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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
Commission file number 001-39291
EOS ENERGY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware08-7654321
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3920 Park Avenue
EdisonNJ08820
(Address of Principal Executive Offices)(Zip Code)
(732) 225-8400
Registrant's telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareEOSEThe Nasdaq Stock Market LLC
Warrants, each exercisable for one share of common stockEOSEWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  


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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes        No  
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The registrant had outstanding 53,698,840 shares of common stock as of November 5, 2021.



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Page
Item 1a.
Risk Factors

Part I - Financial Information













1

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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS)
As of September 30, 2021 and December 31, 2020
September 30,
2021
December 31,
2020
ASSETS  
Current assets  
Cash and cash equivalents$144,194 $121,853 
Restricted cash525  
Grants receivable948 131 
Accounts receivable1,406  
Inventory4,996 214 
Vendor deposits15,400 2,390 
Notes receivable91  
Prepaid and other current assets1,517 2,779 
Total current assets169,077 127,367 
Property and equipment, net10,279 5,653 
Intangible assets, net290 320 
Goodwill4,331  
Investment in joint venture 3,736 
Security deposits1,249 825 
Notes receivable, long term4,656100 
Other assets194263 
Total assets$190,076 $138,264 
LIABILITIES AND MEMBERS EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses$13,175 $8,471 
Accounts payable and accrued expenses - related parties 2,517 
Provision for firm purchase commitments 1,585 
Capital lease, current portion6 11 
Long-term debt, current portion6,504 924 
Contract liabilities1,199 77 
Total current liabilities20,884 13,585 
Long term liabilities
Deferred rent796 762 
Capital lease  4 
Long-term debt18,851 427 
Warrants liability1,635 2,701 
Convertible notes - related party87,990  
Interest payable - related party1,500  
Total long term liabilities110,772 3,894 
Total liabilities131,656 17,479 
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY
 Common Stock, $0.0001 par value, 200,000,000 shares authorized, 53,698,840 and 48,943,082 shares outstanding at September 30, 2021 and December 31, 2020, respectively
5 5 
Contingently Issuable Common Stock 17,600 
Preferred stock, $0.0001 par value, 1,000,000 shares authorized, no shares outstanding at September 30, 2021 and December 31, 2020
  
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September 30,
2021
December 31,
2020
Additional paid in capital444,349 395,491 
Accumulated deficit(385,934)(292,311)
Total shareholders' equity 58,420 120,785 
Total liabilities and shareholders’ equity$190,076 $138,264 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ IN THOUSANDS)
For the three months and nine months ended September 30, 2021 and 2020
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Revenue  
Total revenue$718 $35 $1,494 $35 
Costs and expenses
Cost of goods sold12,904 6,051 25,368 6,161 
Research and development expenses5,118 3,882 13,818 8,360 
Selling, general and administrative expenses8,825 4,567 28,952 7,556 
Loss (gain) on pre-existing agreement (310)30,368 685 
Grant expense, net157 119 113 728 
Total costs and expenses27,004 14,309 98,619 23,490 
Operating loss(26,286)(14,274)(97,125)(23,455)
Other income (expense)
Interest expense, net(132)(5)(307)(115)
Interest expense, related party(3,611)(16,621)(3,611)(23,366)
Remeasurement of equity method investment  (7,480) 
Change in fair value, embedded derivative9,927 878 9,927 1,721 
Change in fair value, warrants liability705  1,066  
Income (loss) from equity in unconsolidated joint venture (94)440 (133)
Gain on debt forgiveness1,273  1,273  
Sale of state tax attributes  2,194  
Net loss$(18,124)$(30,116)$(93,623)$(45,348)
Basic and diluted loss per share attributable to common shareholders1
Basic$(0.34)$(7.66)$(1.79)$(11.54)
Diluted$(0.34)$(7.66)$(1.79)$(11.54)
Weighted average shares of Common Stock2
Basic53,636,894 3,930,336 52,307,820 3,930,336
Diluted53,636,894 3,930,336 52,307,820 3,930,336
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1 Retroactive application of recapitalization given effect herein
2 Retroactive application of recapitalization given effect herein
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) ($ IN THOUSANDS)
For the three months ended September 30, 2021 and 2020

Common StockAdditional Contingently AccumulatedTotal
SharesAmountPaid in capitalIssuable Common StockDeficit
Balance, June 30, 2020
3,930,336 $ $20,402 $ $(219,300)$(198,898)
Stock-based compensation— — 214 — — 214 
Net loss— — — — (30,116)(30,116)
Balance, September 30, 2020
3,930,336 $ $20,616 $ $(249,416)$(228,800)
Balance, June 30, 2021
53,353,858 $5 $436,372 $— $(367,810)$68,567 
Stock-based compensation— — 4,412 — — 4,412 
Exercise of options36,660 — 318 — — 318 
Exercise of warrants282,332 — 3,247 — — 3,247 
Vesting of restricted units25,990 — — — — — 
Net loss— — — — (18,124)(18,124)
Balance, September 30, 2021
53,698,840 $5 $444,349 $ $(385,934)$58,420 







5

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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) ($ IN THOUSANDS)
For the nine months ended September 30, 2021 and 2020
Common Stock3Additional Contingently AccumulatedTotal
SharesAmountPaid in capitalIssuable Common StockDeficit
Balance, December 31, 2019
3,930,336 $ $20,346 $ $(204,068)$(183,722)
Stock-based compensation— — 270 — — 270 
Net loss— — — — (45,348)(45,348)
Balance, September 30, 2020
3,930,336 $ $20,616 $ $(249,416)$(228,800)
Balance, December 31, 2020
48,943,082 $5 $395,491 $17,600 $(292,311)$120,785 
Stock-based compensation— — 10,085 — — 10,085 
Release of Block B Sponsor Earnout Shares from restriction4859,000 — — — — — 
Issuance of Contingently Issuable Common Stock5
1,999,185 — 17,600 (17,600)— — 
Exercise of stock options123,837 — 1,074 — — 1,074 
Exercise of public warrants
1,747,746 — 20,099 — — 20,099 
Vesting of restricted units25,990 — — — — — 
Net loss— — — — (93,623)(93,623)
Balance, September 30, 2021
53,698,840 $5 $444,349 $ $(385,934)$58,420 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 Retroactive application of recapitalization given effect herein
4 See Note 18 for discussion of Sponsor Earnout Shares
5 See Note 18 for discussion of Contingently Issuable Common Stock
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS)
For the nine months ended September 30, 2021 and 2020
 
