ESS Tech, Inc.

ESS TECH, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND RISKS AND UNCERTAINTIES

Description of Business—ESS Tech, Inc. is a long-duration energy storage company specializing in iron flow battery technology. ESS develops long-duration iron flow batteries for commercial and utility-scale energy storage applications requiring up totwelve hours of flexible energy capacity predominantly using earth-abundant materials. The Company historically had been in the research and development phase. On a quarterly basis the Company had evaluated a combination of evidence including production quality metrics, field functionality to date, revenue trends, and existing contracts with customers. Based on the evaluation performed during the third quarter of 2023, the Company transitioned out of the research and development phase and into commercial inventory accounting as of July 1, 2023.

The Company was founded in 2011 and became a publicly traded company through a business combination with a special purpose acquisition company named ACON S2 Acquisition Corp. which changed its name to ESS Tech, Inc. upon closing. As a result of the Business Combination, Legacy ESS survived and became a wholly owned subsidiary of ESS Tech, Inc. On March 31, 2024, Legacy ESS merged with ESS Tech, Inc. leaving ESS Tech, Inc. as the sole remaining legal entity. As of April 1, 2024, the Company does not have any subsidiaries.

Basis of Presentation—The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Risks and Uncertainties—The Company is subject to a number of risks associated with companies of similar size in its industry, including, but not limited to, the need for successful development of products, the need for additional capital and financing to fund operations, competition from substitute products and services from larger companies, legal protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology.

Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and restricted cash. The Company’s cash and cash equivalents include cash in bank accounts, money market funds, and investments with a maturity of three months or less at the date of purchase. The Company’s restricted cash includes a certificate of deposit, collateral associated with a standby letter of credit, and a performance and payment bond. Deposits held with banks may exceed the amount of insurance provided on such deposits.

Liquidity and Capital Resources—The Company has incurred operating losses and cash outflows from operations since inception and the Company anticipates that losses will continue in the near term. During the year ended December 31, 2024, the Company incurred net losses of $86.2 million and used $72.2 million of cash in operating activities. As of December 31, 2024, the Company had unrestricted cash and cash equivalents of $13.3 million and short-term investments of $18.3 million, or total liquid assets of $31.6 million.

The continuation of the Company as a going concern is dependent upon generating profit from its operations and its ability to obtain additional debt or equity financing. Management is evaluating various strategies to obtain additional funding, which may include additional offerings of equity, issuance of debt, or other capital sources. There is no assurance that the Company will be able to generate sufficient profits, obtain such financings, or obtain them on favorable terms. Any such financing activities are subject to market conditions, and accordingly involves factors that are outside the Company’s control. These uncertainties cause substantial doubt to exist as to the Company’s ability to continue as a going concern for 12 months from the issuance of these financial statements. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

2. SIGNIFICANT ACCOUNTING POLICIES

Transition to Commercial Inventory Accounting—As of July 1, 2023, the Company transitioned out of the research and development phase and into commercial inventory accounting on the Transition Date. As a result of the transition, all inventoriable costs incurred are capitalized, net of any LCNRV charges, which are recognized as cost of revenue. Further, unfulfilled noncancellable purchase commitments are recognized as expense for estimated losses in cost of

• 63 - revenue and warranty and fulfillment costs are recorded as a component of cost of revenue rather than research and development expense beginning on the Transition Date.

Use of Estimates—The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies as of the date of the financial statements and the reported amounts of expenses during the reporting periods. Such estimates relate to, but are not limited to, inventory valuation, product warranty liabilities, standalone selling prices, the fair value of the Company’s investments and warrant liabilities, the useful lives and assessment of recoverability of property and equipment, deferred tax assets valuation, as well as other accruals. These estimates are based on historical trends, market pricing, current events and other relevant assumptions and data points. Actual results could differ from those estimates and such differences may be material to the financial statements.

Reclassifications—Certain prior year amounts have been reclassified to conform with current year presentation. These reclassifications had no effect on the reported results of operations.

Cash and Cash Equivalents—Cash and cash equivalents include cash in bank accounts, money market funds, and investments with a maturity of three months or less at the date of purchase. Cash equivalents are recorded at carrying value, which approximates fair value.

Restricted Cash—Restricted cash is required as collateral for certain of the Company’s lease agreements and contractual supply and service arrangements. Restricted cash includes a certificate of deposit for the Company’s lease agreements, collateral associated with a standby letter of credit issued to a customer, collateral associated with customs and duties due on imported materials, collateral associated with credit cards, and a performance and payment bond for the Company’s supply and service arrangements. The certificate of deposit and bond are recorded at carrying value, which approximates fair value. Restricted cash amounts are reported in the balance sheets as current or non-current depending on when the cash will be contractually released.

Accounts Receivable, Net—The Company evaluates the creditworthiness of its customers. If the collection of any specific receivable is doubtful, an allowance is recorded in the allowance for expected credit losses which is included in accounts receivable, net in the balance sheets. The Company hadno allowance for expected credit losses recorded at either December 31, 2024 or 2023.

