UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||||||||
(732 ) 225-8400
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 ☐
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):
| ☒ | 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 x
The registrant had outstanding 54,445,725 shares of common stock as of May 4, 2022.
Table of Contents
| Page | ||||||||
Condensed Consolidated Balance Sheets As Of March 31, 2022 (Unaudited) And December 31, 2021 | ||||||||
Condensed Consolidated Statements Of Operations For The Three Months Ended March 31, 2022 (Unaudited) And March 31, 2021 (Unaudited) | ||||||||
Condensed Consolidated Statements Of Shareholders’ Equity (Deficit) For The Three Months Ended March 31, 2022 (Unaudited) And March 31, 2021 (Unaudited) | ||||||||
Condensed Consolidated Statements Of Cash Flows For The Three Months Ended March 31, 2022 (Unaudited) And March 31, 2021 (Unaudited) | ||||||||
Item 1. | ||||||||
Item 1a. | Risk Factors | |||||||
Part I - Financial Information
1
EOS ENERGY ENTERPRISES, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, except share and per share amounts) | ||
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventory, net | |||||||||||
| Vendor deposits | |||||||||||
| Notes receivable, net | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Security deposits, net | |||||||||||
| Notes receivable, long-term, net | |||||||||||
| Operating lease right-of-use asset, net | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Accounts payable and accrued expenses - related parties | |||||||||||
| Operating lease liability, current portion | |||||||||||
| Note payable, current portion | |||||||||||
| Long-term debt, current portion | |||||||||||
| Contract liabilities, current portion | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
| Operating lease liability, long-term | |||||||||||
| Note payable, excluding current portion | |||||||||||
| Long-term debt, excluding current portion | |||||||||||
| Convertible note payable - related party | |||||||||||
| Interest payable - related party | |||||||||||
| Contract liabilities, long-term | |||||||||||
| Warrants liability - related party | |||||||||||
| Other liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
2
EOS ENERGY ENTERPRISES, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, except share and per share amounts) | ||
| March 31, 2022 | December 31, 2021 | ||||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 9) | |||||||||||
| SHAREHOLDERS' EQUITY (DEFICIT) | |||||||||||
Common Stock, $ | |||||||||||
Preferred stock, $ | |||||||||||
| Additional paid in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders' equity (deficit) | ( | ||||||||||
| Total liabilities and shareholders’ equity (deficit) | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
EOS ENERGY ENTERPRISES, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||
| (In thousands, except share and per share amounts) | ||
For the three months ended March 31, 2022 and 2021 | ||
| March 31, 2022 | March 31, 2021 | ||||||||||
| Revenue | |||||||||||
| Total revenue | $ | $ | |||||||||
| Costs and expenses | |||||||||||
| Cost of goods sold | |||||||||||
| Research and development expenses | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Loss on pre-existing agreement | |||||||||||
| Grant expense, net | |||||||||||
| Total costs and expenses | |||||||||||
| Operating loss | ( | ( | |||||||||
| Other income (expense) | |||||||||||
| Interest expense, net | ( | ( | |||||||||
| Interest expense - related party | ( | ||||||||||
| Change in fair value, embedded derivative - related party | |||||||||||
| Change in fair value, warrants liability - related party | ( | ||||||||||
| Income from equity in unconsolidated joint venture | |||||||||||
| Other income | |||||||||||
| Loss before income taxes | $ | ( | $ | ( | |||||||
| Income tax benefit | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Basic and diluted loss per share attributable to common shareholders | |||||||||||
| Basic | $ | ( | $ | ( | |||||||
| Diluted | $ | ( | $ | ( | |||||||
| Weighted average shares of common stock | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
EOS ENERGY ENTERPRISES, INC. | ||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) | ||
| (In thousands, except share and per share amounts) | ||
For the three months ended March 31, 2022 and 2021 | ||
| Common Stock | Additional | Contingently | Accumulated | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | Paid in capital | Issuable Common Stock | Deficit | |||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Release of Block B Sponsor Earnout Shares from restriction | — | — | — | — | — | ||||||||||||||||||||||||||||||
Issuance of Contingently Issuable Common Stock | — | ( | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | ||||||||||||||||||||||||||||||||
| Release of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Cancellation of shares used to settle payroll tax withholding | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
EOS ENERGY ENTERPRISES, INC. | ||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands, except share and per share amounts) | ||
For the three months ended March 31, 2022 and 2021 | ||
March 31, 2022 | March 31, 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustment to reconcile net loss to net cash used in operating activities | |||||||||||
| Stock-based compensation | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash lease expense | |||||||||||
| Income from equity in unconsolidated joint venture | ( | ||||||||||
| Accreted interest on convertible note payable - related party | |||||||||||
| Amortization of debt issuance cost | |||||||||||
| Change in fair value, embedded derivative - related party | ( | ||||||||||
| Change in fair value, warrants liability - related party | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses | |||||||||||
