10-Q 1 rmo-20220331.htm 10-Q rmo-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
    
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-38795
ROMEO POWER, INC.
(Exact name of registrant as specified in its charter)
Delaware83-2289787
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4380 Ayers Avenue
Vernon, CA 90058
(833) 467-2237
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareRMONew 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 filerAccelerated 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 April 29, 2022, 151,231,501 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.




Table of Contents
Page No
                         Condensed Consolidated Balance Sheets (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
1



Part I - Financial Statements
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
As of March 31, 2022 and December 31, 2021 (Unaudited)
(In thousands, except share and per share data)
March 31, 2022December 31, 2021
Assets
Current assets
Cash and cash equivalents$41,330 $22,638 
Investments25,548 97,309 
Accounts receivable, net of allowance for expected credit loss of $3 and $0 at March 31, 2022 and December 31, 2021, respectively
9,201 8,378 
Inventories, net34,129 37,125 
Insurance receivable250 1,250 
Prepaid inventories7,4383,002 
Prepaid expenses and other current assets8,7955,579 
Total current assets126,691 175,281 
Restricted cash3,000 3,000 
Property, plant and equipment, net17,555 15,158 
Equity method investments35,000 36,329 
Operating lease right-of-use assets22,707 23,115 
Finance lease right-of-use assets
4,051 4,070 
Deferred assets5,018 5,018 
Prepayment - long-term supply agreement64,703 64,703 
Insurance receivable
6,000 6,000 
Other noncurrent assets2,028 2,772 
Total assets$286,753 $335,446 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$17,292 $11,724 
Accrued expenses11,053 8,156 
Contract liabilities331 384 
Operating lease liabilities, current838 416 
Finance lease liabilities, current
1,134 927 
Other current liabilities1,233 1,509 
Total current liabilities31,881 23,116 
Private placement warrants254 1,526 
Operating lease liabilities, net of current portion22,743 23,058 
Finance lease liabilities, net of current portion2,342 2,595 
Legal settlement payable6,000 6,000 
Total liabilities63,220 56,295 
Commitments and contingencies (Note 15)
Stockholders’ equity
Common stock ($0.0001 par value, 250,000,000 shares authorized, 151,221,283 and 134,458,439 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)
15 13 
Additional paid-in capital476,907 451,040 
Accumulated other comprehensive loss(740)(366)
Accumulated deficit(252,649)(171,536)
Total stockholders’ equity223,533 279,151 
Total liabilities and stockholders’ equity$286,753 $335,446 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2



Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
For The Three Months Ended March 31, 2022 and 2021 (Unaudited)
(In thousands, except share and per share data)

Three Months Ended March 31,
20222021
Revenues:
Product revenues $11,402 $612 
Service revenues 169 442 
Total revenues (1)
11,571 1,054 
Cost of revenues:
Product cost29,116 4,438 
Service cost137 389 
Total cost of revenues29,253 4,827 
Gross loss(17,682)(3,773)
Operating expenses:
Research and development6,705 3,771 
Selling, general and administrative22,248 15,902 
Acquisition of in-process research and development35,402  
Total operating expenses64,355 19,673 
Operating loss(82,037)(23,446)
Interest expense(39)(7)
Change in fair value of public and private placement warrants1,271 116,125 
Investment (loss) gain, net(37)90 
(Loss) income before income taxes and loss in equity method investments(80,842)92,762 
Loss in equity method investments(271)(643)
Benefit from income taxes (10)
Net (loss) income(81,113)92,109 
Other comprehensive (loss) income
Available-for-sale debt investments:
Change in net unrealized losses, net of income taxes(716)(342)
Net losses reclassified to earnings, net of income taxes342 38 
Total other comprehensive loss, net of income taxes(374)(304)
Comprehensive (loss) income$(81,487)$91,805 
Net (loss) income per share
Basic$(0.60)$0.72 
Diluted$(0.60)$0.68 
Weighted average number of shares outstanding
Basic135,260,665 128,788,715 
Diluted135,260,665 135,890,719 
(1)    Total revenues included related party revenues of $162 and $713 for the three months ended March 31, 2022 and 2021, respectively. See Note 14 - Transactions with Related Parties.

