~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022


☐			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 001-38795

ROMEO POWER, INC.

(Exact name of registrant as specified in its charter)

Delaware

83-2289787

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

~~4380 Ayers~~5560 Katella Avenue

~~Vernon,~~Cypress, CA ~~90058~~90630

(833) 467-2237

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)


4380 Ayers Avenue Vernon, CA 90058

(Former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	RMO	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐☒	Accelerated filer	☐
Non-accelerated filer	☒☐	Smaller reporting company	☒☐
		Emerging growth company	☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August ~~09, 2021, 134,056,620~~1, 2022, 185,908,638 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.

~~Table of Contents~~

Table of Contents


			Page No
Part I- Financial Information			2
Item 1. Financial Statements			2
Condensed Consolidated Balance Sheets (Unaudited)			2
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)			3
Condensed Consolidated Statements of Changes in Stockholders’ Equity ~~(Deficit)~~ (Unaudited)			4
Condensed Consolidated Statements of Cash Flows (Unaudited)			6
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			2529
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4345
Item 4. Controls and Procedures			4446

Part II - Other Information			4547
Item 1. Legal Proceedings			4547
Item 1A. Risk Factors			4547
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4552
Item 3. Defaults Upon Senior Securities			4552
Item 4. Mine Safety Disclosures			4552
Item 5. Other Information			4552
Item 6. Exhibits			4653
Signatures			4754

~~Table of Contents~~

Part I - Financial Statements

Item 1. Financial Statements


Condensed Consolidated Balance Sheets As of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (Unaudited) (In thousands, except share and per share data)


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets	Assets					Assets

Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	44,046	$	292,442	Cash and cash equivalents	$	38,707	$	22,638
Investments	Investments	223,636		0		Investments	—		97,309
Accounts receivable, net of allowance for expected credit loss of $213 and $238 at June 30, 2021 and December 31, 2020, respectively		1,992		841
Accounts receivable, net of allowance for expected credit loss of $3 and $0 at June 30, 2022 and December 31, 2021, respectively						Accounts receivable, net of allowance for expected credit loss of $3 and $0 at June 30, 2022 and December 31, 2021, respectively	4,166		8,378
Inventories, net	Inventories, net	7,615		4,937		Inventories, net	45,397		37,125
Insurance receivable	Insurance receivable	6,000		6,000		Insurance receivable	—		1,250
Deferred costs		2,217		0

Prepaid inventories						Prepaid inventories	6,057		3,002
Prepaid expenses and other current assets	Prepaid expenses and other current assets	10,158		1,269		Prepaid expenses and other current assets	7,046		5,579
Total current assets	Total current assets	295,664		305,489		Total current assets	101,373		175,281
Restricted cash	Restricted cash	1,500		1,500		Restricted cash	3,000		3,000
Property, plant and equipment, net	Property, plant and equipment, net	6,430		5,484		Property, plant and equipment, net	31,807		15,158
Equity method investments	Equity method investments	37,794		35,000		Equity method investments	35,000		36,329
Operating lease right-of-use assets	Operating lease right-of-use assets	5,350		5,469		Operating lease right-of-use assets	22,299		23,115
Finance lease right-of-use assets						Finance lease right-of-use assets	4,008		4,070
Deferred assets	Deferred assets	5,018		0		Deferred assets	5,018		5,018
Prepayment - long-term supply agreement						Prepayment - long-term supply agreement	64,703		64,703
Insurance receivable						Insurance receivable	6,000		6,000
Other noncurrent assets	Other noncurrent assets	2,716		3,100		Other noncurrent assets	2,019		2,772
Total assets	Total assets	$	354,472	$	356,042	Total assets	$	275,227	$	335,446

Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	8,200	$	2,900	Accounts payable	$	16,088	$	11,724
Accrued expenses	Accrued expenses	4,620		2,844		Accrued expenses	14,552		8,156
Contract liabilities	Contract liabilities	3,123		815		Contract liabilities	257		384
Current maturities of long-term debt		3,307		2,260

Operating lease liabilities, current	Operating lease liabilities, current	855		853		Operating lease liabilities, current	798		416
Legal settlement payable		6,000		6,000
Finance lease liabilities, current						Finance lease liabilities, current	1,152		927

Other current liabilities	Other current liabilities	153		384		Other current liabilities	743		1,509
Total current liabilities	Total current liabilities	26,258		16,056		Total current liabilities	33,590		23,116

Private placement warrants						Private placement warrants	30		1,526
Operating lease liabilities, net of current portion						Operating lease liabilities, net of current portion	22,544		23,058
Finance lease liabilities, net of current portion						Finance lease liabilities, net of current portion	2,170		2,595
Legal settlement payable						Legal settlement payable	6,000		6,000

Total liabilities						Total liabilities	64,334		56,295
Commitments and contingencies (Note 15)	Commitments and contingencies (Note 15)	0		0		Commitments and contingencies (Note 15)	0		0
Long-term debt, net of current portion		34		1,082
Public and private placement warrants		9,852		138,466
Operating lease liabilities, net of current portion		4,597		4,723
Other noncurrent liabilities		32		17
Total liabilities		40,773		160,344

Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock ($0.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2021 and December 31, 2020)		0		0
Common stock ($0.0001 par value, 250,000,000 shares authorized, 132,995,060 and 126,911,861 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively)		13		12

Common stock ($0.0001 par value, 250,000,000 shares authorized, 185,811,279 and 134,458,439 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)						Common stock ($0.0001 par value, 250,000,000 shares authorized, 185,811,279 and 134,458,439 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)	19		13
Additional paid-in capital	Additional paid-in capital	429,946		373,129		Additional paid-in capital	503,967		451,040
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(155)		0		Accumulated other comprehensive loss	—		(366)
Accumulated deficit	Accumulated deficit	(116,105)		(177,443)		Accumulated deficit	(293,093)		(171,536)
Total stockholders’ equity	Total stockholders’ equity	313,699		195,698		Total stockholders’ equity	210,893		279,151
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	354,472	$	356,042	Total liabilities and stockholders’ equity	$	275,227	$	335,446

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table of Contents~~


Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income For The Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited) (In thousands, except share and per share data)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues:	Revenues:									Revenues:
Product revenues	Product revenues	$	466	$	458	$	1,078	$	2,046	Product revenues	$	5,650	$	466	$	17,052	$	1,078
Service revenues	Service revenues	460		671		902		1,605		Service revenues	79		460		248		902

Total revenues (1)	Total revenues (1)	926		1,129		1,980		3,651		Total revenues (1)	5,729		926		17,300		1,980

Cost of revenues:	Cost of revenues:									Cost of revenues:
Product cost	Product cost	5,542		1,737		9,980		4,466		Product cost	19,630		5,542		48,746		9,980
Service cost	Service cost	403		686		792		1,589		Service cost	68		403		205		792

Total cost of revenues	Total cost of revenues	5,945		2,423		10,772		6,055		Total cost of revenues	19,698		5,945		48,951		10,772

Gross loss	Gross loss	(5,019)		(1,294)		(8,792)		(2,404)		Gross loss	(13,969)		(5,019)		(31,651)		(8,792)

Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	1,792		1,594		5,563		3,396		Research and development	7,132		1,792		13,837		5,563
Selling, general and administrative	Selling, general and administrative	22,911		2,451		40,910		5,358		Selling, general and administrative	18,741		20,884		40,989		36,786
Acquisition of in-process research and development										Acquisition of in-process research and development	—		—		35,402		—
Total operating expenses	Total operating expenses	24,703		4,045		46,473		8,754		Total operating expenses	25,873		22,676		90,228		42,349
Operating loss	Operating loss	(29,722)		(5,339)		(55,265)		(11,158)		Operating loss	(39,842)		(27,695)		(121,879)		(51,141)
Interest expense										Interest expense	(39)		(5)		(78)		(12)
Change in fair value of public and private placement warrants										Change in fair value of public and private placement warrants	225		1,995		1,496		118,120

Interest expense		(5)		(264)		(12)		(518)
Investment loss, net										Investment loss, net	(788)		(379)		(825)		(289)

Change in fair value of public and private placement warrants		1,995		0		118,120		0
Investment loss, net		(379)		0		(289)		0
Other expense		0		(1,386)		0		(1,386)
(Loss) income before income taxes and loss in equity method investments	(Loss) income before income taxes and loss in equity method investments	(28,111)		(6,989)		62,554		(13,062)		(Loss) income before income taxes and loss in equity method investments	(40,444)		(26,084)		(121,286)		66,678
Loss in equity method investments	Loss in equity method investments	(563)		(36)		(1,206)		(732)		Loss in equity method investments	—		(563)		(271)		(1,206)
Provision for income taxes	Provision for income taxes	0		0		(10)		0		Provision for income taxes	—		—		—		(10)
Net (loss) income	Net (loss) income	(28,674)		(7,025)		61,338		(13,794)		Net (loss) income	(40,444)		(26,647)		(121,557)		65,462

Other comprehensive income (loss)
Other comprehensive (loss) income										Other comprehensive (loss) income
Available-for-sale debt investments:	Available-for-sale debt investments:									Available-for-sale debt investments:
Change in net unrealized losses, net of income taxes	Change in net unrealized losses, net of income taxes	34		0		(308)		0		Change in net unrealized losses, net of income taxes	(18)		34		(734)		(308)
Net losses reclassified to earnings, net of income taxes	Net losses reclassified to earnings, net of income taxes	115		0		153		0		Net losses reclassified to earnings, net of income taxes	758		115		1,100		153
Total other comprehensive income (loss), net of income taxes	Total other comprehensive income (loss), net of income taxes	149		0		(155)		0		Total other comprehensive income (loss), net of income taxes	740		149		366		(155)
Comprehensive (loss) income	Comprehensive (loss) income	$	(28,525)	$	(7,025)	$	61,183	$	(13,794)	Comprehensive (loss) income	$	(39,704)	$	(26,498)	$	(121,191)	$	65,307

Net (loss) income per share	Net (loss) income per share									Net (loss) income per share
Basic	Basic	$	(0.22)	$	(0.09)	$	0.47	$	(0.18)	Basic	$	(0.25)	$	(0.20)	$	(0.82)	$	0.50
Diluted	Diluted	$	(0.22)	$	(0.09)	$	0.45	$	(0.18)	Diluted	$	(0.25)	$	(0.20)	$	(0.82)	$	0.48
Weighted average number of shares outstanding	Weighted average number of shares outstanding									Weighted average number of shares outstanding
Basic	Basic	131,059,149		77,396,263		129,930,204		76,021,298		Basic	160,163,249		131,059,149		147,780,749		129,930,204
Diluted	Diluted	131,059,149		77,396,263		135,021,296		76,021,298		Diluted	160,163,249		131,059,149		147,780,749		135,083,827

(1) Total revenues included related party revenues of zero and $573 ~~and $587 for~~for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$1,286~~$162 and ~~$1,469~~$1,286 for the six months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~2021, respectively. See Note ~~14.~~14 - Transactions with Related Parties.

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table~~


Condensed Consolidated Statements of Changes in Stockholders’ Equity For The Three and Six Months Ended June 30, 2022 (Unaudited) (In thousands, except share data)



	Common Stock			APIC		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Shares	Amount

Balance—March 31, 2022	151,221,283	$	15	$	476,907	$	(740)	$	(252,649)	$	223,533
Issuance of common stock	68,824	—		—		—		—		—



Issuance of common stock under ATM agreement, net of costs (Note 1)	34,521,172	4		23,822		—		—		23,826

Stock based compensation	—	—		3,238		—		—		3,238
Other comprehensive income	—	—		—		740		—		740
Net loss	—	—		—		—		(40,444)		(40,444)
Balance—June 30, 2022	185,811,279	$	19	$	503,967	$	—	$	(293,093)	$	210,893


	Common Stock			APIC		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Shares	Amount

Balance—December 31, 2021	134,458,439	$	13	$	451,040	$	(366)	$	(171,536)	$	279,151
Issuance of common stock	148,360	—		7		—		—		7


Issuance of common stock under SEPA agreement, net of stock purchase discount (Note 1)	16,683,308	2		24,998		—		—		25,000
Issuance of common stock under ATM agreement, net of costs (Note 1)	34,521,172	4		23,822		—		—		23,826
Settlement on restricted stock tax withholding	—	—		(1)		—		—		(1)
Stock based compensation	—	—		4,101		—		—		4,101
Other comprehensive income	—	—		—		366		—		366
Net loss	—	—		—		—		(121,557)		(121,557)
Balance—June 30, 2022	185,811,279	$	19	$	503,967	$	—	$	(293,093)	$	210,893

The accompanying notes are an integral part of ~~Contents~~these condensed consolidated financial statements.


Condensed Consolidated Statements of Changes in Stockholders’ Equity For The Three and Six Months Ended June 30, 2021 (Unaudited) (In thousands, except share data)


		Common Stock			APIC				Notes Receivable from Stockholders			Accumulated Other Comprehensive Loss				Accumulated Deficit				Total				Common Stock								APIC						Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
		Shares	Amount												Shares								Amount												Total

Balance—March 31, 2021	Balance—March 31, 2021	130,529,147	$	13			$	416,308				$	0					$	(304)			$	(87,431)			$	328,586	Balance—March 31, 2021		130,529,147				$			13	$	418,335					$	(304)		$	(89,458)	$	328,586
Issuance of common stock	Issuance of common stock	1,815,913	0		7,575						—			—					—				7,575		Issuance of common stock	1,815,913					—					7,575				—			—			7,575
Proceeds receivable from common stock issuance	Proceeds receivable from common stock issuance	—	—		(7,144)				—			—				—				(7,144)			Proceeds receivable from common stock issuance	—				—				(7,144)						—			—			(7,144)
Issuance of common stock as contract consideration	Issuance of common stock as contract consideration	650,000	—		5,018				—			—				—				5,018			Issuance of common stock as contract consideration	650,000				—				5,018						—			—			5,018
Stock based compensation	Stock based compensation	—	—		8,189				—			—				—				8,189			Stock based compensation	—				—				6,162						—			—			6,162
Other comprehensive income		—	—		—				—			149				—				149
Other comprehensive loss																							Other comprehensive loss	—				—				—						149			—			149
Net loss	Net loss	—	—		—				—			—				(28,674)				(28,674)			Net loss	—				—				—						—			(26,647)			(26,647)
Balance—June 30, 2021	Balance—June 30, 2021	132,995,060	$	13	$	429,946			$	0		$	(155)			$	(116,105)			$	313,699		Balance—June 30, 2021	132,995,060				$	13			$	429,946					$	(155)		$	(116,105)		$	313,699

Common Stock APIC Notes Receivable from Stockholders Accumulated Other Comprehensive Loss Accumulated Deficit Total
Shares Amount
Balance—December 31, 2020 126,911,861 $ 12 $ 373,129 $ 0 $ 0 $ (177,443) $ 195,698
Issuance of common stock 5,433,199 1 44,201 — — — 44,202
Proceeds receivable from common stock issuance — — (7,144) — — — (7,144)
Issuance of common stock as contract consideration 650,000 — 5,018 — — — 5,018
Stock based compensation — — 14,742 — — — 14,742
Other comprehensive loss — — — — (155) — (155)
Net income — — — — — 61,338 61,338
Balance—June 30, 2021 132,995,060 $ 13 $ 429,946 $ 0 $ (155) $ (116,105) $ 313,699

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~Table of Contents~~


~~Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity~~ ~~For The Three and Six Months Ended June 30, 2020 (Unaudited)~~ ~~(In thousands, except share data)~~

Common Stock APIC Notes Receivable from Stockholders Accumulated Other Comprehensive Loss Accumulated Deficit Total
Shares Amount
Balance—March 31, 2020 74,981,611 $ 7 $ 183,121 $ (9,175) $ 0 $ (176,595) $ (2,642)
Issuance of common stock 3,657,261 1 3,756 — — — 3,757
Stock based compensation — — 375 — — — 375
Net loss — — — — — (7,025) (7,025)
Balance—June 30, 2020 78,638,872 $ 8 $ 187,252 $ (9,175) $ 0 $ (183,620) $ (5,535)

Common Stock APIC Notes Receivable from Stockholders Accumulated Other Comprehensive Loss Accumulated Deficit Total
Shares Amount
Balance—December 31, 2019 74,449,847 $ 7 $ 181,567 $ (9,175) $ 0 $ (169,826) $ 2,573
Issuance of common stock 4,189,025 1 5,033 — — — 5,034
Stock based compensation — — 652 — — — 652
Net loss — — — — — (13,794) (13,794)
Balance—June 30, 2020 78,638,872 $ 8 $ 187,252 $ (9,175) $ 0 $ (183,620) $ (5,535)


	Common Stock			APIC		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Shares	Amount
Balance—December 31, 2020	126,911,861	$	12	$	377,253	$	—	$	(181,567)	$	195,698
Issuance of common stock	5,433,199	1		44,201		—		—		44,202
Proceeds receivable from common stock issuance	—	—		(7,144)		—		—		(7,144)
Issuance of common stock as contract consideration	650,000	—		5,018		—		—		5,018
Stock based compensation	—	—		10,618		—		—		10,618
Other comprehensive loss	—	—		—		(155)		—		(155)
Net income	—	—		—		—		65,462		65,462
Balance—June 30, 2021	132,995,060	$	13	$	429,946	$	(155)	$	(116,105)	$	313,699

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table of Contents~~


Condensed Consolidated Statements of Cash Flows For The Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited) (In thousands)


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	61,338	(13,794)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net (loss) Income						Net (loss) Income	$	(121,557)	$	65,462
Adjustments to reconcile net (loss) income to net cash used in operating activities:						Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	999		950		Depreciation and amortization	1,590		999
Amortization of investment premium paid	Amortization of investment premium paid	990		0		Amortization of investment premium paid	233		990
Allowance for expected credit loss						Allowance for expected credit loss	3		—
Loss on sale of available-for-sale investments						Loss on sale of available-for-sale investments	1,270		154
Stock-based compensation	Stock-based compensation	14,742		652		Stock-based compensation	4,101		10,618
Inventory provision	Inventory provision	1,242		0		Inventory provision	4,551		1,242
Change in fair value of public and private placement warrants	Change in fair value of public and private placement warrants	(118,120)		0		Change in fair value of public and private placement warrants	(1,496)		(118,120)
Loss in equity method investment		1,206		732
Non-cash lease expense—operating leases		119		115
Non-cash lease expense—finance leases		142		140
Derivative expense		0		1,386
Acquisition of in-process research and development (Note 1)						Acquisition of in-process research and development (Note 1)	35,402		—

Loss in equity method investments						Loss in equity method investments	271		1,206
Non-cash lease expense - operating leases						Non-cash lease expense - operating leases	1,039		119
Non-cash lease expense - finance leases						Non-cash lease expense - finance leases	336		142

Other	Other	20		0		Other	—		(134)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(1,151)		(65)		Accounts receivable	3,900		(1,151)
Inventories	Inventories	(3,920)		(1,245)		Inventories	(12,823)		(3,920)
Prepaid expenses and other current assets		(8,377)		344
Prepaid inventories						Prepaid inventories	(3,055)		(3,899)
Prepaid and other current assets						Prepaid and other current assets	(1,409)		(4,478)

Accounts payable	Accounts payable	5,369		535		Accounts payable	3,095		5,369
Accrued expenses	Accrued expenses	1,776		907		Accrued expenses	1,135		1,776
Interest accrued on notes payable		0		489

Deferred costs	Deferred costs	(2,217)		0		Deferred costs	—		(2,217)
Contract liabilities	Contract liabilities	2,308		629		Contract liabilities	(127)		2,308
Operating lease liabilities	Operating lease liabilities	(124)		(108)		Operating lease liabilities	(355)		(124)
Other, net	Other, net	(102)		0		Other, net	2,020		(102)
Net cash used in operating activities	Net cash used in operating activities	(43,760)		(8,333)		Net cash used in operating activities	(81,876)		(43,760)

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of investments	Purchase of investments	(304,868)		0		Purchase of investments	—		(304,868)
Proceeds from maturities of investments	Proceeds from maturities of investments	78,633		0		Proceeds from maturities of investments	1,483		78,633
Proceeds from sales of investments	Proceeds from sales of investments	1,300		0		Proceeds from sales of investments	94,689		1,300
Equity method investment	Equity method investment	(4,000)		0		Equity method investment	—		(4,000)
Asset acquisition, net of cash acquired (Note 14)						Asset acquisition, net of cash acquired (Note 14)	(34,035)		—
Capital expenditures	Capital expenditures	(2,113)		(603)		Capital expenditures	(12,550)		(2,113)
Net cash used in investing activities		(231,048)		(603)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	49,587		(231,048)

Cash flows from financing activities:
Issuance of convertible notes		0		1,924
Issuance of term notes		0		3,750
Proceeds from PPP loan		0		3,300
Issuance of common stock		0		5,027
Exercise of stock options		5,058		7
Exercise of stock warrants		21,580		0
Warrant redemption payments		(72)		0
Principal portion of finance lease liabilities		(154)		(138)
Net cash provided by financing activities		$	26,412	$	13,870

(Continued)

~~Table of Contents~~


Condensed Consolidated Statements of Cash Flows For The Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited) (In thousands)


		Six Months Ended June 30,					Six Months Ended June 30,
							2022		2021
Cash flows from financing activities:						Cash flows from financing activities:
Issuance of common stock under the SEPA, net of stock purchase discount (Note 1)						Issuance of common stock under the SEPA, net of stock purchase discount (Note 1)	25,000		—
Issuance of common stock under the ATM, net of costs (Note 1)						Issuance of common stock under the ATM, net of costs (Note 1)	23,826		—
Exercise of stock options						Exercise of stock options	7		5,058
Exercise of stock warrants						Exercise of stock warrants	—		21,580
Settlement on restricted stock withholding						Settlement on restricted stock withholding	(1)		—
Warrant redemption payments						Warrant redemption payments	—		(72)
Principal portion of finance lease liabilities						Principal portion of finance lease liabilities	(474)		(154)
Net cash provided by financing activities						Net cash provided by financing activities	48,358		26,412
		2021		2020
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	$	(248,396)	$	4,934	Net change in cash, cash equivalents and restricted cash	$	16,069	$	(248,396)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	293,942		1,929		Cash, cash equivalents and restricted cash, beginning of period	25,638		293,942
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	45,546	$	6,863	Cash, cash equivalents and restricted cash, end of period	$	41,707	$	45,546

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:	Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:					Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	Cash and cash equivalents	$	44,046	$	5,363	Cash and cash equivalents	$	38,707	$	44,046
Restricted cash	Restricted cash	1,500		1,500		Restricted cash	3,000		1,500
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	45,546	$	6,863	Total cash, cash equivalents and restricted cash	$	41,707	$	45,546

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	0	$	0	Cash paid for interest	$	6	$	—
Cash paid for income taxes	Cash paid for income taxes	$	10	$	0	Cash paid for income taxes	$	—	$	10

Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:					Supplemental disclosure of non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable at the end of period		$	514	$	702
Issuance of common stock as contract consideration		$	5,108	$	0
Purchases of property, plant and equipment in accounts payable and accrued expenses at the end of period						Purchases of property, plant and equipment in accounts payable and accrued expenses at the end of period	$	9,036	$	514
Finance lease right-of-use assets obtained in exchange of finance lease liabilities						Finance lease right-of-use assets obtained in exchange of finance lease liabilities	$	274	$	—
Write off of equity method investment in the BorgWarner JV (Note 1)						Write off of equity method investment in the BorgWarner JV (Note 1)	$	1,058	$	—
Extinguishment of PPP loan						Extinguishment of PPP loan	$	—	$	5,108

(Concluded)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Romeo Power, Inc. (f/k/a RMG Acquisition Corp.) was originally incorporated under the name RMG Acquisition Corp. (“RMG”) as a blank check company incorporated in Delaware on October 22, 2018 for the purpose of effecting a merger, capital stock-exchange, asset acquisition, share purchase, reorganization, or similar business combination.

On October 5, 2020, RMG and RMG Merger Sub, Inc. a Delaware corporation and a wholly owned subsidiary of RMG (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Romeo Systems, Inc., a Delaware corporation (“Legacy Romeo”). On December 29, 2020, pursuant to the terms of the Merger Agreement, the business combination with Legacy Romeo was effected through the merger of Merger Sub with and into Legacy Romeo, with Legacy Romeo continuing as the surviving company and as our wholly owned subsidiary (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). Upon the closing of the Business Combination, we changed our name to Romeo Power, Inc.

~~Romeo Power, Inc.~~ designs, engineers, and manufactures ~~lithium ion~~lithium-ion cylindrical battery packs for ~~electric vehicles~~EVs and energy storage solutions, with a focus on battery innovation, functionality, energy density, safety, and performance. We are headquartered in ~~Vernon,~~Cypress, California.

Unless the context otherwise requires, “Romeo,” the “Company,” “we,” “us,” or “our” refers to the combined company and its subsidiaries following the Business Combination and “Legacy Romeo” refers to Romeo Systems, Inc. (“Romeo Systems”).

Acquisition of BorgWarner’s Ownership in the BorgWarner Romeo Power LLC

In May 2019, Legacy Romeo and BorgWarner ~~Inc. (“BorgWarner”)~~ formed BorgWarner Romeo Power LLC (“the JV” or “BorgWarner JV”). On October 25, 2021, BorgWarner exercised its rights under the JV Agreement to put its ownership interest in the JV to Romeo. Following agreed upon steps related to the put process, Romeo acquired BorgWarner’s 60% ownership interest in the JV pursuant to a Membership Interest Purchase Agreement (the ~~“Joint Venture” or “JV”~~“Purchase Agreement”) on February 4, 2022 (the “Purchase Agreement Closing Date”). Upon acquiring the additional 60% of ~~which we own 40%. The Joint Venture is intended~~the JV, Romeo owned 100% interest of the JV. Romeo subsequently dissolved the JV, effective February 11, 2022, and distributed all of the JV’s assets, including its rights under Romeo’s intellectual property, to ~~accelerate our reach into international regions in a capital efficient way.~~Romeo. As a result, Romeo has recaptured all of the rights under its intellectual property that it had previously been licensed to the JV under the Intellectual Property License Agreement (the “IP License”). Consequently, we ~~manage~~now have the right to exploit all of our ~~operations to focus on both~~intellectual property in all fields of use and all geographic markets. Further, by dissolving the ~~Joint Venture’s activities~~JV and terminating the IP License, we also assumed full, unilateral control of our ~~core operations.~~R&D budget and related activities.

~~Basis of Presentation~~

—The ~~Business Combination was~~Company accounted for the Purchase Agreement as an asset acquisition, as it was determined that the acquired JV did not meet the definition of a ~~reverse recapitalization (the “Recapitalization Transaction”) in accordance with the Financial Accounting Standards Board (“FASB”)~~business under Accounting Standards Codification ~~(“ASC”)~~(ASC) 805, Business Combinations. ~~For accounting~~The total consideration transferred has been allocated to the non-monetary assets acquired and ~~financial reporting purposes, Legacy Romeo was considered the acquirer~~liabilities assumed based on ~~facts and circumstances, including the following:~~their relative fair value.

