The following discussion should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this Annual
Report. In addition to historical information, this discussion contains
forward-looking statements that involve risks, uncertainties and assumptions
that could cause actual results to differ materially from management's
expectations. Factors that could cause such differences are discussed in
"Forward-Looking Statements" and "Risk Factors."


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Overview



The Company was originally incorporated in Delaware on June 3, 2019 as a special
purpose acquisition company under the name B. Riley Principal Merger Corp. II.
("BMRG"), in order to acquire one or more businesses, through a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or a similar
business combination. Upon the closing of a business combination with Eos Energy
Storage, LLC on November 16, 2020 (the "Merger"), the Company changed its name
to "Eos Energy Enterprises, Inc." The Company's common shares started trading
under the ticker NASDAQ: EOSE on November 16, 2020.

On April 9, 2021, the Company acquired, from Holtec, the 51% interest in
Hi-Power that was not already owned by the Company. Following the consummation
of the transaction, 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 Company designs, develops, manufactures, and markets innovative zinc-based
energy storage solutions for utility-scale, microgrid, and commercial &
industrial ("C&I") applications. The Company has developed a broad range of
intellectual property with multiple patents covering unique battery chemistry,
mechanical product design, energy block configuration and a software operating
system (Battery Management System). The Battery Management System ("BMS")
software uses proprietary Eos-developed algorithms and includes ambient and
battery temperature sensors, as well as voltage and electric current sensors for
the electrical strings and the system. The Company focuses on designing,
developing, producing and selling safe, reliable, long-lasting, low-cost
turn-key alternating current ("AC") integrated systems using Eos' direct current
("DC") Battery Energy Storage System ("BESS"). The Company's primary
applications 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) storage
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 has a manufacturing facility
in Turtle Creek, Pennsylvania to produce DC energy blocks with an integrated
BMS. The Company's primary market is North America with opportunistic growth
opportunities in Europe, Oceania, Africa, and Asia. The Company has one
operating and reportable segment.

Business Trends



As an SEC-registered and Nasdaq-listed company, we are required to implement
procedures and processes to address public company regulatory requirements and
customary practices and have, and will continue to, hire additional personnel in
this context. We have incurred additional annual expenses as a public company
for, among other things, directors' and officers' liability insurance, director
fees, internal and external accounting, legal, administrative resources,
including increased personnel costs, and audit and other professional service
fees.

The Company is currently operating in a period of global economic and
geopolitical uncertainty, which has been exacerbated by the ongoing military
conflict between Russia and Ukraine. Although the length and impact of the
ongoing military conflict is highly unpredictable, the conflict in Ukraine has
led to market disruptions, including significant volatility in commodity prices,
credit and capital markets, an increase in cybersecurity incidents as well as
additional supply chain disruptions. The Company's business has not been
materially impacted by the ongoing military conflict in Ukraine as of the date
of this filing, however, we continue to monitor these developments. See Part 1,
Item 1A - Risk Factors section for further discussion.

The novel coronavirus ("COVID-19") outbreak has had an adverse effect on the
Company's workforce and operations, as well as the operations of its customers,
distributors, suppliers and contractors. Management continues to monitor for a
potential resurgence of COVID-19 and remains focused on maintaining protective
measures to ensure the safety, health and welfare of the Company's workforce. A
potential resurgence of COVID-19 may impact the Company's financial condition
and results of operations in the future. Refer to Part 1, Item 1A - Risk Factors
section for further discussion.

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Inflation Reduction Act of 2022 ("IRA")



The IRA features significant economic incentives for both energy storage
customers and manufacturers for projects placed in service after December 31,
2022. One of the most important features of the IRA legislation is that it
offers a 10-year term tax credit, whereas, historically similar industrial
credits have been shorter in duration. Customers placing new energy storage
facilities in service after this date may be allowed to claim at least a thirty
percent investment tax credit ("ITC") under certain conditions. The IRA also
offers an extra ten percent credit if the project is in an "energy community"
and another ten percent credit if the project satisfies domestic content
requirements, which will be set forth when the implementing regulations are
finalized. The ten percent bonus for domestic content could represent a
strategic advantage for the Company resulting from our near-sourcing and Made in
America strategy, and we currently anticipate that projects utilizing Eos
batteries will qualify for the bonus.