The accompanying notes are an integral part of these condensed consolidated financial statements.
3



Condensed Consolidated Statements of Changes in Stockholders’ Equity
For The Three Months Ended March 31, 2022 (Unaudited)
(In thousands, except share data)
Common StockAPICAccumulated Other Comprehensive LossAccumulated DeficitTotal
SharesAmount
Balance—December 31, 2021134,458,439 $13 $451,040 $(366)$(171,536)$279,151 
Issuance of common stock79,536  7 — — 7 
Issuance of common stock under SEPA agreement, net of stock purchase discount (Note 1)16,683,308 2 24,998 — — 25,000 
Settlement on restricted stock tax withholding— — (1)— — (1)
Stock based compensation— — 863 — — 863 
Other comprehensive loss— — — (374)— (374)
Net loss— — — — (81,113)(81,113)
Balance—March 31, 2022151,221,283 $15 $476,907 $(740)$(252,649)$223,533 


Condensed Consolidated Statements of Changes in Stockholders’ Equity
For The Three Months Ended March 31, 2021 (Unaudited)
(In thousands, except share data)
Common StockAPICAccumulated Other Comprehensive LossAccumulated DeficitTotal
SharesAmount
Balance—December 31, 2020126,911,861 $12 $377,253 $ $(181,567)$195,698
Issuance of common stock3,617,286 1 36,626 — — 36,627
Stock based compensation— — 4,456 — — 4,456
Other comprehensive loss— — — (304)— (304)
Net income— — — — 92,109 92,109 
Balance—March 31, 2021130,529,147 $13 $418,335 $(304)$(89,458)$328,586 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4



Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2022 and 2021 (Unaudited)
(In thousands)
Three Months Ended March 31,
20222021
Cash flows from operating activities:
Net (loss) Income$(81,113)$92,109 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization1,098 505 
Amortization of investment premium paid148 420 
Allowance for expected credit loss3  
Stock-based compensation863 4,456 
Inventory provision3,300 392 
Change in fair value of public and private placement warrants(1,271)(116,125)
Acquisition of in-process research and development (Note 1)35,402  
Loss in equity method investments271 643 
Non-cash lease expense - operating leases692 58 
Non-cash lease expense - finance leases169 71 
Other342 (533)
Changes in operating assets and liabilities:
Accounts receivable(1,135)(603)
Inventories(304)(1,144)
Prepaid inventories(4,436)(58)
Prepaid and other current assets(3,713)(7,963)
Accounts payable6,470 2,630 
Accrued expenses1,876 250 
Contract liabilities(53)857 
Operating lease liabilities(177)(60)
Other, net1,529 (77)
Net cash used in operating activities(40,039)(24,172)
Cash flows from investing activities:
Purchase of investments (281,124)
Proceeds from maturities of investments1,483 32,318 
Proceeds from sales of investments69,413 1,300 
Equity method investment (4,000)
Asset acquisition, net of cash acquired (Note 14)(34,035) 
Capital expenditures(2,940)(1,617)
Net cash provided by (used in) investing activities33,921 (253,123)
Cash flows from financing activities:
Issuance of common stock under the SEPA, net of stock purchase discount (Note 1)25,000  
Exercise of stock options7 4,681 
Exercise of stock warrants 21,526 
Settlement on restricted stock withholding(1) 
Principal portion of finance lease liabilities(196)(76)
Net cash provided by financing activities24,810 26,131 
(Continued)
5



Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2022 and 2021 (Unaudited)
(In thousands)
Three Months Ended March 31,
20222021
Net change in cash, cash equivalents and restricted cash$18,692 $(251,164)
Cash, cash equivalents and restricted cash, beginning of period25,638 293,942 
Cash, cash equivalents and restricted cash, end of period$44,330 $42,778 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents$41,330 $41,278 
Restricted cash3,000 1,500 
Total cash, cash equivalents and restricted cash$44,330 $42,778 
Supplemental cash flow information:
Cash paid for interest$3 $ 
Cash paid for income taxes$ $10 
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable and accrued expenses at the end of period$2,625 $86 
Finance lease right-of-use assets obtained in exchange of finance lease liabilities$150 $ 
Write off of equity method investment in the BorgWarner JV (Note 1)$1,058 $ 
(Concluded)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.       DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Romeo Power, Inc. designs, engineers, and manufactures lithium-ion cylindrical battery packs for EVs and energy storage solutions, with a focus on battery innovation, functionality, energy density, safety, and performance. We are headquartered in Vernon, 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.
Acquisition of BorgWarner’s Ownership in the BorgWarner Romeo Power LLC

In May 2019, Legacy Romeo and 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 “Purchase Agreement”) on February 4, 2022 (the “Purchase Agreement Closing Date”). Upon acquiring the additional 60% of 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 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 now have the right to exploit all of our intellectual property in all fields of use and all geographic markets. Further, by dissolving the JV and terminating the IP License, we also assumed full, unilateral control of our R&D budget and related activities.

The 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 business under ASC 805, Business Combinations. The total consideration transferred has been allocated to the non-monetary assets acquired and liabilities assumed based on their relative fair value.

As of December 31, 2021, the carrying value of the non-marketable equity investment was $1.3 million, representing the Company’s contributions to the JV offset by the Company’s share of equity method investee losses, and is presented as equity method investments on the consolidated balance sheet. For the quarter ended March 31, 2022, the JV had no revenue and recorded a net loss of $0.7 million up to the time of the acquisition which was February 4, 2022. The Company reflected its 40% share of the JV’s losses as loss in equity method investments in the consolidated statements of operations through the Purchase Agreement Closing Date.

Prior to the Purchase Agreement Closing Date, the unconsolidated balance sheet of the JV had total assets of $3.0 million, total liabilities of $0.3 million and total equity of $2.7 million.

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

DescriptionPurchase 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.

7


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the components of the purchase allocation (in thousands):

DescriptionAmount
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 three months ended March 31, 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 March 31, 2022, we had cash and cash equivalents, and investments of $41.3 million and $25.5 million, respectively. We have recurring losses, which have resulted in an accumulated deficit of $252.6 million as of March 31, 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. During the three months ended March 31, 2022, we issued 16.7 million shares of Common Stock to Yorkville for cash proceeds of $25.0 million with a portion of the shares issued as non-cash stock purchase discount under the SEPA. Despite the access to liquidity resulting from sales of common stock under the SEPA, 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 for 12 months from the date of the issuance of our financial statements. Although management continues to explore a range of options to further address the Company’s capitalization and liquidity, management cannot conclude as of the date of this filing that it is probable that additional options will become available to fund our longer range investment plans and our operating losses. 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, 2021, as filed with the SEC on March 1, 2022 (the “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
8


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
estimates. The condensed consolidated financial statements have been prepared under the assumption that Romeo will continue as a going concern.

Reclassification of Presentation in Our Condensed Consolidated Balance Sheets, Our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income and Note 3 to Our Condensed Consolidated Financial Statements

Revenues of comparative prior period in our consolidated statements of operations and comprehensive (loss) income are reclassified to conform with our current revenue presentation. In the condensed consolidated statements of operations, we have combined related party revenues with product revenues and service revenues and disclosed the amount of related party revenues in a captioned note.

Revenues of comparative prior period presented in Note 3 are reclassified to conform with our current revenue presentation. We present disaggregated revenue by product and service instead of further disaggregating product by battery packs and modules.

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 expense prospectively, over the remaining requisite service period, which was six months from the date of the Business Combination and included the period of December 29, 2020 through June 27, 2021.

However, in accordance with Accounting Standards Codification (“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 $4.1 million in stock-based compensation expense, included within selling, general and administrative expense and additional paid-in capital as of December 31, 2020 and a subsequent overstatement of stock-based compensation expense, included within selling, general and administrative expense, during the interim periods ended March 31, 2021 and June 30, 2021.