~~• Legacy Romeo’s former stockholders hold a majority ownership interest in the combined company;~~

~~• Legacy Romeo’s senior management team became the senior management of the combined company;~~

~~• Legacy Romeo was the larger of the companies based on historical operating activity and employee base; and~~

~~• Legacy Romeo’s operations comprise the ongoing operations of the combined company.~~

~~Accordingly, all historical financial information presented in these condensed consolidated financial statements represents~~As of December 31, 2021, the ~~accounts of Legacy Romeo and its wholly owned subsidiaries “as if” Legacy Romeo is the predecessor and legal successor. The historical operations of Legacy Romeo are deemed to be those~~carrying value of the ~~Company. Thus,~~non-marketable equity investment was $1.3 million, representing the ~~financial statements included in this report reflect (i) the historical operating results of Legacy Romeo prior~~Company’s contributions to the ~~Business Combination; (ii)~~JV offset by the ~~combined results~~Company’s share of ~~RMG~~equity method investee losses, and ~~Legacy Romeo following~~was presented as equity method investments on the ~~Business Combination on December 29, 2020;~~consolidated balance sheet. For the quarter ended March 31, 2022, the JV had no revenue and ~~(iii) RMG’s equity structure for all periods presented. No step-up basis~~recorded a net loss of ~~RMG’s assets and liabilities and no intangible assets or goodwill were recorded in connection with~~$0.7 million up to the ~~Business Combination transaction consistent with the treatment~~time of the ~~transaction~~acquisition which was February 4, 2022. The Company reflected its 40% share of the JV’s losses as ~~a reverse recapitalization.~~loss in equity method investments in the consolidated statements of operations through the Purchase Agreement Closing Date.

~~In connection with the Business Combination each share of Legacy Romeo common stock and preferred stock issued and outstanding immediately prior~~Prior to the ~~Business Combination (with each share of Legacy Romeo preferred stock being treated as if it were converted into Legacy Romeo common stock immediately prior to~~Purchase Agreement Closing Date, the ~~Business Combination) converted into the right to receive 0.121730 shares (the “Exchange Ratio”) of common stock, par value $0.0001 (the “Common Stock”). The recapitalization~~unconsolidated balance sheet of the ~~number~~JV had total assets of ~~shares~~$3.0 million, total liabilities of ~~Common Stock attributable to Legacy Romeo is reflected retroactively to the earliest period presented based upon the Exchange Ratio~~$0.3 million and ~~is utilized for calculating earnings per share in all prior periods presented.~~total equity of $2.7 million.

The ~~accompanying~~following table presents the components of the consideration transferred at the Purchase Agreement Closing Date (in thousands):


Description	Purchase Consideration
Cash transferred	$	28,614
Carrying amount of the Company’s equity method investment in the JV	1,057
Transaction costs	8,446
Total	$	38,117

The primary asset acquired in the Purchase Agreement constitutes an in-process research and development asset (“IPR&D”). Due to the nature of the other assets acquired and liabilities assumed, the difference between the fair value of the consideration transferred and the fair value of the tangible net assets acquired, the remaining cost was allocated solely to the IPR&D. The Company recorded a charge of $35.4 million to acquired in-process research and development expense in the condensed consolidated statements of operations at the Purchase Agreement Closing Date because the Company determined that the IPR&D asset had no alternative future use that is distinct and different from the Company’s existing research and development.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the components of the purchase allocation (in thousands):


Description	Amount
Total consideration transferred	$	38,117
Cash received	(3,025)
Liabilities assumed	310
Acquired IPR&D	$	35,402

The Company has elected the accounting policy to present the cash payments for IPR&D assets acquired in an asset acquisition that have no alternative use as investing activities in our condensed consolidated statements of cash flows for the six months ended June 30, 2022.

Basis of Presentation

The accompanying financial statements include the results of Romeo Power, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated and the effect of variable interest entities have been considered in the consolidation.

As of June 30, 2022, we had cash and cash equivalents of $38.7 million. We have recurring losses, which have resulted in an accumulated deficit of $293.1 million as of June 30, 2022.

On February 15, 2022, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”), which is an affiliate of Yorkville Advisors. Under terms of the SEPA, we have the right, but not the obligation, to sell up to $350.0 million of common equity to an affiliate of Yorkville Advisors, subject to certain limitations, at the time of our choosing during the two-year term of the agreement. The agreement requires a $1.00 minimum price per share of the Company’s Common Stock for sales under the SEPA to occur, which requirement was not met as of June 30, 2022. During the three months ended June 30, 2022, no shares of common stock of the Company (“Common Stock”) were issued under the SEPA. During the six months ended June 30, 2022, we issued 16.7 million shares of Common Stock to Yorkville for cash proceeds of $25.0 million, all of which occurred in the first quarter of 2022, with a portion of the shares issued as non-cash stock purchase discount under the SEPA.

On May 12, 2022, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its Common Stock, having an aggregate offering price of up to $200,000,000 (the “ATM”) through Cowen as its sales agent. During the three and six months ended June 30, 2022, we issued 34.5 million shares of Common Stock to Cowen for cash proceeds of $23.8 million, net of costs, under the ATM.

As further described under Note 16 – Subsequent Events, on July 30, 2022, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nikola Corporation, a Delaware corporation and the J Purchaser Corp., a Delaware corporation and a wholly owned subsidiary of Nikola (“Purchaser”) whereby the Company will be merged into Nikola as the result of an all-stock transaction (the “Transaction). Concurrently with the execution of the Merger Agreement, Romeo and Romeo Systems (the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with Nikola as the lender (the “Lender”). The Loan Agreement provides for a liquidity support in the form of a senior secured debt facility (the “Facility”) in an aggregate principal amount of up to $30.0 million. The Facility also provides for certain incremental increases of up to $20.0 million, which may become available for drawing to cover the shortfall (if any) of actual increased liquidity of the Borrowers, as compared to targeted increased liquidity of $20.0 million, for battery packs to be purchased by the Lender under an agreed to temporary and non-refundable price increase, and subject to certain terms and conditions set forth in the Loan Agreement. Loans under the Facility may be made until the earlier of (a) six months from the date of the execution and delivery of the Merger Agreement and the Loan Agreement and (b) the date of the termination of the Merger Agreement. All amounts outstanding under the Facility will be due upon the earlier of (a) the date that is the six-month anniversary of the termination of the Merger Agreement and (b) June 30, 2023, which is the six-month anniversary of the End Date as defined in the Merger Agreement, subject to acceleration upon the occurrence of certain events set forth in the Facility Loan Agreement. Interest will be payable on borrowings under the Facility at daily SOFR plus 8.00%. The Transaction is

~~Table of Contents~~

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- CONTINUED~~(UNAUDITED)

expected to be completed by the end of October 2022, subject to customary closing conditions, including regulatory approval and the tender by the Company’s stockholders of shares representing a majority of the Company’s outstanding common stock.

Although management has explored a range of options to further address the Company’s capitalization and liquidity, management has concluded as of the date of this filing that other alternatives sufficient in amount and timing to fund our ongoing operating losses and cash flow needs are not available. In consideration of these factors, and as a result of continuing anticipated operating cash outflows, capital expenditures, amounts paid to BorgWarner in February 2022, and costs to support future growth, we believe that substantial doubt exists regarding our ability to continue as a going concern on a standalone basis for 12 months from the date of the issuance of our financial statements. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Unaudited Interim Financial Information

—

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q, and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements presented herein have not been audited by an independent registered public accounting firm, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the period. These results are not necessarily indicative of results for any other interim period or for the full fiscal year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the SEC. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC on ~~April 15, 2021~~March 1, 2022 (the ~~“2020~~“2021 Form 10-K”).

Use of Estimates

—

The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. Actual amounts could differ from these estimates. The condensed consolidated financial statements have been prepared under the assumption that Romeo will continue as a going concern.

Immaterial Correction of Previously Issued Condensed Consolidated Financial Statements

During the quarter ended September 30, 2021, we identified a misstatement in our accounting for performance and market-based options granted in 2020 to our former Chairman and Chief Executive Officer (“CEO”), who was awarded 4,633,978 stock options at an exercise price of $6.69 per share. All shares covered by such award were subject to time based, performance and market condition vesting requirements.

As of December 29, 2020, the date of the Business Combination, the performance condition was satisfied (the “Performance Condition Date”), and we began recognizing stock-based compensation expense, based on the fair value of the award at August 12, 2020 which was the stock option grant date (the “Grant Date”). We recognized the expense prospectively, over the remaining requisite service period, which was six months from the date of the Business Combinationand included the period of December 29, 2020 through June 27, 2021.

~~Reclassification~~However, in accordance with ASC 718, Compensation—Stock Compensation, we should have recognized a cumulative catch-up adjustment upon the performance condition being satisfied on December 29, 2020 for the services rendered from the Grant Date through the Performance Condition Date. This resulted in an understatement of ~~Presentation~~$4.1 million in ~~Our Condensed Consolidated Statements~~stock-based compensation expense, included within selling, general and administrative expense and additional paid-in capital as of ~~Operations~~December 31, 2020 and ~~Comprehensive (Loss) Income—Revenues~~a subsequent overstatement of ~~comparative prior~~stock-based compensation expense, included within selling, general and administrative expense, during the interim periods ~~in our condensed consolidated statements of operations~~ended March 31, 2021 and comprehensive (loss) income are reclassified to conform with our current revenue presentation. In the condensed consolidated statements of operations, we’ve combined related party revenues with product revenues and service revenues and disclosed the amount of related party revenues in a captioned note.June 30, 2021.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Reclassification~~The Company evaluated the materiality of ~~Presentation~~the error both qualitatively and quantitatively in ~~Note 3~~accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of ~~our Condensed Consolidated~~Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements~~—Revenues~~, and determined the effect of ~~comparative prior periods presented in Note 3~~the correction was not material to the previously issued financial statements.

The following tables provide the impact of the correction on our previously issued condensed consolidated financial statements ~~are reclassified to conform with our current revenue presentation. Since April 1, 2021, we have presented disaggregated revenue by product~~for the three and ~~service instead of further disaggregating product by battery packs and modules.~~six months ended June 30, 2021.


Condensed Consolidated Statements of Operations	For the Three Months Ended June 30, 2021

	As Reported		Stock-based Compensation Adjustment		As Corrected
	(In thousands except share and per share data)
Selling, general and administrative expenses	$	22,911	$	(2,027)	$	20,884
Total operating expenses	24,703		(2,027)		22,676
Operating loss	(29,722)		2,027		(27,695)

Loss before income taxes and loss in equity method investments	(28,111)		2,027		(26,084)
Net loss	(28,674)		2,027		(26,647)

Net loss per share
Basic	$	(0.22)	$	0.02	$	(0.20)
Diluted	(0.22)		0.02		(0.20)


Condensed Consolidated Statements of Operations	For the Six Months Ended June 30, 2021

	As Reported		Stock-based Compensation Adjustment		As Corrected
	(In thousands except share and per share data)



Selling, general and administrative expenses	$	40,910	$	(4,124)	$	36,786
Total operating expenses	46,473		(4,124)		42,349
Operating loss	(55,265)		4,124		(51,141)

Income before income taxes and loss in equity method investments	62,554		4,124		66,678
Net income	61,338		4,124		65,462

Net income per share
Basic	$	0.47	$	0.03	$	0.50
Diluted	0.45		0.03		0.48
Weighted average number of shares outstanding

Diluted	135,021,296		62,531		135,083,827


Condensed Consolidated Statement of Stockholders’ Equity	For the Three Months Ended June 30, 2021

	As Reported		Stock-based Compensation Adjustment		As Corrected
	(In thousands)
Additional paid-in capital, Balance - March 31, 2021	$	416,308	$	2,027	$	418,335
Stock-based compensation	8,189		(2,027)		6,162
Accumulated deficit, Balance - March 31, 2021	(87,431)		(2,027)		(89,458)
Net loss	(28,674)		2,027		(26,647)

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Condensed Consolidated Statement of Stockholders’ Equity	For the Six Months Ended June 30, 2021

	As Reported		Stock-based Compensation Adjustment		As Corrected
	(In thousands)
Additional paid-in capital - December 31, 2020	$	373,129	$	4,124	$	377,253
Stock-based compensation	14,742		(4,124)		10,618
Accumulated deficit - December 31, 2020	(177,443)		(4,124)		(181,567)
Net income	61,338		4,124		65,462


Condensed Consolidated Statement of Cash Flows	For the Six Months Ended June 30, 2021

	As Reported		Stock-based Compensation Adjustment		As Corrected
	(In thousands)
Cash flows from operating activities:
Net income	$	61,338	$	4,124	$	65,462
Adjustments to reconcile net income to net cash used for operating activities:
Stock-based compensation	14,742		(4,124)		10,618

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Except as described below, no material changes have been made~~In addition to ~~our~~the significant accounting policies disclosed in Note 2 of the notes to consolidated financial statements in Part II, Item 8 of the ~~2020~~2021 Form ~~10-K.~~10-K, the Company has the following significant accounting policies.

~~Available-for-Sale Debt Investments~~Impairment of Long-Lived Assets—We ~~classify~~review the carrying value of our ~~investments~~long-lived assets, including property, plant and equipment and lease ROU assets, whenever events or changes in ~~fixed income debt securities as available-for-sale debt investments. Our available-for-sale debt investments primarily consist~~circumstances indicate that the carrying value may not be recoverable. We measure recoverability by comparing the carrying amount to the future undiscounted cash flows that the asset or asset group is expected to generate, and consider other factors regarding the Company’s future performance including revenue growth, sales backlog, commercial market size and market share, production capabilities and historical equity market capitalization of ~~U.S. government securities, municipal securities, corporate debt, commercial paper,~~the Company. If the asset or asset group is not recoverable, its carrying amount would be adjusted down to its fair value. As of June 30, 2022, the Company identified an indicator of impairment of the long-lived assets, but determined based on future undiscounted cash flow estimates and ~~U.S. agency mortgage-backed securities. These available-for-sale debt investments are primarily held~~other factors noted above that the asset group is recoverable. Potential impairment charges may be required in the ~~custody~~future if the Company’s current forecasts are significantly reduced or not realized.

Derivative Accounting for the SEPA—We issued 16.7 million shares of Common Stock to Yorkville for cash proceeds of $25.0 million with a ~~major~~portion of the shares issued as non-cash stock purchase discount under the SEPA during the three months ended March 31, 2022. The Company has the right, but not the obligation, to sell up to $350 million of Common Stock to Yorkville, subject to certain limitations, at the time of our choosing during the two-year term of the agreement. The Company determined that SEPA represents a derivative financial ~~institution. These investments are reported on the condensed consolidated balance sheets~~instrument under ASC 815, Derivatives and Hedging, which should be recorded at fair ~~value. Unrealized gains~~value at inception and ~~losses on these investments, to the extent the investments are unhedged, are included~~each reporting date thereafter. The financial instrument was classified as a ~~separate component~~derivative asset with a fair value of ~~accumulated other comprehensive loss, net of tax. A specific identification method is used to determine~~zero at the ~~cost basis of available-for-sale debt investments and any realized gains or losses when sold. We classify our investments as current based on the nature~~inception of the ~~investments~~SEPA and ~~their availability for use in current operations.~~

~~Deferred Assets— Deferred assets represent upfront payments~~as of ~~the Company’s common stock issued to a customer and will be amortized as a reduction of revenue as the related products or services are provided to the customer~~.June 30, 2022.

Recently Adopted Accounting Pronouncements

In ~~January 2016,~~October 2021, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2016-01,~~2021-08, ~~ASC subtopic 825-10, Financial Instruments - Overall: Recognition and Measurement of Financial~~Business Combinations (Topic 805): Accounting for Contract Assets and ~~Financial~~Contract Liabilities from Contracts with Customers~~, which~~revised an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. This accounting guidance also amended certain disclosure requirements associated with the fair value of financial instruments.. Under ASU ~~No. 2016-01, entities~~2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We early adopted ASU 2021-08 on a prospective basis effective January 1, 2022 and the adoption of the new guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

912

~~Table of Contents~~

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- CONTINUED~~(UNAUDITED)

certain equity investments at fair value and recognize any changes in fair value in net income, unless the investments qualify for a new practicality exception. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We adopted the standard on January 1, 2021, when we began making significant investments in available-for-sale debt securities and formulating a company investment policy to support the use and management of the proceeds from the Business Combination.

In ~~December 2019,~~August 2020, the FASB issued ASU ~~No. 2019-12,~~2020-06 , ~~ASC 740, Income Taxes~~Debt - Debt with Conversion and Other Options ( Subtopic 470-20 ) andDerivatives and Hedging - Contracts in an Entity’s Own Equity (~~ASC 740): Simplifying the~~ Subtopic 815-40 ): Accounting for ~~Income Taxes~~Convertible Instruments and Contracts in an Entity’s Own Equity, which ~~is intended to simplify various aspects related to~~simplifies the accounting for ~~income taxes. ASU 2019-12 removes~~convertible debt and convertible preferred stock by removing the requirements to separately present certain ~~exceptions to~~conversion features in equity. In addition, the ~~general principles~~amendment also simplifies the guidance in ASC ~~740~~Subtopic 815-40, Derivatives and ~~also clarifies~~Hedging: Contracts in Entity's Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and ~~amends existing~~embedded derivatives accounted for as assets or liabilities. Finally, the amendment revises the guidance ~~to improve consistent application. The guidance is effective~~on calculating earnings per share, requiring use of the if-converted method for all ~~public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption is also permitted.~~ convertible instruments and rescinding an entity's ability to rebut the presumption. ASU 2020-06 may be adopted through either a modified retrospective method of transition or a fully retrospective method of transition.We adopted ~~the standard on~~ASC 2020-06 effective January 1, ~~2021~~2022 and the adoption of the new guidance ~~does~~did not have a material impact on our condensed consolidated financial ~~position, operating results or cash flows.~~statements and related disclosures.

Other recently issued accounting updates are either not expected to have a material impact or are not relevant to our condensed consolidated financial statements.

3. REVENUES

Contract Liabilities

—

Contract liabilities in the accompanying condensed consolidated balance sheets relate to payments received in advance of satisfying performance obligations under our contracts and are realized when the associated revenue is recognized under the contracts. During the three and six months ended June 30, ~~2021,~~2022, changes in contract liabilities were as follows (in thousands):


		Three Months Ended June 30, 2021		Six Months Ended June 30, 2021			Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Beginning balance	Beginning balance	$	1,672	$	815	Beginning balance	$	331	$	384
Revenues recognized	Revenues recognized	(702)		(819)		Revenues recognized	(96)		(168)
Increase due to billings	Increase due to billings	2,153		3,127		Increase due to billings	22		41
Ending balance	Ending balance	$	3,123	$	3,123	Ending balance	$	257	$	257

Contract liabilities are earned as services and prototypes are transferred to the customer. The remaining contract liability balance as of June 30, ~~2021~~2022 is expected to be earned and recognized as revenue within the next ~~twelve~~12 months.

Backlog

As of June 30, ~~2021,~~2022, we had executed certain contracts with customers to deliver specific battery packs, modules, and battery management system and software services. These contracts contain minimum quantity purchase requirements that are non-cancellable (other than for a breach by Romeo), and we have enforceable rights to pursue payments due under these contracts under make-whole provisions, or through customary remedies for breach of contract if the minimum quantities are not ordered. However, in light of the announced Transaction, the Company expects some of its other customers to potentially cancel, reduce or delay some of their purchases either pursuant to the terms of their respective contracts or through direct negotiations. The following table presents the non-cancellable minimum purchase commitments under such contracts as of June 30, ~~2021~~2022 (in thousands).:

Contractual Minimum Purchase Commitments
Purchase contracts with make-whole provisions (1)
$ 310,865
Purchase contracts with provisions of customary remedies for breach of contract (2)
243,171
Total $ 554,036


	Contractual Minimum Purchase Commitments
Purchase contracts with make-whole provisions (1)	$	315,949
Purchase contracts with provisions of customary remedies for breach of contract (2)	90,462
Total	$	406,411

(1) For ~~the $310.9~~approximately $315.9 million of unsatisfied performance obligations related to minimum quantity purchase commitments, if the customers do not follow through on their minimum purchase commitments, we would receive a maximum of ~~$291.4~~$296.7 million under certain make-whole provisions included in these contracts.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(2) For the remaining ~~$243.2~~$90.5 million of unsatisfied performance obligations related to minimum quantity purchase commitments included in these contracts, if the customers do not follow through on their minimum purchase commitments, we would seek damages through customary remedies for breach of contract.

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~~ROMEO POWER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

The following table presents the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, ~~2021~~2022 (in thousands):

Revenues Expected
To be Recognized
July 1, 2021 through December 31, 2021 $ 18,907
January 1, 2022 through December 2023 445,851
Thereafter 89,278
Total $ 554,036

This backlog includes the total value of our existing customer contracts and includes products that are within the scope of the license granted to the JV, based on the types of customer vehicles in which the products will be used. To the extent that those product deliveries are fulfilled by the JV, or pursuant to an agreement with the JV, we may not recognize the full amount of such contracted backlog as revenue. The realization and timing of the recognition of our backlog is dependent, among other things, on our ability to obtain and secure a sufficient supply of battery cells from our suppliers as well as our ability to meet the acceptance requirements in contracts, such as design and quality tests.


	Revenues Expected To be Recognized
July 1, 2022 through December 31, 2022	$	24,947
January 1, 2023 through December 31, 2024	281,158
Thereafter	100,306
Total	$	406,411

~~In addition, these~~These amounts exclude any potential adjustments for variable consideration which could arise from provisions in our contracts where the price for a product or service can change based on future events. Based on practical expedient elections permitted by ASC 606, Revenue from Contracts with Customers, the Company does not disclose the value of unsatisfied performance obligations for variable consideration that is allocated entirely to a wholly unsatisfied performance obligation.

Disaggregation of Revenues—

We earn revenue through the sale of products and services. Product and service lines are the disaggregation of revenues primarily used by management, as this disaggregation allows for the evaluation of market trends, and certain product lines and services vary in recurring versus non-recurring nature. We do not have any material sales outside of North America.

~~The following tables disaggregate revenues by type of revenues and segment for the three and six months ended June 30, 2021 and 2020 (in thousands):~~

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
North
America JV
Support Total North
America JV
Support Total
Product revenues
Total product revenues $ 466 $ 0 $ 466 $ 1,078 $ 0 $ 1,078
Service revenues
Joint Venture support 0 460 460 0 902 902
Total revenues $ 466 $ 460 $ 926 $ 1,078 $ 902 $ 1,980

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
North
America JV
Support Total North
America JV
Support Total
Product revenues
Total product revenues $ 458 $ 0 $ 458 $ 2,046 $ 0 $ 2,046
Service revenues
Non-recurring engineering and prototype 84 0 84 136 0 136
Joint Venture support 0 587 587 0 1,469 1,469
Total service revenues 84 587 671 136 1,469 1,605
Total revenues $ 542 $ 587 $ 1,129 $ 2,182 $ 1,469 $ 3,651

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~~ROMEO POWER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

The following table disaggregates revenues by when control is transferred for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Point in time	Point in time	$	466	$	542	$	1,078	$	2,182	Point in time	$	5,650	$	466	$	17,052	$	1,078
Over time	Over time	460		587		902		1,469		Over time	79		460		248		902
Total	Total	$	926	$	1,129	$	1,980	$	3,651	Total	$	5,729	$	926	$	17,300	$	1,980

4. ~~INVENTORY~~INVENTORIES, NET

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, inventory consisted of the following (in thousands):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Raw materials	Raw materials	$	6,798	$	4,064	Raw materials	$	41,438	$	35,327
Work-in-process	Work-in-process	356		531		Work-in-process	2,589		1,364
Finished goods	Finished goods	461		342		Finished goods	1,370		434
Total inventories	Total inventories	$	7,615	$	4,937	Total inventories	$	45,397	$	37,125

We provide inventory write ~~down inventory~~downs for slow-moving and obsolete inventory items ~~and~~ when the net realizable value of inventory items is less than their carrying value. The Company then evaluates the carrying value of the remaining raw materials inventories based on the market resale value assumption using recent purchase information, supplier quotes or reputable third-

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

party sources for market price. Work in progress is valued at an estimate of cost, including attributable direct labor and overhead, based on stage of completion. During the three months ended June 30, ~~2021~~2022 and ~~2020~~,2021, we recorded $1.3 million and $0.8 million ~~and 0 write-down of~~ inventory provision, respectively, in cost of revenues. During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recorded $4.6 million and $1.2 million ~~and 0 write-down of~~ inventory provision, respectively, in cost of revenues.

5. EQUITY METHOD INVESTMENTS

BorgWarner Romeo Power LLC

Legacy Romeo and BorgWarner formed ~~BorgWarner Romeo Power LLC~~the JV on June 28, 2019. Legacy Romeo and BorgWarner received a 40% interest and 60% interest in the ~~Joint Venture,~~JV, respectively. Subsequently, Legacy Romeo and BorgWarner agreed to contribute an additional $10.0 million in total to the Joint Venture which represented funding for 2021 capital needs. In January 2021, we invested $4.0 million in the ~~Joint Venture,~~JV, which represented our pro rata share of the agreed upon funding. During the three and six months ended June 30, 2022 2022 and 2021, we recorded our share of the net loss of the JV as “Loss in equity method investments” in our condensed consolidated statements of operations and comprehensive (loss) income. For information on our transactions with the JV, see Note 14 - Transactions with Related Parties. On October 25, 2021, BorgWarner elected to exercise a right under the Joint Venture Operating Agreement, dated May 6, 2019 (the “Operating Agreement”), to put its 60% ownership stake in the JV to the Company. For further information on our acquisition of the BorgWarner’s ownership share in the JV, see Note 1.

Heritage Battery Recycling, LLC

On October 2, 2020, we entered into a Battery Recycling Agreement (the “Battery Recycling Arrangement”) with Heritage Battery Recycling, LLC (“HBR”), an affiliate of Heritage Environmental Services, Inc. (“HES”). Under the Battery Recycling Arrangement, HBR has agreed to design, build and operate a system for redeploying, recycling or disposing of lithium-ion batteries (the “System”) to be located at HES’s facility in Arizona. Immediately following the Business Combination on December 29, 2020, we contributed $35.0 million to HBR, a related party to an investor in Legacy Romeo and an investor of $25.0 million in the private placement of shares of Common Stock (the “PIPE Shares”) that were sold in connection with the Business Combination. While the arrangement is in effect, it establishes a strategic arrangement with HES for the collection of our battery packs for recycling, and it gives our customers priority at the recycling facility. We also have agreed to fund, in principal, up to $10.0 million for a pilot program that, if successful, could lead to the purchase of commercial vehicles containing Romeo batteries by HBR’s affiliate. The terms of the pilot program have not yet been finalized and reflected in an executed agreement.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

As of June 30, ~~2021,~~2022, HBR had not yet begun construction of the battery recycling facility or begun operation of the System. Therefore, during the three and six months ended June 30, ~~2021~~2022, there ~~are~~were no profits or losses from our equity method investment to be recognized in our condensed consolidated statement of operations and comprehensive ~~income~~ (loss). income.

6. PUBLIC AND PRIVATE PLACEMENT WARRANTS

In February 2019, in connection with the RMG initial public offering (the “RMG IPO”), RMG issued 7,666,648 warrants (the “Public Warrants”) to purchase shares of Common Stock at $11.50 per share. Simultaneously with the consummation of the RMG IPO, RMG issued 4,600,000 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Public and Private Placement Warrants”) to purchase shares of Common Stock at $11.50 per share, to RMG Sponsor, LLC (the “Sponsor”), certain funds and accounts managed by subsidiaries of BlackRock, Inc., and certain funds and accounts managed by Alta Fundamental Advisers ~~LLC (together, the “Anchor Investors”).~~LLC.

