as an amount equal to 3 % of the Principal amount of a payment being made by the Company paid in cash, and (iii) accrued and unpaid interest as of each payment date. The obligation of the Company to make weekly payments shall cease if at any time after the Triggering Date the daily VWAP is greater than the Floor Price for a period of five consecutive Trading Days, unless a subsequent Triggering Date occurs. Conversion Rights - Yorkville has the right, but not the obligation, to convert principal and accrued interest into shares of the Company’s common stock at the Conversion Price any time prior to the Maturity Date, subject to the terms and conditions of the December 2022 Promissory Note. At any time that there is an outstanding balance owed under the December 2022 Promissory Note, Yorkville may, pursuant to the terms of the Second Supplemental Agreement, deliver Investor Notices to require the Company to issue and sell shares of common stock under the SEPA at the Conversion Price in order to repay the amounts owed by the Company to the Holder under the December 2022 Promissory Note. In addition, while there is an outstanding balance owed under the December 2022 Promissory Note, the Company must use any Advance requested by the Company pursuant to the SEPA to repay the amounts owed by the Company to the Holder under the December 2022 Promissory Note. The shares issuable upon conversion are subject to the Exchange Cap. See Note 20, Shareholders' Equity for further discussion regarding the Exchange Cap. Optional Redemption - The Company has the right, but not the obligation, to redeem early a portion or all amounts outstanding under the December 2022 Promissory Note provided that (i) the Company provides the Holder with at least five trading days’ prior written notice (each, a “Redemption Notice”) of its desire to exercise an Optional Redemption, and (ii) the VWAP of the Company’s common stock on each of the ten trading days immediately prior to the Redemption Notice is less than the conversion price. Event of Default Put Option - Upon the occurrence of an Event of Default, interest will begin to accrue at a rate of 15 % per year and Yorkville may elect to accelerate the repayment of each installment. Contingent Interest upon Event of Default - If any Event of Default has occurred and is continuing, then the full unpaid Principal amount of the December 2022 Promissory Note and the 3 % Payment Premium, together with interest and other amounts owed to the date of acceleration shall become at Yorkville's election, immediately due and payable in cash. Embedded Derivatives - The number of shares issuable for conversion of the December 2022 Promissory Note is subject to the Exchange Cap limitation under the SEPA, unless shareholder approval is obtained. Therefore, at issuance, shareholder approval is an explicit input that can adjust the number of shares issuable upon settlement. Because shareholder approval is not an input that is indexed to the Company’s shares, the conversion feature is not indexed to the Company's own stock. Therefore, the conversion feature does not qualify for the scope exception to derivative accounting and bifurcation is required at issuance. F-24 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. Borrowings (cont.) In addition to the conversion feature, the optional redemption feature, the events of default put option and the contingent interest upon event of default feature, are embedded features that require bifurcation. The embedded derivative features were bundled into a single embedded derivative, bifurcated and accounted for as a derivative liability measured at fair value. The fair value of the embedded derivative in the December 2022 Promissory Note was estimated using the intrinsic and discounted cash flow model at inception and on subsequent valuation dates. These models incorporate inputs such as the stock price of the Company and its debt yield. The assumptions used to determine the fair value of the embedded derivatives at issuance and at year-end were as follows: December 29, 2022 December 31, 2022 EOSE Common Stock Price $ 1.17 $ 1.48 Debt Yield 25.00 % 25.00 % As of December 29, 2022 and December 31, 2022, the fair value of the embedded derivative was $ 419 and $ 1,027 , respectively. The loss from the change in fair value of the embedded derivative for the year ended December 31, 2022 amounted to $ 608 and is included on the consolidated statements of operations and comprehensive income (loss). The fair value of the December 2022 Promissory Note at issuance was $ 2,299 , which was greater than the proceeds received. The Company recorded the difference as interest expense at inception. The December 2022 Promissory Note was fully converted into common shares in January 2023, see Note 21, Subsequent Events for additional information. The carrying value of the December 2022 Promissory Note is as follows: December 31, 2022 Principal $ 2,000 Unamortized debt discount ( 160 ) Unamortized debt issuance costs ( 179 ) Embedded derivative liability 1,027 Aggregate carrying value $ 2,688 2021 Convertible Notes Payable - Related Party On July 6, 2021, the Company entered into an investment agreement with Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch Industries. The investment agreement provides for the issuance and sale to Koch of convertible notes in the aggregate principal amount of $ 100,000 . The maturity date of the 2021 Convertible Notes is June 30, 2026, subject to earlier conversion, redemption, or repurchase. Contractual Interest Rates - The 2021 Convertible Notes bear interest at a rate of 5 % per year if interest is paid in cash, or 6 % per year if interest is paid in-kind. Interest on the 2021 Convertible Notes is payable semi-annually in arrears on June 30 and December 30. Conversion Rights - The 2021 Convertible Notes are convertible at the option of the holder at any time until the business day prior to the maturity date, including in connection with a redemption by the Company. The 2021 Convertible Notes will be convertible into shares of the Company's common stock based on an initial conversion rate of 49.9910 shares of the Company’s common stock, which is equal to an initial conversion price of approximately $ 20.00 per share, in each case subject to customary anti-dilution and other adjustments. For the years ended December 31, 2022 and 2021, there were no adjustments to conversion rate. As of December 31, 2022 and 2021, 5,457,348 and 5,144,074 shares, respectively, 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. F-25 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. Borrowings (cont.) Optional Redemption - On or after June 30, 2024, the 2021 Convertible Notes will be redeemable by the Company in the event that 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 ending on, and including, the trading day immediately preceding the date on which the Company provides the redemption notice at a redemption price of 100 % of the principal amount of such 2021 Convertible Notes, 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 - With certain exceptions, upon the occurrence of certain events, fundamental changes described in the 2021 Convertible Notes Agreement, the holders of the 2021 Convertible Notes may require that the Company repurchase all or part of the principal amount of the Notes at a purchase price of 100 % of the principal amount of such 2021 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 ASC 815. 