Starting in 2023, there are also meaningful PTC that can be claimed on battery
components manufactured in the US and sold to customers, which could apply to
the Company, including credits for ten percent of the cost incurred to make
electrode active materials, $35 per kWh of capacity of battery cells, and $10
per kWh of capacity of battery modules. These credits are cumulative, meaning
the Company expects to be able to claim the tax credit amount for each
component. The IRA directs the Internal Revenue Service to pay manufacturers the
cash value, also known as direct pay, of PTCs for making battery components, and
therefore, these credits may be a new source of cash flow for Eos. The direct
pay option is valid for up to five tax years, after which any such tax credits
can be sold to other companies for cash.

Company Highlights




•In November 2022, the Company announced an order for a 35 MWh energy storage
system capable of 10-hour discharge duration. The order, worth $13.5 million, is
funded by a grant through the CEC's LDES Program as part of a project being
carried out by Indian Energy, a 100 percent Native American-owned business, to
create a first-of-its-kind resilient clean energy microgrid.

•In September 2022, the Company announced it was invited to the due diligence
stage of the U.S. Department of Energy's ("DOE") Renewable Energy and Efficient
Energy Loan Program. The DOE Loan Programs Office's ("LPO") invitation to Eos to
enter into full due diligence represents an important progression in the LPO's
evaluation of Eos' loan application. This stage includes LPO performing its due
diligence of Eos' project to expand manufacturing to support at least 3GWh of
production capacity. During this stage, the Company and LPO are working to
negotiate a term sheet setting out the principal terms and conditions of the
loan. However, the DOE invitation to the due diligence stage is not an assurance
that the DOE will offer a conditional commitment, or that the Company will
secure a loan under the DOE Loan Program.

•In September 2022, the Company announced that Jeff Bornstein, former Chief
Financial Officer and Vice Chairman of GE and Managing Partner at Generation
Capital Partners and Whipstick Ventures, joined the Company's Board of
Directors.

•In 2022, the Company entered into a $100 million Senior Secured Term Loan
Credit Agreement (the "Senior Secured Term Loan") with Atlas Credit Partners
(ACP) Post Oak Credit I LLC, as administrative agent for the lenders and
collateral agent for the secured parties. The Company made total borrowings of
$100 million under the Senior Secured Term Loan, composed of borrowings on July
29, 2022, August 4, 2022, and December 7, 2022 of $85.1 million, $9.6 million,
and $5.3 million, respectively.

•During 2022, the Company entered into a common stock Standby Equity Purchase
Agreement ("SEPA") with YA II PN, Ltd. an affiliate of Yorkville Advisors. The
SEPA gives the Company the right, but not the obligation, to sell up to $75.0
million of common equity to Yorkville at times of the Company's choosing during
the two-year term of the agreement. For the year ended December 31, 2022, funds
raised under the SEPA were $14.5 million. See Note 20, Shareholders' Equity to
our consolidated financial statements included elsewhere in this Annual Report.


                                       34
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•During 2022, the Company entered into a Sales Agreement (the "Sales Agreement")
with Cowen and Company, LLC ("Cowen"), with respect to an at-the-market ("ATM")
offering program under which the Company may offer and sell, from time to time
at its sole discretion, shares of its common stock, par value $0.0001 per common
share, having an aggregate offering price of up to $100 million through Cowen as
its sales agent and/or principal. For the year ended December 31, 2022, funds
raised under the ATM were $38.6 million, net of commissions.

•In July 2022, the Company announced the dedication of the "Eos Ingenuity Lab,"
a site focused on expanding the Company's R&D capacity as it designs future
generations of its Znyth™ technology battery and forges a path toward rapid
manufacturing and deployment of its energy storage systems.

•In June 2022, Bridgelink Commodities, LLC increased the Bridgelink master
supply agreement to 1 GWh of energy storage systems for deliveries over the next
three years with an incremental order value of $181 million for new project
installations and also issued a separate 40 MWh order valued at $13 million.

•In June 2022, a 300 MWh master supply agreement was signed with a leading
Northeast solar developer for front of the meter stand-alone storage and solar
storage applications that provide energy shifting and ancillary services with
deliveries forecasted over the next three years.



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Results of Operations

Revenue

                              For the Years Ended December 31,
($ in thousands)                     2022                       2021        $ Change      % Change

Revenue              $           17,924                       $ 4,598      $ 13,326          290  %

The Company generates revenues from the delivery of its BESSs and service-related solutions. The Company expects revenues to increase as it scales production to meet customer demand.



Revenue increased by $13.3 million, or 290% from $4.6 million for the year ended
December 31, 2021 to $17.9 million for the year ended December 31, 2022. The
increase in revenue was primarily driven by the Company's increase in production
and delivery of its energy storage systems and, to a lesser extent, other
equipment.