Inventory—Inventory consists of raw materials, work in progress, and finished goods, and is stated on a first-in, first-out basis at the lower of cost or net realizable value. Net realizable value is the estimated selling price of inventory in the ordinary course of business, less estimated costs of completion, disposal, and transportation. The Company periodically makes judgments and estimates regarding the future utility and carrying value of inventory. When inventory is adjusted to its net realizable value, a new cost basis is established and such cost is not adjusted for any potential recovery. Obsolete inventories are written off to cost of revenue. Should the Company’s estimates of future selling prices or production costs change, additional and potentially material write-downs may be required. A small change in the Company’s estimates may result in a material charge to its reported financial results.

Property and Equipment, Net—Property and equipment are stated at cost, net of depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which range from three toseven years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the remaining lease term. Expenditures for maintenance and repairs are expensed in the statements of operations and comprehensive loss as incurred. Expenditures which materially change capacities, or extend useful lives are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are recognized in other income (expense), net in the statements of operations and comprehensive loss.

The Company evaluates the recoverability of property and equipment for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The Company assesses the alternative use of an asset, the condition of the asset and the current market demand to determine if an asset is impaired. No impairment loss was recognized during the years ended December 31, 2024 and 2023.

Intangible Assets, Net—Intangible assets are stated at cost, net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their expected useful lives.

Investments—Investments consist primarily of U.S. Treasury securities, U.S. agency securities, corporate debt securities, and commercial paper and are classified as trading securities as they are bought and held principally for the purpose of selling them in the near term. Trading securities are carried on the balance sheets at fair value. Unrealized

• 64 - gains and losses on trading securities are included in other income (expense), net in the statements of operations and comprehensive loss.

Revenue Recognition—Revenue is primarily earned from the sale, installation and commissioning of energy storage systems and is derived from customer contracts. Revenue is recognized in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring the promised goods and/or services to the customer, when or as the Company’s performance obligations are satisfied, which includes estimates for variable consideration (e.g., liquidated damages). For product sales of energy storage systems, the Company’s performance obligations are satisfied at the point in time when the customer obtains control of the system, based primarily on shipping terms within individual customer contracts. No right of return exists on sales of energy storage systems.

Performance obligations for services, including engineering services related to product site deployment, the optional extended warranty and ongoing operations and maintenance program provided to customers, are satisfied over time as the respective services are performed. Product site deployment revenue is recognized using the input method, which is based on the Company’s estimated costs incurred compared to total costs to complete the project.

The transaction price of the underlying customer agreement is allocated to each performance obligation based on its relative standalone selling price. When the standalone selling price is not directly observable, revenue is determined based on an estimate of selling price using the observable market price that the good or service sells for separately in similar circumstances and to similar customers, and/or an expected cost plus margin approach when the observable selling price of a good or services is not known and is either highly variable or uncertain.

The Company invoices customers in accordance with customer agreements, which in certain circumstances may be in advance of recognizing revenue if the Company has not satisfied the associated performance obligations. Payment terms generally include advance payments to reserve capacity and/or procure materials or upon issuance of the customer’s purchase order with the remainder due upon the achievement of various milestones including but not limited to shipment readiness, delivery, system start up, and/or completion of final site testing. Advanced customer payments and unsatisfied performance obligations are recognized as deferred revenue in the balance sheets.

Sales tax collected from customers is recorded on a net basis and therefore, not included in revenue. Sales tax is recorded as a liability until remitted to governmental authorities. Shipping and handling, freight costs and other reimbursable costs are accounted for as fulfillment activities and included in revenue.

Cost of Revenue—As of the Transition Date, cost of revenue includes the cost of the energy storage systems delivered, installed and commissioned during the year. It includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, adjustments to warranty expense, LCNRV charges, unfulfilled noncancellable purchase commitment expense, shipping and logistics costs, and provisions for excess and obsolete inventory. Additionally, cost of revenue benefits from production credits earned.

Product Warranties—Warranty obligations are incurred in connection with the sale of the Company’s products. The Company generally provides a standard warranty for a period of one year and an optional extended warranty. The standard warranty is accounted for as an assurance-type warranty, which provides customers with assurance that the product complies with agreed-upon specifications and does not represent a separate performance obligation. The extended warranty is considered a service-type warranty which is a distinct service and a portion of the transaction price is allocated to that performance obligation.

Costs to provide for standard warranty obligations are estimated and recorded as a liability at the time revenue is recognized on the sale of the energy storage system. 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. Initial accruals and adjustments to warranty reserves were recorded to research and development expenses when the Company was in the research and development phase and are now recorded to cost of revenue following the transition to commercial inventory accounting as of the Transition Date.

Sales and Marketing—Sales and marketing expenses consist primarily of salaries, benefits and stock-based compensation for marketing and sales personnel and related support teams. To a lesser extent, sales and marketing expenses also include professional services costs, travel costs, and trade show sponsorships and participation. Advertising costs are expensed as incurred.