September 30, 2021
September 30, 2020
Cash flows from operating activities  
Net loss$(93,623)$(45,348)
Adjustment to reconcile net loss to net cash used in operating activities
Stock-based compensation10,085 270 
Depreciation and amortization1,794 1,142 
Gain on debt forgiveness(1,273) 
Loss from disposal of property and equipment11  
Remeasurement of equity method investment7,480  
Loss (income) from equity in unconsolidated joint venture(440)133 
Amortization of debt issuance cost1,330  
Accreted interest on convertible notes payable - related party781 23,366 
Change in fair value, embedded derivative(9,927)(1,721)
Change in fair value, warrants liability(1,066) 
Changes in operating assets and liabilities (net of assets and liabilities acquired)
Receivable on sale of state tax attributes 4,060 
Prepaid and other current assets1,339 273 
Inventory(2,116)(78)
Grants receivable(817)40 
Accounts receivable(1,406)(35)
Vendor deposits - related party (3,143)
Vendor deposits(7,173)(394)
 Security deposits(424)(2)
 Other assets70 6 
Accounts payable and accrued expenses1,576 3,612 
Accounts payable and accrued expenses - related parties(2,517)1,494 
Provision for firm purchase commitments(5,475)5,807 
Contract liabilities1,122 10 
Deferred rent34 87 
   Notes payable18,530  
Interest payable-related party1,500  
Net cash used in operating activities(80,605)(10,421)
Cash flows from investing activities
Investment in notes receivable(4,724) 
Business acquisition, net of cash acquired(160) 
Investment in joint venture(4,000)(1,561)
Purchases of property and equipment(11,346)(1,839)
Net cash used in investing activities(20,230)(3,400)
Cash flows from financing activities
Capital lease payments(9)(8)
Proceeds from exercise of stock options1,074  
Proceeds from exercise of public warrants20,099  
Proceeds from Paycheck Protection Program loan 1,257 
Proceeds from issuance of Convertible notes - related party100,000 8,839 
Payment made for debt issuance cost (4,369) 
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September 30, 2021
September 30, 2020
Proceeds from equipment financing facility7,000  
Repayment of other financing(94)(49)
Proceeds from other financing 195 
Issuance of contingently redeemable preferred units 9,259 
Net cash provided by financing activities123,701 19,493 
Net increase in cash, cash equivalents and restricted cash22,866 5,672 
Cash, cash equivalents and restricted cash, beginning of the period121,853 862 
Cash, cash equivalents and restricted cash, end of the period$144,719 $6,534 
Non-cash investing and financing activities
Accrued and unpaid capital expenditures$355 $329 
   Accrued and unpaid deferred transaction costs$ $2,386 
Supplemental disclosures
Cash paid for interest$ $115 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets.
 