Certain customer projects were deferred out of 2022 and into 2023 and beyond, primarily as a result of the recent passage of the IRA. The IRA includes subsidies for both energy storage customers and manufacturers, which are effective for projects placed in service after December 31, 2022.



Cost of goods sold

                             For the Years Ended December 31,
($ in thousands)                    2022                       2021        $ Change       % Change

Cost of goods sold   $          153,260                     $ 46,483      $ 106,777          230  %


Cost of goods sold primarily consists of costs relating to direct labor, direct
material and overhead that is directly tied to product manufacturing,
engineering, procurement and construction ("EPC"), project delivery,
commissioning, start-up test procedures, and other indirect costs. Other
indirect costs include manufacturing overhead, equipment maintenance,
environmental health and safety, quality and production control procurement,
transportation, logistics, depreciation and facility-related costs. As a nascent
technology with a new manufacturing process that is early in its product
lifecycle, the Company still faces significant costs associated with production
start-up, commissioning of various components, modules, and subsystems and other
related costs. The Company expects its cost of goods sold to exceed revenues in
the near term as it continues to scale production and prepares BESSs delivered
to customers to go-live.

Cost of goods sold increased by $106.8 million, or 230% from $46.5 million for
the year ended December 31, 2021 to $153.3 million for the year ended
December 31, 2022. The increase was driven by the following: (a) an increase in
production volumes and related manufacturing costs; (b) higher freight costs and
material costs due to volume and inflation; (c) higher manufacturing scrap and
rework costs and production inefficiencies; and (d) higher EPC and commissioning
expenses.

Research and development expenses



                             For the Years Ended December 31,
($ in thousands)                    2022                      2021        $ Change       % Change

R&D expenses         $         18,469                      $ 19,154      $    (685)          (4) %

Research and development expenses consist primarily of salaries and other personnel-related costs, materials, third-party services, depreciation, and amortization of intangible assets.


                                       36
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Research and development costs decreased by $0.7 million or 4% from $19.2
million for the year ended December 31, 2021, to $18.5 million for the year
ended December 31, 2022. The decrease in research and development costs was
primarily driven by a decrease of $3.4 million in costs for materials and
supplies, partially offset by increases of $1.4 million for outside professional
services, $0.5 million of payroll and personnel costs, $0.6 million of stock
compensation costs and $0.2 million of facility costs.

Selling, general and administrative expenses



                             For the Years Ended December 31,
($ in thousands)                    2022                      2021        $ Change      % Change

SG&A expenses        $         60,623                      $ 42,998      $ 17,625           41  %

Selling, general and administrative expenses primarily consist of payroll and personnel-related, outside professional services, facilities, depreciation, travel, marketing, and public company costs.



Selling, general and administrative expenses increased by $17.6 million or 41%,
from $43.0 million for the year ended December 31, 2021 to $60.6 million for the
year ended December 31, 2022. The increase was primarily driven by increases of
$10.8 million in payroll and personnel costs and $8.9 million of outside service
expenses, partially offset by decreases of $1.9 million in stock compensation
costs.

Loss on pre-existing agreement



                                        For the Years Ended December 31,
($ in thousands)                               2022

2021



Loss on pre-existing agreement   $       -                           $

30,368

The Company incurred a loss on a pre-existing agreement of $30.4 million for the year ended December 31, 2021 due to the termination of the joint venture agreement with Holtec during the second quarter of 2021.

Loss from write-down on property, plant and equipment



                                            For the Years Ended December 31,
($ in thousands)                                     2022                         2021

Loss from write-down on PP&E     $               6,846                           $ 50


The Company incurred a loss of $6.8 million from the write-down on property,
plant and equipment for the year ended December 31, 2022, compared to $0.1
million for the year ended December 31, 2021. The increase in loss is due to
replacement of equipment, outsourcing of certain production processes, and a
shift in production from the current generation Gen 2.3 BESS to the next
generation Z3 system.

Grant expense, net

                                        For the Years Ended December 31,
($ in thousands)                                2022                        2021

Grant (income) expense, net   $             (16)

$ 269




Grant (income) expense, net includes grant-related expenses net of grant income
received pursuant to grant agreements with the California Energy Commission
("CEC"). The change in grant (income) expense, net, for the years ended
December 31, 2022 and 2021 relates to the timing of grant activity and recovery
of expenses from the CEC grant.