Research and Development—Research and development costs are expensed as incurred and, as of the Transition Date, consist of materials, supplies, personnel-related expenses, allocated facilities costs, consulting services and other direct expenses. Personnel-related expenses consist of salaries, benefits and stock-based compensation. Substantially all of the Company’s research and development expenses are related to improving existing products and developing new products and related technologies. Prior to the Transition Date, research and development costs also included

• 65 - direct product development material costs, including freight charges, and product development personnel-related expenses, warranty-related costs, depreciation charges, overhead related costs, consulting services, and other direct expenses.

General and Administrative—General and administrative expenses consist of personnel-related expenses for the Company’s corporate, executive, finance, legal, and other administrative functions, as well as expenses for outside professional services and insurance costs. Personnel-related expenses consist of salaries, benefits and stock-based compensation. To a lesser extent, general and administrative expenses include depreciation and other allocated costs, such as facility-related expenses and supplies.

Stock-Based Compensation—The Company measures and recognizes compensation expense for all stock-based awards based on estimated fair values on the date of the grant, recognized over the requisite service period. For awards that vest solely based on a service condition, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period. The compensation expense related to stock-based awards with performance conditions is recognized over the requisite service period when achievement of the performance conditions is probable. The compensation expense related to stock-based awards with market conditions is recognized on an accelerated attribution basis over the requisite service period identified as the derived service period over which the market conditions are expected to be achieved, and is not reversed if the market condition is not satisfied. The Company accounts for forfeitures as they occur. Stock-based awards granted to employees are primarily stock options and restricted stock units (“RSUs”).

The fair value of each stock option granted is estimated using the Black-Scholes Merton option-pricing model using the single-option award approach. The following assumptions are used in the Black-Scholes Merton option-pricing model:

Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield available on the date of grant on U.S. Treasury zero-coupon bonds issued with a term that is equal to the option’s expected term at the grant date.

Expected Volatility—The Company estimates the volatility for option grants by evaluating the average historical volatility of the company’s stock price for the period immediately preceding the option grant for a term that is approximately equal to the option’s expected term.

Expected Term—The expected term for employees represents the period over which options granted are expected to be outstanding using the simplified method, as the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term. The simplified method deems the term to be the average of the time-to-vesting and contractual life of the stock-based awards.

Dividend Yield—The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to bezero.

Income Taxes—The Company accounts for income taxes under the asset and liability method. Under this method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the bases differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the statement of operations and comprehensive loss in the period that includes the enactment date.

ASC 740, Accounting for Income Taxes (“ASC 740”), requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely and, accordingly, has provided a full valuation allowance for these tax benefits for the years ended December 31, 2024 and 2023.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. No amounts were accrued for the payment of interest and penalties as of December 31, 2024 and 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position.

Net Loss Per Share—The Company will use the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. Under this method, net earnings are reduced by the amount of dividends declared in the current period for common stockholders and participating security holders. The remaining earnings or “undistributed earnings” are allocated between common stock and participating securities to the extent that each security may share in earnings as if all the earnings for the period had been distributed. Once

• 66 - calculated, the earnings per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during each year presented. Diluted loss attributable to common stockholders per common share has been computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding plus the dilutive effect of outstanding options, warrants, and RSUs during the respective periods. In cases where the Company has a net loss, no dilutive effect is shown as options, warrants, and RSUs become anti-dilutive.

Fair Value—The Company follows ASC 820, Fair Value Measurements (“ASC 820”), which establishes a common definition of fair value to be applied when U.S. GAAP requires the use of fair value, establishes a framework for measuring fair value, and requires certain disclosures about such fair value measurements.

ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities to which the Company has access at a measurement date.

Level 2: Observable inputs other than Level 1 quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, 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: Unobservable inputs for which little or no market data exists and for which the Company must develop its own assumptions regarding the assumptions that market participants would use in pricing the asset or liability, including assumptions regarding risk.

Because of the uncertainties inherent in the valuation of assets or liabilities for which there are no observable inputs, those estimated fair values may differ significantly from the values that may have been used had a ready market for the assets or liabilities existed.

Reverse Stock Split—On August 23, 2024, the Company filed a certificate of amendment to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of all shares of the Company’s common stock that were issued and outstanding at a ratio of 1-for-15 (the “Reverse Stock Split”) and reduce the total number of authorized shares of common stock from 2,000,000,000 to 1,000,000,000. The amendment became effective as of 4:01 p.m., Eastern Time, on August 23, 2024. The par value of the Company’s common stock remained unchanged at $0.0001 per share. Proportionate adjustments were made to the number of shares issuable upon the exercise or vesting of all warrants, RSUs and options outstanding at the effective time of the Reverse Stock Split, as well as to their corresponding exercise prices. All share-based amounts, including warrants, RSUs and options, herein are reported on a retroactively adjusted basis.

Emerging Growth Company—Pursuant to the JOBS Act of 2012, Section 102(b)(1), an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company has elected to use the extended transition period for complying with any new or revised financial accounting standards. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. The Company also intends to continue to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as the Company qualifies as an emerging growth company.