September 30, 2021
September 30, 2020
  
Cash and cash equivalents$144,194 $6,534 
Restricted cash 525  
Total cash, cash equivalents and restricted cash144,719 6,534 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Eos Energy Enterprises, Inc. (f/k/a B. Riley Principal Merger Corp. II (“BMRG”)) (the “Company” or "Eos") designs, develops, manufactures, and sells innovative energy storage solutions for electric utilities as well as commercial and industrial end users. Eos has developed and has received patents on an innovative battery design relying on a unique zinc oxidation/reduction cycle to generate output current and to recharge. The Battery Management System (“BMS”) software uses proprietary Eos-developed algorithms and includes ambient and battery temperature sensors, as well as voltage and current sensors for the strings and the system. Eos and its partners focus on a collaborative approach to jointly develop and sell safe, reliable, long-lasting low-cost turn-key alternating current (“AC”) integrated systems using Eos’s direct current (“DC”) Battery System. The Company has a manufacturing facility located in Pittsburgh, Pennsylvania to manufacture the DC Battery Systems integrated with the BMS for DC Battery Systems. The Company’s primary markets focus on integrating battery storage solutions with (1) solar systems that are connected to the utility power grid (2) solar systems that are not connected to the utility power grid (3) storage systems utilized to relieve congestion and (4) storage systems to assist commercial and industrial customers in reducing their peak energy usage or participating in the utilities ancillary and demand response markets. The location of the Company’s major markets are seen in North America, Europe, Africa, and Asia.
Unless the context otherwise requires, the use of the terms “the Company”, “we,” “us,” and “our” in these notes to the unaudited condensed consolidated financial statements refers to Eos Energy Enterprises, Inc. and its consolidated subsidiaries.
Basis of Presentation
The unaudited condensed 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 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 generally accepted accounting principles in the United States (U.S. GAAP) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2020. These interim results are not necessarily indicative of results for the full year.
Restricted cash
Restricted cash on September 30, 2021 and December 31, 2020 was approximately $525 and $, respectively, on the Company’s condensed consolidated balance sheets. All of the restricted cash on September 30, 2021 was held by the bank as collateral for the Company’s corporate credit cards and subject to withdrawal restriction.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Adjustment has been made to the Consolidated Balance sheet for the year ended December 31, 2020, to reclassify notes receivable from other assets. In addition, the loss (gain) on pre-existing agreement for the three and nine months ended September 30, 2020 was reclassified from selling, general and administrative expense to loss on pre-existing agreement on the Condensed Consolidated Statement of Operations.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
1.Nature of Operations and Summary of Significant Accounting Policies (cont.)
Recent Accounting Pronouncements
As an “emerging growth company,” or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, the Company has made an election under Section 107 of the JOBS Act to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards and has been following requirements applicable to private companies for adopting new and updated accounting standards. Based on the value of the Company's common stock held by non-affiliates on June 30, 2021, the Company will become a large accelerated filer as of and for the year ending December 31, 2021 and will follow adoption guidance mandated for non-EGC entities.
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting guidance to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. As of December 31, 2021, the Company will become a large accelerated filer and as a result, the guidance under ASU 2016-02 is effective for the Company's Annual Report on Form 10-K to be filed for the year ended December 31, 2021, with an effective date of adoption of January 1, 2021. The Company is currently evaluating the impact on its consolidated financial statements, including the impact of available accounting policy elections.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in ASU 2016-13 will provide more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which extends the effective date for adoption of ASU 2016-13 for certain entities. As of December 31, 2021, the Company will become a large accelerated filer and as a result, the guidance under ASU 2016-13 and ASU 2019-10 is effective for the Company's Annual Report on Form 10-K to be filed for the year ended December 31, 2021. The Company will record a cumulative effect adjustment to retained earnings retroactive to January 1, 2021, the date of adoption. The Company is currently evaluating the impact on its consolidated financial statements, including the impact of the available accounting policy elections.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The Company has adopted this ASU in the first quarter of 2021. The adoption did not have an impact on the Company's condensed consolidated financial statements.
2. Acquisition
On April 8, 2021, the Company entered into a unit purchase agreement (the “Purchase Agreement”) with Holtec Power, Inc. (“Holtec”), in accordance with the terms and conditions of which the Company purchased from Holtec the remaining 51% percent interest in HI-POWER, LLC (“Hi-Power”) that was not already owned by the Company. Hi-Power was incorporated as a joint venture between the Company and Holtec in 2019 (refer to Note 7). In connection with the transaction, the Company also entered into a transition services agreement and a sublease with Holtec. The transaction closed on April 9, 2021 (“Acquisition Date”). Following the consummation of the transactions set forth in the Purchase Agreement (the “Transactions”), Hi-Power became a 100% indirect, wholly-owned subsidiary of the Company and the obligations of the parties under the Hi-Power joint venture terminated.
The Purchase Agreement provides that the Company will pay an aggregate purchase price of $25,000 for 51% interest in Hi-Power, pursuant to the following schedule: $5,000 on each of May 31, 2021, May 31, 2022, May 31, 2023, May 31, 2024, and May 31, 2025, evidenced by a secured promissory note secured by the assets of the Company. The Purchase Agreement also requires that the Company pay to Holtec, on the closing of the Transactions, an amount in cash equal to $10,283. Payments to Holtec under this Purchase Agreement totaled $35,283. The fair value of these payments was $33,474 at the Acquisition Date and included $32,750 allocated to the termination of a pre-existing agreement with Holtec and $724 allocated to the acquisition.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)

2. Acquisition (cont.)


The obligations and rights of both parties under the pre-existing Joint Venture Agreement were terminated at the time of acquisition and $32,750 of the fair value of the consideration transferred was allocated to the termination of such agreement, which resulted in a loss on pre-existing agreement of $ and $30,368 for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, the Company had paid $10,283 on the date of closing and $5,000 notes payable due on May 31, 2021. The present value of the remaining payments was recorded as debt, which as of September 30, 2021 includes a current portion of $4,883 and a long-term portion of $13,647.
Prior to the acquisition of the remaining 51% ownership interest in Hi-Power, we accounted for our initial 49% ownership interest in Hi-Power as an unconsolidated joint venture under the equity method of accounting (refer to Note 7). In connection with the acquisition of the remaining 51% ownership interest in Hi-Power, our consolidated financial statements now include all of the accounts of Hi-Power, and all intercompany balances and transactions have been eliminated in consolidation. The results of operations of Hi-Power have been included in the Company’s condensed consolidated financial statements from the date of acquisition. The acquisition of Hi-Power did not have a material impact on the Company’s condensed consolidated financial statements, and therefore historical and pro forma disclosures have not been presented.
The consideration transferred for our now 100% ownership interest in connection with this acquisition, net of intercompany balances between the Company and Hi-Power, totaled $418, of which $205 represents the fair value of our previously held 49% ownership interest in Hi-Power. In accordance with ASC Topic 805-10-25-10, we remeasured our previously held 49% ownership interest in Hi-Power at its acquisition date fair value. As of the acquisition date, a loss of $7,480 was recognized in earnings for the remeasurement of our previously held 49% ownership interest.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the Acquisition Date:
Amount
Inventory2,666 
Vendor deposits818 
Property and equipment, net74 
Goodwill4,331 
Accounts payable and accrued expenses(3,634)
Provision for firm purchase commitments(3,890)
Net assets acquired, net of cash and cash equivalents of $53 6
$365 
The purchase price allocation and the measurement for acquisition consideration are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary. The provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to these acquisitions are subject to change and the final purchase price accounting could be different from the amounts presented herein. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.
The Company expects the goodwill recognized as part of the acquisition will be deductible for U.S. income tax purposes. The Company also incurred insignificant non-consideration acquisition expenses including legal and accounting services related to the acquisition, which are recorded in selling, general and administrative expenses on the Company’s condensed consolidated statement of operations.
3. Revenue Recognition
Contract Balances
The following table provides information about contract assets and liabilities from contracts with customers:
6 Net assets acquired exclude the intercompany balance between Eos and Hi-Power and cash acquired.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
3. Revenue Recognition (cont.)