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Interest expense, net

                                 For the Years Ended December 31,
($ in thousands)                         2022                        2021

Interest expense, net   $            (7,915)                       $ (604)


Interest expense, net includes accrued interest, amortization of debt issuance
costs and debt discounts, and interest income. Interest expense, net increased
by $7.3 million for the year ended December 31, 2022, compared to the year ended
December 31, 2021. These increases are a result of higher interest expense
recognized due to interest on the Senior Secured Term Loan, which was issued in
2022, and from a further draw on the equipment financing facility in 2022.

Interest expense - related party



                                            For the Years Ended December 31,
($ in thousands)                                   2022                       2021

Interest expense - related party    $          (10,898)

$ (4,597)




Interest expense, related party includes accrued interest and the amortization
of debt issuance costs and debt discounts. Interest expense - related party
increased by $6.3 million for the year ended December 31, 2022, compared to the
year ended December 31, 2021. 2022 reflects a full year of interest expense and
amortization of debt issuance costs recognized in 2022 for the 2021 Convertible
Notes - Related Party and the Yorkville Convertible Promissory Note - Related
Party. In 2021, there was only interest expense and amortization of debt
issuance costs for the 2021 Convertible Notes- Related Party, which were issued
in July 2021.

Remeasurement of equity method investment



                                                               For the Years Ended December 31,
($ in thousands)                                                  2022                    2021

Remeasurement of equity method investment                  $             -

$ (7,480)




For the year ended December 31, 2021, we recognized a $7.5 million loss on our
equity method investment in Hi-Power. The loss was a result of the remeasurement
of our 49% ownership in Hi-Power due to our acquisition of the remaining 51%
interest previously held by Holtec. The Company consolidated Hi-Power for the
full year of 2022, therefore, it was not accounted for as an equity method
investment for the year ended December 31, 2022.

Gain on change in fair value of derivatives - related parties



The gain on change in fair value of derivatives - related parties is composed of
the following:

                                                               For the Years Ended December 31,
($ in thousands)                                                 2022                     2021

Change in fair value, embedded derivatives - related party

                                                     $         10,880          $      17,507
Change in fair value, warrants liability - related party               848                  1,775

Gain on change in fair value of derivatives - related parties

                                                   $         11,728

$ 19,282




The 2021 Convertible Notes Payable - Related Party, and the December Yorkville
Convertible Promissory Notes contain conversion features that are accounted for
as embedded derivatives and remeasured at its fair value at each balance sheet
date. The decrease in the embedded derivatives' fair value, as well as the
warrants liability's fair value, for the year ended December 31, 2022, compared
to the year ended December 31, 2021, is largely a result of the change in the
value of the underlying asset, the Company's common stock.


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Income from equity in unconsolidated joint venture



                                                                For the Years Ended December 31,
($ in thousands)                                                  2022                     2021

Income from equity in unconsolidated joint venture         $              -

$ 440




Income from equity in unconsolidated joint venture for the year ended
December 31, 2021 includes the results of the Company's joint venture Hi-Power
before it became a wholly-owned subsidiary of the Company on April 9, 2021.
Subsequent to the acquisition, Hi-Power's operational results have been
consolidated within the Company's consolidated statements of operations and
comprehensive loss, therefore, there is no income or loss recognized from the
joint venture for the year ended December 31, 2022.

(Loss) gain on debt (extinguishment)/forgiveness



                                                                           For the Years Ended December 31,
($ in thousands)                                                             2022                     2021
 (Loss) gain on debt (extinguishment)/forgiveness                     $

(942) $ 1,273

The Company recognized a loss on debt extinguishment of $0.9 million for the year ended December 31, 2022 from repayment of the Hi-Power note payable.



The Company recognized a gain on debt forgiveness of $1.3 million for the year
ended December 31, 2021 from forgiveness of the Paycheck Protection Program loan
approved by the Small Business Administration under the CARES Act.

Other (expense) income

                                  For the Years Ended December 31,
($ in thousands)                         2022                       2021

Other (expense) income   $           (477)                        $ 2,194

Other (expense) income of ($0.5) million for the year ended December 31, 2022 included commitment fees of ($1.1) million paid upon signing of the SEPA, partially offset by a $0.5 million gain from settlement of the SEPA advance.



During the year ended December 31, 2021, the Company recognized income of $2.2
million from the sale of state net operating losses and research and development
credit carryforwards in accordance with the New Jersey Economic Development
Authority Technology Business Tax Certificate Transfer Program.