On February 16, 2021, we announced the redemption of all of the outstanding Public Warrants to purchase shares of our Common Stock, ~~that~~which were issued under the Warrant ~~Agreement.~~Agreement, dated February 7, 2019, by and between RMG and American

Stock Transfer & Trust Company, LLC, as warrant agent. All Public Warrants could be exercised until April 5, 2021 to purchase shares of our Common Stock, at the exercise price of $11.50 per share, and any Public Warrants that remained unexercised were voided and no longer exercisable. On April 5, 2021, 7,223,683 Public Warrants were redeemed at the redemption price of $0.01 per Public Warrant. The Company paid Public Warrant holders a total of $72,237 in connection with the redemption.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Public and Private Placement warrants are recorded as liabilities in our condensed consolidated balance sheets. As of each of June 30, 2022 and December 31, 2021, we had 3,178,202 Private Placement Warrants and ~~0 Public Warrants outstanding. As of December 31, 2020, we had 4,600,000 Private Warrants and 7,666,648~~no Public Warrants outstanding.

7. STOCK-BASED COMPENSATION

We estimate the grant date fair value of stock options containing only a service condition using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of our Common Stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. Prior to the Business Combination, when there was no public market for Legacy Romeo’s common stock, the fair value of our common stock was estimated with the assistance of an independent third-party valuation firm using a combination of a market and income approach. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option. We use the simplified method to calculate the expected term. The dividend yield assumption is based on the dividends expected to be paid over the expected life of the stock option. Our volatility is derived from several publicly traded peer companies, due to our limited history as a publicly traded company. The grant date fair value of awards with market conditions is estimated using a Monte Carlo simulation or other appropriate fair value method with the assistance of an independent third-party valuation firm. The fair value of our restricted stock units (“RSUs”) and performance-related restricted stock units (“PSUs”) is based on the closing price of our common stock on the date of grant.

~~2016 Stock Plan~~

Following the Business Combination, the outstanding stock options issued under the Romeo Systems, Inc. 2016 Stock Plan may be exercised (subject to their original vesting, exercise and other terms and conditions) to purchase a number of shares of Common Stock equal to the number of shares of Legacy Romeo common stock subject to such Legacy Romeo options multiplied by the Exchange Ratio (rounded down to the nearest whole share) at an exercise price per share divided by the Exchange Ratio (rounded up to the nearest whole cent). The information presented herein is as if the exchange of stock options and Common Stock occurred as of the earliest period presented.

~~Time-based awards~~

During the six months ended June 30, 2021 we did 0t grant any stock options to employees. During the three months ended June 30, 2021, our employees exercised stock options totaling 1,811,557 shares for total proceeds of $7.5 million. During the six months ended June 30, 2021, our employees exercised stock options totaling 2,648,306 shares for total proceeds of $12.2 million, $7.1 million of which was received in July 2021.

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~~ROMEO POWER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~The fair value of the time-based stock options granted during the six months ended June 30, 2020 was determined using the following assumptions:~~

~~Fair Value Assumptions:~~

Six Months Ended
June 30, 2020

~~Risk-free interest rate~~

~~0.92%~~

~~Expected term (in years)~~

~~6.5~~

~~Expected volatility~~

~~60%~~

~~Dividend yield~~

~~Grant date fair value per share~~

~~$1.48~~

~~Performance and market-based option award~~

In August 2020, we awarded 4,633,978 stock options to our then Chairman and CEO at an exercise price of $6.69 per share. All of the shares covered by such award are subject to time-based, performance and market condition vesting requirements. As of December 29, 2020, the date of the Business Combination, the performance condition was satisfied, and we began recognizing stock-based compensation expense based upon the grant date fair value of the award. We recognized the stock-based compensation expense over the requisite service period, which was from December 29, 2020 through June 27, 2021. We estimated the grant date fair value of the award to be $9.6 million, which was determined using a Monte Carlo simulation with the assistance of an independent third-party valuation firm.

~~According to the table of exercisable shares below and the average of the closing price per share of our Common Stock on each of the~~ ~~five~~ trading days immediately following the vesting date of June 27, 2021, 926,795 shares of the performance and market-based option became exercisable when the six-month lockup period assigned to Legacy Romeo stockholders in connection with the Business Combination expired. On July 6, 2021, all 926,795 shares of such option were exercised.

Average Closing Share Price: Cumulative Number Of Shares
$6.6869 - $8.9452 926,795
$8.9453 - $11.9272 1,853,591
$11.9273 - $14.9092 3,243,781
$14.9093 4,633,978

2020 Stock Plan

On December 29, 2020, our stockholders approved the Romeo Power, Inc. 2020 Long-Term Incentive Plan (the “2020 Plan”).The purpose of the 2020 Plan is to attract, retain, incentivize and reward top talent through stock ownership, to improve operating and financial performance and strengthen the mutuality of interest between eligible ~~service providers~~award recipients and stockholders. As

The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock unit awards (“RSU”s), stock appreciation rights, dividend equivalent rights, and performance-based stock unit awards (“PSU”s) (collectively, “stock awards”) and cash awards. Incentive stock options may be granted only to our employees, including officers, and the employees of our subsidiaries. All other stock awards and cash awards may be granted to our employees, officers, non-employee directors, and consultants and the employees and consultants of our subsidiaries and affiliates.

The aggregate number of shares of our Common Stock that may be issued pursuant to stock awards under the 2020 Plan will not exceed the sum of (x) 15,000,000 shares, plus (y) 11,290,900, the number of shares subject to outstanding awards under the 2016 Plan on the date of the Business Combination.

During six months ended June 30, ~~2021,~~2022, we ~~have granted~~issued RSUs and PSUs under the 2020 Plan, as described further in the section titled “Restricted Stock Units and Performance-related Stock Units” below. As of June 30, 2022, there were 9,456,112 shares remaining available for issuance under the 2020 Stock Plan.

~~RSUs and PSUs~~Time-based Option awards

OnDuring the six months ended June ~~11, 2021,~~30, 2022, we ~~granted 1,411,961 RSUs~~did not grant any stock options to employees ~~133,492 RSUs to~~and our ~~directors, and 1,354,313 PSUs to certain executives.~~employees exercised stock options totaling 4,396 shares for total proceeds of $7 thousand.

The following table summarizes our time-based stock option activity (dollars in thousands, except weighted average exercise prices):


	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding Options, December 31, 2021	3,410,387	$	4.13	4.7	$	2,496

Exercised	(4,396)	1.56			8
Forfeited	(161,103)	4.69			—
Expired	(243,026)	4.09			—
Outstanding Options, June 30, 2022	3,001,862	$	4.10	3.7	$	—
Exercisable and vested, June 30, 2022	2,982,213	$	4.11	3.7	$	—

Restricted Stock Units and Performance-related Stock Units

During six months ended June 30, 2022, we granted 7,455,850 RSUs and PSUs to our employees and directors. The RSUs granted to our employees are generally eligible to vest over three years from the commencement date, subject to continued employment on each vesting date. ~~One~~Primarily, one third of these shares vest on the one-year anniversary of the vesting commencement date and the remaining shares vest equally over eight quarters thereafter. ~~The RSUs granted to~~On June 30, 2022, our directors ~~vested~~were

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

granted an aggregate of 820,862. Our directors elected to defer settlement of such RSUs until the earlier of the separation of their service on the Board of Directors or a certain future date. The 820,862 RSUs were included in ~~full on July 1, 2021.~~the outstanding RSUs as of June 30, 2022.

The PSUs vest after three years from the commencement date based on the achievement of the either certain predetermined performance ~~and~~goals or market goals, and are payable in cash or shares of our Common ~~Stock.~~Stock, at our election. The market based goal ~~will be~~is measured by ~~reference~~the 100-trading-day average stock closing price at the end of the 2021 to 2023 performance period, and total stockholder’ return (“TSR”) of the Company relative to the ~~highest 100-consecutive-trading-day average closing price for our common stock through December 31, 2023.~~TSRs of a selected public company peer group at the end of the 2022 to 2024 performance period. The ~~performance based~~performance-based goal ~~will be~~is measured by the achievement of certain internal operations results for the first fiscal year of the respective three-year performance period commencing when the PSUs are granted. The performance-based measurements for the 2021 to 2023 performance period include backlog targets and percentage reductions in bill-of-material costs per Kilowatt-Hour byfor the fiscal year ended December 31, 2021. The performance-based measurements for the 2022 to 2024 performance period include revenue targets and percentage of first-pass manufacturing yield of certain battery modules we manufacture for the fiscal year ending December 31, 2022. The actual number of shares to be issued for the PSUs will be the higher of the ~~market based~~market-based vesting percentage or the ~~performance based~~performance-based vesting percentage, subject to a market-based

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~~ROMEO POWER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

limitation, and can range from 0% to 200% of the target number of shares set at the time of grant. For the period ended on December 31, 2021, the market-based valuation exceeded the performance based results. Stock-based compensation expense for the PSUs is recognized on a straight-line basis over the service period based upon the value determined using the Monte Carlo valuation method for the market goal plus an incremental value, if any, determined by expected achievement of the performance-based goals. The Monte Carlo valuation method incorporates stock price correlation and other variables over the time horizons matching the performance periods. ~~Management~~For the performance goals measured by revenue targets and percentage of first-pass manufacturing yield of certain battery modules, management will review and assess the achievement of the performance-based goals quarterly through the performance assessment period ending December 31, ~~2021.~~2022.

The grant date fair value of the PSUs granted on ~~June 11, 2021,~~February 18, 2022 derived from the Monte Carlo simulation was based, in part, on the following assumptions:

Fair Value Assumptions:

Grant date stock price

$~~9.23~~2.05

Risk-free interest rate

~~0.24%~~1.67%

Simulation term (in years)

~~2.6~~3.0

Expected volatility

~~64%~~63.1%

Dividend yield

Grant date fair value per share

$~~7.93~~3.27

We recorded $1.6 million and $0.2 million of stock-based compensation expense related to RSUs and PSUs, respectively, during the three and six months ended June 30, 2021. At June 30, 2021, the unrecognized stock-based compensation related to RSUs and PSUs was $12.6 million and $10.5 million, respectively, which is expected to be recognized over a weighted-average period of 1.26 years and 2.50 years, respectively.

The following table summarizes our RSU and PSU activity during the six months ended June 30, ~~2021 was as follows:~~2022 (dollars in thousands, except weighted average fair values):


		Shares	Weighted Average Fair Value		Shares				Weighted Average Fair Value
Outstanding at December 31, 2020		0	$	0
Outstanding at December 31, 2021								Outstanding at December 31, 2021	3,824,397			$	6.64
Granted	Granted	2,899,766	$	8.62		Granted	7,455,850			$	2.25

Released								Released	(144,844)			$	9.18
Forfeited	Forfeited	(9,650)	$	9.23		Forfeited	(1,710,583)			$	6.68
Outstanding at June 30, 2021		2,890,116	$	8.62
Outstanding at June 30, 2022								Outstanding at June 30, 2022	9,424,820	(1)		$	3.12

(1) Includes 820,862 shares of Common Stock subject to vested RSUs, the recipients of which elected to defer the settlement of such RSUs under our RSU deferral program for our board members who selected such deferral.

The fair value of all RSUs and PSUs granted during the six months ended June 30, ~~2021~~2022 was ~~$25.0~~$16.8 million. ~~During the six months ended June 30, 2021, 0 shares were vested.~~

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stock-based compensation expense

During the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recognized a total of ~~$8.2~~$3.2 million and ~~$0.4~~$6.2 million, respectively, of stock-based compensation (“SBC”) expense related to the vesting of stock options, RSUs and PSUs. During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recognized a total of ~~$14.7~~$4.1 million and ~~$0.7~~$10.6 million, respectively, of ~~stock-based compensation~~SBC expense related to the vesting of stock options, RSUs and PSUs. The SBC expense for the six months ended June 30, 2022 reflects a $2.7 million reversal of previously recognized SBC expense for unvested PSUs and RSUs forfeited due to terminations of employment.

The following table summarizes our ~~stock-based compensation~~SBC expense by line item in the condensed consolidated statements of operations and comprehensive (loss) income ~~(loss)~~ (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022			2021
Cost of revenues	Cost of revenues	$	41	$	107	$	162	$	140	Cost of revenues	$	276	$	41	$	496		$	162
Research and development	Research and development	506		0		567		0		Research and development	733		506		1,498			567
Selling, general, and administrative	Selling, general, and administrative	7,642		268		14,013		512		Selling, general, and administrative	2,229		5,615		2,107		(1)	9,889
Total	Total	$	8,189	$	375	$	14,742	$	652	Total	$	3,238	$	6,162	$	4,101	(1)	$	10,618

(1) Amount includes $2.7 million of PSU and RSU forfeitures primarily related to 2 terminated executive officers.

The following table summarizes our SBC expense by award type for the six months ended June 30, 2022 and 2021 (in thousands):

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~~ROMEO POWER, INC.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022			2021
Options	$	37	$	4,340	$	119		$	8,796
Restricted awards (RSUs and PSUs)	3,201		1,823		3,982		(1)	1,823
Total	$	3,238	$	6,162	$	4,101	(1)	$	10,618

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~(1) Amount includes $2.7 million of PSU and RSU forfeitures primarily related to 2 terminated executive officers.

As of June 30, 2022, the unrecognized SBC expense and the weighted average period over which this SBC expense is expected to be recognized is summarized as follows (dollar in thousands):


	June 30, 2022		Weighted Average Recognition Period
Options	$	39	0.41
Restricted awards (RSUs and PSUs)	23,154		2.24
Total	$	23,193	0

8. INCOME TAXES

Our income tax provision consists of federal and state income taxes. The tax ~~provision~~provisions for the three and six months ended June 30, 2022 and 2021 ~~and 2020 was based on~~were computed by applying the Company’s estimated annual effective tax rates ~~applicable~~to the year-to-date pre-tax income for the three and six months ended June 30, 2022 and 2021 and ~~2020.~~adjusting for discrete tax items recorded in each period. The Company’s overall effective tax rate of 0zero percent is different than the federal statutory tax rate because the Company has established a full valuation allowance against its net deferred income tax assets. As of June 30, ~~2021,~~2022, the Company ~~continues~~continued to record a full valuation allowance against the deferred tax asset balance as realization was uncertain.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. INVESTMENTS

Available-for-sale debt investments

Over the course of June 2022, we sold all of our available-for-sale debt investments. We had no available-for-sale debt investment holdings at June 30, 2022.

The following table summarizes our available-for-sale debt investment holdings at ~~June 30,~~December 31, 2021 (in thousands):


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	U.S. government securities	$	44,013	$	4	$	(11)	$	44,006	U.S. government securities	$	28,008	$	—	$	(37)	$	27,971
Municipal securities	Municipal securities	57,162		69		(61)		57,170		Municipal securities	37,370		47		(194)		37,223
Corporate debt securities	Corporate debt securities	71,918		17		(141)		71,794		Corporate debt securities	21,706		—		(122)		21,584
Asset-backed securities	Asset-backed securities	13,437		2		(8)		13,431		Asset-backed securities	5,890		—		(9)		5,881
U.S. agency mortgage-backed securities	U.S. agency mortgage-backed securities	11,042		0		(49)		10,993		U.S. agency mortgage-backed securities	4,700		—		(50)		4,650
Commercial paper		21,219		24		0		21,243
Certificates of deposit		5,000		0		(1)		4,999

Total (1)	Total (1)	$	223,791	$	116	$	(271)	$	223,636	Total (1)	$	97,674	$	47	$	(412)	$	97,309

(1) There were 0no unsettled sales of available-for-sale debt investments at ~~June 30,~~December 31, 2021.

The following tables present the breakdown of the available-for-sale debt investments with gross unrealized losses and the duration that those losses had been unrealized at December 31, 2021 (in thousands):


	Unrealized Losses 12 Months or Less				Unrealized Losses Greater than 12 Months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	27,971	$	(37)	$	—	$	—	$	27,971	$	(37)
Municipal securities	30,823		(194)		—		—		30,823		(194)
Corporate debt securities	21,584		(122)		—		—		21,584		(122)
Asset-backed securities	5,598		(9)		—		—		5,598		(9)
U.S. agency mortgage-backed securities	4,650		(50)		—		—		4,650		(50)


Total	$	90,626	$	(412)	$	—	$	—	$	90,626	$	(412)

The following table presents the gross realized gains and gross realized losses related to available-for-sale debt investments for the three and six months ended June 30, ~~2021(in~~2022 (in thousands):

Three Months Ended
June 30, 2021 Six Months Ended
June 30, 2021
Gross realized gains $ 3 $ 37
Gross realized losses (118) (190)
Gross realized loss, net $ (115) $ (153)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Gross realized gains	$	—	$	3	$	108	$	37
Gross realized losses	(928)		(118)		(1,378)		(190)
Gross realized loss, net	$	(928)	$	(115)	$	(1,270)	$	(153)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- CONTINUED~~(UNAUDITED)

The following tables present the breakdown of the available-for-sale debt investments with gross unrealized losses and the duration that those losses had been unrealized at June 30, 2021 (in thousands):

Unrealized Losses
Less than 12 Months Unrealized Losses
12 Months or Greater Total
Fair Value Gross
Unrealized
Losses Fair Value Gross
Unrealized
Losses Fair Value Gross
Unrealized
Losses
U.S. government securities $ 28,009 $ (11) $ 0 $ 0 $ 28,009 $ (11)
Municipal securities 35,784 (61) 0 0 35,784 (61)
Corporate debt securities 51,887 (141) 0 0 51,887 (141)
Asset-backed securities 5,381 (8) 0 0 5,381 (8)
U.S. agency mortgage-backed securities 10,993 (49) 0 0 10,993 (49)
Certificates of deposit 4,999 (1) 0 0 4,999 (1)
Total $ 137,053 $ (271) $ 0 $ 0 $ 137,053 $ (271)

~~The following table summarizes the maturities of our available-for-sale debt investments at June 30, 2021 (in thousands):~~
Amortized Cost Fair Value
Less than 1 year $ 101,501 $ 101,501
1 year through 5 years 106,314 106,235
Mortgage-backed securities with no single maturity 15,976 15,900
Total $ 223,791 $ 223,636

~~Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.~~

10. FAIR VALUE

Fair Value of Financial Instruments — The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and establishes the disclosure requirements regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 Inputs—Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 Inputs—Unobservable inputs reflecting our assessment of assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available.

Our available-for-sale debt investments are measured at fair value on a recurring basis, consisting of investment grade high quality fixed income assets, which are priced using quoted market prices for similar instruments or unbinding market prices that are corroborated by observable market ~~data.~~data, which represents a Level 2 fair value measurement.

The Public and Private Placement Warrants are measured at fair value on a recurring basis. We will continue to adjust these liabilities for changes in the fair value of the Public and Private Placement Warrants until the warrants are exercised, redeemed

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

or cancelled. Prior to the redemption of the Public Warrants on April 5, 2021, the Public Warrants were traded on the NYSE and were recorded at fair value using the closing stock price as of the measurement date, which represents a Level 1 fair value measurement.

The fair value of the Private Placement Warrants is established using ~~both Level 1 and~~ Level 2 inputs and determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of our Common Stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. The fair value of our Common Stock is considered a Level 1 input as our Common Stock is freely traded on the NYSE. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected term of the Private Placement Warrants, which is ~~4.5~~3.5 years. The dividend yield assumption is based on the dividends expected to be paid over the expected life of the warrant. Our volatility is derived from several publicly traded peer companies.

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

June 30, 2021
Total (Level 1) (Level 2) (Level 3)
Assets:
Cash equivalents:
Money market funds $ 8,001 $ 8,001 $ 0 $ 0
Corporate debt securities 3,504 0 3,504 0
Commercial paper 15,998 0 15,998 0
U.S. government securities 8,000 0 8,000 0
Subtotal 35,503 8,001 27,502 0
Available-for-sale debt investments:
U.S. government securities 44,006 0 44,006 0
Municipal securities 57,170 0 57,170 0
Corporate debt securities 71,794 0 71,794 0
Asset-backed securities 13,431 0 13,431 0
U.S. agency mortgage-backed securities 10,993 0 10,993 0
Commercial paper 21,243 0 21,243 0
Certificates of deposit 4,999 0 4,999 0
Subtotal 223,636 0 223,636 0
Total $ 259,139 $ 8,001 $ 251,138 $ 0
Financial Liabilities:
Private Placement Warrants 9,852 0 9,852 0
Total $ 9,852 $ 0 $ 9,852 $ 0


	June 30, 2022
	Total		(Level 1)		(Level 2)		(Level 3)
Financial Liabilities:

Private Placement Warrants	$	30	$	—	$	30	$	—
Total	$	30	$	—	$	30	$	—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- CONTINUED~~(UNAUDITED)


		December 31, 2020									December 31, 2021
		Total		(Level 1)		(Level 2)		(Level 3)			Total		(Level 1)		(Level 2)		(Level 3)
Assets:	Assets:									Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
U.S. Treasury Bills	U.S. Treasury Bills	$	16,000	$	16,000	$	0	$	0	U.S. Treasury Bills	$	263	$	263	$	—	$	—
Subtotal										Subtotal	$	263	$	263	$	—	$	—
Available-for-sale debt investments:										Available-for-sale debt investments:
U.S. government securities										U.S. government securities	27,971		—		27,971		—
Municipal securities										Municipal securities	37,223		—		37,223		—
Corporate debt securities										Corporate debt securities	21,584		—		21,584		—
Asset-backed securities										Asset-backed securities	5,881		—		5,881		—
U.S. agency mortgage-backed securities										U.S. agency mortgage-backed securities	4,650		—		4,650		—

Subtotal										Subtotal	97,309		—		97,309		—
Total	Total	$	16,000	$	16,000	$	0	$	0	Total	$	97,572	$	263	$	97,309	$	—

Financial liabilities:	Financial liabilities:									Financial liabilities:
Public Warrants		$	71,453	$	71,453	$	0	$	0

Private Placement Warrants	Private Placement Warrants	67,013		0		67,013		0		Private Placement Warrants	1,526		—		1,526		—
Total	Total	$	138,466	$	71,453	$	67,013	$	0	Total	$	1,526	$	—	$	1,526	$	—

The key assumptions used to determine the fair value of the Private Placement Warrants as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 using the Black-Scholes model were as follows:


Fair Value Assumptions	Fair Value Assumptions	June 30, 2021	December 31, 2020	Fair Value Assumptions	June 30, 2022	December 31, 2021
Risk-free interest rate	Risk-free interest rate	0.77%	0.17%	Risk-free interest rate	2.97%	1.11%
Expected term (in years)	Expected term (in years)	4.5	5	Expected term (in years)	3.5	4
Expected volatility	Expected volatility	58%	57%	Expected volatility	73%	53%
Dividend yield	Dividend yield	0	0	Dividend yield	—	—
Fair value of common stock	Fair value of common stock	$8.14	$22.49	Fair value of common stock	$0.45	$3.65

11. ACCRUED EXPENSES

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, accrued expenses consisted of the following (in thousands):

June 30, 2021 December 31, 2020
Accrued professional service fees $ 3,375 $ 1,130
Accrued payroll expenses 412 617
Accrued warranty expenses 222 103
Other accrued expenses 611 994
Total accrued expenses $ 4,620 $ 2,844



	June 30, 2022		December 31, 2021
Accrued professional service fees	$	3,206	$	2,225
Accrued payroll expenses	2,353		1,896
Accrued construction in progress	5,919		658

Accrued inventory	1,072		1,422
Accrued warranty expenses	1,034		560
Other accrued expenses	968		1,395
Total accrued expenses	$	14,552	$	8,156

1921

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- CONTINUED~~(UNAUDITED)

12. NET (LOSS) INCOME PER SHARE

The basic and diluted net (loss) income per share is computed by dividing our net loss or net income by the weighted average shares outstanding during the period. The calculation of basic and diluted net (loss) income per share for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 is presented below (in thousands, except share and per share data):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net (loss) income	Net (loss) income	$	(28,674)	$	(7,025)	$	61,338	$	(13,794)	Net (loss) income	$	(40,444)	$	(26,647)	$	(121,557)	$	65,462

Weighted average common shares outstanding – basic	Weighted average common shares outstanding – basic	131,059,149		77,396,263		129,930,204		76,021,298		Weighted average common shares outstanding – basic	160,163,249		131,059,149		147,780,749		129,930,204
Dilutive effect of potentially issuable shares	Dilutive effect of potentially issuable shares	0		0		5,091,092		0		Dilutive effect of potentially issuable shares	—		—		—		5,153,623
Weighted average common shares outstanding – diluted	Weighted average common shares outstanding – diluted	131,059,149		77,396,263		135,021,296		76,021,298		Weighted average common shares outstanding – diluted	160,163,249		131,059,149		147,780,749		135,083,827

Basic net (loss) income per share	Basic net (loss) income per share	$	(0.22)	$	(0.09)	$	0.47	$	(0.18)	Basic net (loss) income per share	$	(0.25)	$	(0.20)	$	(0.82)	$	0.50
Diluted net (loss) income per share	Diluted net (loss) income per share	$	(0.22)	$	(0.09)	$	0.45	$	(0.18)	Diluted net (loss) income per share	$	(0.25)	$	(0.20)	$	(0.82)	$	0.48

Potentially dilutive shares that were considered in the determination of diluted net (loss) income per share include stock options and warrants to purchase our Common Stock as well as RSUs and PSUs. Antidilutive shares excluded from the calculation of diluted net (loss) income per share were ~~12,888,560~~17,140,998 and ~~22,173,533, respectively,~~12,888,560 for the three months ended June 30, 2022 and 2021, respectively, and ~~2020,~~14,924,769 and 7,974,160 ~~and 22,104,262, respectively,~~ for the six months ended June 30, 2022 and 2021, ~~and 2020.~~respectively. As the inclusion of common stock share equivalents in the calculation of diluted loss per share would be anti-dilutive for the three months ended June 30, 2022 and 2021 ~~and~~as well as for the ~~three and~~ six months ended June 30, ~~2020,~~2022, diluted net loss per share was the same as basic net loss per share.

13. ~~SEGMENTS~~

We have 2 operating segments, which are also reportable segments. Our reportable segments are determined and presented based on how information is used by our Chief Operating Decision Maker (“CODM”), which is collectively a senior leadership team consisting of 2 individuals, to measure performance and allocate resources. These reportable segments are Romeo Power North America and Joint Venture Support. The activities of our Romeo Power North America reportable segment include the research, design, development, and manufacture of electrical power systems for commercial vehicles (Class 6-8: trucks and buses) in the North American market. Our Joint Venture Support reportable segment provides design, research and development, and other engineering related services exclusively to the Joint Venture.

The CODM evaluates and monitors segment performance primarily based upon segment sales and gross profit. Asset information has not been separately disclosed for the segments, as this information is not regularly reported to CODM for purposes of the allocation of resources to our segments or assessing segment performance.