 September 30,
2021
December 31,
2020
September 30,
2020
December 31,
2019
Contract Assets$13 $ $ $ 
Contract Liabilities1,199 $77 $310 $300 
The Company recognizes contract assets resulting from the timing of revenue recognition and invoicing. Contract liabilities primarily relate to advance consideration received from customers in advance of the Company satisfying performance obligations under contractual arrangements. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The contract assets were recorded in prepaid and other current assets as of September 30, 2021.
Contract assets increased by $13 and $ during the nine months ended September 30, 2021 and 2020, respectively. Contract liabilities increased by $1,122 during the nine months ended September 30, 2021 and increased by $10 during the nine months ended September 30, 2020, respectively.
The Company recognized $77 of revenue during the nine months ended September 30, 2021 that was included in the contract liability balance at December 31, 2020 and $240 during the three months ended September 30, 2021 that was included in the contract liability balance at June 30, 2021. No revenue was recognized for three and nine months ended September 30, 2020 that was included in the contract liability balance at the beginning of the period.
Transaction Price Allocated to Remaining Performance Obligations
Contract liabilities of $1,199 as of September 30, 2021 are expected to be recognized within the next twelve months.
4. Inventory
Since we acquired the remaining 51% interest in Hi-Power on April 9, 2021, our inventory balances as of September 30, 2021 include all inventories held at our manufacturing facility, Hi-Power. The following table provides information about inventory balances:
 September 30, 2021
December 31, 2020
Finished goods$768 $214 
Work-in-process73  
Raw materials4,155  
     Total Inventory, net$4,996 $214 
5. Property and Equipment, net
Property and equipment, net consisted of the following:
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
5. Property and Equipment, net (cont.)