Income tax expense

                                 For the Years Ended December 31,
($ in thousands)                          2022                          2021

Income tax expense   $                51                               $  -


Income tax expense of approximately $0.1 million was recorded for the year ended
December 31, 2022. The taxes are attributable to taxable earnings from the
Company's foreign operations which were insignificant for all periods presented.
There was no income tax expense recorded for the year ended December 31, 2021.


                                       39
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Liquidity and Capital Resources

Liquidity and Going Concern



As a growth company in the early commercialization stage of its lifecycle, Eos
is subject to inherent risks and uncertainties associated with the development
of an enterprise. In this regard, substantially all of the Company's efforts to
date have been devoted to the development and manufacturing of battery energy
storage systems and complimentary products and services, recruitment of
management and technical staff, deployment of capital to expand the Company's
operations to meet customer demand and raising capital to fund the Company's
development. As a result of these efforts, the Company has incurred significant
losses and negative cash flows from operations since its inception and expects
to continue to incur such losses and negative cash flows for the foreseeable
future until such time that the Company can reach a scale of profitability to
sustain its operations.

In order to execute its development strategy, the Company has historically
relied on outside capital through the issuance of equity, debt, and borrowings
under financing arrangements (collectively "outside capital") to fund its cost
structure and expects to continue to rely on outside capital for the foreseeable
future. While the Company believes it will eventually reach a scale of
profitability to sustain its operations, there can be no assurance the Company
will be able to achieve such profitability or do so in a manner that does not
require its continued reliance on outside capital. Moreover, while the Company
has historically been successful in raising outside capital, there can be no
assurance the Company will be able to continue to obtain outside capital in the
future or do so on terms that are acceptable to the Company.

As of the date the accompanying consolidated financial statements were issued
(the "issuance date"), management evaluated the significance of the following
negative financial conditions in accordance with Accounting Standard
Codification 205-40, Going Concern:

•Since its inception, the Company has incurred significant losses and negative
cash from operations in order to fund its development. During the year ended
December 31, 2022, the Company incurred a net loss of $(229.8) million, incurred
negative cash flows from operations of $(196.9) million, and had an accumulated
deficit of $(646.3) million as of December 31, 2022.

•As of December 31, 2022, the Company had $17.1 million of unrestricted cash and
cash equivalents available to fund the Company's operations, no additional
borrowings available to fund its operations under pre-existing financing
arrangements (see Note 13, Borrowings) and negative working capital of $(5.4)
million, inclusive of $5.6 million of outstanding debt that is currently
scheduled to mature within the next twelve months beyond the issuance date.

•While the Company has available capacity under certain pre-existing
arrangements to issue shares of the Company's common stock, including under the
SEPA and the ATM offering program, (see also Note 20, Shareholders' Equity) to
aid in funding the Company's operations, the Company's ability to secure such
funding is dependent upon certain conditions, such as investors' willingness to
purchase the Company's common stock and at a price that is acceptable to the
Company. Accordingly, as of the issuance date there is no assurance the Company
will be able to secure funding under these pre-existing arrangements or on terms
that are acceptable to the Company.

•Similarly, while the Company has historically been successful in raising
additional outside capital to fund the Company's operations, as of the issuance
date no assurance can be provided the Company will be successful in obtaining
additional outside capital or on terms that are acceptable to the Company. In
this regard, the Company is currently in the process of negotiating additional
outside capital under the U.S. Department of Energy's ("DOE") Loan Guarantee
Solicitation for Applications for Renewable Energy Projects and Efficient Energy
Projects (the "DOE Loan Program"). As of the issuance date, the Company remains
in the due diligence phase of negotiations with the DOE, however, there can be
no assurance that the Company will be able to secure such loan or on terms that
are acceptable to the Company.

                                       40
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•The Company is required to remain in compliance with a quarterly minimum
financial liquidity covenant under its Senior Secured Term Loan. While the
Company was in compliance with this covenant as of December 31, 2022, and
expects to remain in compliance as of March 31, 2023, absent the Company's
ability to secure additional outside capital, the Company may be unable to
remain in compliance with this covenant beginning on June 30, 2023 and
thereafter. In the event the Company is unable to remain in compliance with the
minimum financial liquidity covenant and the other nonfinancial covenants
required by the Senior Secured Term Loan, and the Company is further unable to
cure such noncompliance or secure a waiver, Atlas may, at its discretion,
exercise any and all of its existing rights and remedies, which may include,
among other things, entering into a forbearance agreement with the Company,
and/or asserting its rights in the Company's assets securing the loan. Moreover,
the Company's other lenders may exercise similar rights and remedies under the
cross-default provisions of their respective borrowing arrangements with the
Company.