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~~Net revenues and gross profit (loss) from each of our reportable segments are as follows (in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net revenues:
Romeo Power North America $ 466 $ 542 $ 1,078 $ 2,182
Joint Venture Support 460 587 902 1,469
Total net revenues $ 926 $ 1,129 $ 1,980 $ 3,651
Gross (loss) profit:
Romeo Power North America $ (5,076) $ (1,386) $ (8,902) $ (2,628)
Joint Venture Support 57 92 110 224
Total gross loss $ (5,019) $ (1,294) $ (8,792) $ (2,404)

~~All of our revenues (based on location of customer) and long-lived assets were within North America for the three and six months ended June 30, 2021 and 2020.~~

~~14. TRANSACTIONS WITH RELATED PARTIES~~

In the ordinary course of business, the Company enters into transactions with related parties to sell products and services. The following table presents the net revenues and cost of revenues associated with our related parties, which are included in our condensed consolidated statement of operations and comprehensive (loss) income (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Related party revenues - product revenues $ 113 $ 0 $ 384 $ 0
Related party revenues - service revenues 460 587 902 1,469
Total related party revenues 573 587 1,286 1,469
Costs associated with related party revenues - product revenues 71 0 271 0
Costs associated with related party revenues - service revenues 403 495 792 1,245
Total costs associated with related party revenues 474 495 1,063 1,245
Gross profit associated with related party revenues $ 99 $ 92 $ 223 $ 224

~~Transactions with BorgWarner and the Joint Venture~~ — In connection with Legacy Romeo’s investment in the Joint Venture formed on June 28, 2019 (Note 5), Legacy Romeo entered into a services agreement to provide various professional services to the Joint Venture. We have also sold certain products directly to a subsidiary of BorgWarner. Revenues earned for services rendered to the Joint Venture and products sold to BorgWarner were presented in the table above. Accounts receivable from BorgWarner was $0.1 million and 0 at June 30, 2021 and December 31, 2020, respectively.

~~Transactions with Heritage Environmental Services and its related parties~~ — On October 2, 2020, we entered into the Battery Recycling Arrangement with HBR, an affiliate of HES, a related party to an investor in Legacy Romeo and an investor of $25.0 million in the PIPE Shares. Immediately following the Business Combination on December 29, 2020, we contributed $35.0 million to HBR. See Note 5, Equity Method Investments for additional information relating to our contribution to HBR.

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~~Transactions with Michael Patterson and related parties~~ — On April 15, 2021, Michael Patterson ended his employment with Romeo, resigned from all positions he used to hold in the Company, the Board of Directors and the BorgWarner JV board of directors, and we entered into a consulting agreement with him for services to be provided through the end of 2021. On May 5, 2021, we signed a non-binding Memorandum of Understanding with Crane Carrier Company (“CCC”) to explore the terms of a potential commercial relationship in which we would supply batteries to CCC for its electric refuse trucks. CCC was recently acquired by Battle Motors, a company founded by Michael Patterson, and Mr. Patterson is the Chief Executive Officer of both CCC and Battle Motors.

~~15. COMMITMENTS AND CONTINGENCIES~~

~~Litigation~~ — We are subject to certain claims and legal matters that arise in the normal course of business. Management does not expect any such claims and legal actions to have a material adverse effect on our financial position, results of operations or liquidity, except the following:

A police officer was injured as a result of an automobile accident resulting from an allegedly intoxicated Legacy Romeo employee driving following his departure from a 2017 company holiday party that occurred after hours and not on our premises. We terminated the employee’s employment shortly after the incident occurred. This matter resulted in a personal injury lawsuit (~~Chelico et al. v. Romeo Systems, Inc., et al.~~, Case # 18STCV04589, Los Angeles County), for which we are a named defendant. In July 2020, we settled this matter in principle and agreed to pay a settlement of $6.0 million. Correspondence that we believe constituted a legally enforceable agreement was exchanged on July 22, 2020. Our business and umbrella insurance carriers agreed to cover the cost of damages owed. As a result, we accrued $6.0 million as a legal settlement payable with a corresponding insurance receivable for $6.0 million as of June 30, 2021 and December 31, 2020. Because the plaintiff had not proceeded to finalize the settlement transaction due to a dispute with the City of Los Angeles related to the allocation of the global settlement payment between the plaintiff and the LAPD (unrelated to Romeo), we filed a motion for summary judgment in Case # 18STCV04589 and filed a claim for breach of contract against the plaintiff in Romeo Systems et al. v. Chelico, Case # 21STCV20701. The summary judgment motion was argued on July 1, 2021, and on July 27, 2021, the court ruled that issues of fact precluded summary judgment. On the breach of contract claim, the police officer’s response to the complaint is due August 12, 2021. A mediation on the allocation issue is scheduled to occur on September 17, 2021.

In October 2020, a wage-and-hour class action was filed in Los Angeles Superior Court on behalf of all current and former non-exempt employees in California from October 2016 to present. The allegations include meal and rest period violations and various related claims. The case is currently stayed pending mediation, which was continued to October 2021. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.

On February 26, 2021, plaintiff Lady Benjamin PD Cannon f/k/a Ben Cannon filed a complaint (the “Cannon Complaint”) against Romeo and Michael Patterson (“Patterson”) in the Court of Chancery for the State of Delaware.The Cannon Complaint includes claims for declaratory relief (against Romeo and Patterson), non-compliance with Article 9 of the Delaware UCC (against Patterson), conversion (against Romeo and Patterson), and breach of contract (against Romeo).Generally, plaintiff alleges that the transfer to Patterson of a warrant for 1,000,000 shares of Romeo’s Common Stock, which plaintiff pledged as security for a loan, is invalid, that Patterson improperly accepted that warrant in satisfaction of the loan, and that she, not Patterson, holds the right to exercise that warrant and to purchase the equivalent of 1% of Romeo’s Common Stock. The relief sought by plaintiff includes declaratory relief, return of the warrant, specific performance on the warrant, money damages, cost of suit, and attorney fees. On May 4, 2021, Romeo filed a motion to dismiss all claims against it under Delaware Chancery Rule 12(b)(6); on May 17, 2021, plaintiff filed a motion for partial summary judgment; and on June 16, 2021, Romeo and Patterson filed a joint Rule 56(f) motion for discovery.~~Those motions are pending, and we intend to defend ourselves vigorously against plaintiff’s claims.~~The outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties. Given the early stage of the litigation and based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.

On April 16, 2021, plaintiff Travis Nichols filed a class action complaint (the “Nichols Complaint”) against Romeo, in the U.S. District Court for the Southern District of New York. The Nichols Complaint alleges that defendants made false and misleading statements regarding the supply of battery cells, which are components of Romeo’s products, and the Company’s ability to meet customer demand and achieve its revenue forecast for 2021. On May 6, 2021, plaintiff Victor J. Toner filed a second class action complaint (the “Toner Complaint”) against Romeo, in the U.S. District Court for the Southern District of New York. The allegations in the Toner Complaint are substantially similar to the allegations in the Nichols Complaint. The

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relief sought by both plaintiffs includes money damages, reimbursement of expenses, and equitable relief. On July 15, 2021, the Court consolidated the 2 pending cases and appointed a lead plaintiff. The lead plaintiff must file a consolidated amended complaint on or before September 15, 2021. We have not yet responded to the lawsuit, but we intend to defend ourselves vigorously against these claims. This litigation is at preliminary stages and the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties. Based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.

On May 19, 2021, plaintiff Tiffany Westbrooks filed a complaint (the “Westbrooks Complaint”) against Romeo, in the Superior Court of the State of California for the County of Los Angeles. The Westbrooks Complaint alleges claims for discrimination based on race, color, national origin, and/or ancestry; harassment based on race, color, national origin, and/or ancestry; disability discrimination; failure to prevent discrimination and/or retaliation; retaliation; violation of California Government Code section 12940(h); violation of the California Family Rights Act; retaliation for taking leave under the California Family Rights Act; wrongful termination in violation of public policy; intentional infliction of emotional distress; failure to provide employment records upon request; and failure to produce personnel records upon request. The relief sought by plaintiff includes past and future lost income and benefits, emotional distress damages, pre-judgment interest, cost of suit and attorneys’ fees, punitive damages, and statutory penalties. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.

~~16.~~ CONCENTRATION OF RISK

Customer Concentration and Accounts Receivable

We had certain customers whose revenue individually represented 10% or more of our total revenue, or whose accounts receivable balances individually represented 10% or more of our total accounts receivable, as follows:

~~For~~Revenues from each major customer (including engineering services revenue from the JV) as % of total revenue are summarized in the following table for the three ~~months ended June 30, 2021, total revenue recognized included 17% from one major customer, 12% from a second major customer, 11% from a third major customer~~ and 50% from the Joint Venture engineering services, together representing 90% of our total revenue. For the three months ended June 30, 2020, total revenue recognized included 39% from one major customer, and 52% from the Joint Venture engineering services, together representing 91% of our total revenue.

~~For the~~ six months ended June 30, ~~2021, total revenue recognized included 19%~~2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Major Customer 1	89	%	17	%	81	%	19	%
Major Customer 2	—	%	12	%	—	%	12	%
Major Customer 3	—	%	11	%	—	%	12	%
Total Major Customers	89	%	40	%	81	%	43	%
Joint Venture	—	%	50	%	1	%	46	%
Total Major Customers	89	%	90	%	82	%	89	%

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Accounts receivable from ~~one~~each major customer ~~12% from a second major customer, 12% from a third major customer and 46% from~~(including the ~~Joint Venture engineering services, together representing 89%~~JV) as % of ~~our~~ total revenue. For the six months ended June 30, 2020, total revenue recognized included 55% from one major customer, and 42% from the Joint Venture engineering services, together representing 97% of our total revenue.

Asaccounts receivable as of June 30, ~~2021, our total reported accounts receivable balance included 62% from one major customer, 11% from a second major customer~~2022 and ~~5% from the Joint Venture engineering services account, together representing 78% of our total accounts receivable. As of~~ December 31, 2020, our total reported accounts receivable balance included 13% from one major customer, 13% from another major customer and 44% from the Joint Venture engineering services account, together representing 70% of our total accounts receivable.

~~The Joint Venture engineering services account is included~~2021 are summarized in the ~~Joint Venture Support operating segment. The remaining major customers referenced are customers of the Romeo Power North America operating segment.~~following table:



	June 30, 2022		December 31, 2021
Major Customer 1	69	%	48	%
Major Customer 2	24	%	16	%
Joint Venture	—	%	1	%
Total Major Customers	93	%	65	%

Supplier Concentration

We rely on third-party suppliers for the provision and development of many of the key components and materials used in our battery modules and packs, such as battery cells, electrical components, electromechanical components, mechanical components and enclosure materials. Some of the components used in our battery modules and packs are purchased by us from single sources. While we believe that we may be able to establish alternative supply relationships and can obtain or engineer replacement components for our single-sourced components, we may be unable to do so in the short term (or at all) at prices or quality levels that are favorable to us, which could have a material adverse effect on our business, financial condition, operating results, and future prospects. Furthermore, in certain cases, the establishment of an alternative supply relationship could require us to visit a new supplier’s facilities in order to qualify the supplier and perform supplier quality audits, ~~and, over~~which process may be hampered depending on travel restrictions or facility closures due to the ~~past twelve months, our ability to travel and qualify new suppliers has been directly impacted by COVID-19.~~ongoing Covid-19 pandemic. During the three and

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~~ROMEO POWER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

six months ended June 30, ~~2021, respectively, three third-party suppliers of~~2022, key single-sourced components and materials used in our battery modules and packs represented ~~26%~~55% and ~~24%~~38% of our total purchases during the ~~period.~~period, respectively.

We are dependent on the continued supply of battery cells for our products, and we ~~will~~may require ~~substantially~~ more cells to grow our business according to our plans. Currently, the overall supply of battery cells that we utilize in our manufacturing process has been constrained by high market ~~demand.~~demand when compared to available supply. We currently purchase our cylindrical battery cells from two Tier 1 cylindrical battery cell suppliers, whose cells are qualified for use in ~~electric vehicle (“EV”)~~EV applications. To date, we have only fully qualified a very limited number of additional suppliers and have limited flexibility in changing battery cell suppliers, though we are actively engaged in activities to qualify additional battery cell suppliers for use in EV applications. During the three and six months ended June 30, ~~2021,~~2022, respectively, ~~46%~~29% and ~~39%~~34% of our total purchases for components of our products were for battery cells, of which ~~99%~~68% and ~~98%~~81% of the battery cell purchases were concentrated with two Tier 1 ~~suppliers.~~suppliers, respectively. We may purchase our battery cells either directly from the cell supplier or through a distributor.

~~17. SUBSEQUENT EVENTS~~14. TRANSACTIONS WITH RELATED PARTIES

~~Effective August~~In the ordinary course of business, the Company enters into transactions with related parties to sell products and services. The following table presents the net revenues and cost of revenues associated with our related parties, which are included in our condensed consolidated statement of operations and comprehensive (loss) income (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Related party revenues - product revenues	$	—	$	113	$	—	$	384
Related party revenues - service revenues	—		460		162		902
Total related party revenues	—		573		162		1,286

Costs associated with related party revenues - product revenues	—		71		—		271
Costs associated with related party revenues - service revenues	—		403		138		792
Total costs associated with related party revenues	—		474		138		1,063

Gross profit associated with related party revenues	$	—	$	99	$	24	$	223

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Transactions with BorgWarner and the JV

In connection with Legacy Romeo’s investment in the JV formed on June 28, 2019 (Note 5), Legacy Romeo entered into a services agreement to provide various professional services to the JV. We have also sold certain products directly to a subsidiary of BorgWarner. On February 4, 2022, we acquired BorgWarner’s ownership share in the JV, which was subsequently dissolved on February 11, 2022. For further information on our acquisition of BorgWarner’s ownership share in the JV, see Note 1. Revenues earned for services rendered to the JV and products sold to BorgWarner were presented in the table above. Accounts receivable from BorgWarner JV was zero and $0.5 million at June 30, 2022 and December 31, 2021, respectively.

Transactions with Heritage Environmental Services and its related parties

On October 2, 2020, we entered into the Battery Recycling Arrangement with HBR, an affiliate of HES, a related party to an investor in Legacy Romeo and an investor of $25.0 million in the PIPE Shares. Immediately following the Business Combination on December 29, 2020, we contributed $35.0 million to HBR. See Note 5 for additional information relating to our contribution to HBR.

In connection with the Battery Recycling Arrangement, we also agreed to fund up to $10.0 million to purchase 10 battery electric vehicle (“BEV”) trucks and the charging infrastructure for a one-year pilot program to determine the feasibility of transitioning HES’s or its affiliates’ fleet of trucks from diesel powered vehicles to BEVs. If such pilot program is successful, the parties would enter into an agreement for the procurement through us of at least 500 BEVs on terms acceptable to HBR, HES and us. The participants in the pilot program have been selected, and the parties have entered into agreements to support the pilot program. Development of batteries for the program is underway, and the pilot program is expected to start in the fourth quarter of 2022. During the three and six months ended June 30, 2022, we recorded zero and $0.3 million selling, general and administrative expenses incurred for the pilot program, respectively. During each of the three and six months ended June 30, 2021, we recorded no selling, general and administrative expenses incurred for the pilot program.

Transactions with Michael Patterson and related parties

On April 15, 2021, Michael Patterson ended his employment with Romeo, resigned from all positions he used to hold in the Company, the Board of Directors and the BorgWarner JV board of directors, and we entered into a consulting agreement with him for services to be provided through the end of 2021. On May 5, 2021, we signed a non-binding Memorandum of Understanding with Crane Carrier Company (“CCC”) to explore the terms of a potential commercial relationship in which we would supply batteries to CCC for its electric refuse trucks. CCC was recently acquired by Battle Motors, a company founded by Michael Patterson, and Mr. Patterson is the Chief Executive Officer of both CCC and Battle Motors. As of June 30, 2022, there is no business activity between the parties.

15. COMMITMENTS AND CONTINGENCIES

Litigation

We are subject to certain claims and legal matters that arise in the normal course of business. Management does not expect any such claims and legal actions to have a material adverse effect on our financial position, results of operations or liquidity, except the following:

Chelico Litigation

A police officer was injured in connection with an automobile accident resulting from an allegedly intoxicated Legacy Romeo employee driving following his departure from a 2017 company holiday party that occurred after hours and not on our premises. We terminated the employee’s employment shortly after the incident occurred. This matter resulted in a personal injury lawsuit (Chelico et al. v. Romeo Systems, Inc., et al., Case # 18STCV04589, Los Angeles County), for which we are a named defendant. In July 2020, we settled this matter in principle and agreed to pay a settlement of $6.0 million. Correspondence that we believe constituted a legally enforceable agreement was exchanged on July 22, 2020. Our business and umbrella insurance carriers agreed to cover the cost of damages owed. As a result, we accrued $6.0 million as a legal settlement payable with a corresponding insurance receivable for $6.0 million as of June 30, 2022 and December 31, 2021. Because the

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

plaintiff had not proceeded to finalize the settlement transaction due to a dispute with the City of Los Angeles related to the allocation of the global settlement payment between the plaintiff and the LAPD (unrelated to Romeo), we filed a claim for breach of contract against the plaintiff in Romeo Systems et al. v. Chelico, Case # 21STCV20701. The cases have been deemed related and are now both pending before Hon. Mark Epstein. A trial date for the contract-related claims has been set for October 2022, and a trial date for the personal injury claims has been set for June 2023. Based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any, more than the $6.0 million settlement payable we agreed upon.

The $6.0 million of legal settlement payable and the related $6.0 million of insurance receivable were reported in the noncurrent liability section and noncurrent asset section, respectively, of our balance sheet as of June 30, 2022.

Wage and Hour Litigation

In October 2020, a wage-and-hour class action was filed in Los Angeles Superior Court on behalf of all current and former non-exempt employees in California from October 2016 to present. The allegations include meal and rest period violations and various related claims. The parties mediated on October 7, 2021 and reached a settlement shortly thereafter. The parties are awaiting Court approval of the settlement. The proposed settlement amount is not material to the Company's consolidated financial statements.

Cannon Complaint

On February 26, 2021, plaintiff Lady Benjamin PD Cannon f/k/a Ben Cannon filed a complaint (the “Cannon Complaint”) against Romeo and Michael Patterson (“Patterson”) in the Court of Chancery for the State of Delaware. The Cannon Complaint includes claims for declaratory relief (against Romeo and Patterson), non-compliance with Article 9 of the Delaware UCC (against Patterson), conversion (against Romeo and Patterson), and breach of contract (against Romeo). Generally, plaintiff alleges that the transfer to Patterson of a warrant for 1,000,000 shares of Romeo’s Common Stock, which plaintiff pledged as security for a loan, is invalid, that Patterson improperly accepted that warrant in satisfaction of the loan, and that she, not Patterson, holds the right to exercise that warrant and to purchase the equivalent of 1% of Romeo’s Common Stock. The relief sought by plaintiff includes declaratory relief, return of the warrant, specific performance on the warrant, money damages, cost of suit, and attorneys’ fees. On May 4, 2021, Romeo filed a motion to dismiss all claims against it under Delaware Chancery Rule 12(b)(6); on May 17, 2021, plaintiff filed a motion for partial summary judgment; and on June 16, 2021, Romeo and Patterson filed a joint Rule 56(f) motion for discovery.

On September 24, 2021, the Court granted Romeo’s motion to dismiss plaintiff’s claim for conversion against the Company, but otherwise denied Romeo’s motion. The Court also deferred a ruling on plaintiffs’ motion for partial summary judgment and Romeo and Patterson’s Rule 56(f) motion for discovery.

On October 8, 2021, the Court granted the parties’ stipulation pursuant to which plaintiff withdrew her motion for partial summary judgment without prejudice, the parties agreed that plaintiff would file a first amended complaint, and the parties agreed to a schedule for Romeo and Patterson to file Answers to that first amended complaint and a date by when the parties would complete certain discovery. Plaintiff filed her first amended complaint on October 18, 2021, removing her claim for conversion against Romeo and adding a claim against Romeo for alleged violation of 6 Del. C. § 8-404(a) on account of the same allegedly improper transfer of a warrant from plaintiff to Patterson. Romeo and Patterson filed Answers to that amended complaint on October 28, 2021 denying plaintiff’s claims.

The parties are currently engaged in the discovery phase of litigation, and we intend to defend ourselves vigorously against plaintiff’s claims. The outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties. Given the early stage of the litigation and based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nichols and Toner Complaints

On April 16, 2021, plaintiff Travis Nichols filed a class action complaint against Romeo Power, Inc. (f/k/a RMG Acquisition Corp.), Lionel E. Selwood, Jr. and Lauren Webb (the “Officer Defendants”), and Robert S. Mancini, Philip Kassin, D. James Carpenter, Steven P. Buffone, W. Grant Gregory, W. Thaddeus Miller, and Craig Broderick (the “RMG Director Defendants”) in the United States District Court for the Southern District of New York (the “Court”), captioned Nichols v. Romeo Power Inc., No. 21-cv-3362-LGS (S.D.N.Y. 2021). On May 6, 2021, plaintiff Victor J. Toner filed a second class action complaint against the same defendants in the Southern District of New York, captioned Toner v. Romeo Power, Inc., No. 21-cv-4058 (S.D.N.Y.). The complaints generally allege violations of Section 10(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 promulgated thereunder. On July 15, 2021, the Court entered an order consolidating the Nichols and Toner actions under the caption In re Romeo Power Inc. Securities Litigation, No. 21-cv-3362-LGS (S.D.N.Y.), and appointing Mike Castleberg as lead plaintiff and Glancy Prongay & Murray LLP as lead counsel.

On September 15, 2021, plaintiffs filed an Amended Class Action Complaint for Violations of the Federal Securities Laws (the “Amended Complaint”) against the same Defendants alleging violations of Sections 10(b), 14(a), and 20(a) of the Exchange Act and SEC Rules 10b-5 and 14a promulgated thereunder. The Amended Complaint alleges that Defendants made false and misleading statements regarding the status of Romeo’s battery cell supply chain and Romeo’s ability to meet customer demand, fulfill its revenue backlog, and achieve its revenue forecast for 2021.

Defendants filed a Motion to Dismiss the Amended Complaint on November 5, 2021. On June 2, 2022, the Court entered an order granting in part and denying in part the Motion. The Court dismissed all claims against the RMG Director Defendants, finding that they were (if anything) derivative claims and not adequately pled. But the Court denied the motion as to claims against Romeo, Selwood, and Webb and allowed the case to proceed with respect to at least one statement – whether Romeo had two or four suppliers at the time of the deSPAC. The Court expressly did not rule on any of the other statements at issue, including the forward-looking statements that comprise the bulk of the case. On June 16, 2022, the remaining Defendants filed a Motion for Reconsideration requesting that the Court consider and rule upon the statements that it did not consider in its Order on the Motion to Dismiss. The Motion for Reconsideration is currently pending. In light of this pending motion, the parties agreed (and the Court approved) a case schedule where the most significant deadlines and activity were pushed out to 2023 and beyond. Defendants have begun drafting an Answer and the parties will begin exchanging preliminary discovery pleadings later this year.

This litigation is at preliminary stages and the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties. We intend to defend ourselves vigorously against these claims. Based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.

Southern District of New York Derivative Matter

On July 27, 2022, Plaintiff Bach-Mai Fiori (“Plaintiff”) filed a Verified Shareholder Derivative Complaint (the “Complaint”) on behalf of Romeo Power, Inc. against Defendants Susan Brennan, Robert Mancini, Ronald Gottwald, Philip Kassin, Timothy Stuart, Lauren Webb, Lionel Selwood, Paul Williams, Brady Ericson, and Romeo as a nominal defendant only, in United States District Court for the Southern District of New York, captioned as Bach-Mai Fiori v. Brennan, No. 22-cv-06403 (S.D.N.Y.). The Complaint alleges that certain of Romeo’s current and former officers and directors made, authorized, and/or failed to prevent the making of the false and misleading statements that are at issue in the Southern District of New York Securities Litigation Matter. In addition to alleging the same violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5 as in the Southern District of New York Securities Litigation Matter, the Plaintiff alleges breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty (for permitting the practices that allowed these statements to be disseminated), unjust enrichment, and waste of corporate assets, all of which are premised on the alleged legal liability and costs that Romeo might incur in the Southern District of New York Securities Litigation Matter and other unspecified harms. To the best of our knowledge, no one has served the Defendants with the Complaint.

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Supply Agreement

We have a long-term supply agreement, which was amended in June 2022 (the “Supply Agreement”), for the purchase of lithium-ion battery cells with a Tier 1 battery cell and materials manufacturer (“Supplier”). Under the ~~long-term supply agreement, the~~Supply Agreement, Supplier is committed to supplying cells to us, at escalating annual minimums, through June 30, 2028. Supplier's minimum total supply commitment to us, and our minimum purchase obligation, is for ~~445.5 million cells,~~8 GWh, and Supplier has agreed to use its best effort to allocate additional cells to us through 2023.

To facilitate Supplier’s supply of cells, we ~~agreed to pay~~paid Supplier ~~by December 31, 2021~~ a deposit of $1.5 million ~~which will be applied~~in 2021 (the “Deposit”). As of June 30, 2022, the balance of the Deposit was $0.2 million. The decrease in the Deposit reflects credits received as ~~an advance for~~ cells were purchased in ~~2021~~the six months ended June 30, 2022 and an updated view of the number of cells to be purchased for the remainder of 2022 ~~and~~relative to the minimum volume commitment.

In addition, we paid a prepayment of ~~approximately~~ $64.7 million ~~by September 10,~~(the “Prepayment”) in 2021, which will be applied as an advance for the cells to be purchased from July 1, 2023 through June 30, 2028. ~~Pursuant to the terms of the long-term supply agreement, the unit price of the cells will be adjusted semiannually based on a raw materials index as prices change.~~

If the Company breaches its minimum volume commitment during any applicable year or portion thereof, Supplier is entitled to retain, as liquidated damages, the remaining balance of the Deposit or Prepayment ~~(i.e., amounts~~for that ~~have not yet been applied as a credit against purchased cells),~~year, as applicable. If Supplier materially breaches its minimum volume commitment during any applicable year or portion thereof, or in the event of a force majeure, Supplier will be required to return the remaining balance of the Deposit or Prepayment ~~(i.e., amounts~~for that ~~have not yet been applied as a credit against purchased cells),~~year, as applicable.

Unconditional Contractual Obligations

An unconditional contractual obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding (non-cancelable, or cancellable only in certain circumstances). As of June 30, 2022, we estimate our total unconditional contractual commitments, including inventory purchases, lease minimum payments and other contractual commitments, are $8.7 million for the six months ending December 31 2022, $37.7 million for the year ending December 31 2023, $197.2 million for the year ending December 31 2024, $195.6 million for the year ending December 31 2025, $193.2 million for the year ending December 31 2026 and $354.9 million thereafter. However, the amount of our purchase commitments subsequent to June 30, 2022 is not fully fixed and is subject to change based on changes in certain raw materials indexes as well the quantities of purchases we actually make. Amounts exclude a $6.0 million legal settlement payable related to an employee liability matter, for which our business and umbrella insurance carriers have agreed to cover the cost of damages owed, and we have recorded a $6.0 million insurance receivable to reflect that commitment.

16. SUBSEQUENT EVENTS

Nikola Corporation Signed Definitive Agreement to Acquire Romeo Power

On July 30, 2022, we entered into the Merger Agreement with Nikola. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, as promptly as practicable, Purchaser will commence an exchange offer (the “Offer”) to acquire any and all of the issued and outstanding shares of common stock, $0.0001 par value per share, of the Company (“Romeo Common Stock”) for 0.1186 (the “Exchange Ratio”) shares of Nikola common stock, par value $0.0001 per share (“Nikola Common Stock”). Promptly following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, Purchaser will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Nikola (the “Merger”).