 
September 30, 2021
December 31, 2020
Useful lives
Equipment$11,270 $7,055 510 years
Capital Lease201 201 5 years
Furniture584 211 510 years
Leasehold Improvements2,841 2,732 Lesser of useful life/remaining lease
Tooling2,212 523 23 years
Total17,108 10,722 
Less: Accumulated Depreciation (6,829)(5,069)
 $10,279 $5,653 
Depreciation and amortization expense related to property and equipment was $687 and $382 for the three months ended September 30, 2021 and 2020, and $1,764 and $1,112 for the nine months ended September 30, 2021 and 2020, respectively.
6. Intangible Assets
Intangible assets consist of various patents valued at $400, which represents the cost to acquire the patents. These patents are determined to have useful lives and are amortized into the results of operations over ten years.
For the three months ended September 30, 2021 and 2020, the Company recorded amortization expenses of $10 for each period related to patents. For the nine months ended September 30, 2021 and 2020, the Company recorded amortization expenses of $30 for each period related to patents.
Estimated future amortization expense of intangible assets as of September 30, 2021 are as follows:
Remainder of 2021$10 
202240 
202340 
202440 
202540 
Thereafter120 
Total$290 
7. Investment in unconsolidated joint venture
In August 2019, the Company entered into an agreement with Holtec Power, Inc. (“Holtec”) to form the unconsolidated joint venture (“JV”) Hi-Power. The JV was formed in order to manufacture the products for all of the Company’s projects in North America. Accordingly, the Company has purchased battery storage systems and spare parts from the JV. The facility is located in Pittsburgh, Pennsylvania. The Company’s financial commitment to the JV upon inception was $4,100 in the form of a combination of cash and special purpose manufacturing equipment. The Company’s initial ownership interest was 49%. On April 9, 2021, the Company acquired the remaining 51% ownership interest and Hi-Power became a wholly owned subsidiary thereafter. Refer to Note 2 for the acquisition details.
The joint venture commenced manufacturing activities in the fourth quarter of 2020. Contributions made to the JV were $ and $1,011, respectively for the three months ended September 30, 2021 and 2020 and $4,000 and $1,561, respectively for the nine months ended September 30, 2021 and 2020.
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EOS ENERGY ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
7. Investment in unconsolidated joint venture (cont.)
The investment income (loss) recognized from the unconsolidated joint venture under the equity method of accounting was $ and $(94) for the three months ended September 30, 2021 and 2020, respectively and $440 and $(133) for the nine months ended September 30, 2021 and 2020, respectively. Our investment in the unconsolidated joint venture as of December 31, 2020 was $3,736.
8. Notes receivable and Variable interest entities (“VIEs”) consideration
Notes receivable consist primarily of amounts due to us related to the financing we offered to customers. We report notes receivable at the principal balance outstanding less an allowance for losses. We monitor the financial condition of the notes receivable and record provisions for estimated losses when we believe it is probable that the holders of the notes receivable will be unable to make their required payments. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. The Company had notes receivable of $4,747 and $100 outstanding as of September 30, 2021 and December 31, 2020, respectively, with no loss reserved for the uncollectible balances.
The customers to whom we offer financing through notes receivables are VIEs. However, the Company is not the primary beneficiary, because we do not have power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance. The VIEs are not consolidated into the Company’s financial statements but rather disclosed in the notes to our financial statements under ASC 810-10-50-4. The maximum loss exposure is limited to the carrying value of notes receivable as of the balances sheet dates.
At September 30, 2021, we had agreements to provide loans to our customers for $11,348. $4,824 was drawn on those commitments as of September 30, 2021. The funding under certain loan agreements is contingent on reaching certain milestones defined by the agreements.
9. Commitments and Contingencies
Lease Commitments
On June 24, 2016, Eos entered into a long-term non-cancelable, operating lease for 45,000 sq. ft. of space for our current headquarters facility in Edison, New Jersey. On April 26, 2017, Eos entered into a lease for an additional 18,000 sq. ft. of adjoining space. These leases expire in September 2026 with renewal options up to 2036. Further, these leases require monthly rent payments along with executory costs, which include real estate taxes, repairs, maintenance, and insurance. In addition, the terms of the leases contain cost escalations of approximately 10% annually. On April 8, 2021, in connection with the acquisition, Hi-Power entered into a sublease agreement with Holtec, with the lease expiring on December 31, 2022. This lease requires monthly rent payments, consisting of a base rent along with executory costs. The Company also has certain non-cancelable capital lease agreements for office equipment.
Total rent expense including common area maintenance was $338 and $123 for the three months ended September 30, 2021 and 2020, and $885 and $570 for the nine months ended September 30, 2021 and 2020, respectively.
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EOS ENERGY ENTERPRISES, INC. 
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
9. Commitments and Contingencies (cont.)
Future minimum lease commitments as of September 30, 2021 are as follows:
 OperatingCapital
Remainder of 2021$282 $3 
20221,160 4 
2023825  
2024895  
2025966  
Later years679  
Total minimum lease payments$4,807 $7 
Less amounts representing interest1 
Present value of minimum lease payments$6 
Firm Purchase Commitments
To ensure adequate and timely supply of raw material for production, the Company from time to time enters into non-cancellable purchase contracts with vendors. At the end of each reporting period, the Company evaluates its non-cancellable firm purchase commitments and records a loss, if any, using the same lower of cost or market approach. In assessing the potential loss provision, we use the stated contract price and expected production volume under the relevant sales contract. The Company records a purchase commitment loss if the net realizable value of the inventory is less than the cost. As of September 30, 2021, the Company had open purchase commitments of $16,937 under these contracts and no provision for firm purchase commitments was recorded.
10. Grant Expense, Net
Eos was approved for two grants by the California Energy Commission (“CEC”) totaling approximately $7,000. In accordance with the grant agreements, Eos is responsible for conducting studies to demonstrate the benefits of certain energy-saving technologies to utility companies and consumers in the State of California and is entitled to receive portions of the grants based upon expenses incurred.
For the three months ended September 30, 2021 and 2020, Eos recorded grant (income) expense, net of $157 and $119, respectively, which comprised of grant income of $976 and $172 and grant costs of $1,133 and $291. For the nine months ended September 30, 2021 and 2020, Eos recorded grant (income) expense, net of $113 and $728, respectively, which comprised of grant income of $1,953 and $381 and grant costs of $2,066 and $1,109. For the nine months ended September 30, 2020, Eos received $1,376 of payments from the CEC. The Company did not receive any payments from the CEC for the three months ended September 30, 2020 and for the three and nine months ended September 30, 2021.
As of September 30, 2021 and December 31, 2020, the Company had $ and $1,136 of deferred grant income, which were recorded in accounts payable and accrued expense on the condensed consolidated balance sheets, as well as a receivable in the amount of $948 and $131, respectively. The expenses incurred by Eos relate to the performance of studies in accordance with the respective grant agreements, and the grants received or receivable from the CEC are recorded as an offset to the related expenses for which the grant is intended to compensate the Company.
11. Income Taxes
For the nine months ended September 30, 2021, the reported income tax provision was nil and differs from the amount computed by applying the statutory US federal income tax rates of 21% to the income before income taxes due to pretax losses for which no tax benefit can be recognized, state and local taxes, nondeductible expenses, and nontaxable income for US income tax purposes.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
11. Income Taxes (cont.)
For the nine months ended September 30, 2020, the reported income tax provision was nil and differs from the amount computed by applying the statutory US federal income tax rates of 21% to the income before income taxes due to pretax losses for which no tax benefit can be recognized, state and local taxes, and nondeductible expenses for US income tax purposes.
The Company estimates and applies the annual effective tax rate to its ordinary earnings each interim period. Any significant unusual or infrequent items, if any, are not included in the estimation of the annual effective tax rate. Rather, these items and their related income tax expense (benefit) 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. Factors may include 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 Eos 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 Eos will be able to utilize its deferred tax assets at September 30, 2021 and September 30, 2020 due to cumulative losses. Therefore, Eos has a valuation allowance against its net deferred tax assets.
At September 30, 2021, Eos has unrecognized tax benefits associated with uncertain tax positions that, if recognized, would not affect the effective tax rate on income from continuing operations. Eos is not currently under examination by any taxing jurisdiction, and none of the uncertain tax positions is expected to reverse within the next 12 months.
At September 30, 2020, Eos has not recorded any unrecognized tax benefits associated with uncertain tax positions.
During the nine-month period ending September 30, 2021, the Company participated in the New Jersey Economic Development Authority Technology Business Tax Certificate Transfer Program and sold a portion of its available 2019 and 2017 New Jersey net operating losses (“NOLs”) and 2019 research and development credits in the amounts of $20,126 and $548, respectively. For the nine months ended September 30, 2021, the Company has recognized a gain of $2,194 related to the sale in the condensed consolidated statement of operations. The lifetime cap of the transfer program is $20,000 of tax-effected attributes and the Company has sold approximately $14,000 as of September 30, 2021, leaving the Company with approximately $6,000 tax-effected attributes that may be sold in the future.
Eos files income tax returns in federal and various state jurisdictions. The open tax years for federal and state returns is generally 2016 and forward. In addition, NOLs generated in closed years and utilized in open years are subject to adjustment by the tax authorities. Eos is not currently under examination by any taxing jurisdiction.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in response to the Covid-19 pandemic. The CARES Act provided several forms of tax law changes, though Eos does not expect that any will have a material impact on the tax provision. During the nine-month period ending September 30, 2021, the Company requested and was granted loan forgiveness under the Small Business Administration Paycheck Protection Program (“PPP”). Eligible borrowers under the PPP were entitled to funds to cover expenses related to payroll, insurance, retirement benefits, and mortgages, with the option of loan forgiveness after certain conditions were met. As a result of qualifying for loan forgiveness, Eos recognized a gain of $1,273 from the outstanding loan, however, the CARES Act provides that any amounts forgiven are not taxable.
12. Related Party Transactions
Convertible Notes
For the nine months ended September 30, 2021, the Company issued $100,000 aggregate principal amount of convertible notes to Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch Industries, Inc (the “2021 Convertible Notes” or the “Notes”). In connection with the 2021 Convertible Notes, the Company paid $3,000 to B. Riley Securities, Inc., a related party, who acted as a placement agent. Refer to Note 13 for more information.
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EOS ENERGY ENTERPRISES, INC

 UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
12. Related Party Transactions (cont.)
For the nine months ended September 30, 2020, Eos issued convertible notes payable (the “Legacy Convertible Notes”) to certain members. Refer to Note 13 for further discussion.
Accounts Payable and Accrued Expenses
As of December 31, 2020, accounts payable and accrued expense - related parties contained $138 consultant fee payable to an affiliate. Additionally, amounts accrued to Holtec under the Joint Venture Agreement were $ and $2,382 as of September 30, 2021 and December 31, 2020, respectively, which was paid off in connection with the acquisition of Hi-Power. For the three and nine months ended September 30, 2020, $(310) and $685 were charged to loss (gain) on pre-existing agreement, respectively. For the nine months ended September 30, 2021, $30,368 was charged to loss on pre-existing agreement in connection with the Hi-Power acquisition. Refer to Note 2 for the acquisition details.
As of September 30, 2021, $1,500 of interest accrued from the 2021 Convertible Notes was recorded as interest payable - related party on the condensed consolidated balance sheet.
Vendor deposits
As of December 31, 2020, vendor deposits included a balance of $278 for deposits made to Hi-Power.
13. Convertible Notes - Related Party
2021 Convertible Notes
On July 6, 2021, the Company entered into an investment agreement (the “Investment Agreement”) with Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch Industries, Inc. (“Koch”) relating to the issuance and sale to Koch of the 2021 Convertible Notes in the aggregate principal amount of $100,000. The transactions contemplated by the Investment Agreement closed on July 7, 2021 (the “Issue Date”). The Maturity Date of the 2021 Convertible Notes is June 30, 2026, subject to earlier conversion, redemption, or repurchase. As of the Issue Date, Koch beneficially owned approximately 14% of the Company’s outstanding common stock.
The 2021 Convertible Notes are senior unsecured obligations of the Company and rank equal in right of payment to all senior unsecured indebtedness of the Company, and will rank senior in right of payment to any indebtedness that is contractually subordinated to the 2021 Convertible Notes.
Contractual Interest Rates - The 2021 Convertible Notes were issued at par and bear interest at a rate of 5% per year if interest is paid in cash, or, if interest is paid in-kind as an increase in the principal amount, at a rate of 6% per year. Interest on the 2021 Convertible Notes is payable semi-annually in arrears on June 30 and December 30. The Company, at its option, is permitted to settle each semi-annual interest payment in cash, in-kind, or any combination thereof.
Conversion Rights - The 2021 Convertible Notes are convertible at the option of the Holder at any time prior to the maturity date at an initial conversion rate of 49.9910 shares of the Company’s common stock per $1,000 of capitalized principal (the “Holder’s Conversion Rights”). The effective conversion price is approximately $20.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain dilutive events such as stock splits and combinations, stock dividends, mergers and spin-off. For the three months ended September 30, 2021, there were no adjustments to conversion rate. As of September 30, 2021, 4,999,100 shares of the Company’s common stock were issuable upon conversion of the 2021 Convertible Notes. The Company has the right to settle conversions in shares of common stock, cash, or any combination thereof.
Optional Redemption - On or after June 30, 2024, the 2021 Convertible Notes will become redeemable at the Company’s option in the event the closing sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period. The redemption price is equivalent to the principal amount of the 2021 Convertible Notes called for redemption, plus accrued and unpaid interest.
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EOS ENERGY ENTERPRISES, INC

 UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
13. Convertible Notes - Related Party (cont.)
If, following the Company’s delivery of a redemption notice, the 2021 Convertible Notes are converted pursuant to the Holders’ Conversion Rights, the Company is required to make an additional cash payment to the converting Holder equal to the present value of all interest payments the Holder would have been entitled to receive had such 2021 Convertible Notes remained outstanding until June 30, 2026 (the “interest make-whole payment”). The present value is calculated using a discount rate equal to the risk-free rate plus 50 basis points and assuming interest accrued at the cash interest rate of 5% per year.
Contingent Redemption - Upon the occurrence of certain events, the Holder may require the Company to repurchase all or part of the principal amount of the 2021 Convertible Notes at a price equivalent to the principal amount of such 2021 Convertible Notes, plus accrued and unpaid interest. Such events include fundamental changes to the Company’s ownership and the delisting of the Company’s common stock from the Nasdaq. The occurrence of such events may result in the acceleration of the principal amount of the Convertible Notes, plus accrued and unpaid interest.
Embedded Derivatives - The interest make-whole payment can be triggered only in connection with an induced conversion, and therefore represents an adjustment to the settlement amount of the embedded conversion feature. Because this adjustment is calculated in a manner in which the cash payout may exceed the time value of the embedded conversion feature, the embedded conversion feature is precluded from being considered indexed to the Company’s own stock. Therefore, the embedded conversion feature does not qualify for the scope exceptions to derivative accounting prescribed by Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”).
The initial fair value of the embedded conversion feature was estimated to be $29,866, which the Company bifurcated from the 2021 Convertible Notes and accounts for separately. The embedded conversion feature is presented on the condensed consolidated balance sheet as a component of the 2021 Convertible Notes. The Company estimated the fair value of the embedded conversion feature using a binomial lattice model at the inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate and expected volatility. The effective debt yield involves unobservable inputs classified as Level 3 of the fair value hierarchy. The assumptions used to determine the fair value of the embedded conversion feature as of July 7, 2021 (inception) and September 30, 2021 and are as follows:

