Eos Energy Enterprises Inc

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

1. Overview

Nature of Operations

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 onlyone 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 Unaudited Condensed 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 three months ended March 31, 2024, the Company incurred a net loss of $46,708, incurred negative cash flows from operations of $40,474 and had an accumulated deficit of $922,554 as of March 31, 2024.

•As of March 31, 2024, the Company had $31,773 of unrestricted cash and cash equivalents available to fund the Company’s operations and working capital of $22,097, inclusive of $3,458 of outstanding debt that is currently scheduled to mature within the next twelve months. Additionally, the Company has no additional borrowings available under pre-existing financing arrangements to fund its operations (see Note 12, Borrowings).

•The Company has available capacity under its at-the-market (“ATM”) offering program to issue shares of the Company’s common stock, (see also Note 18, Shareholders’ Deficit) to aid in funding the Company’s operations. However, 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.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED 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 continues to progress through the Department of Energy (“DOE”) Loan Programs Office’s (“LPO”) process for its Title XVII loan. In August 2023, the DOE issued a conditional commitment letter to the Company for a loan of an aggregate principal amount of up to $398,600 through the DOE’s Clean Energy Financing Program. Certain technical, legal and financial conditions must be met and due diligence to the satisfaction of the DOE must be completed before the DOE enters into definitive financing documents with the Company and funds the loan. There can be no assurance that the Company will be able to secure such a 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 Credit Agreement (“Senior Secured Term Loan”). While the Company was in compliance with this covenant as of March 31, 2024, the Company expects it may be unable to remain in compliance with this covenant beginning on June 30, 2024 and thereafter absent the Company’s ability to secure a waiver or raise additional outside capital. 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, the Lender - Atlas Credit Partners (ACP) Post Oak Credit I LLC (“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 Unaudited Condensed 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 Unaudited Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of these uncertainties.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its 100% owned, direct and indirect subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All intercompany transactions and balances have been eliminated in the preparation of the Unaudited Condensed Consolidated Financial Statements. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in our 2023 Annual Report on Form 10-K. These interim results are not necessarily indicative of results for the full year.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

2. Summary of Significant Accounting Policies (cont.)

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.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Recent Accounting Pronouncements

There were no new accounting standards or updates during the three months ended March 31, 2024 that would have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements.

3. Revenue Recognition

The Company primarily earns revenue from sales of its energy storage systems and services including installation, commissioning and extended warranty services. Product revenues, which are generally recognized at a point in time, and service revenues, which are generally recognized over time, are as follows:

For the three months ended March 31, 2024, the Company had one customer that accounted for 88.1% of total revenue; for the three months ended March 31, 2023, we had one customer that accounted for 97.0% of total revenue.

Lessor revenue

The Company leases battery energy storage systems to one customer through a sales-type lease with a 20-year term. No revenue was recognized from the sales-type lease for the three months ended March 31, 2024 and 2023.

Contract assets and Contract liabilities

The following table provides information about contract assets and contract liabilities from contracts with customers. Contract assets, current, Contract liabilities, current and Contract liabilities, long-term are included separately on the Unaudited Condensed Consolidated Balance Sheets and contract assets expected to be recognized in greater than twelve months are included under Other assets, net.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

3. Revenue Recognition(cont.)

The Company recognizes contract assets for certain contracts in which revenue recognition performance obligations have been satisfied but invoicing to the customer has not yet occurred. Contract liabilities primarily relate to 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.

Contract assets increased by $4,572 during the three months ended March 31, 2024 due to recognition of revenues for which invoicing has not yet occurred. Contract liabilities increased by $501 during the three months ended March 31, 2024, reflecting $798 of revenue recognized from customers and offset by $1,299 in customer advance payments.

Contract liabilities of $2,828 as of March 31, 2024 are expected to be recognized within the next twelve months and long-term contract liabilities of $4,283 are expected to be recognized as revenue in greater than twelve months. Contract assets of $11,075 as of March 31, 2024 are expected to be recognized within the next twelve months and long-term contract assets of $1,819 are expected to be recognized as accounts receivable in greater than twelve months.

Remaining Performance Obligations

Remaining performance obligations (“RPO”) represent the allocated transaction price of unsatisfied or partially unsatisfied performance obligations. The Company expectsto recognize revenue related to the RPOs as the performance obligations are satisfiedin accordance with the Company’s revenue recognition policy, which can be found in Note 2, Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

4. 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.