•Absent an ability to secure additional outside capital in the near term, the
Company will be unable to meet its obligations as they become due over the next
twelve months beyond the issuance date.

•In the event the Company's ongoing efforts to raise additional outside capital
prove unsuccessful, management will be required to seek other strategic
alternatives, which may include, among others, a significant curtailment in the
Company's operations, a sale of certain of the Company's assets, a sale of the
entire Company to strategic or financial investors, and/or allowing the Company
to become insolvent.

These uncertainties raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
have been prepared on the basis that the Company will continue to operate as a
going concern, which contemplates that the Company will be able to realize
assets and settle liabilities and commitments in the normal course of business
for the foreseeable future. Accordingly, the accompanying consolidated financial
statements do not include any adjustments that may result from the outcome of
these uncertainties.

Financing Arrangements

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 profitability through its planned revenue generating activities. During 2022, the Company closed on the following capital transactions:



•a common stock Standby Equity Purchase Agreement with YA II PN, Ltd. an
affiliate of Yorkville Advisors. For the year ended December 31, 2022, funds
raised under the SEPA were $14.5 million. See Note 20, Shareholders' Equity to
our consolidated financial statements included elsewhere in this Annual Report.

•a Sales Agreement with Cowen, with respect to an at-the-market offering program. For the year ended December 31, 2022, funds raised under the ATM were $38.6 million, net of commissions. See Note 20, Shareholders' Equity to our consolidated financial statements included elsewhere in this Annual Report.



•a $100.0 million Senior Secured Term Loan Credit Agreement with Atlas Credit
Partners (ACP) Post Oak Credit I LLC. For the year ended December 31, 2022, the
funds raised from borrowings under the Senior Secured Term Loan were $100.0
million. The Senior Secured Term Loan contains customary affirmative and
negative covenants, which limit the Company's and its subsidiaries' ability to
incur indebtedness, make restricted payments, including cash dividends on its
common stock, make certain investments, loans and advances, enter into mergers
and acquisitions, sell, assign, transfer or otherwise dispose of its assets,
enter into transactions with its affiliates and engage in sale and leaseback
transactions, among other restrictions. It also requires the Company to hold
enough available liquidity as of the last day of each fiscal quarter to meet the
Interest Escrow Required Amount (as defined in the Senior Secured Term Loan),
which is calculated as the aggregate amount of the four immediately following
interest payments on loans under the Senior Secured Term Loan. See Note 13,
Borrowings to our consolidated financial statements included elsewhere in this
Annual Report.

•an additional $4.2 million from Trinity Capital Inc. under the $25.0 million
equipment financing facility (the "Equipment Financing Facility"), which was
entered into during 2021. See Note 13, Borrowings to our consolidated financial
statements included elsewhere in this Annual Report.

                                       41
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See Note 13, Borrowings and Note 20, Shareholders' Equity for all of the Company's outstanding debt and equity transactions.

Capital Expenditures



We expect capital expenditures and working capital requirements to increase as
we seek to execute on our growth strategy. Total capital expenditures for the
year ended December 31, 2022 were $20.1 million. These expenses were primarily
used to purchase additional equipment and to automate certain manufacturing
processes that will increase our capacity and efficiency. Our capital
expenditure and working capital requirements may change depending on many
factors, including but not limited to, the overall performance of existing
equipment, our sales pipeline, our operating results and any adjustments in our
operating plan necessary in response to industry conditions, competition or
unexpected events.

Discussion and Analysis of Cash Flows



The Company relies heavily on private placement of convertible notes, term
loans, equipment financing and issuance of common stock. Our short-term working
capital needs are primarily related to funding of debt interest payments,
repayment of debt principal, product manufacturing, research and development,
and general corporate expenses. The Company's long-term working capital needs
are primarily related to repayment of long-term debt obligations and capital
expenses for capacity expansion and maintenance, equipment upgrades and repair
of equipment. We have taken steps to conserve working capital and reduce
expenses to better manage cash outflows.

The following table summarizes our cash flows from operating, investing and financing activities for the periods presented.



                                                                        For the Years Ended December 31,
($ in thousands)                                                            2022                   2021
Net cash used in operating activities                               $        (196,857)         $ (116,147)
Net cash used in investing activities                                         (17,170)            (23,336)
Net cash provided by financing activities                                     139,544             123,322

Cash flows from operating activities:

Our cash flows used in operating activities to date have primarily been composed of costs related to research and development, manufacturing of our initial energy storage products, and other selling, general and administrative activities. As we continue to expand commercial production, we expect our expenses related to personnel, manufacturing, research and development and selling, general and administrative activities to increase.