The Merger Agreement contemplates that the Merger will be effected pursuant to Section 251(h) of the Delaware General Corporation Law, which permits completion of the Merger without a vote of the holders of Romeo Common Stock upon the acquisition by Purchaser of a majority of the aggregate voting power of Romeo Common Stock. At the effective time of the Merger (the “Effective Time”), each share of Romeo Common Stock, other than the shares accepted for payment in the Offer and certain shares of Romeo Capital Stock held as treasury stock or held or owned by the Company, Nikola, Purchaser or any subsidiary of the Company immediately prior to the Effective Time, will be cancelled and converted into the right to receive a number of shares of Nikola Common Stock equal to the Exchange Ratio.

2427

ROMEO POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Merger Agreement provides that at the Effective Time, (1) each outstanding option (whether or not vested or exercisable) relating to Romeo Common Stock will be cancelled and the holders will not be entitled to receive any consideration, (2) each restricted stock unit and performance stock unit relating to Romeo Common Stock will be assumed by Nikola and converted into a corresponding award with respect to Nikola Common Stock (with the number of shares subject to such award equitably adjusted based on the Exchange Ratio) and (3) each Company warrant exercisable for Romeo Common Stock will be assumed by Nikola and converted into a corresponding warrant denominated in shares of Nikola Common Stock (with the number of warrants and exercise price being adjusted based on the Exchange Ratio).

The transaction currently is estimated to be completed by the end of October 2022, subject to tender by Romeo’s stockholders of shares representing a majority of the outstanding Romeo common stock, and customary closing conditions, including regulatory approval.

Concurrently with the execution of the Merger Agreement, the Borrowers entered into the Loan Agreement with Nikola as the Lender. The Loan Agreement provides for a liquidity support in the form of the Facility in an aggregate principal amount of up to $30.0 million. The Facility also provides for certain incremental increases of up to $20.0 million, which may become available for drawing to cover the shortfall (if any) of actual increased liquidity of the Borrowers, as compared to targeted increased liquidity of $20.0 million, for battery packs to be purchased by the Lender under an agreed to temporary and non-refundable price increase, and subject to certain terms and conditions set forth in the Loan Agreement. Loans under the Facility may be made until the earlier of (a) six months from the date of the execution and delivery of the Merger Agreement and the Loan Agreement and (b) the date of the termination of the Merger Agreement. All amounts outstanding under the Facility will be due upon the earlier of (a) the date that is the six-month anniversary of the termination of the Merger Agreement and (b) June 30, 2023, which is the six month anniversary of the End Date as defined in the Merger Agreement, subject to acceleration upon the occurrence of certain events set forth in the Facility Loan Agreement. Interest will be payable on borrowings under the Facility at daily SOFR plus 8.00%.

Romeo’s obligations under the Loan Agreement are secured by substantially all personal property assets of Romeo and Romeo Systems, subject to certain customary exclusions.

Concurrently with the execution of the Merger Agreement, Romeo and Nikola entered into an amendment to the supply agreement dated August 28, 2020 under which Romeo supplies certain automotive-grade products and the necessary battery management software to Nikola. Under the amendment, Nikola has agreed to provide Romeo with up to $40.0 million for a battery pack delivery incentive in the form of a temporary and non-refundable price increase for each pack delivered through the expected transaction close.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to the “Company,” “Romeo,” “we,” “us,” “our” and similar terms refer to Romeo Power, Inc. (f/k/a RMG Acquisition Corp.) and its consolidated subsidiaries. References to “RMG” refer to RMG Acquisition Corp. prior to the consummation of the Business Combination (as defined below) and “Legacy Romeo” refers to Romeo Systems, Inc.As discussed in Note 1 to the accompanying condensed consolidated financial statements, we corrected the 2021 condensed consolidated financial statements related to the accounting for performance and market-based options granted in 2020 to our former Chairman and Chief Executive Officer. These corrections are reflected in the discussions.

Forward-Looking Statements

This Quarterly Report contains ~~“forward-looking statements” relating to our future financial performance,~~ forward-looking statements within the ~~market for our services and our expansion plans and opportunities.~~meaning of the Private Securities Litigation Reform Act of 1995. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “contemplate,” “intend,” “believe,” “estimate,” “continue,” “goal,” “project” or the negative of such terms or other similar terms. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements, including the following:

•the risk that the pending acquisition by Nikola does not close due to regulatory approval, either party deciding to terminate the agreement after six months from the signing, or the failure of one or more of the other conditions to close under the merger agreement we entered into with Nikola in the anticipated timeframe or at all;

•uncertainty as to the market value of the Nikola merger consideration to be paid in the merger;

•the risk that following this merger, our financing or operating strategies will not be successful;

•disruption from the merger making it more difficult to maintain customer, supplier, key personnel and other strategic relationships;

•the risk of litigation in respect of either Romeo or Nikola or the merger;

•risks that we are unsuccessful in integrating potential acquired businesses and product lines;

•risks of decreased revenues due to pricing pressures or the merger, or lower product volume ordered from customers;

•risks that our products and services fail to interoperate with third-party systems;

•potential price increases or lack of availability of third-party technology, battery cells, components or other raw materials that we use in our products;

•potential disruption of our products, offerings, and networks;

•our ability to deliver products and services following a disaster or business continuity event;

•risks resulting from our international operations, including overseas supply chain partners;

•risks related to strategic ~~alliances, such as~~alliances;

•risks related to our ~~joint venture with BorgWarner (the “BorgWarner JV”);~~ability to raise additional capital in the future if required;

•potential unauthorized use of our products and technology by third parties;

•potential impairment charges related to our long-lived assets, including our fixed assets and equity method investments;

•changes in applicable laws or regulations, including tariffs and similar charges;

•potential failure to comply with privacy and information security regulations governing the client datasets we process and store;

•the possibility that the novel coronavirus (“COVID-19”) pandemic may adversely affect our future results of operations, financial position and cash flows;

•the possibility that Russia’s invasion of Ukraine may result in continued price increases or lack of availability of certain raw materials;

•the impact of macroeconomic conditions, including the volatility in capital, credit and securities markets, inflation, currency and interest rate fluctuations on our results of operations, financial position and cash flows; and

•the possibility that we may be adversely affected by other economic, business or competitive factors.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A. Risk Factors” included in Part II of this Form 10-Q for the period ended June 30, 2022, as well “Item 1A. Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (“2021 Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

Overview

We are an ~~industry leading~~ energy ~~storage~~ technology ~~company focused on designing and manufacturing lithium-ion battery modules and packs~~leader delivering advanced electrification solutions for ~~commercial electric vehicles.~~complex vehicle applications. Through our ~~energy dense~~energy-dense battery modules and packs, we enable large-scale sustainable transportation by delivering safe, longer lasting batteries that have shorter charge times and longer life. With greater energy density, we are able to create lightweight and efficient solutions that deliver superior performance and provide improved acceleration, range and durability compared to battery packs provided by our competitors. Our modules and packs are customizable and scalable and are optimized by our proprietary battery management system (“BMS”). We ~~differentiate ourselves from~~believe we produce superior battery products compared to our competitors by leveraging our technical expertise and depth of knowledge of energy storage ~~systems.~~systems into high performing products that fit a wide range of demanding applications.

Since 2016, we have been designing and building battery modules, and we provide enabling battery technology for key customers in the vehicle electrification industry. Currently, we primarily focus on marketing mobility energy technology for commercial vehicles in Classes 4-8, recreational marine vessels, and industrial off-highway vehicles. We have collaborated with HES to focus on sustainability and reuse applications of our batteries, and we have a strategic alliance with Republic to cooperate in opportunities to incorporate next-generation battery technology into its fleet operations. We also have a collaboration agreement with Dynexus to integrate Dynexus’s battery performance and health sensors into our battery ecosystem. These relationships help us to de-risk our business model, scale our business and deliver value to our customers.

Our operations now consist of ~~two~~a single business ~~segments:~~segment, which is Romeo ~~Power North America and Joint Venture Support. The~~Power. Romeo Power ~~North America business segment~~ designs and manufactures industry leading battery modules, battery packs, and BMS

~~Table of Contents~~

technologies for our ~~customers in North America. The Joint Venture Support business segment provides engineering and other professional services to the BorgWarner JV.~~

customers.

We expect our capital and operating expenditures to increase significantly in connection with our ongoing activities, ~~and to prepare for growth,~~ as the Company:

•purchases production equipment and increases the number of production lines used to manufacture its products;

•completes construction in a new factory in Cypress, California and completes the transition of our operations to the new location;

•commercializes products;

•continues to invest in ~~research and development~~R&D related to new technologies;

•~~commits to~~considers additional long-term supply agreements with cell suppliers that may require substantial advance payment;

•increases its investment in marketing and advertising, as well as the sales and distribution infrastructure for its products and services;

•maintains and improves operational, financial and management information systems;

•hires additional personnel;

•obtains, maintains, expands and protects its intellectual property portfolio; and

•enhances internal functions to support ~~the~~its requirements ofas a publicly-traded company.

~~Comparability of Financial Information~~

Our results of operations and reported assets and liabilities may not be comparable between periods as a result of the Business Combination and becoming a public company. As a result of the Business Combination, we became a New York Stock Exchange (“NYSE”) listed company, which has required and will continue to require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on a number of factors that present significant opportunities for us, but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors” in ~~the 2020~~our 2021 Form 10-K.

Availability of Funding Resources

As of June 30, 2022, we had cash and cash equivalents of $38.7 million. We have recurring losses, which have resulted in an accumulated deficit of $293.1 million as of June 30, 2022.

On February 15, 2022, we entered into a Standby Equity Purchase Agreement (“SEPA”) with an affiliate of Yorkville Advisors. Under the terms of the SEPA, we have the right, but not the obligation, to sell up to $350 million of Common Stock to Yorkville, subject to certain limitations, at the time of our choosing during the two-year term of the agreement. The agreement requires a $1.00 minimum price per share of the Company’s Common Stock for sales under the SEPA to occur, which requirement was not met as of June 30, 2022. During the three months ended June 30, 2022, no shares of common stock of the Company (“Common Stock”) were issued under the SEPA. During the six months ended June 30, 2022, we issued 16.7 million shares of Common Stock to Yorkville for cash proceeds of $25.0 million, all of which occurred in the first quarter of 2022, with a portion of the shares issued as non-cash stock purchase discount under the SEPA.

As further described under Note 16 – Subsequent Events, on July 30, 2022, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nikola Corporation, a Delaware corporation and the J Purchaser Corp., a Delaware corporation and a wholly owned subsidiary of Nikola (“Purchaser”) whereby the Company will be merged into Nikola as the result of an all-stock transaction (the “Transaction).Concurrently with the execution of the Merger Agreement, Romeo and Romeo Systems (the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with Nikola as the lender (the “Lender”). The Loan Agreement provides for a liquidity support in the form of a senior secured debt facility (the “Facility”) in an aggregate principal amount of up to $30.0 million. The Facility also provides for certain incremental increases of up to $20.0 million, which may become available for drawing to cover the shortfall (if any) of actual increased liquidity of the Borrowers, as compared to targeted increased liquidity of $20.0 million, for battery packs to be purchased by the Lender under an agreed to temporary and non-refundable price increase, and subject to certain terms and conditions set forth in the Loan Agreement. Loans under the Facility may be made until the earlier of (a) six months from the date of the execution and delivery of the Merger Agreement and the Loan Agreement and (b) the date of the termination of the Merger Agreement. All amounts outstanding under the Facility will be due upon the earlier of (a) the date that is the six-month anniversary of the termination of the Merger Agreement and (b) June 30, 2023, which is the six-month anniversary of the End Date as defined in the Merger Agreement, subject to acceleration upon the occurrence of certain events set forth in the Facility Loan Agreement. Interest will be payable on borrowings under the Facility at daily SOFR plus 8.00%. The Transaction is expected to be completed by the end of October 2022, subject to customary closing conditions, including regulatory approval and the tender by the Company’s stockholders of shares representing a majority of the Company’s outstanding common stock.

COVID-19 Pandemic Update

~~On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a pandemic.~~

The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains and macroeconomic conditions. Some locales continue to impose prolonged quarantines and restrict travel. These restrictions have at times impacted ~~and continue to impact~~ the ability of our employees to get to their places of work to produce products, our ability to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price, and our ability to keep our products moving through the supply chain. We ~~took temporary~~implemented precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring some employees to work remotely and implementing viral testing and social distancing protocols for all work conducted onsite. ~~We continue to suspend non-essential travel worldwide for employees, and we are discouraging employee attendance at other gatherings.~~

For the six months ended June 30, ~~2021~~2022, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate and are increasing in various regions. There are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion and intermittent supplier delays. ~~To date,~~In 2021 and for the six months ended June 30, 2022, COVID-19 ~~has~~ had ~~a limited~~an adverse impact on our operations, supply chains and distribution systems, ~~but~~and it has resulted in higher costs ~~for~~due to increased lead times and increased scarcity of raw materials than previously expected. Our efforts to qualify certain new suppliers, particularly in Asia, have been ~~postponed indefinitely,~~hampered which ~~delay~~ has required us to continue using certain higher cost components for our products. ~~Because of~~As restrictions on travel ~~restrictions,~~and local business activities are diminishing, we ~~are unable to visit many~~have resumed visits with customers and prospective customers in person, but the lengthy time period in which ~~could delay~~we were not able to host customers in our factory has prolonged the sales conversion cycle. Due to ~~these precautionary measures and resulting~~the various global economic impacts of the pandemic, we may experience significant and unpredictable reductions in demand for certain of our ~~products.~~products, as well as interruptions in the availability of purchased components or increased logistics costs to deliver materials from suppliers or to customers. The degree and duration of disruptions to future business activities are unknown at this time.

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Ultimately, we cannot predict the duration of the COVID-19 pandemic. We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business, as appropriate, and we will have to accurately project demand and infrastructure requirements and deploy our production, workforce and other resources accordingly.

Global Battery Cell Shortage

The cost of battery cells manufactured by our suppliers, depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt and/or other metals. Costs for these raw materials have increased due to higher production costs and demand surges in the ~~electric vehicle (“EV”)~~EV market. The prices for these materials fluctuate, and their available supply may be unstable depending on market conditions and global demand, including as a result of increased global production of ~~electric vehicles~~EVs and energy storage products. In the three months ended June 30, 2022, the prices have remained elevated as a result of Russia’s invasion of Ukraine earlier this year. Russia is the world’s second-largest producer of cobalt and the third-largest producer of nickel.Until the conflict between Russia and Ukraine is resolved, these materials are likely to become increasingly scarce and more expensive to obtain. A rise in the number of EV start-up companies in the United States that received substantial funding pursuant to capital markets transactions via mergers with special purpose acquisition companies (SPACs) in 2020 and 2021 also has contributed to increases in demand. Any reduced availability of these materials may impact our access to cells, and any increases in their prices may reduce our profitability if we cannot recoup the increased costs through the pricing of our products or services. The availability and price of cylindrical cells, which is the form we use in our products, ~~is particularly~~tends to be more sensitive to the demand surge since most of the supply of other cell forms, such as pouch and prismatic cells, has been allocated previously, in some cases several years in advance.

Our current products are designed around cylindrical cells because such cells allow for optimal energy density, longest life and the highest level of safety. There are only three battery cell suppliers for cylindrical cells (“Tier 1 Suppliers”) whose cells

are qualified for use in EV applications because of their superior quality, performance and safety standards. Other battery cell suppliers who manufacture cylindrical cells are emerging as potentially qualified sources for EV applications. We are conducting our rigorous qualification and validation process on these alternative cell suppliers in order to introduce more sourcing options into our product without sacrificing necessary performance and safety. Increased demand for ~~electric vehicles~~EVs globally has outpaced the cell production capacity of the Tier 1 Suppliers. While the Tier 1 Suppliers are increasing their output capacity in Asia and continue to project expansion in the United States ~~electric vehicle~~in the next several years, EV battery pack manufacturers are competing for a severely limited supply of battery cells in the short and medium term. As a result of the increased demand and higher raw material costs, battery cell pricing has increased for cell purchases between 2021 and ~~2023.~~2022. Pricing indications from our cell suppliers indicate demand may start to stabilize between 2023 and 2025, although we cannot be certain this stabilization will occur.

Effective August 10, 2021, we entered into a long-term supply agreement, which was amended in ~~2023.~~June 2022 (the “Supply Agreement”), for the purchase of lithium-ion battery cells with a Tier 1 battery cell and materials manufacturer (“Supplier”). Under the Supply Agreement, the Supplier is committed to supplying cells to us, at escalating annual minimum quantities through June 30, 2028. For further discussion of the Supply Agreement please see Note 15 to the accompanying condensed consolidated financial statements.

Key Components of Operating Results

The following discussion describes certain line items in our condensed consolidated statements of operations and comprehensive (loss) income.

Revenue

We primarily generate revenue from the sale of battery modules, battery packs, and BMS, as well as the performance of engineering services, inclusive of the development of prototypes. Revenue generated from the sale of our battery modules, battery packs, and BMS under standard supply or production contracts is presented as product revenue in our condensed consolidated statements of operations and comprehensive (loss) income. Revenue generated from the production of prototypes is included in services revenue in our condensed consolidated statements of operations and comprehensive (loss) income, when prototypes are developed as a part of broader engineering services contracts, which are commonly entered into prior to signing a full production contract with a customer. ~~Services revenue also includes revenue~~Our services revenues are primarily earned ~~for~~through engineering services provided to the BorgWarner JV. As discussed in Note 1 to the accompanying condensed consolidated financial statements, we acquired BorgWarner’s 60% ownership of the JV on February 4, 2022 and dissolved the JV on February 11, 2022.

Cost of Revenue and Gross Loss

Cost of revenue is comprised primarily of product costs, personnel costs (e.g., for production line and production management employees), logistics and freight costs, depreciation and amortization of manufacturing and test equipment, and allocation of fixed overhead expenses. Our product costs are impacted by technological innovations, such as advances in battery controls and battery configurations, new product introductions, economies of scale that result in lower component costs, and improvements in and automation of our production processes. Our production line and production management personnel costs are primarily impacted by (1) changes in headcount, the number of production shifts and ~~number of~~ production lines that will be required to meet our anticipated future production levels, and (2) changes in compensation and benefits.

Gross ~~profit or~~ loss may vary between periods and is primarily affected by production volumes, product costs, including costs for raw materials, components and labor, product mix, customer mix, and warranty costs.

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Operating Expenses

Operating expenses primarily consist of research and development (R&D) costs and selling, general, and administrative costs. Personnel-related costs are the most significant component of each of these expense classifications and include salaries, benefits, payroll taxes, sales commissions, incentive compensation, and stock-based compensation.

~~Research and Development~~R&D Expense

~~Research and development~~R&D expense includes personnel-related costs, third-party design and development costs, testing and evaluation costs and other indirect costs. ~~Research~~R&D employees have expertise and ~~development employees are primarily engaged in the design and development of~~perform activities related to battery cell science, ~~design and engineering,~~ battery module related technology and electro-mechanical engineering, thermal engineering and BMS engineering. We devote substantial resources to ~~research and development~~

R&D programs that focus on both performance enhancements to, and cost efficiencies in, existing products and the timely development of new products that utilize technological innovation to drive down product costs, improve product functionality and enhance product safety and reliability. We intend to continue to invest resources in ~~research and development~~R&D efforts on an on-going basis, as we believe this investment is critical to maintaining and strengthening our ~~competitive position.~~product and its performance.

Selling, General, and Administrative Expense

Selling, general and administrative expense includes ~~both~~ sales, ~~and~~ marketing ~~costs~~ and general and administrative ~~costs associated with back-office functions.~~costs. Sales and marketing expense includes personnel-related costs, as well as marketing, customer support, trade show and other indirect ~~costs. We expect~~costs supporting our initiatives related to ~~continue~~offering products to make the necessary sales and marketing investments to enable the execution of our strategy, which includes increasing market penetration geographically, and entering into new markets through the expansion of our customer base and strategic partners. We currently offer products targeting the North American market forelectrify commercial trucks, buses, mining and ~~buses,~~agricultural equipment, and through the BorgWarner JV, the European market for commercial and high-performance vehicles. Through the BorgWarner JV, we expect to continue to expand the geographic reach of our product offerings and explore new revenue channels in addressable markets in the future.watercraft.

General and administrative expense ~~includes~~includes: personnel-related costs attributable to our executive, finance, human resources and information technology organizations; certain facility costs; and fees for professional services. Fees for professional services consist primarily of outside legal and accounting, consulting, audit and tax costs.

Acquisition of In-process Research and Development

On February 4, 2022, we acquired BorgWarner’s ownership share in the JV, which was subsequently dissolved on February 11, 2022. The primary asset acquired in the Membership Interest ~~Expense~~

~~Interest expense recognized during the three~~Purchase Agreement (the “Purchase Agreement”) constitutes an in-process research and six months ended June 30, 2020, primarily consisted of interest incurred under Legacy Romeo’s outstanding notes. As Legacy Romeo’s outstanding notes were converted into our Common Stock or extinguished upon consummationdevelopment asset (“IPR&D”) comprised entirely of the ~~Business Combination, we have not incurred material interest expense subsequent~~Company’s research and development. The Company recorded a charge of $35.0 million related to the ~~Business Combination.~~acquisition of in-process research and development expense in the condensed consolidated statements of operations at the Purchase Agreement Closing Date because the Company determined that the IPR&D asset had no alternative future use that is distinct and different from the Company’s existing research and development. See Note 1 to the accompanying condensed consolidated financial statements for further information on our acquisition of BorgWarner’s ownership share in the JV.

Change in Fair Value of Public and Private Placement Warrants

In February 2019, RMG issued 7,666,648 warrants (the “Public Warrants”) to purchase shares of Common Stock at $11.50 per share. Simultaneously, RMG issued 4,600,000 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Public and Private Placement Warrants”) to purchase shares of Common Stock at $11.50 per share to RMG Sponsor, LLC, certain funds and accounts managed by subsidiaries of BlackRock, Inc., and certain funds and accounts managed by Alta Fundamental Advisers LLC. The Company re-measures the fair value of the Public and Private Placement Warrants at each reporting period.

On February 16, 2021, we announced the redemption of all of the outstanding Public Warrants to purchase shares of our Common Stock. The Public Warrants were issued under the Warrant Agreement, dated February 7, 2019, by and between RMG and American Stock Transfer & Trust Company, LLC, as warrant agent, as part of the units sold in the initial public offering of RMG. All Public Warrants could be exercised until April 5, 2021 to purchase shares of our Common Stock, at the exercise price of $11.50 per share, and any Public Warrants that remained unexercised were voided and no longer exercisable. On April 5, 2021, ~~7,223,683~~all the outstanding Public Warrants were ~~redeemed at~~redeemed. As a result, we only had change in fair value of private placement warrants for the ~~redemption price of $0.01 per Public Warrant. The Company paid Public Warrant holders a total of $72,237 in connection with the redemption.~~

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three and six months ended June 30, 2022.

Investment Loss, Net

Investment loss, net primarily includes realized ~~losses~~loss recognized in connection with our available-for-sale (“AFS”) debt investments and amortization of premium paid when we purchase our AFS debt investments, net of coupon interest income recognized in connection with our AFS debt investments.

~~Other Expense~~

Loss in Equity Method Investments

Loss in equity method investments reflects the recognition of our proportional share of the net losses of our equity method investments. For the six months ended June 30, 2022 and the three and six months ended June 30, 2021, ~~and 2020,~~ these losses relate only to the BorgWarner JV, in which we ~~hold~~held a 40% ownership ~~interest.~~ interest until we purchased the remaining 60% of ownership from BorgWarner on February 4, 2022 and then dissolved the JV on February 11, 2022. See Note 1 to the accompanying condensed consolidated financial statements for further information on our acquisition of the BorgWarner’s ownership share in the JV. As of June 30, ~~2021,~~2022, there ~~was~~were no ~~activity~~significant activities related to Heritage Battery Recycling, LLC (“HBR”). Therefore, during the three and six months ended June 30, 2022 and 2021, there ~~are~~were no profits or losses from our equity method investment in HBR ~~to be~~ recognized.

~~Provision for Income Taxes~~

The effective tax rate realized for each period was significantly below the Federal statutory rate of 21.0%, as we incurred significant operating losses during each reporting period and did not recognize an income tax benefit associated with these losses because a full valuation allowance is maintained against our net deferred income tax assets. Any amounts reflected in provision for income taxes represent various state and local tax obligations and consist primarily of California franchise tax.