 July 7,
2021
September 30,
2021
Term5 years4.75 years
Dividend yield % %
Risk-free interest rate0.8 %0.9 %
Volatility55.0 %55.0 %
Effective debt yield13.7 %16.3 %

As of September 30, 2021, the fair value of the embedded conversion feature was $19,939. The Company recognized a gain of $9,927 attributable to the change in fair value of the embedded conversion feature for the three and nine months ended September 30, 2021.
Debt Issuance Costs - The Company incurred $4,194 of placement, advisory and legal fees in connection with the issuance of the 2021 Convertible Notes, including $3,000 paid to B. Riley Securities, Inc., a related party of the Company. The debt issuance costs were allocated to the 2021 Convertible Notes and the embedded conversion feature in proportion to the allocation of proceeds resulting from the bifurcation of the embedded conversion feature. $2,942 of the issuance costs were allocated to the 2021 Convertible Notes. These costs were accounted for as debt issuance costs and recorded as a reduction to the carrying value of the 2021 Convertible Notes. The remaining $1,252 was allocated to the embedded conversion feature. Because the embedded conversion feature is carried at fair value, these costs were expensed as incurred and included in the interest expense line item on the condensed consolidated statement of operations.
The following table summarizes interest expense recognized for the three and nine months ended September 30, 2021:
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EOS ENERGY ENTERPRISES, INC

 UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
13. Convertible Notes - Related Party (cont.)
For the three and nine months ended September 30, 2021
Contractual interest expense$1,500 
Amortization of debt discount781 
Amortization of debt issuance costs1,330 
    Total$3,611 

The fair value of the 2021 convertible notes as of September 30, 2021 was $85,430. The 2021 Convertible Notes as of September 30, 2021 are comprised of the following:
September 30, 2021
Principal$100,000 
Unamortized debt discount(29,085)
Unamortized debt issuance costs(2,864)
Embedded conversion feature19,939 
     Aggregate carrying value$87,990 
As of September 30, 2021, the Company intends to repay the contractual interest due on December 30, 2021 in-kind as an increase to the principal amount. Therefore, $1,500 of accrued contractual interest attributable to the 2021 Convertible Notes was recorded as interest payable - related party as a non-current liability on the condensed consolidated balance sheet.
Legacy Convertible Notes
During the nine months ended September 30, 2020, the Company had the Legacy Convertible Notes outstanding which includes Convertible Notes issued from February 2019 to May 2019 (“Phase I Note”), 2019 Phase II notes Convertible Notes issued from June 2019 to December 31, 2019 (“2019 Phase II Notes”), and Convertible Notes issued in 2020 (“2020 Phase II Notes”). The 2020 Phase II notes with aggregate principal of $5,299 were issued during the nine months ended September 30, 2020. The Legacy Convertible Notes are secured by all assets and intellectual property of the Company. AltEnergy Storage Bridge, LLC (“AltEnergy”) and its affiliates have combined beneficial ownership in the Company exceeding 10% and therefore constitute a related party of the Company, pursuant to ASC 850, Related Parties. As of September 30, 2020, AltEnergy owned approximately 18% of the Company’s Common and Preferred Units.
The remaining note holders do not meet the definition of a related party under ASC 850. However, the Legacy Convertible Notes were issued to each of the note holders under identical terms, and AltEnergy serves as the administrative agent of all note holders under the Legacy Convertible Note agreements. Therefore, the disclosures within Note 13 encompass all of the Legacy Convertible Notes.
Concurrent to issuance of the 2019 and 2020 Phase II Notes, the Company entered into subscription agreements to sell Preferred Units to the Holders equal to the principal balance of the 2019 and 2020 Phase II Notes at a price of $0.50 per unit. The proceeds were allocated to the 2019 and 2020 Phase II Notes and Preferred Units based on their relative fair values at the date of issuance.
During the nine months ended September 30, 2020, the Company issued 2020 Phase II Notes, concurrently with Preferred Units to certain investors for aggregate cash proceeds of $10,598.
The proceeds were allocated to the 2020 Phase II Notes and Preferred Units based on their relative fair values at the date of issuance. During the nine months ended September 30, 2020, the Company recognized $1,759 attributable to the 2020 Phase II Preferred Units, which was recorded as a discount against the 2020 Phase II Notes. $1,075 of the of the 2020 Phase II Notes were issued to AltEnergy.
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EOS ENERGY ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
13. Convertible Notes - Related Party (cont.)
Beneficial Conversion Features
The conversion option on the Phase I Notes generated a beneficial conversion feature (BCF). A BCF arises when a debt or equity security is issued with an embedded conversion option that is in the money at inception because the conversion option has an effective strike price that is less than the fair value of the underlying equity security at the commitment date. The Company recognized this BCF by allocating the intrinsic value of the conversion option to additional paid-in capital, which resulted in a discount on the Phase I Notes. The Company amortized the discount into interest expense on the commitment date, as the conversion option is immediately exercisable.
Embedded Derivatives
Both the occurrence of a Qualified Financing and the exercise of the holders’ put options represent contingent events outside the Company’s control that can accelerate repayment of the Legacy Convertible Notes. Therefore, these features constitute embedded derivatives that require bifurcation pursuant to ASC 815-15, Embedded Derivatives.
During the nine months ended September 30, 2020, embedded derivative liabilities with initial fair value of $411 were recognized. These amounts were recorded as discounts on the Legacy Convertible Notes. During the three and nine months ended September 30, 2020, a change in fair value of embedded derivative gain of $878 and $1,721 has been recognized, respectively.
The Company accounted for the Legacy Convertible Notes as deeply discounted zero coupon debt instruments. The balances payable at maturity reflect liquidation multiples of 3.0 and 6.0 times the stated face value of the Phase I Note and Phase II Notes, respectively. The following balances were recognized upon issuance of the Legacy Convertible Notes during the nine months ended September 30, 2020:
 September 30, 2020
 Phase IPhase IITotal
Legacy Convertible notes payable$40,587 $67,766 $108,353 
Discount, original issuance(20,946)(45,178)(66,124)
Premium (discount), embedded derivative181 (1,556)(1,375)
Discount, fair value of preferred units (3,790)(3,790)
Discount, beneficial conversion features(1,799) (1,799)
Legacy Convertible notes payable, net$18,023 $17,242 $35,265 
During the three and nine months ended September 30, 2020, the Company recognized aggregate interest expense of $16,621 and $23,366 related to the Legacy Convertible Notes, respectively.
In connection with the business combination on November 16, 2020 (the “Merger Date”), the Legacy Convertible Notes were then exchanged for the common stock of the Company per the “Conversion upon Qualified Financing” term in the Legacy Convertible Note agreement. 10,886,300 shares of common stock were issued to the notes holders based on the liquidation amount of $108,900 as of the Merger Date and purchase price of $10 per shares agreed upon in the agreement and plan for merger.
14. Long-term debt
The following is a summary of the Company’s long-term indebtedness:
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EOS ENERGY ENTERPRISES, INC
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
14. Long-term debt (cont.)                                            