| Inventory | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Vendor deposits | ( | ( | |||||||||
| Security deposits | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses | |||||||||||
| Accounts payable and accrued expenses - related parties | ( | ||||||||||
| Provision for firm purchase commitments | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Contract liabilities | |||||||||||
| Interest payable - related party | |||||||||||
| Note payable | |||||||||||
| Other | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Investment in notes receivable | ( | ||||||||||
| Investment in joint venture | ( | ||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Principal payments on finance (capital) lease obligations | ( | ( | |||||||||
| Proceeds from exercise of public warrants | |||||||||||
| Repurchase of shares from employees for income tax withholding purposes | ( | ||||||||||
| Repayment of other financing | ( | ||||||||||
| Repayment of equipment financing facility | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
6
EOS ENERGY ENTERPRISES, INC. | ||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands, except share and per share amounts) | ||
For the three months ended March 31, 2022 and 2021 | ||
March 31, 2022 | March 31, 2021 | ||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | $ | |||||||||
| Non-cash investing and financing activities | |||||||||||
| Accrued and unpaid capital expenditures | $ | $ | |||||||||
| Right-of-use operating lease assets in exchange for lease liabilities | $ | $ | |||||||||
| Supplemental disclosures | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets.
March 31, 2022 | March 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
1.Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Eos Energy Enterprises, Inc. (the “Company” or "Eos") designs, develops, manufactures, and sells innovative energy storage solutions for utility-scale microgrid, and commercial & industrial (“C&I”) applications. Eos has developed a broad range of intellectual property with multiple patents ranging from the unique battery chemistry, mechanical product design, energy block configuration and software operating system (battery management system). 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 focuses on developing and selling safe, reliable, long-lasting low-cost turn-key alternating current (“AC”) integrated systems using Eos’s direct current (“DC”) Battery System. The Company has a manufacturing facility in Turtle Creek, Pennsylvania to produce DC energy blocks with an integrated BMS. The Company’s primary markets focus on integrating battery storage solutions with (1) renewable energy systems that are connected to the utility power grid (2) renewable energy systems that are not connected to the utility power grid (3) renewable energy systems utilized to relieve congestion and (4) storage systems to assist C&I customers in reducing their peak energy usage or participating in the utilities ancillary and demand response markets. The Company’s major market is North America with opportunistic growth opportunities in Europe, Africa, and Asia.
Unless the context otherwise requires, the use of the terms “Eos” “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.
Liquidity and Going Concern
The Company remains in the process of product commercialization and full-scale manufacturing development and, as such, has had limited revenue generating activities to date Accordingly, the Company has incurred significant recurring losses and net operating cash outflows from operations since inception. Operating expenses consist primarily of costs related to the Company’s sales of its products, research and development costs and recurring general and administrative expenses. Management and the Company’s Board of Directors anticipate the Company will eventually reach a scale of profitability through the sale of battery storage systems and other complementary products and services, and therefore the Company believes the current stage of the Company’s lifecycle justifies continued intensive investment in the development and launch of products. Accordingly, the Company expects to continue to incur significant losses and net operating cash outflows from operations for the foreseeable future and to continue to require additional capital to fund the Company’s operations and obligations as they become due, including funding necessary to continue to scale up the Company’s operations to allow for the delivery of order backlog, to secure additional order opportunities for its battery storage systems, and to continue to invest in research and development.
As of March 31, 2022, Eos had total assets of $126,859 , which includes total cash and cash equivalents of $55,361 , total liabilities of $137,079 , which includes the total amounts owed on the Company’s outstanding convertible notes payable of $77,083 (see Note 14), notes payable of $18,862 (see Note 15) and long-term debt of $5,982 (see Note 16) and a total accumulated deficit of $(462,318 ), which is primarily attributable to the significant recurring losses the Company has accumulated since inception. The Company has historically relied on outside capital to fund its cost structure and expects this reliance to continue for the foreseeable future until the Company reaches a scale of profitability through its planned revenue generating activities. However, as of the date the accompanying financial statements were issued, management concluded that the Company did not have sufficient capital on hand to support its current cost structure for one year after the date the accompanying financial statements were issued. Based on our current projections, the Company will need to secure additional capital, increase revenues or defer or reduce cash expenditures in the second quarter of 2022 to continue our operations.