Recent Accounting Pronouncements—Not Yet Adopted— In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This new standard will be effective for the annual periods beginning the year ended December 31, 2025. The new standard permits early adoption and can be applied prospectively or retrospectively. We do not expect the adoption of this guidance to have a material impact on our financial statements.

• 67 -

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures. The ASU requires entities to disaggregate operating expenses into specific categories within the notes to the financial statements to provide enhanced transparency. The ASU will be effective for fiscal years beginning after December 15, 2026, with early adoption permitted, and may be applied retrospectively or prospectively. The Company is currently evaluating the effect of this new standard on the Company's disclosures.

Recently Adopted Accounting Pronouncements— In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), requiring public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures in ASC 280 on an interim and annual basis. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See Note 20, Segment and Other Information, in the accompanying notes to the financial statements for further detail.

3. INVENTORY

Inventory consists of the following (in thousands):

The balance of the Company’s inventory was written down by $16.6 million and $11.3 million from its cost to its net realizable value as of December 31, 2024 and 2023, respectively. Additionally, the Company has LCNRV losses related to noncancellable purchase commitments which were $0.2 million and $0.6 million as of December 31, 2024 and 2023, respectively. These LCNRV losses related to noncancellable purchase commitments are reflected in the materials and related purchases component of accrued and other liabilities on the balance sheets. For further details, refer to Note 10, Commitments and Contingencies.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

• 68 -

5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following (in thousands):

Depreciation expense related to property and equipment, net was $4.5 million and $6.4 million for the years ended December 31, 2024 and 2023, respectively.

6. INTANGIBLE ASSETS, NET

In September 2023, the Company acquired patent rights valued at $5.0 million under a Patent License Agreement with UOP, an affiliate of Honeywell, a related party. These patent rights were recorded at fair value based on the value of the IP Warrants issued, as defined in Note 11, Common Stock Warrants, and are amortized over an average useful life of 19 years based on the remaining useful lives of the patents acquired. Amortization expense for the year ended December 31, 2024 and 2023 was $0.3 million and $67 thousand, respectively.

Intangible assets, net consisted of the following (in thousands):

Estimated future amortization expense of intangible assets as of December 31, 2024 are as follows (in thousands):

7. ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following (in thousands):

• 69 -

8. ACCRUED PRODUCT WARRANTIES

The following table summarizes product warranty activity (in thousands):

9. LEASES

The Company leases office and manufacturing space in Wilsonville, Oregon under operating leases. Each of the operating leases provides the Company an option to renew the lease for an additional 60 months which have not been included in the operating lease obligations.

The Company determines if an arrangement is a lease at inception and whether the arrangement is classified as an operating or finance lease. At commencement of the lease, the Company records a right-of-use (“ROU”) asset and lease liability in the balance sheets based on the present value of lease payments over the term of the arrangement. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company determines its incremental borrowing rate based on publicly available data for instruments with similar characteristics, including recently issued debt, as well as other factors. Contract terms may include options to extend or terminate the lease, and when the Company deems it reasonably certain that ESS will exercise that option it is included in the ROU asset and lease liability. Operating leases will reflect lease expense on a straight-line basis, while finance leases will result in the separate presentation of interest expense on the lease liability and amortization expense of the ROU asset.

ROU assets related to the Company’s operating leases are included in operating lease ROU assets, while the corresponding lease liabilities are included in current and non-current operating lease liabilities on the Company’s balance sheets. ROU assets related to the Company’s finance leases are included in other non-current assets, while the corresponding lease liabilities are included in accrued and other current liabilities and other non-current liabilities on the Company’s balance sheets.

The Company does not record leases with a term of 12-months or less in the balance sheets. Short-term lease costs were immaterial for the year ended December 31, 2024.

Operating lease expense for the years ended December 31, 2024 and 2023 was $1.7 million and $1.5 million, respectively. Finance lease costs for the years ended December 31, 2024 and 2023 were immaterial.

As of December 31, 2024, future maturities of lease liabilities are as follows (in thousands):

Weighted-average remaining lease term and discount rate are as follows:

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10. COMMITMENTS AND CONTINGENCIES

The Company, from time to time, is a party to various claims, legal actions, and complaints arising in the ordinary course of business. The Company is not aware of any material legal proceedings or other claims, legal actions, or complaints through the date of issuance of these financial statements.

Letters of Credit

The Company has a standby letter of credit with JP Morgan Chase for $75 thousand as security for an operating lease of office and manufacturing space in Wilsonville, Oregon secured by a restricted certificate of deposit account totaling $75 thousand. As of December 31, 2024 the certificate of deposit was recorded as restricted cash, non-current. There wereno draws against the letter of credit during the years ended December 31, 2024 and 2023.

The Company has a standby letter of credit with Bank of America for $0.6 million as security for the performance and payment of the Company’s obligations under a customer agreement. The letter of credit is in effect until the date on which the warranty period under the agreement expires, which is anticipated to be more than a year from the balance sheet date. As of December 31, 2024, $0.6 million was pledged as collateral for the letter of credit and recorded as restricted cash, non-current. There wereno draws against the letter of credit during the year ended December 31, 2024.