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 (see Note 16, Fair Value Measurement ). The assumptions used to determine the fair value of the embedded conversion feature are as follows: December 31, 2022 2021 Term 3.50 years 4.50 years Dividend yield — % — % Risk-free interest rate 4.1 % 1.2 % Volatility 80.0 % 60.0 % Effective debt yield 25.0 % 19.0 % As of December 31, 2022 and 2021, the fair value of the embedded conversion feature was $ 918 and $ 12,359 respectively. The gain from the change in the fair value of the embedded derivative conversion features for the years ended December 31, 2022 and 2021 amounted to $ 11,488 and $ 17,507 , respectively. F-26 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. Borrowings (cont.) Interest expense recognized on the 2021 Convertible Notes is as follows: For the Years Ended December 31, 2022 2021 Contractual interest expense $ 6,267 $ 2,900 Amortization of debt discount 3,588 1,545 Amortization of debt issuance costs 388 152 Total $ 10,243 $ 4,597 The carrying value for the 2021 Convertible Notes is as follows: December 31, 2022 2021 Principal $ 109,167 $ 102,900 Unamortized debt discount ( 24,733 ) ( 28,321 ) Unamortized debt issuance costs ( 2,402 ) ( 2,790 ) Embedded derivative liability 918 12,359 Aggregate carrying value $ 82,950 $ 84,148 In accordance with the terms under the Senior Secured Term Loan, the Company is obligated to repay in-kind all contractual interest attributable to the 2021 Convertible Notes. During the year ended December 31, 2022, contractual interest in-kind of $ 6,267 was recorded as an increase to the 2021 Convertible Notes' principal balance on the consolidated balance sheet. Senior Secured Term Loan On July 29, 2022 (the "Closing Date"), the Company entered into a $ 100,000 Senior Secured Term Loan Credit Agreement with Atlas Credit Partners (ACP) Post Oak Credit I LLC, as administrative agent for the lenders and collateral agent for the secured parties. As of December 31, 2022, the Company had total borrowings of $ 100,000 under the Senior Secured Term Loan, composed of borrowings on July 29, 2022, August 4, 2022, and December 7, 2022 of $ 85,106 and $ 9,574 , and $ 5,320 , respectively. The Senior Secured Term Loan is scheduled to mature on the earlier of (i) July 29, 2026, and (ii) 91 days prior to the current maturity date of the 2021 Convertible Notes of June 30, 2026. The Company has the right at any time to prepay any Borrowing in whole or in part in an amount of not less than $ 500 . The Company used the proceeds from the Senior Secured Term Loan to (i) fund growth investments and for general corporate purposes including corporate-level research and development investments, (ii) expand the manufacturing facility of the Company’s wholly owned subsidiary, Hi-Power, (iii) redeem in full the Company’s existing indebtedness to Holtec (see Note 3, Acquisition for further discussion) and (iv) pay certain insurance premiums, interest reserves, fees and expenses incurred in connection with the Senior Secured Term Loan agreement. The outstanding principal balance of the Senior Secured Term Loan bears interest, at the applicable margin plus, at the Company’s election, either (i) the benchmark secured overnight financing rate (“SOFR”), which is a per annum rate equal to (y) the Adjusted Term SOFR plus 0.2616 %, or (ii) the alternate base rate (“ABR”), which is a per annum rate equal to the greatest of (x) the U.S. Prime Lending Rate, (y) the NYFRB Rate (as defined in the Senior Secured Term Loan Agreement) plus 0.5 % and (z) the SOFR. The applicable margin under the Credit Agreement is 8.5 % per annum with respect to SOFR loans, and 7.5 % per annum with respect to ABR loans. Interest on the Senior Secured Term Loan accrues at a variable interest rate, and interest payments are due quarterly. The Company may elect to convert SOFR Loans to ABR (and ABR Loans to SOFR). F-27 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. Borrowings (cont.) Any repayment of principal prior to the second anniversary of the issuance date is subject to a call premium. The call premium is equal to the present value of all interest payments due through June 30, 2024, calculated using a discount rate equal to the applicable treasury rate as of the repayment date plus 50 basis points. The Company deemed that the fair value of the embedded derivative features which qualify for bifurcation was de minimis. Concurrently, the Company entered into a Guarantee and Collateral Agreement which secures and guarantees the Senior Secured Term Loan with substantially all the assets of the Company and its subsidiaries, other than the Company’s equity interests in Hi-Power and assets of Hi-Power. Additionally, interest is required to be escrowed in an amount equal to the aggregate amount of the four immediately following interest payments owed on the Loans. At December 31, 2022, escrowed interest of $ 11,422 is presented in Long-term restricted cash on the consolidated balance sheets. The agreements also contain customary affirmative and negative covenants. They limit the Company’s and its subsidiaries’ ability to incur indebtedness, make restricted payments, including cash dividends on its common stock, make certain investments, loans and advances, enter into mergers and acquisitions, sell, assign, transfer or otherwise dispose of its assets, enter into transactions with its affiliates and engage in sale and leaseback transactions, among other restrictions. Furthermore, the limitation on the Company’s ability to incur indebtedness also (i) limits the amount of debt under the SEPA Loans that the Company may have outstanding at any time to $ 15,000 , and (ii) requires payment in kind of principal and interest on each of the SEPA Pre-Advance Loans (if any) and on the 2021 Convertible Notes. Additionally, the Company may not permit Liquidity (as defined in the Senior Secured Term Loan) as of the last day of each fiscal quarter to be less than the Interest Escrow Required Amount (as defined in the Senior Secured Term Loan), which is calculated as the aggregate amount of the four immediately following interest payments under the Senior Secured Term Loan. While the Company was in compliance with this covenant as of December 31, 2022 and currently expects to remain in compliance as of March 31, 2023, absent the Company’s ability to secure additional outside capital, the Company may be unable to remain in compliance with this covenant beginning on June 30, 2023 and thereafter (see Note 1, Overview ). Debt issuance costs of $ 885 and original issue discounts of $ 2,008 were recognized for all amounts borrowed under the Senior Secured Term Loan. These fees shall be amortized to interest expense, utilizing the effective interest method through loan maturity. Debt issuance costs also include credit wrap insurance premiums of $ 16,953 for all amounts borrowed under the Senior Secured Term Loan. The credit wrap insurance provides the Lender with a guarantee on the Company’s credit risk. In the event the Senior Secured Term Loan remains outstanding on the first, second and third anniversaries of the closing date, the Company will be required to pay additional insurance premiums equal to 3 %, 3 %, and 2 %, respectively of the Senior Secured Term Loan balance then outstanding. The debt issuance fees shall be amortized to interest expense, utilizing the effective interest method through loan maturity. The following table summarizes interest expense recognized on the Senior Secured Term Loan: For the Year-Ended December 31, 2022 Contractual interest expense $ 4,887 Amortization of debt discount 142 Amortization of debt issuance costs 1,320 Total $ 6,349 F-28 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. Borrowings (cont.) The carrying value of the Senior Secured Term Loan is as follows: December 31, 2022 Principal $ 100,000 Unamortized debt discount ( 1,866 ) Unamortized debt issuance costs ( 16,518 ) Aggregate carrying value $ 81,616 Equipment Financing facility The Company entered into an agreement on September 30, 2021 with Trinity Capital Inc. ("Trinity") for a $ 25,000 equipment financing facility, the proceeds of which will be used to acquire certain manufacturing equipment, subject to Trinity's approval. 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. Date of Draw Gross Amount of Initial Draw Coupon Interest Rate Debt Issuance Costs September 2021 $ 7,000 14.3 % $ 175 September 2022 4,216 16.2 % 96 Total Equipment Financing loans $ 11,216 $ 271 In addition to the above fees, a commitment fee of $ 188 was paid at the 2021 closing of the equipment financing facility. On September 30, 2022, the equipment facility’s unused commitment of $ 13,784 expired. As of December 31, 2022 and December 31, 2021, total equipment financing debt outstanding was $ 8,577 and $ 6,371 , respectively of which $ 2,872 and $ 1,644 are recorded as a current liability on the consolidated balance sheets, respectively. For the years ended December 31, 2022 and 2021, the Company recognized $ 922 and $ 157 as interest expense attributable to the equipment financing agreement, respectively. Other Borrowings Note Payable – Hi-Power In connection with the Hi-Power acquisition (see Note 3, Acquisition ), the Company agreed to pay an aggregate purchase price of $ 25,000 . Principal payments of $ 5,000 were paid in May 2021 and 2022. The fair value of the note payable was estimated using active market quotes, based on the Company’s incremental borrowing rates for similar types of borrowing arrangements, which were Level 2 inputs (see Note 16, Fair Value Measurement ). As of December 31, 2021, notes payable included a current portion of $ 4,926 and a long-term portion of $ 13,769 , respectively. The Note was extinguished during the third quarter of 2022 with proceeds from the Senior Secured Term Loan. The Company recognized a loss of $ 942 from debt extinguishment for the year ended December 31, 2022 . 14. Warrants Liability - Related Party Private placement warrants issued to the Sponsor of BMRG in its initial public offering on May 22, 2020 became exercisable on May 22, 2021. These warrants are classified as Level 2 financial instruments in the fair value hierarchy (see Note 16, Fair Value Measurement ). They are valued on the basis of the quoted price of the Company’s public warrants, adjusted for insignificant difference between the public warrants and the private placement warrants. As of December 31, 2022 and 2021, 325,000 private warrants were outstanding with a fair value of $ 78 and $ 926 , respectively. These amounts are included in warrants liability - related party on the consolidated balance sheets. F-29 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 14. Warrants Liability - Related Party (cont.) The change in fair value for the years ended December 31, 2022 and 2021 amounted to $ 848 and $ 1,775 , respectively. The change has been recognized in loss (gain) on change in fair value of derivatives - related parties in the Company’s consolidated statements of operations and comprehensive loss. 15. Leases The Company leases machinery, manufacturing facilities, office space, land, and equipment under both operating and finance leases. Lease assets and lease liabilities as of December 31, 2022 and 2021 were as follows: December 31, Classification on Balance Sheet 2022 2021 Assets ROU operating lease assets Operating lease right-of-use asset, net $ 4,316 $ 3,468 Finance lease assets Property, plant and equipment, net 153 28 Total lease assets $ 4,469 $ 3,496 December 31, Classification on Balance Sheet 2022 2021 Liabilities Current Operating lease liability Operating lease liability, current $ 1,106 $ 1,084 Finance lease liability Other current liabilities 32 8 Long-term Operating lease liability Operating lease liability 4,130 3,224 Finance lease liability Other liabilities 126 17 Total lease liabilities $ 5,394 $ 4,333 Operating lease costs for the years ended December 31, 2022 and 2021, were $ 1,370 and $ 1,158 , respectively. As of December 31, 2022 and 2021, the weighted average remaining term (in years) for the operating leases was 3.82 and 4.15 years, respectively and the weighted average discount rate was 10.4 % and 3.3 %, respectively. As of December 31, 2022 and 2021, the weighted average remaining term (in years) for the finance leases was 3.94 and 3.47 years, respectively, and the weighted average discount rate was 19.9 % and 12.5 %, respectively. Future minimum lease payments as of December 31, 2022 were as follows: Operating leases Finance leases Total 2023 $ 1,538 $ 60 $ 1,598 2024 1,617 60 1,677 2025 1,701 55 1,756 2026 1,420 35 1,455 2027 — 19 19 Total minimum lease payments $ 6,276 $ 229 $ 6,505 Less amounts representing interest ( 1,040 ) ( 71 ) ( 1,111 ) Present value of minimum lease payments $ 5,236 $ 158 $ 5,394 F-30 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 15. Leases (cont.) Lessor The Company currently leases BESS 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 years ended December 31, 2022 and 2021, the Company recognized revenue of $ 1,166 and $ 353 from the sales-type lease, respectively. Net sales-type lease receivables of $ 1,471 and $ 347 , net of unearned finance income are recorded under other assets on the consolidated balance sheets as of December 31, 2022 and 2021, respectively. 