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 next four quarterly interest payments owed as of the balance sheet date (see Note 12, Borrowingsfor further discussion).

The following table reconciles reported amounts from the Unaudited Condensed Consolidated Balance Sheets to Cash, Cash Equivalents and Restricted Cash reported within the Unaudited Condensed Consolidated Statements of Cash Flows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

5. Inventory

The following table provides information about inventory balances:

6. Property, Plant and Equipment, Net

The following table provides information about property, plant and equipment, net balances:

Depreciation expense related to property, plant and equipment was $1,175 and $2,667 for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024 and 2023, the Company recorded a loss from write-down of property, plant and equipment of $65 and $760, respectively, mainly due to replacement of equipment, outsourcing of certain production processes and the shift in production from the Gen 2.3 battery system to the Z3™ battery system.

Included in CIP assets are capitalized interest costs of $850 and $0 for the three months ended March 31, 2024 and 2023, respectively. Depreciation will commence after the assets under construction are placed in service.

7. Intangible Assets

Intangible assets include 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 overten years. The Company recorded amortization expense of $10 for the three months ended March 31, 2024 and 2023 related to patents.

The Company capitalized $146 of costs for internal-use software, including $8 of costs capitalized during the three months ended March 31, 2024. The software has a useful life and is amortized into the results of operations over 3 years. The Company recorded amortization expense of $12 and $9 for the three months ended March 31, 2024 and 2023, respectively, related to software.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

8. Notes Receivable, Net and Variable Interest Entities (“VIEs”) Consideration

Notes receivable, net, relates to financing the Company offered to a customer. The Company reports the notes receivable at the principal balance outstanding less an allowance for losses. The estimate of credit losses is based on historical trends, the customer’s 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 $827 and $863 outstanding as of March 31, 2024 and December 31, 2023, respectively. These amounts are included in Other assets, net and Other current assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. As of March 31, 2024 and December 31, 2023, the allowance for expected credit loss related to the notes receivable amounted to $36 and $2, respectively.

The customer to whom the Company offers financing through notes receivable is a VIE. However, the Company is not the primary beneficiary, because the Company does not have power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Therefore, the VIE is 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.

9. Accrued Expenses

Accrued expenses were as follows:

(1) Refer to the table below for the warranty reserve activity for the three months ended March 31, 2024 and 2023.

The following table summarizes warranty reserve activity:

10. Government Grants

Inflation Reduction Act of 2022 (“IRA”)

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

10. Government Grants(cont.)

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 (“PTC”), 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. These 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. In June 2023, the IRS issued temporary and proposed regulations related to applicable tax credit transferability and direct pay provisions of the Inflation Reduction Act. The Company has reviewed these regulations and believes they do not have a material impact on the financial statements.

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. 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 is 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 and the conditions in the preceding paragraph are met. For the three months ended March 31, 2024 and 2023, the Company recognized PTC of $1,542 and $798, respectively, as a reduction of cost of goods sold on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss. As of March 31, 2024 and December 31, 2023, grant receivable related to the PTC in the amount of $4,798 and $3,256, respectively, is recorded in the Unaudited Condensed Consolidated Balance Sheets.

11. Related Party Transactions

2021 Convertible Note Payable

In July 2021, the Company issued a convertible note in the aggregate principal amount of $100,000 to Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch Industries, Inc. (the “2021 Convertible Note”). In connection with the 2021 Convertible Note, the Company paid $3,000 to B. Riley Securities, Inc., a related party, who acted as a placement agent. Refer to Note 12, Borrowings, for additional information.

AFG Convertible Notes

In January 2023, the Company issued and sold $13,750 of 26.5% Convertible Senior PIK Notes due in 2026 (“AFG Convertible Notes”) to Great American Insurance Company, Ardsley Partners Renewable Energy, LP, CCI SPV III, LP, Denman Street LLC, John B. Bending Irrevocable Children’s Trust, John B. Berding and AE Convert, LLC, a Delaware limited liability company managed by Russell Stidolph, a director of the Company (together, the “Purchasers”). In connection with the issuance and sale of the AFG Convertible Notes, the Company entered into an investment agreement (the “Investment Agreement”) with the Purchasers. Refer to Note 12, Borrowings, for additional information.