The Company evaluated the materiality of the error both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and determined the effect of 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 for the three months ended March 31, 2021.


Condensed Consolidated Balance SheetsAs of March 31, 2021
As Previously ReportedStock-based
Compensation
Adjustment
As Corrected
(In thousands)
Additional paid-in capital$416,308 $2,027 $418,335 
Accumulated deficit(87,431)(2,027)(89,458)
9


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of OperationsFor the Three Months Ended March 31, 2021
As Previously ReportedStock-based
Compensation
Adjustment
As Corrected
(In thousands except share and per share data)
Selling, general and administrative expenses$17,999 $(2,097)$15,902 
Total operating expenses21,770 (2,097)19,673 
Operating loss(25,543)2,097 (23,446)
Income before income taxes and loss in equity method investments90,665 2,097 92,762 
Net Income90,012 2,097 92,109 
Net income per share
Basic$0.70 $0.02 $0.72 
Diluted0.66 0.02 0.68 
Weighted average number of shares outstanding
Diluted135,812,697 78,022 135,890,719 

Condensed Consolidated Statement of Stockholders’ EquityFor the Three Months Ended March 31, 2021
As Previously ReportedStock-based
Compensation
Adjustment
As Corrected
(In thousands)
Additional paid-in capital - December 31, 2020$373,129 $4,124 $377,253 
Stock-based compensation6,553 (2,097)4,456 
Additional paid-in capital, Balance - March 31, 2021416,308 2,027 418,335 
Accumulated deficit - December 31, 2020(177,443)(4,124)(181,567)
Net income90,012 2,097 92,109 
Accumulated deficit, Balance - March 31, 2021(87,431)(2,027)(89,458)

Condensed Consolidated Statement of Cash FlowsFor the Three Months Ended March 31, 2021
As Previously ReportedStock-based
Compensation
Adjustment
As Corrected
(In thousands)
Cash flows from operating activities:
Net income$90,012 $2,097 $92,109 
Adjustments to reconcile net income to net cash used for operating activities:
Stock-based compensation6,553 (2,097)4,456 

10


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In addition to the significant accounting policies disclosed in Note 2 of the notes to consolidated financial statements in Part II, Item 8 of the 2021 Form 10-K, the Company has the following significant accounting policies.
Impairment of Long-Lived Assets—We review the carrying value of our long-lived assets, including property, plant and equipment and lease ROU assets, whenever events or changes in 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 the Company. If the asset or asset group is not recoverable, its carrying amount would be adjusted down to its fair value. As of March 31, 2022, the Company identified an indicator of impairment of the long-lived assets, but determined based on future undiscounted cash flow estimates and other factors noted above that the asset group is recoverable. Potential impairment charges may be required in the 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 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 instrument under ASC 815, Derivatives and Hedging, which should be recorded at fair value at inception and each reporting date thereafter. The financial instrument was classified as a derivative asset with a fair value of zero at the inception of the SEPA and as of March 31, 2022.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 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.

In August 2020, the FASB issued ASU 2020-06 , Debt - Debt with Conversion and Other Options ( Subtopic 470-20 ) and Derivatives and Hedging - Contracts in an Entity’s Own Equity ( Subtopic 815-40 ): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendment also simplifies the guidance in ASC Subtopic 815-40, Derivatives and 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 embedded derivatives accounted for as assets or liabilities. Finally, the amendment revises the guidance on calculating earnings per share, requiring use of the if-converted method for all 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 ASC 2020-06 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.