16. Fair Value Measurement The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, net, contract assets, long-term restricted cash, accounts payable, convertible notes payable — related party, contract liabilities, long-term debt, and warrants liability- related party. 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, restricted cash, accounts receivable, contract assets, long-term restricted cash, contract liabilities 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 the Company's accompanying consolidated balance sheets, and their designations among the three fair value measurement categories: December 31, 2022 December 31, 2021 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Liabilities Private placement warrants $ — $ 78 $ — $ — $ 926 $ — Embedded derivative liabilities $ — $ — $ 1,945 $ — $ — $ 12,359 The following table presents a roll-forward of the activity of the embedded derivative liabilities within our 2021 Convertible Notes and the December 2022 Promissory Note (see Note 13, Borrowings for further discussion). These liabilities were measured at fair value on a recurring basis using significant unobservable inputs (Level 3). 2022 2021 Balance at beginning of the period $ 12,359 $ — Additions 466 29,866 Change in fair value included in earnings ( 10,880 ) ( 17,507 ) Balance at end of the period $ 1,945 $ 12,359 F-31 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 16. Fair Value Measurement (cont.) 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, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Notes receivable 3 $ 863 $ 677 $ 3,650 $ 2,805 Note payable- Hi-Power 3 — — 18,695 14,607 2021 Convertible Notes* 3 82,950 62,421 84,148 74,225 Senior Secured Term Loan 3 81,616 77,576 — — Equipment financing facility 3 8,577 6,282 6,371 5,951 December 2022 Promissory Note* 3 2,688 2,908 — — Total $ 176,694 $ 149,864 $ 112,864 $ 97,588 *Includes the embedded derivative liabilities. 17. Commitments and Contingencies Lease commitments The Company has lease commitments under lease agreements. See Note 15, Leases, for additional information. Minimum Volume Commitment In June 2022, the Company entered into a long-term supply agreement with a minimum volume commitment with a third party, which provides services to process certain raw materials. Any purchase order issued under this supply agreement will be non-cancellable. To the extent the Company fails to order the guaranteed minimum volume defined in the contract at the end of the term, the Company is required to pay the counterparty an amount equal to the shortfall, if any, multiplied by a fee. As of December 31, 2022, the Company had open purchase commitments of $ 242 under this agreement. The Company believes that the probability of failing to meet the minimum volume commitment is remote and no shortfall penalty has been accrued as of December 31, 2022. Legal Proceedings Department of Justice On July 7, 2022, the Company entered into a settlement agreement with the U.S. Department of Justice (DOJ) and Vincent Icolari (“Relator”) to resolve the previously disclosed investigation by the DOJ for underpayment of certain custom duties in past years in connection with imports of batteries and battery components manufactured abroad. The investigation resulted from a qui tam lawsuit (the “Civil Action”) filed by the Relator in December 2019 alleging violations of the False Claims Act. Pursuant to the terms of the settlement agreement, the Company has agreed to pay a total of $ 1,017 to the United States Department of Justice and $ 70 to Relator’s counsel. Upon receipt of such payments, the DOJ and the Relator have agreed to release the Company from civil monetary and administrative claims under the False Claims Act and the Relator has agreed to release the Company from any claims related to the Civil Action. The Company has fully settled this liability as of December 31, 2022. SEC Subpoena In April 2022, the Company received a subpoena from the U.S. Securities and Exchange Commission (“SEC”). On August 29, 2022, the Company received a letter from the SEC informing the Company that the SEC’s investigation relating to the subpoena has concluded without any recommendation for enforcement action as to the Company. F-32 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 17. Commitments and Contingencies (cont.) Delaware Section 205 Petition On November 12, 2020, B. Riley Principal Merger Corp. II (“BMRG”), the predecessor to the Company, held a special meeting of stockholders (the “BMRG Special Meeting”) to approve certain matters relating to the business combination between BMRG and Eos Energy Storage LLC. One of these matters was a proposal to amend and restate BMRG’s certificate of incorporation in order to, among other things, increase the number of authorized shares of common stock from 125,000,000 shares of common stock, consisting of 100,000,000 shares of Class A common stock and 25,000,000 shares of Class B common stock, to 200,000,000 shares of common stock, and to reclassify all Class A common stock and Class B common stock as a single class of common stock (the “Charter Amendment Proposal”). The Charter Amendment Proposal was approved by a majority of the outstanding shares of Class A common stock and Class B common stock of BMRG as of the record date for the BMRG Special Meeting, voting together as a single class, although voting records indicate that a majority of each of the shares of Class A common stock and Class B common stock also approved the Charter Amendment Proposal. After the BMRG Special Meeting, BMRG and Eos Energy Storage LLC closed the business combination and the Company’s certificate of incorporation, as amended to give effect to the Charter Amendment Proposal, became effective. A recent ruling by the Delaware Court of Chancery introduced uncertainty as to whether Section 242(b)(2) of the Delaware General Corporation Law (the “DGCL”) would have required the Charter Amendment Proposal to be approved by separate votes of the majority of BMRG’s then-outstanding shares of Class A common stock and Class B common stock. The Company had been proceeding with the understanding