8
Table of Contents
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
1.Nature of Operations and Summary of Significant Accounting Policies (cont.)
The Company believes these uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to raise additional capital, on acceptable terms or at all, the Company may have to significantly delay, scale back or ultimately discontinue the development or commercialization of its product and/or consider a sale or other strategic transaction. The Company continues to pursue various funding options to raise additional capital to support its operations. As previously reported, the Company has moved through Part I of the application under the U.S. Department of Energy’s Loan Guarantee Solicitation for Applications for Renewable Energy Projects and Efficient Energy Projects (the “DOE Loan Program”), and currently anticipates submitting an application under Part II of the loan program in the second quarter of 2022. In addition, in April, the Company entered into a $200,000 common stock standby equity purchase agreement (the “SEPA”) with an affiliate of Yorkville Advisors (“Yorkville”). The SEPA gives Eos the right, but not the obligation, to sell up to $200,000 of common equity to an affiliate of Yorkville at times of Eos’ choosing during the two-year term of the agreement. The SEPA provides for shares to be issued to the investor at a discounted price of 97.0 % of the 3-day volume-weighted average price following notification to the investor that the Company wishes to draw upon the facility (each, an “advance”). Furthermore, the SEPA allows for pre-advance loans in the aggregate principal amount not to exceed $50,000 per loan, pursuant to a promissory note subject to the mutual consent of the parties. Pre-advance loans must be repaid with the proceeds from sales of equity to Yorkville, to the extent outstanding at the time of an advance, or otherwise in cash. The Company’s rights to sell stock to the affiliate of Yorkville are subject to certain limitations, including that Yorkville may not purchase any shares that would result in it owning (1) more than 9.99 % of the Company’s outstanding common stock at the time of an advance or (2) 19.99 % of the Company’s outstanding common stock as of April 28, 2022 (the “Exchange Cap”), provided that the Exchange Cap does not apply to any sales of common stock under the SEPA that equal or exceed $2.15 per share. There can be no assurance that the Company will successfully complete Part II of the DOE Loan Program or that the Company will be able to utilize the SEPA to its full $200,000 capacity, or otherwise be able to obtain new funding from other sources on terms acceptable to us, on a timely basis, or at all.
The accompanying consolidated financial statements have been prepared on the basis that we will continue to operate as a going-concern, which contemplates we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. The accompanying financial statements do not include any adjustments that may result from the outcome of these uncertainties.
Basis of Presentation
The 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 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. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. These interim results are not necessarily indicative of results for the full year.
9
Table of Contents
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
1.Nature of Operations and Summary of Significant Accounting Policies (cont.)
Recently Adopted Accounting Pronouncements
On January 1, 2021, the Company adopted ASU 2016-02, Leases ("Topic 842"), using the transition method introduced by ASU 2018-11, which does not require revisions to comparative periods. Adoption of the new standard resulted in the recording of lease assets and lease liabilities of $3,662 and $4,465 , respectively, as of January 1, 2021. The difference between the lease assets and lease liabilities primarily relates to deferred rent recorded in accordance with the previous leasing guidance. The new standard did not materially impact our consolidated statements of operations or statements of cash flows.
On January 1, 2021, the Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), and the subsequent amendments. The standard sets forth an expected credit loss model which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, and certain off-balance sheet credit exposures. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
As of March 31, 2022, we implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board ("FASB") that were in effect. There were no new standards or updates adopted during the three months ended March 31, 2022 that had a material impact on our condensed consolidated financial statements.
2. Acquisition
As previously reported, 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 % 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 provided that the Company 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 required 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.
The obligations and rights of both parties under the pre-existing Joint Venture Agreement were terminated at the time of acquisition and $32,750 of the fair value of the consideration transferred was allocated to the termination of such agreement, which resulted in a loss on the pre-existing agreement of $— and $7,852 for the three months ended March 31, 2022 and 2021, respectively. The Company had paid $10,283 on the date of closing and $5,000 on May 31, 2021. The present value of the remaining obligation was recorded as debt, which as of March 31, 2022 includes a current portion of $4,970 and a long-term portion of $13,892 .