The Company has a standby letter of credit with Bank of America for $0.2 million in support of the Company’s customs and duties due on imported materials. The letter of credit is in effect until May 19, 2025. As of December 31, 2024, $0.2 million was pledged as collateral for the letter of credit and recorded as restricted cash, current. There wereno draws against the letter of credit during the year ended December 31, 2024.

Credit Agreement

On November 1, 2024, the Company entered into a Credit Agreement with Export-Import Bank of the United States, as lender, and related agreements related to the financing oftwo production lines. The Credit Agreement provides for a secured loan facility in an aggregate principal amount of up to $22.7 million, of which $20.0 million is available to be borrowed for equipment financing and the balance will be used to finance an exposure fee and transaction expenses. The loan facility has a maturity date of June 30, 2031. Half of the proceeds of the loan facility may be used on a retroactive basis for the financing of the Company’s existing automated battery assembly line and the remainder may be used for the financing or refinancing of an additional line upon the closing of an equity raise milestone. As of December 31, 2024, the Company hadno outstanding borrowings under the Credit Agreement.

Purchase Commitments

The Company purchases materials from numerous suppliers and has entered into agreements with various contract manufacturers, which include cancellable and noncancellable purchase commitments. As of December 31, 2024 and 2023, total unfulfilled noncancellable purchase commitments were $0.2 million and $0.6 million, respectively. In addition, total unfulfilled cancellable purchase commitments amounted to $6.0 million and $7.7 million as of December 31, 2024, and 2023, respectively.

Joint Development Agreement

In September 2023, the Company entered into a Joint Development Agreement (“JDA”) with UOP, an affiliate of Honeywell, a related party, under which the parties agreed to work collaboratively to engage in certain research and development activities generally related to flow battery technology. Pursuant to the JDA, the Company agreed to reimburse UOP a minimum of $8.0 million for research and development expenses incurred through December 31, 2028. No expenses were incurred under the JDA during the year ended December 31, 2024.

11. COMMON STOCK WARRANTS

The following table consists of the number of shares of common stock issuable upon exercise of the respective warrants as of the dates indicated:

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Public Warrants

As part of STWO’s initial public offering,8,333,287 warrants to purchase common stock (the “Public Warrants”) were sold. Simultaneously with STWO’s initial public offering, STWO issued in a private placement 4,666,667 warrants to purchase common stock (the “Private Warrants”) to STWO’s sponsor. In connection with the Business Combination, STWO’s sponsor agreed to forfeit 583,333 Private Warrants. Of the remaining 4,083,334 Private Warrants,3,500,000 were immediately vested and 583,334 warrants (the “Earnout Warrants”) were vested upon meeting certain earnout milestone events on November 9, 2021. The Private Warrants, including the Earnout Warrants, automatically converted on a 1:1 basis into Public Warrants upon the transfer of such warrants by the initial holder to a third party during the fourth quarter of 2023.

The Public Warrants are listed on the NYSE under the ticker symbol “GWH.W.” Following the Reverse Stock Split, fifteen Public Warrants entitle the holder thereof to purchaseone share of common stock at a price of $172.50 per share, subject to adjustments. The Public Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The Public Warrants expire on October 8, 2026, five years after completion of the Business Combination, or earlier upon redemption or liquidation.

The Company may call the Public Warrants for redemption starting any time, in whole and not in part, at a price of $0.01 per warrant, so long as the Company provides no less than 30 days prior written notice of redemption to each warrant holder, and if, and only if, the reported last sale price of common stock equals or exceeds $270.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders provided there is an effective registration statement covering the shares of common stock issuable upon exercise of the warrants.

The Company may call the Public Warrants for redemption starting any time, in whole and not in part, at a price of $0.10 per warrant, so long as the Company provides no less than 30 days prior written notice of redemption to each warrant holder; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive a number of shares determined based on the redemption date fair market value of the shares, and if, and only if, the reported last sale price of common stock equals or exceeds $150.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders provided there is an effective registration statement covering the shares of common stock issuable upon exercise of the warrants.

The Company’s common stock warrants were initially recorded at fair value upon completion of the Business Combination and are adjusted to fair value at each reporting date based on the market price of the Public Warrants, with the change in fair value recorded as a component of other income in the statements of operations and comprehensive loss. For the years ended December 31, 2024 and 2023, the Company recorded a net decrease to the liabilities for Public Warrants of $0.1 million and $2.3 million, respectively.

SMUD Warrant

On September 16, 2022, the Company entered into a warrant agreement with SMUD, whereby the Company agreed to issue a warrant for up to 33,333 shares of the Company’s common stock at an exercise price of $64.44 per share. The vesting of the shares underlying the warrant will be subject to the achievement of certain commercial milestones through December 31, 2030 pursuant to a related commercial agreement. As of December 31, 2024 and 2023,833 shares underlying the warrant were vested.