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

11


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 months ended March 31, 2022, changes in contract liabilities were as follows (in thousands):

Three Months Ended
March 31, 2022
Beginning balance $384 
Revenues recognized (72)
Increase due to billings 19 
Ending balance$331 

Contract liabilities are earned as services and prototypes are transferred to the customer. The remaining contract liability balance as of March 31, 2022 is expected to be earned and recognized as revenue within the next 12 months.
Backlog

As of March 31, 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. The following table presents the non-cancellable minimum purchase commitments under such contracts as of March 31, 2022 (in thousands):
Contractual Minimum Purchase Commitments
Purchase contracts with make-whole provisions (1)
$316,629 
Purchase contracts with provisions of customary remedies for breach of contract (2)
 95,379 
Total$412,008 

(1)     For approximately $316.6 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 $297.4 million under certain make-whole provisions included in these contracts.

(2) For the remaining $95.4 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.

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 March 31, 2022 (in thousands):
Revenues Expected
To be Recognized
April 1, 2022 through December 31, 2022$33,429 
January 1, 2023 through December 31, 2024 278,273 
Thereafter 100,306 
Total$412,008 

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



ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 table disaggregates revenues by when control is transferred for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,
20222021
Point in time$11,402 $612 
Over time169 442 
Total$11,571 $1,054 

4.       INVENTORIES, NET

As of March 31, 2022 and December 31, 2021, inventory consisted of the following (in thousands):

    
March 31, 2022
    
December 31, 2021
Raw materials $30,442 $35,327 
Work-in-process2,983 1,364 
Finished goods704 434 
Total inventories $34,129 $37,125 

We provide inventory write downs for slow-moving and obsolete inventory items 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-party sources for market price. Work in progress is valued at an estimate of cost, including attributable overheads, based on stage of completion. During the three months ended March 31, 2022 and 2021, we recorded $3.3 million and $0.4 million inventory provision, respectively, in cost of revenues.

5.       EQUITY METHOD INVESTMENTS

BorgWarner Romeo Power LLC
Legacy Romeo and BorgWarner formed the JV on June 28, 2019. Legacy Romeo and BorgWarner received a 40% interest and 60% interest in the 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 JV, which represented our pro rata share of the agreed upon funding. During the three months ended March 31, 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.
13


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
As of March 31, 2022, HBR had not yet begun construction of the battery recycling facility or begun operation of the System. Therefore, during the three months ended March 31, 2022, there are no profits or losses from our equity method investment to be recognized in our condensed consolidated statement of operations and comprehensive (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.
On February 16, 2021, we announced the redemption of all of the outstanding Public Warrants to purchase shares of our Common Stock, that were issued under the Warrant 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.

The Public and Private Placement warrants are recorded as liabilities in our condensed consolidated balance sheets. As of March 31, 2022 and December 31, 2021, we had 3,178,202 Private Placement Warrants and no Public Warrants outstanding.

7.      STOCK-BASED COMPENSATION

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 award recipients and stockholders.

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.

14


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 three months ended March 31, 2022, we 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 March 31, 2022, there were 9,862,090 shares remaining available for issuance under the 2020 Stock Plan.

Time-based Option awards
During the three months ended March 31, 2022, we did not grant any stock options to employees and our 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, 20213,410,387 $4.13 4.7$2,496 
Exercised(4,396)1.56 8 
Forfeited(147,824)4.77 — 
Expired(45,744)6.04 — 
Outstanding Options, March 31, 20223,212,423 $4.07 3.9$ 
Exercisable and vested, March 31, 20223,124,911 $4.12 3.8$ 

Restricted Stock Units and Performance-related Stock Units
During three months ended March 31, 2022, we granted 6,414,028 RSUs and PSUs to our employees. 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. 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 PSUs vest after three years from the commencement date based on the achievement of the either certain predetermined performance goals or market goals, and are payable in cash or shares of our Common Stock, at our election. The market based goal is measured by 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 TSRs of a selected public company peer group at the end of the 2022 to 2024 performance period. The performance-based goal 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 for 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 vesting percentage or the performance-based vesting percentage, subject to a market-based 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. 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, 2022.