10
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
2. Acquisition (cont.)
Prior to the acquisition of the remaining 51 % ownership interest in Hi-Power, the Company accounted for its initial 49 % ownership interest in Hi-Power as an unconsolidated joint venture under the equity method of accounting (refer to Note 7). In connection with the acquisition of the remaining 51 % ownership interest in Hi-Power, our condensed 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 since the date of acquisition.
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 Accounting Standards Codification (“ASC”) 805, Business Combinations, 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 final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the Acquisition Date. There were no material changes to the purchase price allocation during the three months ended March 31, 2022.
| Amount | ||||||||
| Inventory | $ | |||||||
| Vendor deposits | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Accounts payable and accrued expenses | ( | |||||||
| Provision for firm purchase commitments | ( | |||||||
Net assets acquired, net of cash and cash equivalents of $ | $ | |||||||
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 statements of operations.
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 were recognized at a point in time, were $3,293 and $164 for the three months ended March 31, 2022 and 2021, respectively and service revenues, which were recognized over time, were $5 and $— for the three months ended March 31, 2022 and 2021, respectively.
For the three months ended March 31, 2022, we had three customers who accounted for 43.6 %, 31.5 % and 15.1 % of the total revenue. For the three months ended March 31, 2021, we had one customer who accounted for 100 % of the total revenue.
Contract assets and Contract liabilities
1 Net assets acquired exclude the intercompany balance between Eos and Hi-Power and cash acquired.
11
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
3. Revenue Recognition (cont.)
| March 31, 2022 | December 31, 2021 | ||||||||||
| Contract assets | $ | $ | |||||||||
| Contract liabilities | $ | $ | |||||||||
The Company recognizes contract assets for certain contracts in which revenue recognition performance obligations have been satisfied however, invoicing to the customer has not yet occurred. Contract liabilities primarily relate to advance consideration received from customers in advance of the Company’s satisfying performance obligations under contractual arrangements. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
Contract assets decreased by $431 during the three months ended March 31, 2022 due to reclassifications to accounts receivable from billings on existing contracts. Contract liabilities increased by $2,074 during the three months ended March 31, 2022, reflecting $2,170 in customer billings, which were not recognized as revenue during the period, offset by the recognition of $96 of revenue during the three months ended March 31, 2022 that was included in the contract liability balance at the beginning of the period.
Contract liabilities increased by $750 during the three months ended March 31, 2021 due to the timing of customer invoices in relation to the timing of revenue recognized. The Company recognized $— of revenue during the three months ended March 31, 2021 that was included in the contract liability balance at the beginning of the period.
Contract liabilities of $1,763 as of March 31, 2022 are expected to be recognized within the next twelve months. $1,160 of long-term contract liabilities are expected to be recognized as revenue during 2023.
4. Inventory
The following table provides information about inventory balances:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total Inventory, net | $ | $ | |||||||||
5. Property, Plant and Equipment, net
As of March 31, 2022 and December 31, 2021, property, plant and equipment, net consisted of the following:
| 2022 | 2021 | Useful lives | |||||||||||||||||||||
| Equipment | $ | $ | — | ||||||||||||||||||||
| Finance lease | |||||||||||||||||||||||
| Furniture | — | ||||||||||||||||||||||
| Leasehold Improvements | Lesser of useful life/remaining lease | ||||||||||||||||||||||
| Tooling | — | ||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Less: Accumulated Depreciation | ( | ( | |||||||||||||||||||||
| Total Property, Plant and Equipment, net | $ | $ | |||||||||||||||||||||
12
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
5. Property, Plant and Equipment, net (cont.)
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 March 31, 2022 and 2021, the Company recorded amortization expenses of $10
Estimated future amortization expense of intangible assets as of March 31, 2022 are as follows:
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
7. Investment in unconsolidated joint venture
8. Notes receivable, net and Variable interest entities (“VIEs”) consideration
Notes receivable consist primarily of amounts due to us related to the financing we offered to customers. We report notes receivable at the principal balance outstanding less an allowance for losses. We monitor the financial condition of the notes receivable and record provisions for estimated 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 $3,619 and $3,650 outstanding as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company recorded an allowance for expected credit loss from the notes receivable of $7 and $6 , respectively.
13
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
9. Commitments and Contingencies
Lease Commitments
The Company has lease commitments under lease agreements. Refer to Note 19 for discussion.