Honeywell Warrants

On September 21, 2023, the Company entered the Purchase Agreement with Honeywell Ventures, an affiliate of Honeywell, a related party. Pursuant to the Purchase Agreement, Honeywell invested $27.5 million in the Company

• 72 - and the Company issued 1,099,450 shares of common stock and a warrant to issue up to 708,775 shares of common stock to Honeywell Ventures. Pursuant to the Purchase Agreement and also as further consideration for the licensing by UOP, an affiliate of Honeywell, of certain intellectual property to the Company, the Company issued a warrant to issue up to 417,997 shares of common stock to UOP, which UOP subsequently transferred to Honeywell Ventures. The Investment Warrant has an exercise price of $28.35, and the IP Warrant has an exercise price of $43.50. Each warrant will expire on September 21, 2028.

On September 21, 2023, the Company and UOP also entered into the Supply Agreement, pursuant to which UOP may purchase equipment supplied by the Company. Pursuant to the Supply Agreement, the Company agreed to issue additional warrants to purchase common stock to UOP, consisting of (i) an initial performance warrant to issue up to 51,717 shares of common stock, issued on September 21, 2023 in exchange for a prepayment of equipment by UOP in the amount of $15 million, and (ii) additional performance warrants (not to exceed an aggregate value of $15 million based on target purchase amounts of up to $300 million by 2030) to be issued on an annual basis for thefive-year period beginning in 2026, based on UOP’s purchase of additional equipment after execution of the Supply Agreement. The initial Performance Warrant has an exercise price of $21.75 and the additional Performance Warrants will have an exercise price equal to the volume-weighted average price of the Company’s common stock for the last fifteen (15) trading days of the relevant calendar year for which such Performance Warrant is being issued. The initial Performance Warrant will expire on September 21, 2028 and each additional Performance Warrant will have afive-year term from its respective date of issuance.

The table below summarizes the common stock warrant activities in the number of shares of common stock issuable upon exercise of the respective warrants during the year ended December 31, 2024:

The table below summarizes the common stock warrant activities in the number of shares of common stock issuable upon exercise of the respective warrants during the year ended December 31, 2023:

(1)In accordance with the terms of the Warrant Agreement, dated September 16, 2020, by and between STWO and Continental Stock Transfer & Trust Company (“Continental”), as amended by the Assignment, Assumption and Agreement, dated October 8, 2021, by and among the Company, STWO, Continental and Computershare Trust Company, N.A. (as amended, the “Warrant Agreement”), the Private Warrants, including the Earnout Warrants, automatically converted on a 1:1 basis into Public Warrants upon the transfer of such warrants by the initial holder to a third party during the fourth quarter of 2023.

12. STOCK-BASED COMPENSATION

Stock-based compensation expense is allocated on a departmental basis based on the classification of the award holder. The following table presents the amount of stock-based compensation related to stock-based awards issued to

• 73 - employees on the Company’s statements of operations and comprehensive loss during the years ended December 31, 2024 and 2023 (in thousands):

2021 Equity Incentive Plan

In October 2021, the Board of Directors of the Company adopted the ESS Tech, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan became effective upon consummation of the Business Combination. Stock awards under the plan may be issued as Incentive Stock Options (“ISO”), Non-statutory Stock Options (“NSO”), Stock Appreciation Rights, and RSUs. Only employees are eligible to receive ISO awards. Employees, directors, and consultants who provide continuous service to the Company are eligible to receive stock awards other than ISOs. The number of shares available for issuance under the 2021 Plan will be increased on the first day of each fiscal year beginning with the 2022 fiscal year and ending with the 2031 fiscal year, in an amount equal to the lesser of (i)1,017,333 shares, (ii) five percent (5%) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Company no later than the last day of the immediately preceding fiscal year. As of January 1, 2025, the number of shares available for issuance under the 2021 Plan was increased by 599,325 shares in accordance with the plan and as approved by the Board. Under the 2021 Plan, the Company has been authorized to issue 2,353,325 shares in total of common stock as of December 31, 2024.

Option prices for incentive stock options are set at the fair market value of the Company’s common stock at the date of grant. The fair market value of RSUs is set at the closing sales price of the Company’s common stock at the date of grant. Employee new hire grants generally cliff vest 1/4th at the end of the first year and then vest 1/16 th each quarter over the remaining three years. Grants expire 10 years from the date of grant. All other grants vest quarterly over four years.

As of December 31, 2024, there were 326,794 shares available for future grant under the 2021 Plan.

Stock Options and Restricted Stock Units

Stock option and RSU activity, prices, and values during the years ended December 31, 2024 and 2023 are as follows (in thousands, except for share, per share, and contractual term data):

The aggregate intrinsic value is the fair market value on the reporting date less the exercise price for each option. The aggregate intrinsic value of the options exercised was $45 thousand and $0.9 million during the years ended December 31, 2024 and 2023, respectively.

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The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes Merton option-pricing model. No options were granted during the year ended December 31, 2024. For options granted during the year ended December 31, 2023 the weighted average estimated fair value using the Black-Scholes Merton option pricing model was $1.13 per option.