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Results of Operations



	Three Months Ended June 30,				$		%
	2022		2021		Change		Change
Revenues:	(dollars in thousands)
Product revenues	$	5,650	$	466	$	5,184	1,112	%
Service revenues	79		460		(381)		(83)	%
Total revenues	5,729		926		4,803		519	%
Cost of revenues:
Product cost	19,630		5,542		14,088		254	%
Service cost	68		403		(335)		(83)	%
Total cost of revenues	19,698		5,945		13,753		231	%
Gross loss	(13,969)		(5,019)		(8,950)		178	%
Operating expenses:
Research and development	7,132		1,792		5,340		298	%
Selling, general, and administrative	18,741		20,884		(2,143)		(10)	%
Total operating expenses	25,873		22,676		3,197		14	%
Operating loss	(39,842)		(27,695)		(12,147)		44	%
Interest expense	(39)		(5)		(34)		680	%
Change in fair value of public and private placement warrants	225		1,995		(1,770)		(89)	%

Investment loss, net	(788)		(379)		(409)		108	%

Loss before income taxes and loss in equity method investments	(40,444)		(26,084)		(14,360)		55	%
Loss in equity method investments	—		(563)		563		(100)	%
Benefit from income taxes	—		—		—		NM
Net loss	$	(40,444)	$	(26,647)	$	(13,797)	52	%

NM = Not meaningful

Three Months Ended
June 30, $ %
2021 2020 Change Change
Revenues: (dollars in thousands)
Product revenues $ 466 $ 458 $ 8 1.7 %
Service revenues 460 671 (211) (31.4) %
Total revenues 926 1,129 (203) (18.0)%
Cost of revenues:
Product cost 5,542 1,737 3,805 219.1 %
Service cost 403 686 (283) (41.3) %
Total cost of revenues 5,945 2,423 3,522 145.4%
Gross loss (5,019) (1,294) (3,725) 287.9%
Operating expenses:
Research and development 1,792 1,594 198 12.4 %
Selling, general, and administrative 22,911 2,451 20,460 834.8%
Total operating expenses 24,703 4,045 20,658 510.7 %
Operating loss (29,722) (5,339) (24,383) 456.7 %
Interest expense (5) (264) 259 (98.1) %
Change in fair value of public and private placement warrants 1,995 — 1,995 NM
Investment loss, net (379) — (379) NM
Other expense — (1,386) 1,386 (100.0)%
Loss before income taxes and loss in equity method investments (28,111) (6,989) (21,122) 302.2%
Loss in equity method investments (563) (36) (527) 1463.9%
Provision for income taxes — — — NM
Net loss $ (28,674) $ (7,025) $ (21,649) 308.2%


	Six Months Ended June 30,				$		%
	2022		2021		Change		Change
Revenues:	(dollars in thousands)
Product revenues	$	17,052	$	1,078	$	15,974	1,482	%
Service revenues	248		902		(654)		(73)	%
Total revenues	17,300		1,980		15,320		774	%
Cost of revenues:
Product cost	48,746		9,980		38,766		388	%
Service cost	205		792		(587)		(74)	%
Total cost of revenues	48,951		10,772		38,179		354	%
Gross loss	(31,651)		(8,792)		(22,859)		260	%
Operating expenses:
Research and development	13,837		5,563		8,274		149	%
Selling, general, and administrative	40,989		36,786		4,203		11	%
Acquisition of in-process research and development	35,402		—		35,402		NM
Total operating expenses	90,228		42,349		47,879		113	%
Operating loss	(121,879)		(51,141)		(70,738)		138	%
Interest expense	(78)		(12)		(66)		550%
Change in fair value of public and private placement warrants	1,496		118,120		(116,624)		(99)	%

Investment loss, net	(825)		(289)		(536)		185	%

(Loss) income before income taxes and loss in equity method investments	(121,286)		66,678		(187,964)		282	%
Loss in equity method investments	(271)		(1,206)		935		(78)	%
Provision for income taxes	—		(10)		10		NM
Net (loss) income	$	(121,557)	$	65,462	$	(187,019)	286	%

NM = Not meaningful

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Six Months Ended
June 30, $ %
2021 2020 Change Change
Revenues: (dollars in thousands)
Product revenues $ 1,078 $ 2,046 $ (968) (47.3) %
Service revenues 902 1,605 (703) (43.8) %
Total revenues 1,980 3,651 (1,671) (45.8)%
Cost of revenues:
Product cost 9,980 4,466 5,514 123.5 %
Service cost 792 1,589 (797) (50.2) %
Total cost of revenues 10,772 6,055 4,717 77.9%
Gross loss (8,792) (2,404) (6,388) 265.7%
Operating expenses:
Research and development 5,563 3,396 2,167 63.8 %
Selling, general, and administrative 40,910 5,358 35,552 663.5%
Total operating expenses 46,473 8,754 37,719 430.9 %
Operating loss (55,265) (11,158) (44,107) 395.3 %
Interest expense (12) (518) 506 (97.7) %
Change in fair value of public and private placement warrants 118,120 — 118,120 NM
Investment loss, net (289) — (289) NM
Other expense — (1,386) 1,386 (100.0)%
Income (loss) before income taxes and loss in equity method investments 62,554 (13,062) 75,616 578.9%
Loss in equity method investments (1,206) (732) (474) 64.8%
Provision for income taxes (10) — (10) NM
Net income (loss) $ 61,338 $ (13,794) $ 75,132 544.7%

~~NM = Not meaningful~~

Three Months Ended June 30, ~~2021~~2022 Compared with Three Months Ended June 30, ~~2020~~2021

Revenues

Three Months Ended June 30,
2021 2020
Amount % Amount %
(dollars in thousands)
Product revenues $ 466 50.3% $ 458 40.6%
Service revenues 460 49.7% 671 59.4%
Total revenues $ 926 100.0% $ 1,129 100.0%

Product revenues

Product revenues ~~remained relatively consistent~~increased approximately $5.2 million, or 1,112%, for the three months ended June 30, 2022, as compared to the same period in the prior year. ~~We expect the current volume of our commercial vehicle pack and module production and delivery activity~~The increase in product revenues relates primarily to ~~increase as we increase~~increased delivery on ~~the four~~two supply contracts, ~~that started production and delivery during 2021. Additionally, we continue~~resulting in an increase of approximately $5.1 million of product revenues for the three months ended June 30, 2022 as compared to ~~produce against an engineering and prototype development agreement that is subsequently described~~the same period in the ~~discussion~~prior year. The term of ~~service revenues. The current engineering and prototype agreement is~~each of the ~~precursor to a future product supply agreement, for which product deliveries and revenues are expected to begin to be recognized towards the completion of our fiscal year ending December 31, 2021.~~

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~~We expect to continue to report product revenues similar to current levels until we begin to produce and deliver modules and packs at greater scale in accordance with our more recently signed customer~~two supply contracts ~~certain of which provide for minimum take or pay order commitments.~~ will end between 2023 and 2025.

Minimum quantity commitments related to contracts signed through June ~~of 2021 exceed $554.0~~30, 2022 is approximately $406.4 million of backlog. ~~While~~With the ~~delivery of modules and packs and recognition of the associated product revenues under certain of these supply contracts will not commence until after~~ completion of the delivery of engineering and prototype services, we currently expect to recognize approximately ~~$18.9~~$24.9 million of this backlog revenue during the remainder of our fiscal year ending December 31, ~~2021.~~2022. However, in light of the announced Transaction, the Company expects some of its other customers to potentially cancel, reduce or delay some of their purchases either pursuant to the terms of their respective contracts or through direct negotiations. For further discussion on our backlog, see Note 3 to the accompanying condensed consolidated financial statements.

Service revenues

Service revenues ~~decreased~~declined approximately ~~$0.2~~$0.4 million, or ~~31.4%~~83%, for the three months ended June 30, ~~2021,~~2022, as compared to ~~service revenues for~~ the same period in the prior year. The ~~decrease~~decline in service revenues is primarily related to ~~a reduction in engineering labor services provided~~the acquisition of BorgWarner’s 60% ownership on February 4, 2022 as the service revenue was primarily related to our revenue from the ~~BorgWarner~~ JV. During the three months ended June 30, 2021, we provided $0.5 million of engineering labor services to the BorgWarner JV compared to $0.6 million for the same period in the prior year. Additionally, the timing of deliveries against engineering and prototype contracts, for which revenue is deferred until all engineering services are complete and all prototypes have been delivered, varied. During the three months ended June 30, 2021, we deferred approximately $1.2 million of service revenues in accordance with our accounting policy, pursuant to which we recognize revenue at the point in time that the final developed prototype is delivered.

Cost of Revenues

Three Months Ended June 30,
2021 2020
Amount % Amount %
(dollars in thousands)
Cost of revenues – product cost $ 5,542 93.2% $ 1,737 71.7%
Cost of revenues – service cost 403 6.8% 686 28.3%
Total cost of revenues $ 5,945 100.0% $ 2,423 100.0%

Cost of revenues – product cost

Cost of revenues associated with product revenues increased approximately ~~$3.8~~$14.1 million, or ~~219.1%~~254%, for the three months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. ~~Our~~Higher costs of product revenue ~~increased, despite consistent~~resulted from a higher volume of product sales, as production labor headcount and related fixed and semi-fixed costs attributable to production-related personnel increased $1.4 million, as we prepare for the ramp-up of production rates to support larger supply contracts. In addition, a portion of the increase in product costs of sales can be attributed to material costs, including material cost variances. The increase in material costs is partially attributable to procuring some key components at higher than standard costs due to increasing scarcity of supply. We expect the latter half of fiscal year 2021 to reflect a shift in production activities away from the manufacturing of prototypes under significant engineering and prototype service contracts entered into during 2020, towards the manufacture of products to fulfill ongoing supply contracts.

~~In addition,~~shipments during the three months ended June 30, ~~2021, a $0.9 million~~2022, which drove increases in materials consumed as well as greater production labor headcount and other production related operating costs. The increase in ~~expense resulted from the write-down~~material costs also reflects incurrence of ~~excess and obsolete inventory primarily~~delivery expediting costs due to ~~obsolescence~~scarcity of certain raw materials and work-in-progress as a result of technological advances and excess inventory from final purchase orders differing from our estimates. We did not record any inventory write-downs during the same period in the prior year.supply.

Overhead costs remained consistent ~~period~~year over ~~period.~~year. A significant portion of the overhead costs that we incurred in both periods include facility rent, utilities, and depreciation of manufacturing equipment and tooling, which are fixed or semi-fixed in ~~nature and allocated between product and service costs based on production levels.~~nature. As manufacturing activities under our supply contracts increase, we ~~would~~ expect to achieve improved leverage on fixed and semi-fixed overhead ~~cost leverage~~costs. As a result of such improvement and the change in product mix, gross loss as a ~~result.~~percentage of product revenues decreased to 247% for the three months ended June 30, 2022, as compared to gross loss as a percentage of product revenues of 1,089% for the same period in the prior year.

Cost of revenues – service cost

Cost of revenues associated with service revenues decreased approximately $0.3 million, or ~~41.3%~~83%, for the three months ended June 30, ~~2021,~~2022, as compared to cost of revenues associated with service revenues for the same period in the prior year. ~~This~~The decrease is primarily ~~related~~due to decrease in service revenues from the ~~timing of deliveries against engineering and prototype contracts,~~JV as discussed under “Service Revenues” above. Gross margin was 14% for ~~which revenue and costs are deferred until all engineering services are complete and all prototypes have been delivered. During the three months~~

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ended June 30, 2021, we deferred approximately $1.2 million of cost of revenues in accordance with our accounting policy, pursuant to which we recognize revenue and costs at the point in time the final developed prototype is delivered. Additionally, during the three months ended June 30, ~~2021, cost~~2022, as compared to gross margin of ~~revenues attributable to~~12% for the ~~personnel costs of employees dedicated to providing engineering services to~~same period in the ~~BorgWarner JV decreased by $0.1 million, due to decreased services provided to the BorgWarner JV during the period.~~prior year.

Research and Development Expense

~~Research and development~~R&D expense increased approximately ~~$0.2~~$5.3 million, or ~~12.4%~~298%, for the three months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. The increase was primarily attributable to a $2.2 million increase in compensation and benefits as a result of a headcount increase for increased R&D activities to support ongoing technology and ~~bonus costs, which~~product development. The remaining increase was primarily due to an increase in ~~department headcount~~professional services of $1.2 million and an increase of $1.1 million in the volume of materials consumed as a result of ~~increased research and development activities to support the~~an increase in product development ~~cycle.~~activities.

As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on R&D costs. As a result of such improvement, R&D expense as a percentage of revenues decreased to 124% for the three months ended June 30, 2022, as compared to 194% for the same period in the prior year.

Selling, General, and Administrative Expense

Selling, general, and administrative (“SG&A”) expense ~~increased~~decreased approximately ~~$20.5~~$2.1 million, or ~~834.8%~~10%, for the three months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. The ~~increase was~~$2.1 million decrease reflects primarily ~~attributable to the following items (in thousands):~~

Primary Drivers Increase / (Decrease)
Compensation and benefit costs (excluding stock-based compensation) $ 4,415
Professional fees 3,042
Stock-based compensation 7,398
Insurance 1,372
Primary drivers of the total increase in selling, general and administrative expense $ 16,227

~~The $7.4~~a decline in professional services costs of $2.8 million, marketing costs of $0.4 million, public relations and trade show expenses of $0.3 million, investment fees of $0.1 million and SBC expenses of $3.4 million, offset partially by an increase in ~~stock-based compensation expense was driven primarily by the performance and market-based stock option grant awarded to our former chairman and CEO, which was valued at $9.3~~legal expenses of $3.8 million, IT related costs of $1.1 million and ~~was recognized over the period from December 29, 2020 through June 27, 2021. The additional stock-based~~ compensation expense is related to vesting of stock options, RSUs and PSUs granted under our stock incentive plans. Professional fees increased $3.0 million primarily as a result of legal, audit and accounting fees associated with new public company accounting and regulatory reporting requirements, as well as additional consulting services obtained to assist with our transition to being a public company. Compensation and benefits ~~increased $4.4~~cost of $0.5 million. The decrease in SBC expenses of $3.4 million due to a 37.5% increase in departmental headcount, annual compensation increases, and compensation expense related to retention bonuses awarded to five members of our executive team. Insurance expense increased approximately $1.4 millionis primarily due to the purchases of required insurance policies to comply with the requirements of being a publicly traded company. As discussed in the ‘Overview’ section, we expect selling, general, and administrative expense to be higher as compared to historical periods now that the Business Combination has been completed. The higher costs are expected to be attributable to increased investment in marketing, advertising, and the sales and distribution infrastructure for our products and services; increased personnel in internal functions such as operations, finance, and information technology to support our current state as a publicly traded company; and substantial investment in management information systems.

~~Interest Expense~~

In connection with the Business Combination, we repaid or converted all outstanding debt, except for our loans from the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”). The decrease in interest expense reflects the payoff or conversion of substantially all of our debt on December 29, 2020. We did not incur any new debtamortization during the three months ended June 30, ~~2021.~~2021 of the high fair value one-time non-recurring special equity awards and performance options granted to our two ex-CEOs.

As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on SG&A costs. As a result of such improvement, SG&A expense as a percentage of revenues decreased to 327% for the three months ended June 30, 2022, as compared to 2,255% for the same period in the prior year.

Change in Fair Value of Public and Private Placement Warrants

The Company re-measures the fair value of its Public and Private Placement Warrants liabilities at each reporting period.

For the three months ended June 30, 2022, the change in fair value of the Private Placement Warrants liability was a decrease of $0.2 million, resulting in the recognition of a gain related to the reduction of the carrying value of the associated

liability. The decrease in the fair value of the Private Placement Warrants was primarily due to the decreases in the price of our Common Stock.

For the three months ended June 30, 2021, the change in fair value of the Public and Private Placement Warrants liability was a decrease of $2.0 million, resulting in the recognition of a gain related to the reduction of the carrying value of the associated liability. The ~~Company re-measures the fair value of the Public and Private Placement Warrants at each reporting period. The~~ decrease in the fair value of the Public and Private Placement Warrants was primarily due to the decreases in the price of our Common

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Stock and the Public Warrants subsequent to the Business Combination as well as the Public Warrant redemption that occurred on April 5, 2021. Romeo did not become subject to the recognition of gains and losses from changes in the fair value of the Public and Private Placement Warrants until after the Business Combination and, accordingly, no gain or loss related to such warrants was recognized during the three months ended June 30, 2020.

~~Investment Loss~~

Investment loss for the three months ended June 30, 2021 was approximately $0.4 million, which primarily represents realized losses incurred in connection with our available-for-sale debt investments. We did not have similar losses during the same period in the prior year due to the change in our investment position subsequent to the Business Combination.

~~Other Expense~~

In April 2020, Legacy Romeo agreed to cancel $1.79 million of $9.12 million stockholder notes receivable outstanding as of December 31, 2019, in the event of a sale of Legacy Romeo or an initial public offering. As a result, we recorded $1.39 million in other expense for the three months ended June 30, 2020, which represented the estimated fair value of the derivative liability as of June 30, 2020. The non-recurring cancellation of the amount due to us under the stockholder notes receivable was settled during the quarter ended December 31, 2020, and we did not incur similar losses during the same period in the current year. Stock.

Loss in Equity Method Investments

We ~~account~~accounted for our investment in the BorgWarner JV under the equity method of accounting and, accordingly, recognize our proportionate share of the joint venture’s earnings and losses. ~~The amounts~~For the three months ended June 30, 2021, $0.6 million was recognized as loss in equity method investments, ~~for the three months ended June 30, 2021 and 2020 represent~~representing our 40% share of the losses recognized by the joint ~~venture for~~venture. For the ~~corresponding period.~~three months ended June 30, 2022, no loss in equity method investments was recognized because we acquired full ownership of the JV on February 4, 2022.

Net Loss

We reported a net loss of ~~$28.7~~$40.4 million for the three months ended June 30, ~~2021,~~2022, as compared to a net loss of ~~$7.0~~$26.6 million for the same period in the prior year. The increase of $13.8 million in ~~the~~ net loss ~~recognized for the three months ended June 30, 2021 was~~is primarily due to the ~~factors~~increased cost of product revenues, increased R&D cost and higher SG&A expense as discussed above.

Six Months Ended June 30, ~~2021~~2022 Compared with Six Months Ended June 30, ~~2020~~2021

Revenues

Six Months Ended June 30,
2021 2020
Amount % Amount %
(dollars in thousands)
Product revenues $ 1,078 54.4% $ 2,046 56.0%
Service revenues 902 45.6% 1,605 44.0%
Total revenues $ 1,980 100.0% $ 3,651 100.0%

Product revenues

Product revenues ~~decreased~~increased approximately ~~$1.0~~$16.0 million, or ~~47.3%~~1,482%, for the six months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. The ~~decrease~~increase in product revenues relates primarily to lower deliveries of commercial vehicle products following the completion of a supply contract in April 2020. This decrease was partially offset by first time module and pack sales to a related party and fourincreased delivery on three supply contracts, ~~that commenced production during~~resulting in an increase of approximately $15.1 million of product revenues for the six months ended June 30, 2021. The term of the four supply contracts run through our fiscal years ending December 31, 2024. During the six months ended June 30, 2021, the average selling prices per unit did not have a significant impact on revenues,2022 as compared to the same period in the prior year.

The ~~decrease in our current commercial vehicle pack and module production activity is expected to be offset as we increase delivery on~~term of each of the ~~four~~three supply contracts ~~that started production~~will end between 2023 and ~~delivery during 2021. Additionally, we continue to produce~~

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against an engineering and prototype development agreement, as subsequently addressed in the discussion of service revenues. The current engineering and prototype agreement is the precursor to a future product supply agreement, for which product deliveries and revenues are expected to begin to be recognized towards the completion of our fiscal year ending December 31, 2021.

We expect to continue to report product revenues similar to the current levels until we begin to produce and deliver modules and packs at greater scale in accordance with our more recently signed customer supply contracts, certain of which provide for minimum take or pay order commitments. Minimum quantity commitments related to contracts signed through June ~~of 2021 exceed $554.0~~30, 2022 is approximately $406.4 million of backlog. ~~While~~With the ~~delivery of modules and packs and recognition of the associated product revenues under certain of these supply contracts will not commence until after~~ completion of the delivery of engineering and prototype services, we expect to recognize approximately ~~$18.9~~$24.9 million of this backlog revenue during the remainder of our fiscal year ending December 31, ~~2021.~~2022. However, in light of the announced Transaction, the Company expects some of its other customers to potentially cancel, reduce or delay some of their purchases either pursuant to the terms of their respective contracts or through direct negotiations.For further discussion on our backlog, see Note 3 to the accompanying condensed consolidated financial statements.

Service revenues

Service revenues ~~decreased~~declined approximately $0.7 million, or ~~43.8%~~73%, for the six months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. ~~Service~~The decline in service revenues ~~earned for engineering services provided~~is primarily related to the ~~BorgWarner JV were $0.9 million during~~acquisition of BorgWarner’s 60% ownership on February 4, 2022 as the ~~six months ended June 30, 2021 compared to $1.6 million for the same period in the prior year. Additionally,~~ service ~~revenues~~revenue was primarily related to ~~non-recurring engineering and prototype contracts decreased due to~~our revenue from the timing of deliveries, for which revenue is deferred until all engineering services are complete and all prototypes have been delivered. During the six months ended June 30, 2021, we deferred approximately $2.2 million of service revenues in accordance with our accounting policy, pursuant to which we recognize revenue at the point in time the final developed prototype is delivered.JV.

Cost of Revenues

Six Months Ended June 30,
2021 2020
Amount % Amount %
(dollars in thousands)
Cost of revenues – product cost $ 9,980 92.6% 4,466 73.8%
Cost of revenues – service cost 792 7.4% 1,589 26.2%
Total cost of revenues $ 10,772 100.0% $ 6,055 100.0%

Cost of revenues – product cost

Cost of revenues associated with product revenues increased approximately ~~$5.5~~$38.8 million, or ~~123.5%~~388%, for the six months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. ~~Our~~Higher costs of product revenue ~~increased, despite lower~~resulted from a higher volume of product sales, as production labor headcount and related fixed and semi-fixed costs attributable to production-related personnel increased $2.2 million, as we prepare for the ramp-up of production rates to support larger supply contracts. In addition, a portion of the increase in product costs of sales can be attributed to material costs, including material cost variances. The increase in material costs is partially attributable to procuring some key components at higher than standard costs due to increasing scarcity of supply. We expect the latter half of fiscal year 2021 to reflect a shift in production activities away from the manufacturing of prototypes under significant engineering and prototype service contracts entered intoshipments during ~~2020, towards the manufacture of products to fulfill ongoing supply contracts.~~

In addition to the significant increase in labor and material costs partially triggered by actions taken in anticipation of higher module and pack production under supply contracts later in the year, we realized a $1.2 million increase in expense resulting from the write-down of excess and obsolete inventory, primarily due to obsolescence of certain raw materials and work-in-progress as a result of technological advances and excess inventory from final purchase orders differing from our estimates. Expense attributable to inventory write-downs totaled approximately $1.2 million for the six months ended June 30, ~~2021,~~2022, which drove increases in materials consumed as ~~compared~~well as greater production labor headcount and other production related operating costs. The increase in material costs also reflects incurrence of delivery expediting costs due to ~~zero for the same period in the prior year.~~scarcity of supply.

~~Table~~percentage of ~~Contents~~product revenues decreased to 186% for the six months ended June 30, 2022, as compared to gross loss as a percentage of product revenues of 826% for the same period in the prior year.

Cost of revenues – service cost

Cost of revenues associated with service revenues decreased approximately ~~$0.8~~$0.6 million, or ~~50.2%~~74%, for the six months ended June 30, ~~2021,~~2022, as compared to cost of revenues associated with service revenues for the same period in the prior year. ~~During~~The decrease is primarily due to decrease in service revenues from the JV as discussed under “Service Revenues” above. Gross margin was 17% for the six months ended June 30, ~~2020~~2022, as compared to gross margin of 12% for the ~~cost of revenue attributable to providing engineering services to~~same period in the BorgWarner JV decreased by $0.5 million due to decreased services provided to the BorgWarner JV during the period. Additionally, cost of revenues associated with service revenue decreased approximately $0.3 million related to the timing of deliveries against engineering and prototype contracts for which revenue and costs are deferred until all engineering services are complete and all prototypes have been delivered. During the six months ended June 30, 2021, we deferred approximately $2.2 million of cost of revenues associated with service revenues in accordance with our accounting policy, pursuant to which we recognize revenue and costs at the point in time the final developed prototype is delivered.prior year.

Research and Development Expense

~~Research and development~~R&D expense increased approximately ~~$2.2~~$8.3 million, or ~~63.8%~~149%, for the six months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. The increase was primarily attributable to ~~the following item (in thousands):~~


~~Primary Driver~~	~~Increase / (Decrease)~~
~~Compensation and benefit costs~~	$	~~2,015~~

~~The $2.0~~a $4.7 million increase in compensation and ~~bonus costs, was due to a 62.4% increase in department headcount~~benefits as a result of a headcount increase for increased ~~research and development~~R&D activities to support ongoing technology and product development. The remaining increase was primarily due to an increase in professional services of $3.0 million and an increase of $0.5 million in the volume of materials consumed as a result of an increase in product development ~~cycle.~~activities.

As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on R&D costs. As a result of such improvement, R&D expense as a percentage of revenues decreased to 80% for the six months ended June 30, 2022, as compared to 281% for the same period in the prior year.

Selling, General, and Administrative Expense

~~Selling, general, and administrative~~SG&A expense increased approximately ~~$35.6~~$4.2 million, or ~~663.5%~~11%, for the six months ended June 30, ~~2021,~~2022, as compared to the same period in the prior year. The ~~increase was primarily attributable to the following items (in thousands):~~

Primary Drivers Increase / (Decrease)
Compensation and benefit costs (excluding stock-based compensation) $ 6,691
Professional fees 6,831
Stock-based compensation 13,501
Insurance 2,612
Primary drivers of the total increase in selling, general and administrative expense $ 29,635

~~The $13.5~~$4.2 million increase reflects primarily an increase in ~~stock-based~~ compensation ~~expense was driven primarily by the performance~~ and ~~market-based stock option grant awarded to our former chairman and CEO, which was valued at $9.3~~benefits cost of $7.9 million, legal expenses of $7.3 million and ~~was recognized over the period from December 29, 2020 through June 27, 2021.~~IT related costs of $1.5 million, offset partially by a decrease in professional service costs of $3.3 million, marketing costs of $0.7 million, license costs of $0.2 million, investment fees of $0.2 million, insurance costs of $0.2 million and SBC expenses of $7.8 million. The ~~additional stock-based compensation expense~~decrease in SBC expenses of $7.8 million is ~~related to vesting of stock options, RSUs and PSUs granted under our stock incentive plans. Professional fees increased $6.8 million~~ primarily as a result of legal, audit and accounting fees associated with new public company accounting and regulatory reporting requirements and additional consulting services obtained to assist with our transition to being a public company. Compensation and benefits increased $6.7 million due to a 31.5% increase in departmental headcount, annual compensation increases, and compensation expense related to retention bonuses awarded to five members of our executive team. Insurance expense increased approximately $2.6 million due to the purchases of required insurance policies to comply with the requirements of being a publicly traded company. As discussed in the ‘Overview’ section, we expect selling, general, and administrative expense to be higher as compared to historical periods now that the Business Combination has been completed. The higher costs are expected to be attributable to increased investment in marketing, advertising, and the sales and distribution infrastructure for our products and services; increased personnel in internal functions such as operations, finance, and information technology to support our current state as a publicly traded company; and substantial investment in management information systems.

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~~Interest Expense~~

In connection with the Business Combination, we repaid or converted all outstanding debt, except for our PPP loans. The decrease in interest expense reflects the payoff or conversion of substantially all of our debt on December 29, 2020. We did not incur any new debtamortization during the six months ended June 30, 2021 of the high fair value one-time non-recurring special equity awards and performance options granted to our two ex-CEOs.

As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on SG&A costs. As a result of such improvement, SG&A expense as a percentage of revenues decreased to 237% for the six months ended June 30, 2022, as compared to 1,858% for the same period in the prior year.

Acquisition of In-process Research and Development

On February 4, 2022, we acquired the BorgWarner’s ownership share in the JV, which was subsequently dissolved on February 11, 2022. The primary asset acquired in the Purchase Agreement constitutes an in-process research and development asset (“IPR&D”). The Company recorded a charge of $35.4 million to acquired in-process research and development expense in the condensed consolidated statements of operations at the Purchase Agreement Closing Date because the Company determined that the IPR&D asset had no alternative future use that is distinct and different from the Company’s existing research and development. For further information on our acquisition of the BorgWarner’s ownership share in the JV, see Note 1 to the accompanying condensed consolidated financial statements.

We did not incur such charge in the six months ended June 30, 2021.

Change in Fair Value of Public and Private Placement Warrants

The Company re-measures the fair value of the Public and Private Placement Warrants liabilities at each reporting period.

For the six months ended June 30, 2022, the change in fair value of the Private Placement Warrants liability was a decrease of $1.5 million, resulting in the recognition of a gain related to the reduction of the carrying value of the associated liability. The decrease in the fair value of the Private Placement Warrants was primarily due to the decreases in the price of our Common Stock.

For the six months ended June 30, 2021, the change in fair value of the Public and Private Placement Warrants liability was a decrease of $118.1 million, resulting in the recognition of a ~~substantial~~ gain related to the reduction of the carrying value of the associated liability. ~~The Company re-measures the fair value of the Public and Private Placement Warrants at each reporting period.~~ The decrease in the fair value of the Public and Private Placement Warrants was primarily due to the decreases in the price of our Common Stock and the Public Warrants subsequent to the Business Combination as well as the Public Warrant redemption that occurred on April 5, 2021. Romeo did not become subject to the recognition of gains and losses from changes in the fair value of the Public and Private Placement Warrants until after the Business Combination and, accordingly, no gain or loss related to such warrants was recognized during the six months ended June 30, 2020.