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. As of March 31, 2022, the Company had open purchase commitments of $1,724 under these contracts.
Legal proceedings
As of March 31, 2022, the Company remains under a previously-reported investigation by the U.S. Department of Justice (“DOJ”) for underpayment of certain custom duties from the past years for the imports of supplies from international vendors. As of the date of this report, no complaint has been filed against the Company. The Company accrued $900 for the probable loss included in accrued expenses on the condensed consolidated balance sheets as of March 31, 2022. However, at this time, it is difficult to predict the final outcome or resolution of any claims.
In April 2022, the Company received a subpoena from the U.S. Securities and Exchange Commission requesting information regarding a variety of matters, including negotiations and agreements with customers and the Company’s disclosures to investors. The Company is fully cooperating with the investigation, which is at an early stage, and is endeavoring to address all inquiries raised by the SEC staff as expeditiously as possible.
10. Grant Expense, Net
The Company was approved for two grants by the California Energy Commission (CEC) totaling approximately $7,000 . In accordance with the grant agreements, we are responsible for conducting studies to demonstrate the benefits of certain energy-saving technologies to utility companies and consumers in the State of California and are entitled to receive portions of the grants based upon expenses incurred by the Company.
For the three months ended March 31, 2022 and 2021, the Company recorded grant expense, net of $173 and $8 , respectively, which comprised of grant income of $26 and $329 and grant costs of $199 and $337 . For the three months ended of March 31, 2022 and 2021, Eos has received no
As of March 31, 2022 and December 31, 2021, the Company had grant receivable in the amounts of $1,046 and $1,020 , respectively. The expenses incurred by the Company related to the performance of studies in accordance with the respective grant agreements are offset, against the grants revenue received or receivable from the CEC for which the grant is intended to compensate the Company.
11. Income Taxes
For the three months ended March 31, 2022 and 2021, the reported income tax benefit was $42 and $— , respectively, and differs from the amount computed by applying the statutory U.S. federal income tax rate of 21% to the loss before income taxes due to non-taxable gains, foreign operations, and pre-tax losses for which no tax benefit can be recognized for U.S. 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.
14
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
11. Income Taxes (cont.)
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, 2022 and December 31, 2021 due to cumulative losses. Therefore, the Company has a valuation allowance against its net deferred tax assets.
As of March 31, 2022 and December 31, 2021, 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.
12. Related Party Transactions
Convertible Note Payable
In July 2021, the Company issued $100,000 aggregate principal amount of convertible notes to Spring Creek Capital, LLC, a wholly-owned, indirect subsidiary of Koch Industries, Inc (the “2021 Convertible Note” or the “Notes”). 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. This transaction was reviewed and approved as a related party transaction. As of December 31, 2021, interest expense of $2,900 from the 2021 Convertible Note was recorded as convertible notes - related party on the condensed consolidated balance sheets.
For the three months ended March 31, 2022 and 2021, interest expense of $2,174 and $— was recorded for the 2021 Convertible Note. The change in fair value of the embedded derivative of $7,695 was recorded for the three months ended March 31, 2022 on the condensed consolidated statements of operations. As of March 31, 2022 and December 31, 2021, interest payable of $1,544 and $— was recorded as interest payable - related party on the condensed consolidated balance sheets. Refer to Note 14 for more information.
Loss on pre-existing agreement
For the three months ended March 31, 2022 and 2021, $— and $7,852 was charged to loss on pre-existing agreement in connection with the acquisition of Hi-Power, respectively. Refer to Note 2 for the acquisition details.
Disgorgement of short swing profits
For the three months ended March 31, 2021, the Company received $432 from its then affiliated company B. Riley Securities, Inc resulting from disgorgement of short swing profits under Section 16 (b) of the Exchange Act. This amount was recognized as an increase to Additional Paid in Capital as a capital contribution from stockholder when it was earned.
Warrants liability
The Company has private warrants issued to an affiliated company owned by B. Riley Financial, Inc. as of March 31, 2022 and December 31, 2021. Refer to Note 17 for details.
Settlement Agreement
15
Table of Contents
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
12. Related Party Transactions (cont.)
As disclosed at the time of the Merger Agreement, prior to the execution and delivery of the Merger Agreement, certain unitholders of EES (“Hellman Parties”) asserted claims (“Threatened Claims”) against another director and affiliated investors, including AltEnergy Storage VI, LLC (the "Securityholder Representative"), questioning the dilutive effect of certain historical security issuances on the former EES common unitholders.