Standby Equity Purchase Agreement

On April 28, 2022, the Company entered into the Standby Equity Purchase Agreement (“SEPA”). Pursuant to the SEPA, the Company had the right, but not the obligation, to sell to Yorkville shares of its common stock at the Company’s request. On August 23, 2023, the Company and Yorkville terminated the SEPA, as amended, by mutual written consent. See Note 12, Borrowingsfor pre-advance loans in form of convertible promissory notes and Note 18, Shareholders' Deficitfor additional information.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

11. Related Party Transactions(cont.)

Warrants

The Company issued private placement warrants to B. Riley Financial, Inc. in conjunction with its initial public offering 2020 (“IPO warrants”). As of March 31, 2024 and December 31, 2023,274,400 IPO warrants were outstanding for both periods, with a fair value of $49 and $55, respectively.

12. Borrowings

The Company’s debt obligations at carrying value consist of the following related and third-party borrowings:

*Carrying value includes unamortized deferred financing costs, unamortized discounts and fair value of embedded derivative liabilities.

2021 Convertible Note 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, Inc. The investment agreement provides for the issuance and sale to Koch Industries of the 2021 Convertible Note in the aggregate principal amount of $100,000.

The 2021 Convertible Note contains an embedded derivative feature, which is presented on the Unaudited Condensed Consolidated Balance Sheets as a component of Convertible notes payable - related party. See Note 14, Fair Value Measurement for the assumptions used to determine the fair value of the embedded derivative as of March 31, 2024 and December 31, 2023.

Interest expense recognized on the 2021 Convertible Note is as follows:

The balances for the 2021 Convertible Note are as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company is obligated to repay all contractual interest attributable to the 2021 Convertible Note in-kind on a semi-annual basis, in accordance with the terms under the Senior Secured Term Loan. Therefore, as of March 31, 2024 and December 31, 2023, interest payable attributable to the 2021 Convertible Note was $1,737 and $0, respectively.

AFG Convertible Notes - Related Party

On January 18, 2023, the Company entered into the Investment Agreement with the Purchasers relating to the issuance and sale to the Purchasers of $13,750 in aggregate principal amount of the Company’s AFG Convertible Notes. The AFG Convertible Notes bear interest at a rate of 26.5% per annum, which is entirely paid-in-kind (“PIK Interest”) semi-annually in arrears on June 30 and December 30. It is expected that the Notes will mature on June 30, 2026, subject to earlier conversion, redemption or repurchase. The AFG Convertible Notes are convertible into shares of the Company’s common stock, par value $0.0001 per share, based on an initial conversion price of approximately $1.67 per share subject to customary anti-dilution and other adjustments. The Company has the right to settle conversions in shares of common stock, cash, or any combination thereof.

The Conversion Option includes an exercise contingency, which requires the Company to obtain shareholder approval for conversions subject to the Exchange Cap. If shareholder approval is not obtained, following commercially reasonable efforts, the Company will be required to settle the conversion in excess of the Exchange Cap in cash. Since settlement in cash may be required in absence of shareholder approval, the embedded conversion feature fails the equity classification guidance in ASC 815 and is thus precluded from being classified in equity. Therefore, the embedded conversion feature is required to be bifurcated from the AFG Convertible Notes and accounted for at fair value at each reporting date, with changes in fair value recognized on the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. The embedded derivative is presented on the Unaudited Condensed Consolidated Balance Sheets as a component of Convertible notes payable - related party. The fair value of the embedded derivative was $3,843 and $4,345 as of March 31, 2024 and December 31, 2023, respectively.

The fair value of the AFG Convertible Notes at issuance was $16,623, which was greater than the proceeds received. The Company recorded the difference of $2,873 as interest expense for the three months ended March 31, 2023 on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss.

Interest expense recognized on the AFG Convertible Notes is as follows:

The balances for the AFG Convertible Notes are as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company is obligated to repay all contractual interest attributable to the AFG Convertible Notes in-kind on a semi-annual basis, in accordance with the terms of the Investment Agreement. Therefore, as of March 31, 2024 and December 31, 2023, interest payable attributable to the AFG Convertible Notes was $1,155 and $0, respectively.

Senior Secured Term Loan

On July 29, 2022, 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. 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 Note 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 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 Prime Lending Rate, (y) the NYFRB Rate (as defined in the 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. As of March 31, 2024, the interest rate in effect for the Senior Secured Term Loan interest payment was 14.11%.

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.

Additionally, interest is required to be escrowed based on the principle outstanding. This amount was $11,858 at March 31, 2024 and $11,755 at December 31, 2023. This escrowed and restricted cash is presented on a separate line item on the Unaudited Condensed Consolidated Balance Sheets as Long-term restricted cash.