~~Investment Loss~~

Investment loss for the six months ended June 30, 2021 was approximately $0.3 million, which represent realized losses, fees, and expenses incurred in connection with our available-for-sale debt investments. We did not have similar losses during the same period in the prior year due to the change in our investment position subsequent to the Business Combination.

~~Other Expense~~

In April 2020, Legacy Romeo agreed to cancel $1.79 million of $9.12 million stockholder notes receivable outstanding as of December 31, 2019, in the event of a sale of Romeo or an initial public offering.~~As a result, Romeo recorded $1.39 million in Other expense for the six months ended June 30, 2020, which represented the estimated fair value of the derivative liability as of June 30, 2020.~~The non-recurring cancellation of the amount due to us under the stockholder notes receivable ultimately was settled during the quarter ended December 31, 2020, and we did not incur similar losses during the same period in the current year.Stock.

Loss in Equity Method Investments

We account for our investment in the BorgWarner JV under the equity method of accounting and, accordingly, recognize our proportionate share of the joint venture’s earnings and losses. ~~The amounts~~For the six months ended June 30, 2021, $1.2 million was recognized as loss in equity method investments, ~~for~~representing our 40% share of the losses recognized by the joint venture. For the six months ended June 30, ~~2021 and 2020 represent~~2022, $0.3 million was recognized as loss in equity method investments, representing our 40% share of the losses recognized by the joint venture ~~for~~from January 1, 2022 through February 4, 2022, the ~~corresponding period.~~date on which we acquired full ownership of the JV. No loss or gain in equity method investment has been recognized after February 4, 2022.

Net (Loss) Income ~~(Loss)~~

We reported net ~~income~~loss of ~~$61.3~~$121.6 million for the six months ended June 30, ~~2021,~~2022, as compared to a net ~~loss~~income of ~~$13.8~~$65.5 million for the same period in the prior year. The increase of $187.0 million in ~~the~~ net ~~income recognized for the six months ended June 30, 2021 was~~loss is primarily due to the ~~change~~one-time charge associated with the acquisition of in-process research and development and the unfavorable comparison in fair value of our Public and Private Placement Warrants ~~partially offset by the factors~~liability as discussed above.

~~Business Segment Results of Operations~~

We operate in two business segments: Romeo Power North America and Joint Venture Support. We have organized our business segments based on the customers served. Romeo Power North America sells our products and services to external

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customers; whereas, the Joint Venture Support segment provides engineering services exclusively to the BorgWarner JV. Segment results for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):

~~Business Segment Revenues~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenues
Romeo Power North America $ 466 $ 542 $ 1,078 $ 2,182
Joint Venture Support 460 587 902 1,469
Total revenues $ 926 $ 1,129 $ 1,980 $ 3,651

~~Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020~~

~~Romeo Power North America~~

The Romeo Power North America segment’s revenues consist of all product and service revenues, with the exception of certain service revenues earned from providing engineering services to the BorgWarner JV. Accordingly, the $0.1 million, or 14.0% decrease in Romeo Power North America revenues was driven by the decrease in service revenues related to non-recurring engineering and prototype contracts discussed above, as product revenues were approximately the same for the comparable quarters ended June 30, 2021 and 2020.

~~Joint Venture Support~~

The Joint Venture Support segment’s reported revenue for the three months ended June 30, 2021 and 2020 relates to engineering services provided to the BorgWarner JV. The Joint Venture Support revenue decreased $0.1 million, or 21.7%, for the three months ended June 30, 2021, due to a decrease in the engineering support provided to the BorgWarner JV as compared to the same period in the prior year.

~~Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020~~

~~Romeo Power North America~~

The Romeo Power North America segment’s revenues consist of all product and service revenues, with the exception of certain service revenues earned from providing engineering services to the BorgWarner JV. Accordingly, the $1.1 million, or 50.6% decline in Romeo Power North America revenues includes the decrease in both product revenues and service revenues related to non-recurring engineering and prototype contracts discussed above.

~~Joint Venture Support~~

~~The Joint Venture Support segment’s reported revenue~~net loss for the six months ended June 30, ~~2021~~2022 also reflects increased cost of product revenues, increased R&D cost and 2020 relates to engineering services provided to the BorgWarner JV. The Joint Venture Support revenue decreased $0.6 million, or 38.6%, for the six months ended June 30, 2021, due to a decrease in the engineering support provided to the BorgWarner JV as compared to the same period in the prior year.

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~~Business Segment Gross (Loss) Profit~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands)
Business segment gross (loss) profit
Romeo Power North America $ (5,076) $ (1,386) $ (8,902) $ (2,628)
Joint Venture Support 57 92 110 224
Total business segment gross loss $ (5,019) $ (1,294) $ (8,792) $ (2,404)

~~Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020~~

~~Romeo Power North America~~

The Romeo Power North America segment’s gross loss reflects product and service revenues generated from all customers except the BorgWarner JV, less the associated costs of sales. The Romeo Power North America segment’s gross loss increased $3.7 million, or 266.2%, for the three months ended June 30, 2021, as compared to the same period in the prior year. This increase in the reported gross loss is primarily attributable to the increase in the costs incurred by the segment during the quarter ended June 30, 2021. Labor costs increased for the three months ended June 30, 2021, as a result of an increase in the headcount of production-related personnel. We have increased headcount in preparation for the anticipated increase in production as we work down our existing sales backlog. During the three months ended June 30, 2021, we also experienced (1) an increase in materials costs, including material cost variances for purchases of some key components of our modules and packs at higher ~~than standard costs due to increasing scarcity of supply, and (2) an increase in expense related to the write-down of excess and obsolete inventory of $0.9 million.~~

An increase in our production levels and revenues in future periods to work down our existing sales backlog, would be expected to improve cost leverage due to (1) advanced product design maturity, (2) a reduction in direct materials costs for significant components of our battery modules and packs – for example, as we shift from customized production to more standardized production for key components that make up a significant portion of each unit’s materials cost, (3) a reduction in the costs of inventory purchases driven by larger quantity purchases that will be supported by firm customer orders, and (4) lower un-absorbed labor and overhead costs.

~~Joint Venture Support~~

The Joint Venture Support segment’s gross profit is reflective of revenues earned from engineering services provided to the BorgWarner JV, less our internal costs to deliver those services – primarily consisting of personnel costs. The Joint Venture Support segment’s gross profit decreased by 38%, for the three months ended June 30, 2021, due to a decrease in the engineering support provided to the BorgWarner JV as compared to the same period in the prior year. However, the Joint Venture Support segment’s gross profit as a percentage of revenue has remained consistent period over period.

~~Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020~~

~~Romeo Power North America~~

The Romeo Power North America segment’s gross loss reflects product and service revenues generated from all customers except the BorgWarner JV, less the associated costs of sales. The Romeo Power North America segment’s gross loss increased $6.3 million, or 238.8%, for the six months ended June 30, 2021, as compared to the same period in the prior year. This increase in the reported gross loss is primarily attributable to lower segment product revenue, and an increase in the labor costs incurred by the segment during the six months ended June 30, 2021.Labor costs increased for the six months ended June 30, 2021, as a result of an increase in the headcount of production-related personnel. We have increased headcount in preparation for the anticipated increase in production as we work down our existing sales backlog. During the six months ended June 30, 2021 we also experienced (1) an increase in materials costs, including material cost variances for purchases of some key components of our modules and packs at higher than standard costs due to increasing scarcity of supply, and (2) an increase in expense related to the write-down of excess and obsolete inventory of $1.2 million.SG&A expense.

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~~Joint Venture Support~~

The Joint Venture Support segment’s gross profit is reflective of revenues earned from engineering services provided to the BorgWarner JV, less our internal costs to deliver those services – primarily consisting of personnel costs. The Joint Venture Support segment’s gross profit decreased $0.1 million, or 51.0%, for the six months ended June 30, 2021, due to a decrease in the engineering support provided to the BorgWarner JV as compared to the same period in the prior year. However, the Joint Venture Support segment’s gross profit as a percentage of revenue has remained consistent period over period.

Non-GAAP Financial Measures

In addition to our results determined in accordance with accounting principles generally accepted in the United States of America ~~(GAAP)~~(“GAAP”), our management utilizes certain non-GAAP performance measures, EBITDA and Adjusted EBITDA, for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.

EBITDA and Adjusted EBITDA

“EBITDA” is defined as earnings before interest income and expense, income tax expense or benefit, and depreciation and amortization. “Adjusted EBITDA” has been calculated using EBITDA adjusted for, stock-based compensation, ~~a gain on the~~ change in fair value of the Public and Private Placement Warrants, investment loss, net, and ~~forgiveness~~acquisition of ~~portion of shareholder notes receivable.~~in-process research and development (Note 1 to the accompanying condensed consolidated financial statements). We believe that both EBITDA and Adjusted EBITDA provide additional information for investors to use in (1) evaluating our ongoing operating results and trends and (2) comparing our financial performance with those of comparable companies which may disclose similar non-GAAP financial measures to investors. These non-GAAP measures provide investors with incremental information for the evaluation of our performance after isolation of certain items deemed unrelated to our core business operations.

EBITDA and Adjusted EBITDA are presented as supplemental measures to our GAAP measures of performance. When evaluating EBITDA and Adjusted EBITDA, you should be aware that we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Furthermore, our computation of EBITDA and Adjusted EBITDA may not be directly comparable to similarly titled measures computed by other companies, as the nature of the adjustments that other companies may include or exclude when calculating EBITDA and Adjusted EBITDA may differ from the adjustments reflected in our measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation, nor should these measures be viewed as a substitute for the most directly comparable GAAP measure, which is net income (loss). We compensate for the limitations of our non-GAAP measures by relying primarily on our GAAP results. You should review the reconciliation of our net (loss) income ~~(loss)~~ to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our performance.

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The following table reconciles net (loss) income to EBITDA and Adjusted EBITDA for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net (loss) income	Net (loss) income	$	(28,674)	$	(7,025)	$	61,338	$	(13,794)	Net (loss) income	$	(40,444)	$	(26,647)	$	(121,557)	$	65,462
Interest expense	Interest expense	5		264		12		518		Interest expense	39		5		78		12

Provision for income taxes	Provision for income taxes	—		—		10		—		Provision for income taxes	—		—		—		10
Depreciation and amortization expense	Depreciation and amortization expense	494		468		999		950		Depreciation and amortization expense	492		494		1,590		999
Amortization of investment premium paid										Amortization of investment premium paid	85		570		233		990
EBITDA	EBITDA	(28,175)		(6,293)		62,359		(12,326)		EBITDA	(39,828)		(25,578)		(119,656)		67,473
Stock-based compensation	Stock-based compensation	8,189		375		14,742		652		Stock-based compensation	3,238		6,162		4,101		10,618
Change in fair value of public and private placement warrants	Change in fair value of public and private placement warrants	(1,995)		—		(118,120)		—		Change in fair value of public and private placement warrants	(225)		(1,995)		(1,496)		(118,120)
Investment Loss, net		379		—		289		—
Forgiveness of portion of stockholder notes receivable		—		1,386		—		1,386

Investment loss, net										Investment loss, net	788		379		825		289
Acquisition of in-process research and development										Acquisition of in-process research and development	—		—		35,402		—

Adjusted EBITDA	Adjusted EBITDA	$	(21,602)	$	(4,532)	$	(40,730)	$	(10,288)	Adjusted EBITDA	$	(36,027)	$	(21,032)	$	(80,824)	$	(39,740)

Liquidity and Capital Resources

From our inception in June 2014 through June 30, 2022, we generated an accumulated deficit of $293.1 million, while pursuing substantial R&D activities to bring the products in our lithium-ion battery technology platform to market on a mass production scale. We also have added significant cost to establish the infrastructure necessary as a public entity and to support growth of both commercial and production activities.

On December 29, 2020, the consummation of the Business Combination resulted in net cash proceeds of $345.8 million of cash available to fund our future operations, potential future obligations to contribute cash to fund the BorgWarner JV proportional to our ownership and our $35.0 million initial contribution for a profit sharing interest in the HBR System. The net proceeds received reflect gross proceeds of $394.2 million from the Business Combination, inclusive of cash from the PIPE Shares (as defined below), offset by the following: (i) settling all of Legacy Romeo’s issued and outstanding term notes, inclusive of accrued and unpaid interest, (ii) payment of transaction costs incurred by both RMG and Legacy Romeo, and (iii) payments of deferred legal fees, underwriting commissions, and other costs incurred in connection with the initial public offering of RMG.

Our current business plans include continued investments into R&D for technology and product development, capital for additional production capacity and related operating infrastructure, and further build out of business systems supporting the overall business. Support of these investments is expected to continue to consume cash which will require additional sources of capital. As the market for our customers’ products and demand for our technology continues to grow, increased sales volume may contribute to lower cost for materials we purchase and better cost leverage, as well as an improved pricing environment. However, we expect operating losses to continue to consume cash and cannot predict when we will generate positive cash flow.

As discussed in the “Overview” section, we continue to take precautionary measures intended to help minimize the risk of the COVID-19 virus to our employees and operations. We encourage vaccination, use of personal protective equipment, social distancing protocols when possible and virus testing for all employees when required or deemed appropriate. While COVID-19 has had a limited adverse impact on our internal operations, we have experienced some disruption in supply chain and distribution systems which have led to the need to expedite delivery of materials and incur higher freight costs. The degree and duration of disruptions to future business activity are unknown at this time.

Our continuing short-term and long-term liquidity requirements are expected to be impacted by the following, among other things:

•the timing and the costs involved in bringing our products to market;

•the expansion of production capacity;

•our ability to manage the costs of ~~manufacturing;~~manufacturing our product;

•the availability, cost and logistics expense for materials we purchase;

•the availability of trade credit associated with the purchase of materials;

•capital commitments that may be required to secure long-term cell supply arrangements;

•general business liabilities, including the cost of warranty and quality claims, commercial disputes and potential business litigation costs and liabilities;

•the scope, ~~progress, results,~~ costs, timing and outcomes of our ~~research and development~~R&D activities for our battery modules and battery packs;

•the costs of maintaining, expanding and protecting our intellectual property portfolio, including licensing expenses and potential intellectual property litigation costs and liabilities;

•the costs of additional general and administrative personnel, including accounting and finance, legal and human resources, as a result of becoming a public company;

•our ability to collect revenues from start-up companies operating in a relatively new industry;

•the rate of development of the markets and demand for our products, including the pace of conversion to vehicle electrification and the degree of regulatory mandates and incentives that may affect the rate of conversion;

•the global battery cell shortage;

•~~our obligation to fund our proportional share~~the impact of the ~~operating expenses, working capital,~~announced Transaction on our customers and ~~capital expenditures of the BorgWarner JV;~~suppliers; and

•other risks discussed in the section ~~entitled~~titled “Risk ~~Factors.~~Factors.”

Liquidity Requirements

As of June 30, ~~2021,~~2022, our current assets were approximately ~~$295.7~~$101.4 million, consisting primarily of cash and cash equivalents, ~~available-for-sale debt investments,~~ inventory, prepaid inventory and prepaid expenses and other current assets, and an insurance receivable. As of June 30, ~~2021,~~2022, our current liabilities were approximately ~~$26.3~~$33.6 million, consisting primarily of accounts payable, accrued expenses, contract liabilities, current lease liabilities and ~~a legal settlement amount. This strong liquidity position resulted from~~other current liabilities. These liabilities are described in the ~~Business Combination, which raised $345.8 million in cash that is being used by the Company to fund both operations and strategic initiatives.~~paragraphs below.

As described in more detail ~~under “Subsequent Events” (see~~in Note ~~17 of Notes~~15 to ~~Condensed Consolidated Financial Statements),~~ the ~~Company~~accompanying condensed consolidated financial statements, we signed a ~~contract~~Supply Agreement, effective August 10, 2021, which was amended in June 2022, with a supplier for the purchase of battery cells over the period of 2021 through 2028. As part of ~~this contract,~~ the ~~Company agreed to pay a $1.5 million deposit by December 31, 2021 and~~Supply Agreement, we made a $64.7 million ~~prepayment by September 10, 2021~~Prepayment to the supplier for the contract years beginning 2023 through 2028, and paid an additional $1.5 million Deposit to secure the supply of cells ~~through the term of the contract. The prepayment~~for 2022. These amounts will be recouped through credits received as cells are purchased. As of June 30, 2022, the balance of the Deposit was $0.2 million. If we breach our minimum volume commitments during any applicable year, the supplier will be entitled to keep the remaining balance of the prepaid amounts for such year, as applicable.

As described in more detail in Note 15 to the accompanying condensed consolidated financial statements, on October 25, 2021 BorgWarner decided to exercise a right under the Joint Venture Operating Agreement, dated May 6, 2019 (the “Operating Agreement”), to put its ownership stake in the BorgWarner JV to Romeo. As a result, we completed the acquisition of the BorgWarner’s ownership share in the first quarter of 2022. The acquisition was paid for in cash.

Other strategic initiatives, which may or may not be similar in nature to the ~~new~~long-term cell supply agreement, will continue to be assessed in the context of balancing business value and our liquidity

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position. We may consider future strategic initiatives which in our assessment may lead to opportunities to maximize value of the business and require significant investment. Management anticipates that, in addition to possible strategic initiatives, our other ongoing liquidity and capital needs will relate primarily to capital expenditures for the expansion and support of production capacity, investment related to continue to reduce the cost of our product, working capital to support increased production and sales volume, ~~and~~ general overhead and personnel expenses to support continued growth and ~~scale. As a result, it is possible we may decide to raise additional capital~~scale, and ~~liquidity to be prepared to support and fund such initiatives and growth.~~overall operating losses.

IfAs of June 30, 2022, we ~~choose~~had cash and cash equivalents of $38.7 million. We have recurring losses, which have resulted in an accumulated deficit of $293.1 million as of June 30, 2022.

On February 15, 2022, we entered into the SEPA with an affiliate of Yorkville Advisors.Under terms of the SEPA, we have the right, but not the obligation, to ~~raise additional capital in~~sell up to $350 million of Common Stock to an affiliate of Yorkville Advisors, subject to certain limitations, at the future, the method and form of raising such capital has yet to be determined, but could range from debt to equity capital, or possibly both. If we raise funds by issuing debt securities or incurring loans, this form of financing would have rights, preferences, and privileges senior to those of holderstime of our ~~Common Stock. The availability and~~choosing during the terms under which we can borrow additional capital could be disadvantageous, and the terms of debt securities or borrowings could impose significant restrictions on our operations. Macroeconomic conditions and credit markets could also impact the availability and cost of potential future debt financing. If we raise capital through the issuance of additional equity, such sales and issuance would dilute the ownership intereststwo-year term of the ~~existing holders~~agreement. The agreement requires a $1.00 minimum price per share of the Company’s Common ~~Stock. There can be~~Stock for sales under the SEPA to occur, which requirement was not met as of June 30, 2022.During the three months ended June 30, 2022, no ~~assurances that any additional debt or equity financing would be available~~shares of Common Stock were issued under the SEPA. During the six months ended June 30, 2022, we issued 16.7 million shares of Common Stock to ~~us or if available, that such financing would be on favorable terms to us.~~Yorkville for cash proceeds of $25.0 million, all of which occurred in the first quarter of 2022, with a portion of the shares issued as non-cash stock purchase discount under the SEPA.

On May 12, 2022, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $200,000,000 (the “ATM”) through Cowen as its sales agent. During the three and six months ended June 30, 2022, we issued 34.5 million shares of Common Stock to Cowen for cash proceeds of $23.8 million, net of costs, under the ATM.

As further described under Note 16 – Subsequent Events, on July 30, 2022, we entered into the Merger Agreement with Nikola whereby the Company will be merged into Nikola as the result of the Transaction. Concurrently with the execution of the Merger Agreement, the Borrowers entered into the Loan and Security Agreement with Nikola as the Lender. The Loan Agreement provides for a liquidity support in the form of the Facility in an aggregate principal amount of up to $30.0 million. The Facility also provides for certain incremental increases of up to $20.0 million, which may become available for drawing to cover the shortfall (if any) of actual increased liquidity of the Borrowers, as compared to targeted increased liquidity of $20.0 million, for battery packs to be purchased by the Lender under an agreed to temporary and non-refundable price increase, and subject to certain terms and conditions set forth in the Loan Agreement. Loans under the Facility may be made until the earlier of (a) six months from the date of the execution and delivery of the Merger Agreement and the Loan Agreement and (b) the date of the termination of the Merger Agreement. All amounts outstanding under the Facility will be due upon the earlier of (a) the date that is the six-month anniversary of the termination of the Merger Agreement and (b) June 30, 2023, which is the six-month anniversary of the End Date as defined in the Merger Agreement, subject to acceleration upon the occurrence of certain events set forth in the Facility Loan Agreement. Interest will be payable on borrowings under the Facility at daily SOFR plus 8.00%. The Transaction is expected to be completed by the end of October 2022, subject to customary closing conditions, including regulatory approval and the tender by the Company’s stockholders of shares representing a majority of the Company’s outstanding common stock.

Effective as of October 1, 2021, the Company entered into a Single-Tenant Commercial Lease (the “Lease”) for approximately 215,000 square feet of office, assembly, storage, warehouse and distribution space located in Cypress, California (the “Premises”). The Company is using the Premises for its corporate headquarters and manufacturing facility. On October 29, 2021, the Landlord tendered possession of the Premises to us. The monthly lease payments commenced on January 21, 2022. Under the terms of the Lease, the Company paid the Landlord an initial base monthly rent of $210,700, or $0.98 per square foot. The monthly base rent will increase annually by approximately three percent of the then-current base rent. The Company is also responsible for its proportional share of operating expenses, real estate tax expenses, insurance charges and maintenance costs, each as defined in the Lease, associated with the ownership, operation, maintenance, and repair of the Premises, subject to certain exclusions provided in the Lease (as described in the Lease).

The term of the Lease is 97 calendar months. The Company may, at its option, extend the term of the Lease for five additional years on the same terms and conditions, except that the base monthly rent shall be adjusted to the “fair rental value” of the Premises.

As of June 30, 2022, we estimate our total unconditional contractual commitments, including inventory purchases, lease minimum payments and other contractual commitments, are $8.7 million for the six months ending December 31, 2022, $37.7 million for the year ending December 31, 2023, $197.2 million for the year ending December 31, 2024, $195.6 million for the year ending December 31, 2025, $193.2 million for the year ending December 31, 2026 and $354.9 million thereafter. However, the amount of our purchase commitments subsequent to June 30, 2022 is not fully fixed and is subject to change based on changes in certain raw materials indexes as well the quantities of purchases we actually make.

Cash Flow Analysis

The following table provides a summary of cash flow data for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):

Six Months Ended June 30,
2021 2020
Cash, cash equivalents and restricted cash at beginning of period $ 293,942 $ 1,929
Operating activities:
Net income (loss) 61,338 (13,794)
Non-cash adjustments (98,660) 3,975
Changes in working capital (6,438) 1,486
Net cash used in operating activities (43,760) (8,333)
Net cash used in investing activities (231,048) (603)
Net cash provided by financing activities 26,412 13,870
Net change in cash, cash equivalents, and restricted cash (248,396) 4,934
Cash, cash equivalents and restricted cash at end of period $ 45,546 $ 6,863


	Six Months Ended June 30,

	2022		2021
Cash, cash equivalents and restricted cash at beginning of period	$	25,638	$	293,942
Operating activities:
Net (loss) income	(121,557)		65,462
Non-cash adjustments	47,300		(102,784)
Changes in working capital	(7,619)		(6,438)
Net cash used in operating activities	(81,876)		(43,760)
Net cash provided by (used in) investing activities	49,587		(231,048)
Net cash provided by financing activities	48,358		26,412
Net change in cash, cash equivalents, and restricted cash	16,069		(248,396)
Cash, cash equivalents and restricted cash at end of period	$	41,707	$	45,546

Cash Flows used in Operating Activities

Net cash used in operating activities was approximately $81.9 million for the six months ended June 30, 2022, which is primarily the net loss of $121.6 million and cash used for changes in working capital of $7.6 million, offset by non-cash adjustments of $47.3 million. Significant non-cash items included in net loss which affected operating activities include: acquisition of in-process research and development, inventory provision, depreciation and amortization, stock-based compensation, non-cash equity-method loss, the change in fair value of our Private Placement Warrants and loss on sale of available-for-sale investments.

Net cash used in operating activities was approximately $43.8 million for the six months ended June 30, 2021. Significant cash outflows include changes in operating assets and liabilities totaling approximately $6.4 million. These net cash outflows were primarily the result of cash outlays for pre-paid expenses and other current assets and inventory purchases as well as an increase in our accounts receivable balance. Cash outflows for prepaid expenses and other current assets consisted primarily of payments for insurance policies required to comply with the requirements of being a publicly traded company and prepayments for inventory to secure supply of certain key materials. The aforementioned cash outflows were offset by increases in accounts payable and accrued expenses of $7.1 million.

An additional contributor to net cash used in operating activities during the period was our loss after adjustment for non-cash items, which approximated $37.3 million. Significant non cash adjustments include, adjustments for stock-based compensation, our non-cash equity-method loss, inventory write downs, and the change in fair value of our Public and Private Placement Warrants.

Cash Flows used in Investing Activities

For the six months ended June 30, ~~2020,~~2022, net cash ~~used in operating~~provided by investing activities was approximately ~~$8.3 million. Significant cash inflows resulting~~$49.6 million and was primarily related to $96.2 million of proceeds from ~~changes in operating assets~~matured and ~~liabilities totaling approximately $1.5 million, were~~sold available-for-sale investments, partially offset by $34.0 million of asset acquisition, net of cash acquired, in our ~~loss after adjustment~~acquisition of BorgWarner’s ownership in the JV, as well as $12.6 million for ~~non-cash items, which approximated $9.8 million.~~capital expenditures. For further discussion on our acquisition of BorgWarner’s ownership in the JV, see Note 1 to the accompanying condensed consolidated financial statements.

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~~Cash Flows used in Investing Activities~~

For the six months ended June 30, 2021, net cash used in investing activities was approximately $231.0 million and was primarily related to $304.9 million used to purchase investments, our contribution of $4.0 million to the BorgWarner JV to fund operating activities, and $2.1 million for capital expenditures. Cash used for investing activities was partially offset by $79.9 million provided from sales and maturities of investments.

Cash Flows from Financing Activities

For the six months ended June 30, ~~2020,~~2022, net cash ~~used in investing~~provided by financing activities of approximately $48.4 million was ~~approximately $0.6~~related primarily to $25.0 million ~~primarily driven~~of proceeds from share issuance under the SEPA and $23.8 million of proceeds from share

issuance under the ATM, offset by ~~our capital expenditures~~principal payments for ~~property~~finance leases of $0.5 million. For further discussion on the SEPA and ~~equipment.~~

~~Cash Flows from Financing Activities~~the ATM, see Note 1 to the accompanying condensed consolidated financial statements.

For the six months ended June 30, 2021, net cash provided by financing activities of approximately $26.4 million was related to $26.6 million of proceeds from the exercise of stock options and warrants, offset by principal payments for finance leases and the redemption of our Public Warrants.

For the six months ended June 30, 2020, net cash provided by financing activities of approximately $13.9 million was primarily reflective of approximately $5.7 million from the issuance of convertible and term notes, $5.0 million from the issuance of common stock, and $3.3 million from a PPP Loan, offset by principal payments for finance leases.