 September 30,
2021
December 31,
2020
Paycheck Protection Program loan payable$ $1,257 
Notes payable18,530  
Equipment financing facility6,825  
Other 94 
Total25,355 1,351 
Less: Long-term debt, current portion(6,504)(924)
Long-term debt$18,851 $427 
Paycheck Protection Program
On April 7, 2020, the Company received $1,257 related to its filing under the Paycheck Protection Program (“PPP Loan”) and Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The payment terms of the note are as follows:
No payments during the deferral period, which is defined as the ten-month period beginning eight weeks after the cash from the loan was received.
Commencing one month after the expiration of the deferral period, and continuing on the same day of each month thereafter until the maturity date, the Company shall pay to JPMorgan Chase Bank, N.A. (the “Lender”), monthly payments of principal and interest, each in such equal amount required to fully amortize the principal amount outstanding on the note on the last day of the deferral period by the maturity date (twenty-four months from the date of the note, or April 7, 2022). In April 2021, the deferral period was extended to July 29, 2021 and the first payment is due on August 16, 2021.
On the maturity date, the Company shall pay the Lender any and all unpaid principal plus accrued and unpaid interest plus interest accrued during the deferral period.
The Company may prepay this note at any time without payment of any premium.
The Lender is participating in the Paycheck Protection Program to help businesses impacted by the economic impact from COVID-19. Forgiveness of this loan is only available for amounts used for the limited purposes specified within the Small Business Administration’s (the “SBA”) requirements. To obtain forgiveness, the Company must certify that the loan was used in accordance with the requirements and provide supporting documentation. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll, lease and utility payments and other operational expenses to support business continuity throughout the COVID-19 pandemic. During the third quarter of 2021, the Company was approved for loan forgiveness by the SBA. Consequently, during the three and nine months ended September 30, 2021, the Company recorded a gain on debt forgiveness of $1,273 on the condensed consolidated statement of operations.
Notes Payable
In connection with the Hi-Power acquisition (Refer to Note 2 - Acquisition), the Company agreed to pay an aggregate purchase price of $25,000. $5,000 of the $25,000 purchase price was paid in May 2021. The fair value of the notes payable was estimated using active market quotes, based on our current incremental borrowing rates for similar types of borrowing arrangements, which are Level 2 inputs. Based on the analysis performed, the fair value and the carrying value of the remaining payments of the notes payable was recorded as debt, which includes a current portion of $4,883 and a long-term portion of $13,647 as of September 30, 2021.
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EOS ENERGY ENTERPRISES, INC
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS)
14. Long-term debt (cont.)                                            

Equipment Financing Facility
On September 30, 2021, the Company entered into an agreement (the “Equipment Financing Agreement”) with Trinity Capital Inc. ("Trinity") for a $25,000 equipment financing facility (the "Equipment Financing Facility"), the proceeds of which will be used to acquire certain manufacturing equipment, subject to Trinity's approval. Upon execution of the Equipment Financing Agreement, the Company borrowed $7,000 (the “Initial Draw”) against the $25,000 commitment. The remaining commitment of $18,000 is fundable upon the Company's request no later than September 30, 2022, in increments of not less than $500, (each a “Draw”). $188 of commitment fee were paid at the closing, with $53 recorded as debt issuance cost for the Initial Draw and $135 recorded as prepaid and other current assets. On September 30, 2022, any unused portion of the remaining commitment will be subject to a non-utilization fee equal to 3% of the unused amount.
Each Draw is executed under a separate payment schedule (a “Schedule”) that constitutes a separate financial instrument. The financing fees included in each Schedule are established through monthly payment factors determined by Trinity. Such monthly payment factors are based on the Prime Rate reported in The Wall Street Journal in effect on the first day of the month in which a Schedule is executed. The Prime Rate applicable to the Initial Draw is 3.25%. The monthly payment factors will be adjusted for each subsequent Schedule, using the then existing Prime Rate, but no less than the monthly payment factor set forth in the Initial Draw.
On September 30, 2021, the Company borrowed the Initial Draw of $7,000 (“the Initial Draw”), less debt issuance costs of $175 withheld by Trinity. The Initial Draw is payable in monthly installments of $204 ending March 31, 2025, along with an end-of-term fee of $70 due on March 31, 2025. The effective interest rate is 14.3%. The Company may repay the Initial Draw prior to March 31, 2025 by terminating the Equipment Financing Agreement. On the proposed termination date, the Company is required to pay Trinity an amount equal to the sum of all monthly installments that would have otherwise become payable through the maturity date, the end-of-term payment, and, if applicable, the non-utilization fee.