that the Charter Amendment Proposal and the amendment and restated certificate of incorporation are valid. In light of this recent ruling, however, to resolve potential uncertainty with respect to the Company’s capital structure, the Company filed a petition in the Delaware Court of Chancery under Section 205 of the DGCL to seek validation of the Charter Amendment Proposal. Section 205 of the DGCL permits the Court of Chancery, in its discretion, to ratify and validate potentially defective corporate acts. On February 27, 2023, the Court of Chancery approved the Company's request for relief and entered an order under Section 205 of the Delaware General Corporation Law (1) declaring the Company's Third Amended and Restated Certificate of Incorporation (the "Charter"), including the filing and effectiveness thereof, as validated and effective retroactive to the date of its filing with the Office of the Secretary of State of the State of Delaware on November 16, 2020, and all amendments effected thereby and (2) ordering that the Company's securities (and the issuance of the securities) described in the Petition and any other securities issued in reliance on the validity of the Charter are validated and declared effective, each as of the original issuance dates. 18. Stock-Based Compensation Stock-based compensation expense included in the consolidated statements of operations and comprehensive loss was as follows: For the years ended December 31, 2022 2021 Stock options $ 3,002 $ 3,809 Restricted stock units 10,792 11,249 Total $ 13,794 $ 15,058 The stock compensation has been recorded in cost of goods sold, research and development expenses and selling, general and administrative expenses. The following table summarizes stock option activity during the years ended December 31, 2022 and 2021: F-33 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 18. Stock-Based Compensation (cont.) Units Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (years) Options Outstanding at December 31, 2020 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 Granted 3,275,224 1.33 Cancelled/Forfeited ( 953,872 ) 4.84 Options Outstanding at December 31, 2022 4,344,812 4.37 7.7 Options Exercisable at December 31, 2022 2,314,963 6.13 7.1 A summary of restricted stock units (RSU) activity for the years ended December 31, 2022 and 2021 is as follows: Units Weighted-Average Grant-Date Fair Value RSUs Outstanding at December 31, 2020 42,318 $ 13.46 Granted 2,580,670 16.62 Cancelled/Forfeited ( 273,632 ) 14.98 Vested ( 154,600 ) 16.50 RSUs Outstanding at December 31, 2021 2,194,756 16.36 Granted 2,557,263 2.87 Cancelled/Forfeited ( 1,051,951 ) 8.55 Vested ( 704,178 ) 15.02 RSUs Outstanding at December 31, 2022 2,995,890 7.89 In 2022, the Company reserved an additional 2,537,866 shares for the Amended and Restated 2020 Incentive Plan. As of December 31, 2022 and 2021, 994,108 and 2,282,906 shares remain for future issuance, respectively. Options generally have a term of five to ten years and vest over periods ranging from three months to five years . RSUs generally vest over periods from three to four years . During the year ended December 31, 2022, the Company granted 75,000 RSUs and 2,325,000 options with performance and service conditions. Stock compensation is recognized on a straight-line basis over the requisite service period of the award, which is generally the award vesting term. For awards with performance conditions, compensation expense is recognized using an accelerated attribution method over the vesting period. The performance conditions primarily relate to achievement of sales and financing targets. In December 2022, the Company modified 625,000 of performance-based stock options that were issued in June 2022 by extending the period to meet certain performance conditions. As of December 31, 2022, there were 15,000 and 1,575,000 performance-based RSUs and stock options, respectively. As of December 31, 2022, total unrecognized stock compensation expense was $ 16,314 of which $ 14,604 was attributable to unvested RSUs and $ 1,710 attributable to unvested stock options. Compensation expense for these unvested awards is expected to be recognized over a weighted-average remaining vesting period of 0.5 years for stock options and 1.5 years for RSUs. F-34 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 18. Stock-Based Compensation (cont.) The weighted average assumptions used to determine the fair value of options granted in 2022 and 2021 are as follows: 2022 2021 Volatility 61.36 % 58.86 % Risk free interest rate 3.27 % 0.67 % Expected life (years) 4.67 4.18 Dividend yield 0 % 0 % The RSUs issued were valued at the stock price of the Company on the date of the grant. The weighted average grant date fair value of all options granted was $ 0.72 and $ 8.08 per option for the years ended December 31, 2022 and 2021, respectively. 19. Income Taxes The Company is subject to regulation under U.S., Italy and India tax laws, regulations and policies. Changes to these laws or regulations may affect the Company’s tax liability, return on investments and business operations. Earnings before income taxes Net income (losses) before income taxes were as follows: For the years ended December 31, 2022 2021 U.S. $ ( 229,923 ) $ ( 124,216 ) Non-U.S. 161 — Total income (loss) before income tax $ ( 229,762 ) $ ( 124,216 ) Income expense (benefit) Income tax expense (benefit) was as follows: For the years ended December 31, 2022 2021 Current expense (benefit): U.S. federal $ — $ — U.S. state and local — — Non-U.S. 51 — Total current income tax (benefit) provision $ 51 $ — Deferred expense (benefit): U.S. federal $ — $ — U.S. state and local — — Non-U.S. — — Total deferred income tax (benefit) provision — — Total income tax (benefit) provision $ 51 $ — F-35 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 19. Income Taxes (cont.) The Company has a tax provision of $ 51 for the year ended December 31, 2022 due to foreign taxable income and the generation of U.S. taxable losses offset by a valuation allowance, discussed below, on the deferred tax assets. The Company has a tax provision of $ — for the year ended December 31, 2021 due to the generation of U.S. taxable losses offset by a valuation allowance on the deferred tax assets. Reconciliation of US Federal Statutory income tax rate to actual income tax rate The reconciliation from the statutory U.S. federal income tax rate to the effective tax rate is as follows: For the years ended December 31, 2022 2021 Income (loss) before income taxes $ ( 229,762 ) $ ( 124,216 ) Statutory U.S. federal income tax (21%) ( 48,250 ) ( 26,085 ) State and local income tax ( 12,051 ) ( 6,592 ) Income taxed at rates other than statutory 17 — Non-deductible convertible debt ( 2,220 ) ( 3,676 ) Non-deductible warrant cost ( 178 ) ( 373 ) Stock-based compensation 1,622 274 Valuation allowance 60,444 36,541 Other 667 ( 89 ) Total income tax expense $ 51 $ — 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, non-deductible convertible debt, as well as stock-based compensation. Deferred Income Taxes 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, 2022 and 2021 were as follows: F-36 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 19. Income Taxes (cont.) December 31, 2022 2021 Deferred tax assets: NOL carryforwards $ 121,142 $ 63,203 Capital loss carryforwards 235 710 Tax credit carryforwards 65 65 Goodwill 7,427 8,471 Capitalized research & experimental costs 3,952 — Stock-based compensation 4,819 4,455 Accruals and reserves 1,678 1,586 Organizational costs 140 162 Lease liability 1,413 1,185 Fixed assets 316 — Interest limitation — 1,430 Inventory 663 1,448 Transaction costs 266 301 Deferred tax assets, gross $ 142,116 $ 83,016 Valuation allowance ( 140,858 ) ( 80,415 ) Total deferred tax assets, net $ 1,258 $ 2,601 Deferred tax liabilities: Fixed assets — ( 1,073 ) Right of use asset ( 1,194 ) ( 954 ) Note payable — ( 497 ) Intangibles ( 63 ) ( 77 ) Other ( 1 ) — Deferred tax liabilities ( 1,258 ) ( 2,601 ) Total deferred tax asset (liability) $ — $ — As of December 31, 2022, the Company’s net deferred tax balances consist primarily of U.S. federal and state net operating losses (“NOLs”) available for carry forward, tax amortizable goodwill in excess of financial statement goodwill, stock-based compensation, and capitalized research and experimental (“R&E”) costs. As of December 31, 2021, the Company's net deferred tax balances consist primarily of U.S. federal and state NOLs as available for carry forward and tax amortizable goodwill in excess of financial statement goodwill. The Tax Cuts & Jobs Act of 2017 ("TCJA") mandated that R&E costs incurred in tax years beginning after December 31, 2021 must be capitalized and amortized over five years if the research is performed in the United States and over 15 years if performed outside the United States. As of December 31, 2022, the Company has capitalized and will amortize these costs over the required periods. 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. The Company did not participate in the program during 2022. F-37 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 19. Income Taxes (cont.) The Company maintains a valuation allowance where it is more-likely-than-not that all or a portion of a deferred tax asset may not be realized. Changes in the valuation allowance are included in the Company’s income tax provision in the period of change. 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. As of December 31, 2022, all deferred tax assets related to the U.S. 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, 2022 and 2021 due to a history of cumulative losses. As such, the Company has a valuation allowance against its net deferred tax assets. The valuation allowance increased by $ 60,444 between December 31, 2022 and 2021. The increase was primarily attributable to an increase in NOL carryforwards. At December 31, 2022, the valuation allowance is $ 140,858 , of which $ 1,762 will be allocated to additional paid-in capital when released. The remaining valuation allowance of $ 139,096 will be released through continuing operations. Net Operating Losses & Tax Credits As of December 31, 2022 and 2021, the Company has federal research and development tax credits (“R&D credit”) of approximately $ 3,733 for both years, which begin to expire in varying amounts from 2031 – 2038, subject to the annual limitation described below. In addition, the Company has state R&D credits of approximately $ 65 for the years ended December 31, 2022 and 2021, which will expire in 2024. 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, 2022 and 2021, the Company has gross federal NOL carryforwards of approximately $ 485,351 and $ 263,270 , respectively. As of December 31, 2022 and 2021, the Company has state NOL carryforwards of approximately $ 235,679 and $ 125,855 , respectively. Regarding the federal NOL for the year ended December 31, 2022, $ 89,051 begins to expire in varying amounts from 2032 through 2036, while $ 396,300 has an indefinite carryforward period. Regarding the state NOL carryforwards for the year ended December 31, 2022, $ 233,566 begin to expire in varying amounts from 2033 through 2042, while $ 2,113 has an indefinite carryforward period. The U.S. (federal and state) operating loss carryforwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code, and similar state provisions. The Company determined that the merger transaction constitutes a change of ownership as defined under Internal Revenue Code Section 382 and Section 383. 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. Based on management’s Section 383 Limitation Analysis, it is expected that as of December 31, 2022 and December 31, 2021, $ 3,733 of federal R&D credits will expire unused. On August 16, 2022, the IRA was signed into law that includes a new alternative minimum tax based upon financial statement income (“book minimum tax”) and tax incentives for energy and climate initiatives, among other provisions. The Company is not expected to be impacted by the book minimum tax given its extensive losses. The Company continues to assess the tax incentives in the legislation that could impact pre-tax income, effective tax rate, or valuation of deferred tax assets. Unrecognized Tax Benefits The Company is subject to income taxes in the United States (federal and state), India, and Italy. 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. F-38 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 19. Income Taxes (cont.) The Company has unrecognized tax benefits associated with uncertain tax positions as of December 31, 2022 and 2021 as follows: For the years ended December 31, 2022 2021 Gross unrecognized tax benefits as of January 1 $ 719 $ 722 Additions: Current year tax positions — — Prior year tax positions — — Rate change ( 34 ) ( 3 ) Settlements — — Lapse of statute of limitations — — Gross unrecognized tax benefits as of December 31 $ 685 $ 719 The total amount of gross unrecognized tax benefits was $ 685 and $ 719 for the years ended December 31, 2022 and 2021, respectively. The decrease in gross unrecognized tax benefits in 2022 was due to a change in state deferred tax rate. Included in the balance of unrecognized tax benefits at December 31, 2022 are potential benefits of nil that, if recognized, would affect the effective tax rate on income from continuing operations. The open tax years for federal and state tax returns are generally 2019 and forward. Net operating losses and R&D credits generated in closed years and utilized in open years are subject to adjustment by the tax authorities. 