Contractual Obligations and Commitments

For the six months ended June 30, ~~2021,~~2022, there have been no material changes to our significant contractual obligations as previously disclosed in our ~~Annual Report on~~2021 Form 10-K, ~~for~~except as described above in the ~~year ended December 31, 2020.~~section titled “Liquidity Requirements”.

~~Effective August 10, 2021, we entered into a long-term supply agreement for the purchase of lithium-ion battery cells with a tier one battery cell and materials manufacture~~r~~. See “Note 17 – Subsequent Events” of the notes to our condensed consolidated financial statements included herein for further discussion.~~

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve our equity method investments, revenue recognition, equity valuations, ~~public and~~ private placement warrants, leases and inventory. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

There have been no substantial changes to these estimates, or the policies related to them during the six months ended June 30, ~~2021.~~2022. For a full discussion of these estimates and policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in Item 7 of our ~~Annual Report on~~2021 Form ~~10-K for the year ended December 31, 2020.~~10-K.

Recent Accounting Pronouncements

See ~~“Note~~Note 2 ~~– Summary of Significant Accounting Policies” included in~~to the ~~notes to our~~accompanying condensed consolidated financial ~~statements included herein.~~statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to a ~~smaller reporting company,~~variety of market and other risks, including the effects of changes in interest rates and fluctuations in fuel prices, which are discussed further in the following paragraphs, as ~~defined by Rule 12b~~well as availability of funding sources which is discussed further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Factors Affecting Operating Results” in Part I, Item 2 of this Quarterly Report.

Interest Rate Risk

The market risk inherent in our financial instruments and our financial position represents the ~~Securities Exchange Act~~potential loss arising from adverse changes in interest rates. As of ~~1934, as amended (the “Exchange Act”),~~June 30, 2022, we had cash and ~~are~~cash equivalents of $38.7 million, which did not ~~required~~consist of interest-bearing money market accounts. As of December 31, 2021, we had cash and cash equivalents of $22.6 million, consisting of interest-bearing money market accounts for which the fair market value would be affected by changes in the general level of U.S. interest rates. However, due to ~~provide~~ the ~~information required under this item.~~short-term maturities and the low-risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents.

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Available-for-Sale Debt Investments

Over the course of June 2022, we sold all our available-for-sale debt investments. We had no available-for-sale debt investment holdings at June 30, 2022. We maintained an investment portfolio of various holdings, types, and maturities. Our primary objective for holding available-for-sale debt investments is to achieve an appropriate investment return consistent with preserving principal and managing risk. At any time, a sharp rise in market interest rates could have a material adverse impact on the fair value of our available-for-sale debt investment portfolio, while the opposite could occur due to a sharp decline in market interest rates. We may utilize derivative instruments designated as hedging instruments in the future to achieve our investment objectives. However, we had no outstanding hedging instruments for our available-for-sale debt investments as of December 31, 2021. Our available-for-sale debt investments were held for purposes other than trading. We monitored our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. We believe the overall credit quality of our portfolio was strong.

For further discussion on our available-for-sale debt investments, see Note 9 to the accompanying condensed consolidated financial statements.

Fuel Price Risk

Our principal direct exposure to increases in fuel prices is as a result of potential increased freight costs caused by fuel surcharges or other fuel cost-driven price increases implemented by the third-party delivery companies on which we rely. Our freight costs (which consists of in-bound and out-bound freight-related costs) were $3.9 million and $0.6 million during the three months ended June 30, 2022 and 2021, respectively, and $8.7 million and $1.4 million during the six months ended June 30, 2022 and 2021, respectively. Increases in fuel prices may have a material adverse effect on our business, financial condition and results of operations, as such increases may contribute to an increase to our cost of revenues. See Part I, Item 1A. “Risk Factors—Increases in costs, disruption of supply or shortage of any of our battery components, such as cells, electronic and mechanical parts, or raw materials used in the production of such parts could harm our business.” included in Part I of our 2021 Form 10-K. We do not use derivatives to manage our exposure to fuel prices.

Conversely, rising prices for traditional petroleum based fuels also may have a positive impact on the markets we serve for battery electric propulsion, as it could accelerate the conversion of vehicles powered by internal combustion engines to battery electric vehicles. However, because of numerous variables affecting the rate of such conversion, we are not able to quantify a related financial impact.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were ~~not~~ effective at the reasonable assurance level as of June 30, ~~2021.~~2022.

In designing and evaluating the disclosure controls and procedures, management recognized that controls and procedures, no matter how well ~~designed~~developed and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues ~~and~~or instances of fraud, if any, within the Company will be detected.

~~Material Weakness Remediation Plan~~

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, we determined that we had material weaknesses in our internal control over financial reporting. These material weaknesses related to (i) inadequate segregation of duties, including review and approval of journal entries; and (ii) lack of sufficient technical accounting resources.

We are focusing on the design and implementation of processes and procedures to improve our internal control over financial reporting and to remediate our material weaknesses. We have already expanded our governance and risk management leadership by hiring a Chief Financial Officer and a Chief Accounting Officer; and engaged a reputable accounting advisory firm to assist with the documentation, evaluation, remediation, and testing of our internal control over financial reporting. Our additional planned activities include:

•~~designing and implementing additional review procedures to include more comprehensive documentation and formalization of internal control operations;~~

•~~recruiting additional personnel, in addition to utilizing a third-party accounting advisory firm, to more effectively segregate key functions within our business and financial reporting processes;~~

•~~designing and implementing information technology general controls and business process application controls in our financial system to support our information processing objectives; and~~

•~~enhancing our financial system security role definition and implementing workflow controls, to improve the reliability of our systems process and related reporting.~~

The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses until we have completed our validation and testing of the design and operating effectiveness of the internal controls and that they have been in place for a sufficient period. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

~~We are taking actions to remediate the material weaknesses relating to~~There were no changes in our internal control over financial reporting, as ~~described above. Except as otherwise described herein, there was no change~~defined in ~~our internal control over financial reporting that occurred~~Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the ~~period covered by this Quarterly Report on Form 10-Q~~three months ended June 30, 2022 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 15 ~~of the Notes~~ to the ~~Condensed Consolidated Financial Statements contained within this Quarterly Report~~accompanying condensed consolidated financial statements for a discussion of our legal proceedings.

Item 1A. Risk ~~Factors.~~Factors.

In evaluating us and our ~~common stock,~~Common Stock, we urge you to carefully consider the risks and other information in this Quarterly Report, as well as the risk factors disclosed in Item 1A. to Part I of ~~the~~our 2021 Form 10-K, and other reports that we have filed with the SEC. Any of the risks discussed in such reports, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations, financial condition or prospects. During the period covered by this Quarterly Report, there have been no material changes in our risk factors as previously ~~disclosed.~~disclosed except the following:

Russia’s invasion of Ukraine may continue to cause certain raw materials to become increasingly scarce and more expensive to obtain.

Since Russia’s invasion of Ukraine in early 2022, the cost of raw materials has further escalated as a result of Russia’s invasion of Ukraine. Russia is the world’s second-largest producer of cobalt and the third-largest producer of nickel. Until the conflict between Russia and Ukraine is resolved, these materials are likely to become increasingly scarce and more expensive to obtain.Any reduced availability of these raw materials or substantial increases in the prices for such materials may increase the cost of our components and consequently, the cost of our products. There can be no assurance that we will be able to recoup increasing costs of our components by increasing prices, which in turn could damage our brand, business, prospects, financial condition and operating results.

Risks Related to the Merger

The conditions under the Merger Agreement to Nikola’s consummation of the Offer and the subsequent Merger may not be satisfied at all or in the anticipated timeframe

On July 30, 2022, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nikola Corporation, a Delaware corporation and the J Purchaser Corp., a Delaware corporation and a wholly owned subsidiary of Nikola (“Purchaser”) whereby the Company will be merged into Nikola as the result of an all-stock transaction (the “Transaction).The Merger Agreement provides that, upon the terms and subject to the conditions thereof, as promptly as practicable, Purchaser will commence an exchange offer (the “Offer”) to acquire any and all of the issued and outstanding shares of common stock, $0.0001 par value per share, of the Company (“Romeo Common Stock”) for 0.1186 (the “Exchange Ratio”) shares of Nikola common stock, par value $0.0001 per share (“Nikola Common Stock”). Promptly following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, Purchaser will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Nikola. The Merger Agreement contemplates that the Merger will be effected pursuant to Section 251(h) of the Delaware General Corporation Law, which permits completion of the Merger without a vote of the holders of Romeo Common Stock upon the acquisition by Purchaser of a majority of the aggregate voting power of Romeo Common Stock. At the Effective Time, each share of Romeo Common Stock, other than the shares accepted for payment in the Offer and certain shares of Romeo Capital Stock held as treasury stock or held or owned by the Company, Nikola, Purchaser or any subsidiary of the Company immediately prior to the Effective Time, will be cancelled and converted into the right to receive a number of shares of Nikola Common Stock equal to the Exchange Ratio.

Under the terms of the Merger Agreement, Purchaser’s obligation to accept and pay for shares of Romeo Common Stock that are tendered in the Offer is subject to customary conditions, including, among others, (i) the condition that, prior to the expiration of the Offer, there have been validly tendered and not validly withdrawn a number of shares of Romeo Common Stock that, upon the consummation of the Offer would represent at least a majority of the aggregate voting power of the shares of Romeo Common Stock outstanding immediately after the consummation of the Offer (the “Minimum Condition”); (ii) the absence of legal restraints prohibiting the consummation of the transactions; (iii) the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) the effectiveness of a registration statement on Form S-4 filed by Nikola registering the Nikola Common Stock to be issued in connection with the Offer and the Merger; (v) the approval of shares of Nikola Common Stock for listing on Nasdaq; (vi) the accuracy of the Company’s representations and warranties in the Merger Agreement, subject to specified materiality qualifications; (vi) compliance by the Company with its covenants in the Merger Agreement in all material respects; (vii) the absence of a material adverse effect on the financial condition, business, or operations of the Company and its subsidiaries taken as a whole (subject to customary carveouts); (viii) the absence of a bankruptcy of the Company; (ix) delivery of certain customary closing documents (including a customary officer certificate and United States real property interests tax certificate); and (x) no valid termination of the Merger Agreement in accordance with its terms.

We intend to pursue all required approvals in accordance with the Merger Agreement. However, no assurance can be given that the required approvals will be obtained and, even if all such approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the Merger Agreement. In addition, there can be no assurances that our stockholders will tender their shares, or that any or all of the other conditions will be satisfied in the timeframe expected, if at all.

Each of the parties may terminate the Merger Agreement if the Closing of the Offer has not occurred by January 30, 2023.

While each party has agreed to use commercially reasonable efforts to take all actions necessary to consummate the Offer, the Merger and make effective the other contemplated transactions, each party has the right to terminate the Merger Agreement if the closing of the Offer has not occurred by January 30, 2023.

Because the market price of Nikola Common Stock may fluctuate, our stockholders cannot be sure of the market value of the stock consideration they will receive in exchange for their shares of Romeo Common Stock in connection with the transactions.

In connection with the Offer and the Merger, our stockholders will receive a fixed value of 0.1186 shares of Nikola Common Stock per share as part of the exchange. At the time stockholders tender their shares of Romeo Common Stock pursuant to the Offer, the exact market value of the Nikola Common Stock that will be issued if the Purchaser accepts such shares for payment will not be known because (i) the Offer will not be completed until certain conditions have been satisfied or waived in accordance with the Merger Agreement, (ii) a significant period of time may pass between the commencement of the Offer, the time shares are tendered and the time that the Purchaser accepts tendered the shares for payment and (iii) the market price of Nikola Common Stock may fluctuate during such time. Accordingly, the market value of a share of Nikola Common Stock may less be less on the date of the consummation of the Offer than it was on the date of the Merger Agreement.

The announcement of the Offer and the Merger could negatively impact our future business and operations.

Our announcement of having entered into the Merger Agreement and Nikola and Purchaser’s commencement of the Offer could cause a material disruption to our business and there can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied. The Merger Agreement may also be terminated by us or Nikola in certain specified circumstances, including, subject to compliance with the terms of the Merger Agreement, by Nikola in the event our board of directors effects a change of its recommendation to stockholders with respect to the Offer. We are subject to several risks as a result of the announcement of the Merger Agreement and the Offer, including, but not limited to, the following:

•Pursuant to the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to the consummation of the Merger, which restrictions could adversely affect our ability to realize certain of our business strategies or take advantage of certain business opportunities;

•The attention of our management may be directed toward the consummation of the Offer, the Merger and related matters, and their focus may be diverted from the day-to-day business operations of the Company, including from other opportunities that might otherwise be beneficial to us;

•Current and prospective employees may experience uncertainty regarding their future roles with us (and, if the Offer is completed, Nikola), which might adversely affect our ability to retain, recruit and motivate key personnel and may adversely affect the focus of our employees on development and sales of our products;

•Our inability to hire capable employees, given the uncertainty regarding the future of the Company, in order to execute on our continuing business operations;

•Our relationships with our customers, partners, manufacturers and suppliers may be disrupted; and

•Any of the above matters could adversely affect our stock price or harm our future business or operations.

Our business relationships and those of our subsidiaries has been, and may continue to be, subject to disruption due to uncertainty associated with the Merger, which could have an adverse effect on our results of operations, cash flows and financial position and, following the completion of the Merger, the combined company.

Parties with which we and our subsidiaries do business may be uncertain as to the effects on them of the Offer, the Merger and related transactions, including with respect to current or future business relationships with us, our subsidiaries or the combined company. These relationships with customers, partners, manufacturers and suppliers may be subject to disruption. Other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to terminate, change or renegotiate their relationships with us, or consider entering into business relationships with parties other than us, our subsidiaries or the combined company. In fact, we have received notifications from certain customers that they have purported to cancel their contract with us or are re-evaluating their purchasing decisions which could ultimately result in delayed or cancelled orders. Future opportunities will also be difficult to obtain until more certainty about our future as a combined company with Nikola is understood by customers, manufacturers and suppliers. These disruptions could have an adverse effect on our results of operations, cash flows and financial position. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

If the proposed transactions are not consummated, our business and stock price could be adversely affected and we will need to raise substantial additional capital to fund our ongoing operating or other needs.

The consummation of the transactions contemplated by the Merger Agreement, including the Offer and the Merger, is subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement as described above. If the Offer and/or the Merger are delayed or otherwise not consummated, we could suffer a number of consequences that may adversely affect our business, results of operations and stock price, including the following:

•if the Offer and the Merger are not completed, the trading price of our common stock may change to the extent that the current trading price of our common stock reflects an assumption that the Offer and the Merger will be completed;

•we have incurred and expect to continue to incur significant expenses related to the proposed Transactions. These transaction-related expenses include certain investment banking fees, legal, accounting and other professional fees. Most of these fees must be paid even if the Offer is not consummated;

•we could be obligated to pay (or cause to be paid) to Nikola a $3.5 million termination fee in connection with the termination of the Merger Agreement in certain circumstances;

•failure of the Offer and the Merger may result in negative publicity and/or a negative impression of us in our customers, prospective customers, the investment community or business community generally. The failure to consummate the Offer and the Merger may be viewed as a poor reflection on our business or prospects;

•certain of our suppliers, customers, distributors, and other business, collaboration and strategic partners may seek to change or terminate their relationships with us as a result of the Offer and the Merger; and

•the market price of our common stock may decline, particularly to the extent that the current market price reflects a market assumption that the Offer and Merger will be completed.

In addition, if the Offer and/or the Merger is not consummated, we believe that in the future we will need a substantial amount of additional capital, and would expect to have to explore additional funding alternatives, such as equity or debt financings, a potential sale of assets or other strategic financing options, to fund our ongoing operations and strategic and

growth objectives. Moreover, to meet potential growth in demand for our products, we will need significant resources for customized production equipment. Further, additional capital may be required to execute on our strategies related to continued expansion into commercial markets, development of new products and technologies, and acquisitions of new or complementary businesses, product lines or technologies. There can be no assurance that if the Offer and/or the Merger were not consummated we would be successful in securing additional capital on a timeframe that coincides with our cash needs, on acceptable terms, or at all. As a result, we could be required to sell assets such as our intellectual property, and/or declare bankruptcy, and we may not be able to remain in business. Conversely, if we were required to raise additional funds by issuing equity, the issuance of additional shares will result in dilution to our current stockholders, and the number of shares available to for issuance and the value of shares of Romeo Common Stock may be insufficient to support cash needs. If additional financing is accomplished by the issuance of additional debt, the service cost, or interest, will reduce net income or increase net loss, and we may also be required to issue warrants to purchase shares of common stock in connection with issuing such debt. If we were to sell any of our assets, we may reduce our overall net income, EBITDA or otherwise alter our financial outlook.

Our executive officers and directors may have interests that are different from, or in addition to, those of our stockholders generally.

Our executive officers and directors may have interests in the Offer and Merger that are different from, or are in addition to, those of our stockholders generally. These interests include direct or indirect ownership of our common stock, restricted stock units, performance stock units, Company warrants and the receipt or potential receipt of change in control or other retention or severance payments in connection with the contemplated transactions.

The Merger Agreement contains provisions that could make it difficult for a third party to acquire us prior to the completion of the Offer and the Merger.

The Merger Agreement contains restrictions on our ability to obtain a third-party proposal for an acquisition of the Company. These provisions include our agreement not to (i) solicit, initiate, respond to or take any action to facilitate or encourage any inquires or take any action that would reasonably be expected to lead to a third party proposal to acquire us, (ii) enter into or participate in any discussions with third parties regarding other proposals to acquire us, (iii) furnish any information regarding our business to a third party in connection with a proposal to acquire us, as well as restrictions on our ability to respond to such proposals, subject to fulfillment of certain fiduciary requirements of our board of directors. The Merger Agreement also contains certain termination rights, including, under certain circumstances, a requirement for us to pay (or cause to be paid) to Nikola a termination fee of $3.5 million.

These provisions might discourage an otherwise-interested third party from considering or proposing an acquisition of the Company, even one that may be deemed of greater value to our stockholders than the Offer. Furthermore, even if a third party elects to propose an acquisition, the concept of a termination fee may result in that third-party’s offering a lower value to our stockholders than such third party might otherwise have offered.

Uncertainties associated with the Offer and the Merger may cause a loss of our management personnel and other key employees, which could adversely affect our future business and operations.

In some of the fields in which we operate, there are only a limited number of people in the job market who possess the requisite skills, and it may be increasingly difficult for us to hire personnel during the pendency of the Offer and the Merger. Current and prospective employees of ours may experience uncertainty about their roles with the combined company following the Offer and the Merger, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Offer and the Merger. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the Offer and the Merger. The loss of services of certain of our senior management or key employees or the inability to hire new personnel with the requisite skills could restrict our ability to develop our battery modules, battery packs and associated software for vehicle electrification or new products or enhance existing products, including battery modules, battery packs and associated software in a timely manner, to sell products to customers or to effectively manage our business. Also, our business, financial condition and results of operations could be materially adversely affected by the loss of any of its key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees.

Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, in consideration of the agreements made by the parties in the Merger Agreement, we are prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to us and our stockholders.

Until the earlier of the Effective Time and the termination of the Merger Agreement, the Merger Agreement restricts us from taking specified actions without the consent of Nikola, and requires us to generally operate in the ordinary course of business and consistent with past practices and use commercially reasonable efforts to preserve intact our current business organization and maintain our relations and good will with governmental bodies and significant business relations. These restrictions may prevent us from making appropriate changes to the business, retaining our workforce, raising cash, paying dividends or pursuing attractive business opportunities that may arise prior to the completion of the Merger.

Litigation against us, or the members of our Board of Directors, could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger.

While we are not aware of any litigation matters brought against us or our Board of Directors related to the Merger, claims may be asserted by purported stockholder plaintiffs related to the Merger. While often such claims would be without merit, the results of any such potential legal proceedings are difficult to predict and could delay or prevent the Merger from becoming effective in a timely manner. Moreover, any litigation could be time consuming and expensive, could divert our management’s attention away from its regular business and, if any lawsuit is adversely resolved against us or members of our Board of Directors (each of whom we are required to indemnify pursuant to indemnification agreements), could have a material adverse effect on our financial condition.

One of the conditions to closing of the Merger is that no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger has been issued by any court of competent jurisdiction or other governmental body of competent jurisdiction and there is no law or regulation which has the effect of making the consummation of the Merger illegal. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting our and/or Nikola’s ability to complete the Merger, then such injunctive or other relief may prevent the Merger from becoming effective in a timely manner or at all.

If the Offer and the Merger do not qualify as a tax-free reorganization, the receipt of Nikola Common Stock pursuant to the Offer or Merger could be fully taxable to our stockholders

We and Nikola intend the Offer and the Merger, taken together as integrated transaction steps in a single transaction for U.S. federal income tax purposes, to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. However, completion of the Offer and the Merger are not conditioned upon receipt of an opinion from counsel dated as of the closing date that the Offer and Merger, taken together, qualify as a reorganization. If the Offer and the Merger, taken together, do not qualify as a “reorganization”, the Offer and the Merger could be fully taxable to all Romeo stockholders.

The Company will incur substantial transactions fees and Merger-related costs in connection with the Merger that could adversely affect the business and operations of the Company if the Merger is not completed

The Company expects to incur non-recurring transaction fees, which include legal and advisory fees and substantial Merger-related costs associated with completing the Merger, and which could adversely affect the business operations of the Company if the Merger is not completed.

If the proposed transactions are not consummated, we may not be able to repay amounts loaned to us by Nikola under a secured financing arrangement.

Our ability to repay or to refinance our debt under that certain Loan and Security Agreement, dated as of July 30, 2022, by and among the Company, Romeo Systems, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company and Nikola as the lender, in the event the Offer and the Merger are not consummated depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to repay the debt in which case we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on a variety of factors including the capital markets, our financial condition and the amount of Romeo Common Stock available to issue and sell at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no sales of unregistered securities during the quarter that were not previously reported on a Current Report on Form 8-K

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

4552

Item 6. Exhibits.

Exhibit
No.

Description

Incorporation by Reference

2.1

~~10.1 #~~Agreement and Plan of Merger and Reorganization, dated as of July 30, 2022, by and among Romeo Power, Inc., Nikola Corporation and J Purchaser Corp.

Exhibit 2.1 to the Current Report on Form 8-K filed on August 1, 2022

3.1

~~Offer Letter,~~Second Amended and Restated Certificate of Incorporation

Exhibit 3.1 to the Current Report on Form 8-K filed on January 5, 2021

3.2

Second Amended and Restated Bylaws of Romeo Power, Inc.

Exhibit 3.1 to the Current Report on Form 8-K filed on April 20, 2022

10.1

Sales Agreement, dated ~~June 13, 2021,~~May 12, 2022, by and between Cowen & Company, LLC and Romeo Power, Inc.

Exhibit 1.1 to the Current Report on Form 8-K filed on May 13, 2022

10.2+

Amendment Agreement, dated as of July 6, 2022, by and ~~Kerry Shiba.~~between LG Energy Solution, Ltd. and Romeo Power, Inc.

Filed herewith

~~10.2 #~~10.3

~~Offer Letter,~~Tender and Support Agreement, dated ~~June 10, 2021,~~as of July 30, 2022, by and ~~between Romeo Power, Inc.~~among Nikola Corporation and ~~Matthew Sant.~~

~~Filed herewith~~

~~10.3 #~~

~~Executive Employment Agreement, dated August 5, 2021, by and between Romeo Power, Inc. and Susan Brennan.~~certain stockholders of the Company

Exhibit 10.1 to the Current Report on Form 8-K filed on August ~~6, 2021~~1, 2022

10.4 #

~~Consulting~~Loan and Security Agreement, dated ~~August 5, 2021, by~~as of July 30, 2022 among Nikola Corporation, the Company and ~~between~~ Romeo ~~Power,~~Systems, Inc. ~~and Lionel E. Selwood, Jr.~~

Exhibit 10.2 to the Current Report on Form 8-K filed on August ~~6, 2021~~1, 2022

~~10.5 #~~31.1

~~Consulting Services Letter Agreement, dated April 15, 2021, by and between Romeo Power, Inc. and Michael Patterson~~

~~Exhibit 10.1 to the Form 10-Q filed on May 17, 2021~~

~~31.1~~

Certification of the Principal Executive Officer required by Rule 13a 14(a) or Rule 15d 14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002

Filed herewith

31.2

Certification of the Principal Financial Officer required by Rule 13a 14(a) or Rule 15d 14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002

Filed herewith

32.1

Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

32.2

Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

~~# Indicates management contract~~+ Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or ~~compensatory plan~~

confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.

4653

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ROMEO POWER, INC.


By:			/s/ Susan S. Brennan
			Susan S. Brennan
			President and Chief Executive Officer
			(Principal Executive Officer)

By:			/s/ Kerry A. Shiba
			Kerry A. Shiba
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

Date: August ~~16, 2021~~8, 2022

4754


	Contractual Minimum Purchase Commitments
Purchase contracts with make-whole provisions (1)	$	310,865
Purchase contracts with provisions of customary remedies for breach of contract (2)	243,171
Total	$	554,036


	Revenues Expected To be Recognized
July 1, 2021 through December 31, 2021	$	18,907
January 1, 2022 through December 2023	445,851
Thereafter	89,278
Total	$	554,036


	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
	North America		JV Support		Total		North America		JV Support		Total
Product revenues


Total product revenues	$	466	$	0	$	466	$	1,078	$	0	$	1,078
Service revenues

Joint Venture support	0		460		460		0		902		902













Total revenues	$	466	$	460	$	926	$	1,078	$	902	$	1,980


	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	North America		JV Support		Total		North America		JV Support		Total
Product revenues


Total product revenues	$	458	$	0	$	458	$	2,046	$	0	$	2,046
Service revenues
Non-recurring engineering and prototype	84		0		84		136		0		136
Joint Venture support	0		587		587		0		1,469		1,469
Total service revenues	84		587		671		136		1,469		1,605












Total revenues	$	542	$	587	$	1,129	$	2,182	$	1,469	$	3,651


Average Closing Share Price:						Cumulative Number Of Shares
$6.6869 - $8.9452						926,795
$8.9453 - $11.9272						1,853,591
$11.9273 - $14.9092						3,243,781
$14.9093						4,633,978


	Unrealized Losses Less than 12 Months				Unrealized Losses 12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	28,009	$	(11)	$	0	$	0	$	28,009	$	(11)
Municipal securities	35,784		(61)		0		0		35,784		(61)
Corporate debt securities	51,887		(141)		0		0		51,887		(141)
Asset-backed securities	5,381		(8)		0		0		5,381		(8)
U.S. agency mortgage-backed securities	10,993		(49)		0		0		10,993		(49)

Certificates of deposit	4,999		(1)		0		0		4,999		(1)
Total	$	137,053	$	(271)	$	0	$	0	$	137,053	$	(271)


	Amortized Cost		Fair Value
Less than 1 year	$	101,501	$	101,501
1 year through 5 years	106,314		106,235


Mortgage-backed securities with no single maturity	15,976		15,900
Total	$	223,791	$	223,636


Primary Drivers	Increase / (Decrease)
Compensation and benefit costs (excluding stock-based compensation)	$	4,415
Professional fees	3,042
Stock-based compensation	7,398
Insurance	1,372
Primary drivers of the total increase in selling, general and administrative expense	$	16,227