Under the Merger Agreement, the Securityholder Representative had the obligation to defend against the Threatened Claims, and the Company had the obligation to advance or cause to be advanced to the Securityholder Representative up to $5,000 of defense costs, subject to a deductible of $2,000 (the "Deductible"), in connection with the investigation, defense, or settlement of any Threatened Claims. The Deductible was to be borne by the Company, and any additional amounts advanced were reimbursable by the former unitholders of EES.
On December 1, 2021, a Settlement Agreement was entered into between Hellman Parties and the Securityholder Representative pursuant to which, 300,000 Eos Shares (“Settlement Shares”) were to be transferred to the Hellman parties from the EES unitholders at the time of merger.
On December 28, 2021, the independent members of the Company’s Board of Directors approved a contribution of $1,200 towards the Settlement based on their determination that, among other reasons, this contribution (i) would ensure that the Company would not have to spend the entire $2,000 Deductible towards the costs of defense if the litigation were to continue, (ii) would avoid the distraction, uncertainty, and overhang of litigation relating to the Mergers, (iii) would benefit the Company’s future relationships with its long-term investors, and (iv) would generate future goodwill with such investors during an important growth stage of the Company. Because the Company’s contribution benefited certain Eos shareholders at the time of the Merger Agreement, including AltEnergy LLC and B. Riley Financial Inc, this transaction was reviewed and approved as a related party transaction. On December 29, 2021, an amendment to the Settlement Agreement was entered into, pursuant to which, $1,200 of the value represented by the Settlement Shares was to be paid in cash, representing the equivalent of 140,023 of the Settlement Shares.
The Company accrued $1,200 in accounts payable and accrued expenses - related party on December 31, 2021, which has been paid on January 4, 2022. The remaining 159,977 in Settlement Shares were transferred to the Hellman Parties from the former EES unitholders, on a pro rata basis, on December 29, 2021.
13. Accrued Expenses
As of March 31, 2022 and December 31, 2021, accrued expenses consisted of the following:
March 31, 2022 | December 31, 2021 | |||||||||||||
| Accrued payroll | $ | $ | ||||||||||||
| Warranty reserve | ||||||||||||||
| Accrued legal and professional expenses | ||||||||||||||
| Other | ||||||||||||||
| Total | $ | $ | ||||||||||||
The following table summarizes warranty reserve activity for the three months ended March 31, 2022.
March 31, 2022 | ||||||||
| Warranty reserve - beginning of period | $ | |||||||
| Additions for current year deliveries | ||||||||
| Changes in the estimate of warranty reserve | ||||||||
| Warranty costs incurred | ( | |||||||
| Warranty reserve - end of period | $ | |||||||
16
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EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
14. Convertible Note Payable - Related party
As previously reported, 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 providing for the issuance and sale to Koch Industries of convertible notes in the aggregate principal amount of $100,000 (“2021 Convertible Note”). The transactions contemplated by the Investment Agreement closed on July 7, 2021 (the “Issue Date”). The Maturity Date of the 2021 Convertible Note is June 30, 2026, subject to earlier conversion, redemption, or repurchase.
The Company estimated the fair value of the embedded conversion feature using a binomial lattice model at the inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate, the effective debt yield and expected volatility. The effective debt yield and volatility involve unobservable inputs classified as Level 3 of the fair value hierarchy. Refer to Note 20 for definition of the fair value hierarchy. The assumptions used to determine the fair value of the embedded conversion feature as of December 31, 2021 and March 31, 2022 and are as follows:
March 31, 2022 | December 31, 2021 | ||||||||||
| Term | |||||||||||
| Dividend yield | % | % | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Volatility | % | % | |||||||||
| Effective debt yield | % | % | |||||||||
As of March 31, 2022 and December 31, 2021, the fair value of the embedded conversion feature was $4,664 and $12,359 , respectively. The Company recognized a gain of $7,695 attributable to the change in fair value of the embedded conversion feature for the three months ended March 31, 2022.