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. 20. Shareholders' Equity Preferred Shares The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At December 31, 2022 and 2021, there were no shares of preferred stock issued or outstanding. Common Stock On June 28, 2022, the Company’s shareholders approved an amendment to the Company’s Third Amended and Restated Certificate of Incorporation to increase the authorized shares of common stock with $ 0.0001 par value from 200,000,000 to 300,000,000 . The holders of the Company’s common stock are entitled to one vote for each share. At December 31, 2022 and 2021, there were 82,653,781 and 53,786,632 shares of common stock issued and outstanding. Contingently Issuable Common Stock In connection with the Merger transaction, the Company was obligated to issue within five years from the closing date to each unitholder Eos Energy Storage, LLC ("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 during the Earnout Period (each of clauses (i) and (ii), a “Triggering Event”). F-39 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 20. Shareholders' Equity (cont.) 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 years ended December 31, 2022 and 2021, the Company recorded treasury stock of $ 978 and $ 353 for shares withheld from employees to cover the payroll tax liability of RSUs vested, respectively. The treasury stock was immediately retired. Public and Private Warrants The Company sold warrants to purchase 9,075,000 shares of the Company's common stock in the public offering on May 22, 2020. Each Public Warrant entitles the holder to purchase a share of common stock at a price of $ 11.50 per share. For the years ended December 31, 2022 and 2021, 600 and 1,747,746 public warrants were exercised, respectively. On December 31, 2022 and 2021, there were 7,001,654 and 7,002,254 public warrants outstanding, respectively. In addition to the public warrants, there are also private warrants outstanding as of December 31, 2022 and 2021 (see Note 14, Warrants Liability - Related Party for further discussion ). Standby Equity Purchase Agreement On April 28, 2022, the Company entered into the SEPA with Yorkville. Pursuant to the SEPA, as amended, the Company has the right, but not the obligation, to sell to Yorkville up to $ 75,000 of shares of its common stock at the Company’s request at any time during the commitment period, which commenced on April 28, 2022 and will end on the earlier of (i) May 1, 2024, or (ii) the date on which Yorkville shall have made payment of advances requested by the Company totaling up to the commitment amount of $ 75,000 . Each sale the Company requests under the SEPA (an “Advance”) may be for a number of shares of common stock with an aggregate value of up to $ 20,000 . The SEPA provides for shares to be sold to Yorkville at 97.0 % of market price. Upon the Company's entry into and subject to the terms and conditions set forth in the SEPA, 465,117 shares were issued to Yorkville as consideration for its irrevocable commitment to purchase shares of common stock, pursuant to the SEPA, as shown in the consolidated statement of shareholders' equity. The fair value of these shares of $ 1,061 was recorded as other expense in the consolidated statements of operations and comprehensive loss. Subject to the mutual consent of Yorkville and the Company, from time to time the Company may request, and Yorkville shall provide, pre-advance loans (each, a “Pre-Advance Loan”) each in the principal amount not to exceed $ 50,000 , pursuant to a promissory note on terms and conditions to be agreed by both parties. F-40 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 20. Shareholders' Equity (cont.) On June 13, 2022, the Company issued and sold a Convertible Promissory Note with a principal amount of $ 7,500 in a private placement to Yorkville under the Supplemental Agreement. The Promissory Note was issued with a 2 % original issue discount, bears interest only upon the occurrence of an Event of Default, and had a maturity date of September 15, 2022. The Promissory Note gives Yorkville the right, but not the obligation, to convert principal and accrued interest into shares of the Company’s common stock at a conversion price of $ 2.21 any time prior to the maturity date, subject to the terms and conditions of the Promissory Note (see Note 13, Borrowings). In July and August 2022, pursuant to the terms of the Supplemental Agreement, Yorkville delivered six Investor Notices requiring the Company to issue and sell an aggregate of 3,393,663 shares of common stock at a price of $ 2.21 per share to Yorkville, in order to offset all outstanding amounts owed to Yorkville under the June 2022 Promissory Note On December 29, 2022, the Company and Yorkville entered into Amendment No. 3 to the SEPA, to (i) decrease the commitment amount under the SEPA to $ 75,000 ; and (ii) reinstitute the Exchange Cap (as defined in the SEPA), which amounts to 19.99 % of the outstanding shares of common stock immediately prior to entering into Amendment No. 3, and applies to all subsequent issuances of common stock under the SEPA, together with any issuances of convertible promissory notes issued by the Company to Yorkville as a Pre-Advance loan. In January 2023, Yorkville delivered Investor Notices requiring the Company to issue and sell an aggregate of 1,953,612 shares of common stock to Yorkville, in order to offset all outstanding amounts owed to Yorkville under the December 2022 Promissory Note. See Note 13, Borrowings and Note 21, Subsequent Events for further discussion. For the year ended December 31, 2022, total funds raised under the SEPA, inclusive of proceeds received from the Convertible Promissory Notes, were $ 14,500 . Total shares issued under the SEPA for the year ended December 31, 2022 were 7,361,602 . At-the-Market Offering Program On August 5, 2022, the Company entered into the Sales Agreement with Cowen and Company, LLC, with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $ 0.0001 per share, having an aggregate offering price of up to $ 100,000 (the “Placement Shares”) through Cowen as its sales agent and/or principal. The Company will pay Cowen a commission equal to 3.0 % of the gross sales proceeds of any Placement Shares sold. The Company will also reimburse Cowen for certain expenses incurred in connection with the Sales Agreement. The Sales Agreement will terminate upon the earlier of (i) the sale of all Placement Shares subject to the Sales Agreement or (ii) termination of the Sales Agreement in accordance with the terms and conditions set forth therein. During the year ended December 31, 2022, the Company sold 20,539,603 shares raising net proceeds of $ 38,626 , net of fees paid to Cowen, at an average selling price of $ 1.94 per share, included in the consolidated statement of shareholders' equity. 