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 requires payment of principal and interest in kind on the 2021 Convertible Note. While the Company was in compliance with this covenant as of March 31, 2024 , absent the Company’s ability to secure a waiver or raise additional outside capital, the Company expects it may be unable to remain in compliance with this covenant beginning on June 30, 2024 and thereafter (see Note 1, Overview for further discussion).

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following table summarizes interest expense recognized:

The Senior Secured Term Loan balance is as follows:

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. The Company has drawn a portion of the facility as follows:

As of March 31, 2024 and December 31, 2023, total equipment financing carrying value was $4,924 and $5,710, respectively of which $3,458 and $3,332 are recorded as a current liability on the Unaudited Condensed Consolidated Balance Sheets, respectively. The Company recognized $208 and $317 for the three months ended March 31, 2024 and 2023 as interest expense attributable to the equipment financing agreement, respectively.

Yorkville Convertible Promissory Notes - Related Party

In December 2022, February 2023, and March of 2023, the Company issued additional convertible promissory notes with an aggregate principal amount of $22,000 in a private placement to Yorkville under the second and third supplemental agreements to the SEPA, respectively. The fair values of the January 2023 and February 2023 Promissory Notes at issuance were greater than the proceeds received. Accordingly, the Company recorded the excess of fair value of these Promissory Notes over the proceeds received as Interest expense - related party in the amount of $6,952, for the three months ended March 31, 2023, which is reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

During the first quarter of 2023, Yorkville delivered Investor Notices requiring the Company to issue and sell an aggregate of 11,216,492 shares of common stock to Yorkville to offset all outstanding amounts owed to Yorkville under the outstanding Promissory Notes. The Company recognized a loss on debt extinguishment from the issuance of common stock from the December 2022, January 2023, and February 2023 Promissory Notes of $1,634 for the three months ended March 31, 2023, which is reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The conversion feature for each of the Promissory Notes discussed above did not qualify for the scope exception to derivative accounting, therefore bifurcation was required for each issuance. Upon extinguishment of each Promissory Note, the embedded derivatives were adjusted to their fair value. This remeasurement resulted in net gains of $55 for the three months ended March 31, 2023, which is included in change in fair value of derivatives - related parties on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

As of December 31, 2023, there were no outstanding amounts under the Yorkville Promissory Notes.

13. Warrants Liability

In April 2023, the Company issued 16,000,000 shares of common stock and 16,000,000 private placement warrants to purchase shares of common stock. In May 2023, the Company issued another 3,601,980 shares of common stock and 3,601,980 private placement warrants to purchase shares of common stock (the “April 2023 warrants” and “May 2023 warrants”, respectively).

In December 2023, the Company issued in a combined public offering 34,482,759 shares of common stock and 34,482,759 accompanying common warrants to purchase shares of common stock (the "December 2023 warrants").

The amount of warrants outstanding and fair value for all warrants as of March 31, 2024 and December 31, 2023 are as follows:

All warrants are measured at fair value at each reporting period. For all warrants in aggregate, the change in fair value for the three months ended March 31, 2024 and 2023 has been recognized in change in fair value of warrants on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss. The fair value for the warrants is included in Warrants liability on the Condensed Consolidated Balance Sheets. See Note 14, Fair Value Measurementsfor further information.

14. Fair Value Measurement

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, contract assets, accounts payable, warrants, convertible notes payable — related party, contract liabilities and long-term debt.

Accounting standards establish a hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority to quoted market prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

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 the exercise of this judgment 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, 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 Unaudited Condensed Consolidated Balance Sheets and their designations among the three fair value measurement categories:

Warrants Liabilities

The IPO warrants are classified as Level 2 financial instruments in the table above. 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.

The April 2023 warrants, May 2023 warrants and December 2023 warrants are classified as Level 3 financial instruments in the table above. The Company estimated the fair value of these warrants using the Black-Scholes model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, risk-free interest rate, volatility and time to expiration. The volatility involves unobservable inputs classified as Level 3 of the fair value hierarchy.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The inputs used to determine the fair value of the April 2023 warrants, May 2023 warrants and the December 2023 warrants are as follows:

Embedded derivatives

The Company estimated the fair value of the embedded conversion features in the 2021 Convertible Note and the AFG Convertible Notes using a binomial lattice model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate, the effective debt yield and expected volatility. The effective debt yield and volatility involve unobservable inputs classified as Level 3 of the fair value hierarchy.