Net cash used in operating activities of $196.9 million for the year ended
December 31, 2022 was primarily driven by a net loss of $229.8 million, adjusted
for non-cash items of $31.0 million. Non-cash items included stock-based
compensation expense, depreciation and amortization, interest accretion and
amortization of debt issuance costs, changes in fair value of derivatives, and
loss from the write-down of property, plant and equipment. The net cash inflows
from changes in operating assets and liabilities of $2.0 million was primarily
driven by an increase in accounts payable and accrued expenses of $23.4 million,
an increase in contract liabilities of $4.0 million, and a decrease in vendor
deposits of $6.8 million. These inflows were partially offset by an increase in
inventory of $10.3 million and a decrease in the Hi-Power note payable of $19.6
million.

Net cash used in operating activities of $116.1 million for the year ended
December 31, 2021 was primarily driven by a net loss of $124.2 million, adjusted
for non-cash items of $11.0 million. Non-cash items included stock compensation
expense, depreciation and amortization, remeasurement of the Hi-Power JV equity
and changes in the fair value of derivatives. The net cash outflow from changes
in operating assets and liabilities was $2.9 million for the year ended
December 31, 2021, primarily driven by an increase in the Hi-Power notes payable
of $18.7 million and an increase in accounts payable and accrued expenses of
$7.1 million, partially offset by an increase in inventory of $10.1 million,
increase in vendor deposits of $7.4 million, decrease in provision for firm
purchase commitment of $5.5 million, and increase in accounts receivable of $1.9
million.


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Cash flows from investing activities:



Net cash flows used in investing activities of $17.2 for the year ended
December 31, 2022 were primarily composed of payments made for purchases of
property, plant and equipment of $20.1 million, note receivable advanced to a
customer of $0.3 million, partially offset by proceeds from notes receivable of
$3.2 million.

Net cash flows used in investing activities of $23.3 for the year ended
December 31, 2021 were primarily composed of purchases of property, plant and
equipment of $15.6 million, investment in joint venture of $4.0 million, notes
receivable advanced to customers of $4.9 million and payments made for the
Hi-Power acquisition of $0.2 million, partially offset by proceeds from notes
receivable of $1.3 million.

Cash flows from financing activities:



Net cash provided by financing activities of $139.5 million in the year ended
December 31, 2022, was primarily from net proceeds received from the Senior
Secured Term Loan of $98.0 million, issuance of common stock under the ATM
program of $38.6 million, Yorkville Convertible Promissory Notes of $9.3
million, issuance of common stock under the SEPA of $5.0 million, and an
increase in the equipment financing facility of $4.2 million. The proceeds were
partially offset by debt issuance costs related to the Senior Secured Term Loan
of $12.4 million, payments on the equipment financing facility of $1.9 million,
and $1.0 million for share repurchases from employees for tax withholding
purposes.

Net cash provided by financing activities of $123.3 million for the year ended
December 31, 2021, primarily due to the proceeds received from issuance of the
2021 Convertible Notes of $100 million, equipment financing of $7.0 million,
warrants exercised of $20.1 million, and options exercised of $1.1 million,
partially offset by debt issuance costs associated with the 2021 Convertible
Notes and the equipment financing facility of $4.4 million.

Contractual Obligations

We have certain obligations and commitments to make future payments under contracts. As of December 31, 2022, this is comprised of the following:

•Open purchase obligations of $0.2 million, related to a supply purchase agreement with a minimum volume commitment. See Note 17, Commitments and Contingencies to our consolidated financial statements included elsewhere in this Annual Report.



•Future lease payments, including interest, under non-cancellable operating and
financing leases of $6.5 million. The leases expire at various dates prior to
2028. See Note 15, Leases to our consolidated financial statements included
elsewhere in this Annual Report.

•Principal and Interest payments related to the following debt obligations. See
Note 13, Borrowings to our consolidated financial statements included elsewhere
in this Annual Report.


                                                          Future Debt Payments
Yorkville Convertible Promissory Note - due June 2023*   $

2,000


2021 Convertible Notes Payable - due June 2026

134,262


Senior Secured Term Loan - due March 2026

148,445


Equipment financing facility - due April 2025                           10,561
 Total                                                   $             295,268


* Amounts owed under the Yorkville Convertible Promissory Note were offset by
the issuance of common shares in January 2023- See Note 21, Subsequent Events to
our consolidated financial statements included elsewhere in this Annual Report.