The following table summarizes interest expense recognized for the three months ended March 31, 2022:
March 31, 2022 | |||||
| Contractual interest expense | $ | ||||
| Amortization of debt discount | |||||
| Amortization of debt issuance costs | |||||
| Total | $ | ||||
March 31, 2022 | December 31, 2021 | ||||||||||
| Principal | $ | $ | |||||||||
| Unamortized debt discount | ( | ( | |||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Embedded conversion feature | |||||||||||
| Aggregate carrying value | $ | $ | |||||||||
As of the date of this report, the Company intends to repay the contractual interest due on June 30, 2022 and December 30, 2022 in-kind and the remaining interest in cash. Therefore, as of March 31, 2022 and December 31, 2021, interest payable attributable to the 2021 Convertible Note of $1,544 and $— was recorded as interest payable -
17
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
14. Convertible Note Payable - Related party (cont.)
15. Note Payable
16. Long-term Debt
Long-term debt consists of the outstanding balances from the previously-reported $25,000 equipment financing facility with Trinity Capital Inc. ("Trinity"). As of March 31, 2022, the Company had drawn $7,000 from the equipment financing facility with an effective interest rate of 14.3 %.
As of March 31, 2022 and December 31, 2021, total long-term debt was $5,982 and $6,371 , with $1,703 and $1,644 of the principal recorded as a current liability on the condensed consolidated balance sheets, respectively. For the three months ended March 31, 2022, the Company recognized $219 as interest expense attributable to the equipment financing agreement. As of March 31, 2022, the unused commitment from the equipment financing facility was $18,000 .
17. Warrants liability - Related Party
18. Stock-Based Compensation
Stock-based compensation expense included in the condensed consolidated statements of operations was as follows:
| For the three months ended | |||||||||||
March 31, 2022 | March 31, 2021 | ||||||||||
| Stock options | $ | $ | |||||||||
| Restricted stock units | |||||||||||
| Total | $ | $ | |||||||||
The stock compensation expense has been recorded in cost of goods sold, research and development expenses, and selling, general and administrative expenses in the condensed consolidated statements of operations.
18
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
18. Stock-Based Compensation (cont.)
| Units | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (years) | |||||||||||||||
| Options Outstanding at December 31, 2021 | $ | ||||||||||||||||
| Cancelled/Forfeited | ( | $ | |||||||||||||||
| Options Outstanding at March 31, 2022 | $ | ||||||||||||||||
| Options Exercisable at March 31, 2022 | $ | ||||||||||||||||
A summary of restricted stock units (RSU) activity during the three months ended March 31, 2022 is as follows:
| Units | Weighted-Average Grant-Data Fair Value | ||||||||||
| RSU Outstanding at December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Cancelled/Forfeited | ( | $ | |||||||||
| Vested | ( | $ | |||||||||
RSU Outstanding at March 31, 2022 | $ | ||||||||||
In 2022, the Company reserved an additional 537,866 shares for the Amended and Restated 2020 Incentive Plan. As of March 31, 2022 and December 31, 2021, 1,949,261 and 2,282,906 shares remain for future issuance, respectively. Options vest generally over to five years and have a term of to ten years . RSUs generally vest over to four years . During the three months ended March 31, 2022, the Company only granted RSUs with service conditions. Stock compensation is recognized on a straight-line basis over the requisite service period of the award, which is generally the award vesting term. For awards with performance conditions, compensation expense is recognized using an accelerated attribution method over the vesting period. The performance conditions primarily relate to achievement of sales targets. As of March 31, 2022, within the total options outstanding, there were 28,818 performance-based stock options, all of which are expected to vest in the next four years .
Unrecognized stock compensation expenses amounted to $28,662 and included $26,152 attributable to RSUs and $2,510 attributable to stock options. The weighted average vesting period for the stock options and RSUs was 1.3 years and 2.2 years as of March 31, 2022, respectively.
| 2021 | |||||
| Volatility | % | ||||
| Risk free interest rate | % | ||||
| Expected life (years) | |||||
| Dividend yield | % | ||||
The RSUs issued were valued at the stock prices of the Company on the date of grant.
The weighted average grant date fair value of all options granted was $9.49 per option for the three months ended March 31, 2021.
19
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
19. Leases
On January 1, 2021, the Company adopted ASU 2016-02, Leases (“Topic 842”), and the related amendments (collectively “ASC 842”). The Company elected the modified retrospective approach, under which results and disclosures for periods before January 1, 2021 were not adjusted for the new standard and the cumulative effect of the change in accounting, is recognized through accumulated deficit at the date of adoption.
