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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2022

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

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, 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 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 Combination and included the period of December 29, 2020 through June 27, 2021.

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 $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 and 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)


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

Impairment of Long-Lived Assets

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 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 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.

Derivatives Accounting for the SEPA

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.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.