The inputs used to determine the fair value of the embedded derivative liabilities are as follows:

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Level 3 Liabilities

Level 3 liabilities are measured at fair value on a recurring basis using significant unobservable inputs. The following table summarizes the changes in the fair value of liabilities that are included within the Company’s accompanying Unaudited Condensed Consolidated Balance Sheets and are designated as Level 3:

1 Includes loss on debt extinguishment from Yorkville Promissory Note Conversions for the three months ended March 31, 2023.

The estimated fair value of financial instruments not carried at fair value in the Unaudited Condensed Consolidated Balance Sheets was as follows:

*Includes the embedded derivative liabilities.

15. Commitments and Contingencies

Lease Commitments

The Company has lease commitments under lease agreements. As of March 31, 2024, future lease payments amounted to $5,568.

Minimum Volume Commitment

In June 2022, the Company entered into a long-term supply agreement with a minimum volume commitment with a third party that provides services to process certain raw materials. Any purchase order issued under this supply agreement will be non-cancellable. If the Company fails to order the guaranteed minimum volume defined in the contract at the end of the term, the Company will be required to pay the counterparty an amount equal to the shortfall, if any, multiplied by a fee. The Company believes it will meet the minimum volume commitment and no shortfall penalty has been accrued as of March 31, 2024.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

15. Commitments and Contingencies(cont.)

Legal Proceedings

Class Action Complaints

On March 8, 2023, a class action lawsuit was filed in the Court of Chancery of the State of Delaware by plaintiff Richard Delman against certain defendants including the Company’s former directors (the “Delman Defendants”). Neither the Company nor Eos Energy Storage LLC were named as a defendant but each was identified in the Complaint as a relevant non-party and the Company has indemnification obligations relating to the lawsuit. On February 1, 2024, the parties agreed to a binding Settlement Term Sheet (the “Settlement”) whereby plaintiff agreed to resolve the lawsuit in exchange for a settlement payment of $8,500, consisting of cash payments previously made by the Company of approximately $1,000 and an additional cash payment of approximately $7,500 funded by the Company’s Directors and Officers (“D&O”) liability insurance policies. The definitive settlement agreement is currently being negotiated between the parties. Once finalized, the settlement agreement will be submitted to the Court of Chancery for final approval.

On August 1, 2023, a class action lawsuit was filed in the United States District Court of New Jersey by plaintiff William Houck against the Company, the Company’s Chief Executive Officer, its former Chief Financial Officer and its current Chief Financial Officer (with the Company, the “Houck Defendants”). The Complaint alleges that the defendants violated federal securities laws by making knowingly false or misleading statements about the Company’s contractual relationship with a customer and about the size of the Company’s order backlog and commercial pipeline. Defendants deny the allegations and, on February 13, 2024, moved to dismiss the Complaint. On March 5, 2024, plaintiff filed an amended complaint that dropped the Company’s former Chief Financial Officer as a defendant. On April 4, 2024, defendants filed a renewed motion to dismiss the lawsuit. The Company intends to continue to vigorously defend against this action.

16. Stock-Based Compensation

Stock-based compensation expense included in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss was as follows:

The stock compensation expense has been recorded in cost of goods sold, research and development expenses and selling, general and administrative expenses.

As of March 31, 2024, total unrecognized compensation expense was $12,448 of which $12,358 was attributable to unvested restricted stock units (“RSU”) and $90 was attributable to unvested stock options. Compensation expense for these unvested awards is expected to be recognized over a weighted-average remaining vesting period of 2.1 years for RSUs and 0.1 years for stock options.

17. Income Taxes

For the three months ended March 31, 2024 and 2023, income tax expense was $25 and $10, respectively, related to state margin taxes and taxable earnings from foreign operations. The income tax expense differs from the amount computed by applying the statutory U.S. federal income tax rate of 21% to the loss before income taxes. This is due to non-taxable income, foreign operations and pre-tax losses for which no tax benefit can be recognized for U.S. income tax purposes.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

17. Income Taxes(cont.)

The Company estimates and applies the annual effective tax rate to its ordinary earnings each interim period. Any significant unusual or infrequent items are not included in the estimation of the annual effective tax rate; instead, these items and their related income tax expense are separately stated in the interim period in which they occur. The quarterly estimate of the annual effective tax rate and related tax expense is subject to variation due to a multitude of factors, including, but are not limited to, the inability to accurately predict the Company’s pre-tax and taxable income and loss.