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Critical Accounting Estimates



Our consolidated financial statements are prepared in conformity with U.S.
generally accepted accounting principles. In preparing our consolidated
financial statements, we make assumptions, judgments, and estimates on
historical experience and various other factors that we believe to be reasonable
under the circumstances. Actual results could differ materially from these
estimates under different assumptions or conditions. We regularly reevaluate our
assumptions, judgments, and estimates. In addition to the below, for further
information regarding our critical accounting policies, refer to Note 2, Summary
of Significant Accounting Policies to our consolidated financial statements
included elsewhere in this Annual Report.

Warranty Liability



The Company generally provides a standard warranty for a period of two years. We
also provide extended warranties and performance guarantees, which are
identified as separate performance obligations in the Company's contracts with
customers. We accrue warranty reserves at the time of recording the sale.
Warranty reserves include management's best estimate of the projected costs to
repair or to replace any items under warranty, which is based on various factors
including actual claim data to date, results of lab testing, factory quality
data, and field monitoring. Due to limited claim experience since
commercialization of our product, and the potential for variability in these
underlying factors, the difference between our estimated costs and our actual
costs could be material to our consolidated financial statements. If actual
product failure rates or the frequency or severity of reported claims differ
from our estimates, we may be required to revise our estimated warranty
liability. We will also update actual warranty experience to determine warranty
reserves as such experience becomes available. We review our reserves at least
quarterly, seeking to ensure that our accruals are adequate in meeting expected
future warranty obligations, and we will adjust our estimates as needed. Initial
warranty data can be limited at the early stage in the commercialization of our
products and, the adjustments that we record may be material. Thus, it is likely
that as we sell additional BESS, we will acquire additional information on the
projected costs to repair or replace items under warranty and may need to make
additional adjustments. As of December 31, 2022 and 2021, we had $3.8 million
and $2.1 million in warranty reserves, respectively. Adjustments to warranty
reserves are recorded in cost of goods sold.

Convertible Notes and Embedded Derivatives



Some of our debt financings contain embedded derivatives, such as conversion
features in our 2021 Convertible Notes Payable - Related Party. The Company
evaluates each debt agreement to determine whether any embedded features require
bifurcation from the debt host in accordance with ASC 815, Derivatives and
Hedging ("ASC 815"). If the embedded feature requires bifurcation from its debt
host, the Company will account for it as either a derivative liability or as a
derivative in equity. The Company uses valuation models to estimate the fair
value of the embedded derivatives. For the valuation of the embedded derivative
related to the 2021 Convertible Notes- Related Party, the Company uses a
binomial lattice model at inception and on subsequent valuation dates. This
model incorporates inputs such as the stock price of the Company, dividend
yield, risk-free interest rate, the effective debt yield and expected
volatility. Certain inputs involve unobservable inputs and are classified as
level 3 of the fair value hierarchy (see Note 16, Fair Value Measurement to our
consolidated financial statements included elsewhere in this Annual Report). The
sensitivity of the fair value calculation to these methods, assumptions, and
estimates included could create materially different results under different
conditions or using different assumptions.


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Business Combinations



We have accounted for business combinations using the purchase method of
accounting where the cost is allocated to the underlying net tangible and
intangible assets acquired, based on their respective fair values. Identifiable
assets acquired and liabilities assumed are recognized and measured as of the
acquisition date at fair value. Goodwill is recognized to the extent by which
the aggregate of the acquisition-date fair value of the consideration
transferred exceeds the recognized basis of the identifiable assets acquired,
net of assumed liabilities. The Company used information available to make fair
value determinations and engaged independent valuation specialists to assist
management in the fair value determination for the acquisition of Hi-Power. The
fair value is determined using the income approach, cost approach and/or market
approach. Determining the fair value of purchase consideration, assets acquired,
liabilities assumed, as well as the Joint Venture agreement the Company
terminated in connection with the acquisition requires management's judgment.
The fair value determination of the Joint Venture agreement and of the
consideration transferred in exchange for the Hi-Power business involves the use
of significant estimates and assumptions, including, but not limited to, the
selection of appropriate valuation methodology, projected cash flows and the
discount rate. The Company believes the estimates applied to be based on
reasonable assumptions, but these estimates are inherently uncertain. If any of
our assumptions or judgements used to determine fair value of the assets
acquired, are ultimately incorrect, we could experience material impairment
losses.


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