In accordance with ASC 718, the fair value of each option grant has been estimated as of the date of grant using the following weighted average assumptions:

As of December 31, 2024, there was approximately $18.9 million of unamortized stock-based compensation expense related to unvested stock options and RSUs, which is expected to be recognized over a weighted average period of 2.45 years.

Employee Stock Purchase Plan

In May 2022, the Company commenced its first offering period under the ESS Tech, Inc. Employee Stock Purchase Plan (“ESPP”), which assists employees in acquiring a stock ownership interest in the Company. The ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during specified offering periods. No employee may purchase more than $25,000 worth of stock in any calendar year. The price of shares purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. Total ESPP expense for the years ended December 31, 2024 and 2023 was $0.2 million and $0.3 million, respectively.

13. FAIR VALUE MEASUREMENTS

The following tables present the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis (in thousands):

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The following tables present the Company’s fair value hierarchy for its financial liabilities measured at fair value on a recurring basis (in thousands):

There were no transfers among Level 1, Level 2, or Level 3 categories during the periods presented. The carrying amounts of the Company’s accounts payable approximate their fair values due to their short maturities.

Level 1 Assets: The Company invests in money market funds and U.S. Treasury securities. These assets are valued using observable inputs that reflect quoted prices for securities with identical characteristics.

Level 2 Assets: The Company invests in a certificate of deposit, U.S. agency securities, commercial paper, and corporate debt securities. These assets are valued using observable inputs that reflect quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals).

Level 1 Liabilities: The Company values its public common stock warrants based on the market price of the warrants.

For trading securities held at the reporting date, net losses recorded during the year ended December 31, 2024 and 2023 were immaterial.

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14. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of deferred tax assets and liabilities are as follows (in thousands):

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely and, accordingly, has provided a valuation allowance for fiscal years 2024 and 2023. The valuation allowance increased by $17.4 million during the year ended December 31, 2024.

As of December 31, 2024, the Company has federal and state net operating loss carryforwards of $235.6 million and $235.5 million, respectively. Federal net operating losses generated prior to 2018 will start to expire in 2032. Federal net operating losses generated after 2017 do not expire. The state net operating losses will begin to expire in 2027. The Company also has federal and state research and development tax credit carryforwards totaling $3.5 million and $28 thousand, respectively. The federal research and development credit carryforwards begin to expire in 2039, unless previously utilized. The state research and development credit carryforwards do not expire.

The effective tax rate of the Company’s provision for income taxes differs from the federal statutory rate as follows:

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The changes in the Company's uncertain tax positions are summarized as follows (in thousands):

During both the years ended December 31, 2024 and 2023, the Company recognized an uncertain tax position of $0.4 million, related to a reduction of the research and development credit deferred tax asset. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company does not expect a material change to its unrecognized tax benefits over the next twelve months that would have an adverse effect on its operating results.

The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company hadno accrued interest or penalties related to uncertain tax positions as of 2024 and 2023.

The Company files federal and certain state income tax returns, which provide varying statutes of limitations on assessments. However, because of net operating loss carryforwards, substantially all tax years since inception remain open to federal and state tax examination.

Utilization of net operating losses and research and development credit carryforwards may be subject to annual limitations due to ownership changes that have occurred or that could occur in the future, as required by Sections 382 and 383 of the Code, as well as similar state provisions. These ownership changes may limit the amount of net operating losses and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of outstanding stock of a company by certain stockholders. Due to the existence of the valuation allowance, limitations created by past ownership changes, if any, will not impact its effective tax rate.

15. GOVERNMENT GRANTS

Inflation Reduction Act of 2022 (“IRA”)

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law. The IRA has significant economic incentives for both energy storage customers and manufacturers for projects placed in service after December 31, 2022. Starting in 2023, there are Production Tax Credits under Internal Revenue Code 45X, that can be claimed on battery components manufactured in the U.S. and sold to U.S. or foreign customers. The tax credits available to manufacturers include a credit for ten percent of the cost incurred to make electrode active materials in addition to credits of $35 per kWh of capacity of battery cells and $10 per kWh of capacity of battery modules. The credits are cumulative, meaning that companies will be able to claim each of the available tax credits based on the battery components produced and sold through 2029, after which the PTC will begin to gradually phase down through 2032.

Since the PTC is a refundable credit (i.e., a credit with a direct-pay option available), the PTC is outside the scope of ASC 740, Income Taxes(“ASC 740”). Therefore, the Company accounts for the PTC under a government grant model. GAAP does not address the accounting for government grants received by a business entity that are outside the scope of ASC 740. The Company’s accounting policy is to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting Standards. Under IAS 20, once it is reasonably assured that the entity will comply with the conditions of the grant, the grant money should be recognized on a systematic basis over the periods in which the entity recognizes the related expenses or losses for which the grant money is intended to compensate. The Company recognizes grants once it is probable that both of the following conditions will be met: (1) the Company is eligible to receive the grant and (2) the Company is able to comply with the relevant conditions of the grant.