15


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The grant date fair value of the PSUs granted on February 18, 2022 derived from the Monte Carlo simulation, was based, in part, on the following assumptions:

Fair Value Assumptions:
Grant date stock price$2.05
Risk-free interest rate1.67%
Simulation term (in years)3.0
Expected volatility63.1%
Dividend yield0%
Grant date fair value per share$3.27
The following table summarizes our RSU and PSU activity during the three months ended March 31, 2022 (dollars in thousands, except weighted average fair values):
SharesWeighted Average Fair Value
Outstanding at December 31, 20213,824,397 $6.64 
Granted6,414,028 $2.51 
Vested(75,633)$9.23 
Forfeited(1,285,687)$7.57 
Outstanding at March 31, 20228,877,105 $3.50 

The fair value of all RSUs and PSUs granted during the three months ended March 31, 2022 was $16.1 million.

Stock-based compensation expense

During the three months ended March 31, 2022 and 2021, we recognized a total of $0.9 million and $4.5 million, respectively, of stock-based compensation (“SBC”) expense related to the vesting of stock options, RSUs and PSUs. The SBC expense for the three months ended March 31, 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 SBC expense by line item in the condensed consolidated statements of operations and comprehensive (loss) income (in thousands):

Three Months Ended March 31,
20222021
Cost of revenues$220 $121 
Research and development765 61 
Selling, general, and administrative(122)(1)4,274 
Total$863 (1)$4,456 
(1) Amount includes $2.7 million of PSU and RSU forfeitures primarily related to two terminated executive officers.

The following table summarizes our SBC expense by award type for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,
20222021
Options$82 $4,456 
Restricted awards (RSUs and PSUs)781 (1) 
Total$863 (1)$4,456 
16


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Amount includes $2.7 million of PSU and RSU forfeitures primarily related to two terminated executive officers.
As of March 31, 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):

March 31, 2022Weighted Average Recognition Period
Options$123 0.46
Restricted awards (RSUs and PSUs)27,419 2.48
Total$27,542 

8.  INCOME TAXES

Our income tax provision consists of federal and state income taxes. The tax provisions for the three months ended March 31, 2022 and 2021 were computed by applying the Company’s estimated annual effective tax rates to the year-to-date pre-tax income for the three months ended March 31, 2022 and 2021 and adjusting for discrete tax items recorded in each period. The Company’s overall effective tax rate of zero 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 March 31, 2022, the Company continued to record a full valuation allowance against the deferred tax asset balance as realization was uncertain.

9.      INVESTMENTS

Available-for-sale debt investments

The following table summarizes our available-for-sale debt investment holdings at March 31, 2022 (in thousands):



Amortized Cost

Gross Unrealized Gains
Gross Unrealized and Credit
Losses
Fair Value
Municipal securities
$15,921 $ $(411)$15,510 
Corporate debt securities
10,367  (329)10,038 
Total (1)
$26,288 $ $(740)$25,548 

(1) There were no unsettled sales of available-for-sale debt investments at March 31, 2022.

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



Amortized Cost

Gross Unrealized Gains
Gross Unrealized and Credit
Losses
Fair Value
U.S. government securities
$28,008 $ $(37)$27,971 
Municipal securities
37,370 47 (194)37,223 
Corporate debt securities
21,706  (122)21,584 
Asset-backed securities5,890  (9)5,881 
U.S. agency mortgage-backed securities
4,700  (50)4,650 
Total (1)
$97,674 $47 $(412)$97,309 

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

17


ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the gross realized gains and gross realized losses related to available-for-sale debt investments for the three months ended March 31, 2022 (in thousands):

Three Months Ended March 31,
20222021
Gross realized gains$108 $34 
Gross realized losses(450)(72)
 Gross realized loss, net$(342)$(38)

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 March 31, 2022 (in thousands):

Unrealized Losses
12 Months or less
Unrealized Losses
Greater than One Year
Total
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Municipal securities
$ $ $15,510 $(411)$15,510 $(411)
Corporate debt securities
720 (31)9,318 (298)10,038 (329)
Total$720 $(31)$24,828 $(709)$25,548 $(740)

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 ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
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 securities5,598 (9)  5,598 (9)
U.S. agency mortgage-backed securities
4,650 (