At each balance sheet date, management assesses the likelihood that the Company will be able to realize its deferred tax assets. Management considered all available positive and negative evidence in assessing the need for a valuation allowance. The realization of deferred tax assets depends on the generation of sufficient taxable income of the appropriate character and in the appropriate taxing jurisdiction during the future periods in which the related temporary differences become deductible. Management has determined that it is unlikely that the Company will be able to utilize its U.S. deferred tax assets at March 31, 2024 and December 31, 2023 due to cumulative losses. Therefore, the Company has a valuation allowance against its net U.S. deferred tax assets.

As of March 31, 2024 and December 31, 2023, the Company has unrecognized tax benefits associated with uncertain tax positions that, if recognized, would not affect the effective tax rate on income from continuing operations. The Company is not currently under examination by any taxing jurisdiction and none of the uncertain tax positions are expected to reverse within the next 12 months.

The Company files income tax returns in U.S. federal and various state jurisdictions, as well as in Italy and India. The open tax years for federal returns are 2020 and forward and open tax years for state returns are generally 2019 and forward. In addition, net operating losses generated in closed years and utilized in open years are subject to adjustment by the tax authorities.

18. Shareholders’ Deficit

Preferred Stock

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 March 31, 2024 and December 31, 2023, there wereno shares of preferred stock issued or outstanding.

Common Stock

The Company is authorized to issue 300,000,000 shares of common stock at $0.0001 par value as of March 31, 2024. The holders of the Company’s common stock are entitled toone vote for each share held. At March 31, 2024 and December 31, 2023, there were 206,779,447 and 199,133,827 shares of common stock issued and outstanding.

Treasury Stock

The Company recorded treasury stock of $308 and $345 for the three months ended March 31, 2024 and 2023 for shares withheld from employees to cover the payroll tax liability of RSUs vested, respectively. The treasury stock was immediately retired.

Warrants Liability

The Company has outstanding private warrants from the IPO warrants, the April 2023 warrants, the May 2023 warrants and the December 2023 warrants. Warrants liability is included separately on the Unaudited Condensed Consolidated Balance Sheets. See Note 13, Warrants Liabilityfor further discussion.

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

18. Shareholders’ Deficit(cont.)

Public Warrants

The Company sold warrants to purchase 9,075,000 shares of the Company’s common stock in a public offering on May 22, 2020 (the “Public Warrants”). Each Public Warrant entitles the holder to purchase a share of common stock at a price of $11.50 per share. There wereno Public Warrants exercised during the three months ended March 31, 2024 and 2023. As of March 31, 2024 and December 31, 2023, there were 7,052,254 public warrants outstanding for both periods.

Standby Equity Purchase Agreement

During the three months ended March 31, 2023, total funds raised under the SEPA, inclusive of proceeds received from the Yorkville Convertible Promissory Notes, were $20,850. During the three months ended March 31, 2023, total shares issued under the SEPA were 11,900,400.

On August 23, 2023, the Company and Yorkville terminated the SEPA, as amended, by mutual written consent. At the time of termination, there were no outstanding borrowings, advance notices or shares of Common Stock to be issued under the SEPA. In addition, there were no fees due by the Company or Yorkville in connection with the termination of the SEPA.

At-the-Market Offering Program

The Company has a sales agreement with Cowen and Company, LLC (“Cowen”), with respect to an at-the-market offering (“ATM”) program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $200,000 through Cowen as its sales agent and/or principal.

During the three months ended March 31, 2024, the Company sold 7,239,982 shares raising proceeds of $7,206, net of fees paid to Cowen, at an average selling price of $1.03 per share. There wereno shares issued under the ATM offering program for the three months ended March 31, 2023.

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. Since the Company incurred a net loss for the three months ended March 31, 2024 and 2023, the potential dilutive shares from stock options, restricted stock units, warrants and Convertible 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 three months ended March 31, 2024 and 2023.

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

EOS ENERGY ENTERPRISES, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

19. Subsequent Events

On April 22, 2024, the Company closed an agreement with Banyan Software, Inc. to accelerate its 2023 Production Tax Credit monetization. The Company received $2,303 in cash. This amount relates to a portion of the PTC grant receivable as of March 31, 2024, as discussed in Note 10, Government Grants.