The PTC is recorded as the applicable items are produced and sold. The Company began earning PTCs in the third quarter of 2023. For the years ended December 31, 2024 and 2023, the Company recognized a PTC benefit of $1.7 million and $0.8 million, respectively, as a reduction ofcost of revenue on the statements of operations and comprehensive loss. As of December 31, 2024 and 2023, grant receivable related to the PTC in the amount of

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$1.9 million and $0.8 million, respectively, is recorded in prepaid expenses andother current assets on the balance sheets.

16. REVENUE

Disaggregated Revenue

The following table presents the Company’s revenue, disaggregated by source (in thousands):

The majority of the Company’s revenue is derived from product sales of energy storage systems. During 2024 other revenue included engineering services related to product site deployment, customer reimbursements for freight, travel, and other expenses, and revenue earned for work performed to date under project contracts that were ultimately terminated. See Note 2, Significant Accounting Policies for further information regarding revenue recognition.

Contract Balances

Contract assets relate to unbilled amounts resulting from contract arrangements in which the related revenue recognition performance obligations have been satisfied, however invoicing to the customer has not yet occurred. Deferred revenue (or contract liabilities) relates to consideration received from customers in advance of the Company satisfying the revenue recognition performance obligations under the related contractual arrangements. Contract balances are reported in a net contract asset or deferred revenue liability position on a contract-by-contract basis at the end of each reporting period. Contract assets are included in prepaid expenses and other current assets and deferred revenue is presented separately on the balance sheets.

The following table provides information about contract assets and deferred revenue from contracts with customers (in thousands):

Contract assets increased by $79 thousand during the year ended December 31, 2024 due to the recognition of revenues for which invoicing had not yet occurred. Deferred revenue decreased by $1.1 million during the year ended December 31, 2024, reflecting $1.0 million in customer advance payments, offset by the recognition of $2.1 million of revenue that was included in the deferred revenue balance at the beginning of the period.

Deferred revenue of $5.2 million is expected to be recognized within the next 12 months and non-current deferred revenue of $14.4 million related to the non-refundable deposit discussed in Note 18, Related Parties, is expected to be recognized thereafter as firm orders are received and fulfilled. Additionally, contracted but unsatisfied performance obligations that had not yet been billed to the customer or included in deferred revenue were $13.7 million as of December 31, 2024.

17. DEFINED CONTRIBUTION PLAN

The Company has a 401(k) plan to provide defined contribution retirement benefits for all employees who have completed six months of service. Employees may elect to contribute a portion of their pretax compensation to the 401(k) plan, subject to annual limitations. The Company may make profit-sharing contributions at the discretion of the Board of Directors. Employee contributions are always fully vested. For the years ended December 31, 2024 and 2023, the Company contributed $0.9 million.

18. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2024, the Company recognized revenue of $0.6 million for reimbursable expenses, sale and start up of energy storage systems, and extended warranty services provided to related parties.

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During the year ended December 31, 2023, the Company recognized recorded revenue of $33 thousand for the sale of extended warranty services and reimbursable shipping and freight costs to related parties.

As of December 31, 2024, the Company had recorded deferred revenue of $37 thousand for sales of extended warranty services to related parties and $63 thousand of outstanding accounts receivable from related parties. As of December 31, 2023, the Company had recorded deferred revenue of $1 thousand for extended warranty services provided to related parties and $29 thousand of outstanding accounts receivable from related parties.

As of December 31, 2024 and 2023, the Company recorded a non-refundable deposit for future equipment purchases by Honeywell of $14.4 million in deferred revenue. As of December 31, 2024 and 2023, the value of the initial Performance Warrant issued to Honeywell was $0.7 million included within other non-current assets in the balance sheets. During the year ended December 31, 2024, $27 thousand of the value of the initial Performance Warrant was amortized as an offset to the revenue recognized in the period.

19. NET LOSS PER SHARE

The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2024 and 2023 (in thousands, except share and per share data):

Due to the net losses for the years ended December 31, 2024 and 2023, basic and diluted net loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

The following outstanding balances of equivalents securities have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive for the periods presented:

20. SEGMENT AND OTHER INFORMATION

The Company has determined that its interim Chief Executive Officer is its chief operating decision maker (“CODM”). The Company operates as a single business operating segment, which includes all activities related to the design, engineering, and manufacturing of the Company’s long duration energy storage products. Accordingly, the CODM uses gross loss and net loss as reported in the statements of operations to assess financial performance and inform decisions on how to allocate resources. The financial information provided to the CODM does not contain significant disaggregated expenses outside of what is already disclosed in the statements of operations. The CODM does not evaluate results using asset or liability information.

Revenue from major customers during the years ended December 31, 2024 and 2023 accounted for the following as percentages of total revenue:

Revenue was geographically located as follows (in thousands):

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Substantially all of the Company’s long-lived assets and operating lease right-of-use assets were located in the United States as of December 31, 2024 and 2023.

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