Lessee
The Company leases machinery, manufacturing facilities, office space, land, and equipment under both operating and finance leases. Lease assets and lease liabilities as of March 31, 2022 and December 31, 2021 were as follows:
| Leases | Classification on Balance Sheet | March 31, 2022 | December 31, 2021 | ||||||||||||||
| Assets | |||||||||||||||||
| ROU - operating lease assets | Operating lease right-of-use asset, net | $ | $ | ||||||||||||||
| Finance lease assets | |||||||||||||||||
| Total lease assets | $ | $ | |||||||||||||||
| Classification on Balance Sheet | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Liabilities | |||||||||||||||||
| Current | |||||||||||||||||
| Operating lease liability | Operating lease liability, current portion | $ | $ | ||||||||||||||
| Finance lease liability | |||||||||||||||||
| Non-Current | |||||||||||||||||
| Operating lease liability | Operating lease liability, long-term | ||||||||||||||||
| Finance lease liability | |||||||||||||||||
| Total lease liabilities | $ | $ | |||||||||||||||
Operating lease costs for the three months ended March 31, 2022 and 2021 were $192 and $159 , respectively. As of March 31, 2022, the weighted average remaining term (in years) for the operating lease was 4.55 years and the weighted average discount rate was 9.8 %. The weighted average remaining term (in years) for the finance lease was 3.70 years and the weighted average discount rate was 13.7 %.
Future maturity of lease liability are as follows:
| Operating lease | Financing lease | Total | |||||||||||||||
| Remainder of 2022 | $ | $ | $ | ||||||||||||||
| 2023 | |||||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| Later years | |||||||||||||||||
| Total minimum lease payments | $ | $ | $ | ||||||||||||||
| Less amounts representing interest | |||||||||||||||||
| Present value of minimum lease payments | $ | $ | $ | ||||||||||||||
20
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
19. Leases (cont.)
Lessor
The Company leases energy storage systems to one customer with a 20 -year term through sales-type leases. Leases offered by the Company include purchase options during the lease term with a bargain purchase option at the end of the term. At the time of accepting a lease that qualifies as a sales-type lease, the Company records the gross amount of lease payments receivable, estimated residual value of the leased equipment and unearned finance income. The unearned finance income is recognized interest income over the lease term using the interest method.
20. Fair Value Measurement
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, Private Placement Warrants, accounts receivable, notes receivable, contract assets, accounts payable, note payable, convertible note 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.
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 our accompanying condensed consolidated balance sheets, and their designations among the three fair value measurement categories:
March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Private Placement Warrants | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Embedded derivative liability within the 2021 Convertible Note | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table presents a roll-forward of the activity of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2022 and 2021.
March 31, 2022 | March 31, 2021 | ||||||||||
| Balance at beginning of the period | $ | $ | |||||||||
| Change in fair value included in earnings | ( | ||||||||||
| Balance at end of the period | $ | $ | |||||||||
21
EOS ENERGY ENTERPRISES, INC. | ||
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||
| (In thousands, except share and per share amounts) | ||
20. Fair Value Measurement (cont.)
The estimated fair value of financial instruments not carried at fair value in the condensed consolidated balance sheets was as follows:
| Level in fair value hierarchy | March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||||
| Notes receivable | 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Note payable | 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Equipment financing facility | 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
| 2021 Convertible Note without embedded derivative liability | 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
21. Shareholders’ Equity (Deficit)
Preferred Shares
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s Board of Directors. At March 31, 2022 and December 31, 2021, there were no
Common Stock
The Company is authorized to issue 200,000,000 shares of common stock with $0.0001 par value. Holders of the Company’s common stock are entitled to one vote for each share. At March 31, 2022 and December 31, 2021, there were 53,980,608 53,786,632
Contingently Issuable Common Stock
Following the closing of the Merger, and as additional consideration for the transaction, the Company was obligated to issue within five years from the closing date to each unitholder of EES its pro-rata proportion of a one-time issuance of an aggregate of 2,000,000 Shares (the “Earnout Shares” or "Contingently Issuable Common Stock"), within 5 business days after (i) the closing share price of the Company's shares traded equaling or exceeding $16.00 per share for any 20 trading days within any consecutive 30 -trading day period during the Earnout Period or (ii) a Change of Control (or a definitive agreement providing for a Change of Control having been entered into) during the Earnout Period (each of clauses (i) and (ii), a “Triggering Event”).
On January 22, 2021, the Triggering Event for the issuance of the Earnout Shares occurred as the Company's stock price exceeded $16.00 per share for 20 trading days within a consecutive