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 the Company incurred a net loss for the years ended December 31, 2022 and 2021, 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, 2022 and 2021. F-41 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 20. Shareholders' Equity (cont.) 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 years ended December 31, 2022 2021 Stock options and restricted stock units 7,340,702 4,218,216 Public and private placement warrants 7,326,654 7,327,254 Convertible Notes 7,422,371 5,144,074 21. Subsequent Events Yorkville In January 2023, pursuant to the terms of the SEPA and the Second Supplemental Agreement, Yorkville delivered Investor Notices requiring the Company to issue and sell an aggregate of 1,953,612 shares of common stock to Yorkville to offset all outstanding amounts owed to Yorkville under the December 2022 Promissory Note. On February 1, 2023, the Company issued and sold a convertible promissory note with an aggregate principal amount of $ 5,000 (the “February 2023 Promissory Note”) in a private placement to Yorkville under the Second Supplemental Agreement. On February 23, 2023 and February 27, 2023, Yorkville delivered Investor Notices pursuant to which, effective February 28, 2023, Yorkville would offset all amounts due under the February 2023 Promissory Note in connection with Yorkville’s purchase of an aggregate of 3,879,706 shares of common stock of the Company under the SEPA. Following the issuance of the shares, there would be no amount outstanding under the February 2023 Promissory Note. Convertible Note Issuance On January 18, 2023, the Company entered into an investment agreement (the “Investment Agreement”) with Great American Insurance Company, Ardsley Partners Renewable Energy, LP, CCI SPV III, LP, Denman Street LLC, John B. Berding Irrevocable Children’s Trust, John B. Berding, and AE Convert, LLC, a Delaware limited liability company managed by Russell Stidolph, a related party as Mr. Stidolph is a director of the Company (together, the “Purchasers”) relating to the issuance and sale to the Purchasers of $ 13,750 in aggregate principal amount of the Company’s 26.5 % Convertible Senior PIK Notes due 2026. The transactions contemplated by the Investment Agreement closed on January 18, 2023. Delaware Section 205 Petition On November 12, 2020, BMRG, the predecessor to the Company, held the BMRG Special Meeting to approve certain matters relating to the business combination between BMRG and Eos Energy Storage LLC. One of these matters was a proposal to amend and restate BMRG’s certificate of incorporation in order to, among other things, increase the number of authorized shares of common stock from 125,000,000 shares of common stock, consisting of 100,000,000 shares of Class A common stock and 25,000,000 shares of Class B common stock, to 200,000,000 shares of common stock, and to reclassify all Class A common stock and Class B common stock as a single class of common stock (the “Charter Amendment Proposal”). The Charter Amendment Proposal was approved by a majority of the outstanding shares of Class A common stock and Class B common stock of BMRG as of the record date for the BMRG Special Meeting, voting together as a single class, although voting records indicate that a majority of each of the shares of Class A common stock and Class B common stock also approved the Charter Amendment Proposal. After the BMRG Special Meeting, BMRG and Eos Energy Storage LLC closed the business combination and the Company’s certificate of incorporation, as amended to give effect to the Charter Amendment Proposal, became effective. A recent ruling by the Delaware Court of Chancery introduced uncertainty as to whether Section 242(b)(2) of the DGCL would have required the Charter Amendment Proposal to be approved by separate votes of the majority of BMRG’s then-outstanding shares of Class A common stock and Class B common stock. F-42 Table of Contents EOS ENERGY ENTERPRISES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 21. Subsequent Events (cont.) The Company had been proceeding with the understanding that the Charter Amendment Proposal and the amendment and restated certificate of incorporation are valid. In light of this recent ruling, however, to resolve potential uncertainty with respect to the Company’s capital structure, the Company filed a petition in the Delaware Court of Chancery under Section 205 of the DGCL to seek validation of the Charter Amendment Proposal. Section 205 of the DGCL permits the Court of Chancery, in its discretion, to ratify and validate potentially defective corporate acts. On February 27, 2023, the Court of Chancery approved the Company's request for relief and entered an order under Section 205 of the Delaware General Corporation Law (1) declaring the Company's Third Amended and Restated Certificate of Incorporation (the "Charter"), including the filing and effectiveness thereof, as validated and effective retroactive to the date of its filing with the Office of the Secretary of State of the State of Delaware on November 16, 2020, and all amendments effected thereby and (2) ordering that the Company's securities (and the issuance of the securities) described in the Petition and any other securities issued in reliance on the validity of the Charter are validated and declared effective, each as of the original issuance dates. F-43 ITEM 16. FORM 10-K SUMMARY Not applicable. 117 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Edison, State of New Jersey, on February 28, 2023. EOS ENERGY ENTERPRISES, INC. By: /s/ Nathan Kroeker Chief Financial Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph Mastrangelo and Nathan Kroeker 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/ Joseph Mastrangelo Chief Executive Officer and Director February 28, 2023 Joseph Mastrangelo (Principal Executive Officer) /s/ Nathan Kroeker Chief Financial Officer February 28, 2023 Nathan Kroeker (Principal Financial Officer) /s/ John Tedone Chief Accounting Officer February 28, 2023 John Tedone (Principal Accounting Officer) /s/ Jeffrey Bornstein Director February 28, 2023 Jeffrey Bornstein /s/ Alex Dimitrief Director February 28, 2023 Alex Dimitrief /s/ Audrey Zibelman Director February 28, 2023 Audrey Zibelman /s/ Claude Demby Director February 28, 2023 Claude Demby /s/ Russell Stidolph Director February 28, 2023 Russell Stidolph /s/ Marian "Mimi" Walters Director February 28, 2023 Marian "Mimi" Walters