CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Report") of Danimer Scientific, Inc. contains forward-looking statements. Except where the context otherwise requires or where otherwise indicated, the terms the "Company", "Danimer", "we," "us," and "our," refer to the consolidated business of Danimer Scientific, Inc. (formerly known as Live Oak Acquisition Corp.) and its consolidated subsidiaries. All statements in this Report, other than statements of historical fact, are forward-looking statements These forward-looking statements are based on management's current expectations, assumptions, hopes, beliefs, intentions, and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. Forward-looking statements may contain words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "should," "would," "could," "plan," "predict," "potential," "seem," "seek," "future," "outlook," the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company, incident to its business. Actual results and timing of selected events may differ materially from those anticipated in the forward-looking statements as a result of various factors, including those set forth under the section entitled "Risk Factors" or elsewhere in this Report.

These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, as of the date of the applicable filed document), and any accompanying supplement, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the Company's views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:



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our ability to recognize the anticipated benefits of the Business Combination,
which may be affected by, among other things, competition, and our ability to
grow and manage growth profitably following the Closing;
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costs related to the Business Combination;
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changes in applicable laws or regulations;
?
the outcome of any legal proceedings against us;
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the effect of the COVID-19 pandemic on our business;
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our ability to execute our business model, including, among other things, market
acceptance of our products and services and construction delays in connection
with the expansion of our facilities;
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our ability to raise capital;
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the possibility that we may be adversely affected by other economic, business,
and/or competitive factors;
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our ability to timely and effectively remediate material weaknesses and maintain
effective internal control over financial reporting and disclosure and
procedures; and
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other risks and uncertainties set forth in the section entitled "Risk Factors"
of this Report, which is incorporated herein by reference

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in this Report, specifically the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Other risks and uncertainties are and will be disclosed in our prior and future filings with the Securities and Exchange Commission ("SEC"). The following information should be read in conjunction with the Consolidated Financial Statements and related notes appearing in Part I, Item 1 of this Report.

Introductory Note

The following discussion and analysis of our financial condition and results of operations describes the business historically operated by Meredian Holdings Group and its subsidiaries ("Legacy Danimer") under the "Danimer Scientific" name as an independent enterprise prior to December 29, 2020.

On December 29, 2020, the registrant, Live Oak Acquisition Corp. ("Live Oak"), merged with and into Legacy Danimer, with Legacy Danimer surviving as the surviving company and as a wholly owned subsidiary of Live Oak, and changed its name from Live Oak Acquisition Corp. to Danimer Scientific, Inc. ("Danimer").





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Overview

We are a performance polymer company specializing in bioplastic replacement for traditional petroleum-based plastics. We bring together innovative technologies to deliver renewable, environmentally friendly bioplastic materials to global consumer product companies. We believe that we are the only commercial company in the bioplastics market to combine the production of a base polymer along with the reactive extrusion capacity in order to give customers a "drop-in" replacement for a wide variety of petroleum-based plastics.

PHA-Based Resins

We are a leading producer of polyhydroxyalkanoate ("PHA"), a new, 100% biodegradable plastic feedstock alternative sold under the proprietary Nodax® brand name, for usage in a wide variety of plastic applications including water bottles, straws, food containers, among other things. We originally acquired the technology to produce PHA from Procter & Gamble in 2007. PHA is made through a fermentation process where bacteria consume vegetable oil and make PHA within their cell membranes as energy reserves. We harvest the PHA from the bacteria, then purify and filter the bioplastic before extruding the PHA into pellets, which we sell to converters. PHAs are a complete replacement for petroleum-based plastics where the convertors do not have to purchase new equipment to switch to the new biodegradable plastic. Utilizing PHA as a base resin significantly expands the number of potential applications for bioplastics in the industry and enables us to produce resin that is not just compostable, but also fully biodegradable.

Having successfully scaled up PHA production from the laboratories to a contract manufacturer and later to our own commercial development plant, we recently have begun making PHA on a commercial scale. In December 2018, we acquired a fermentation facility in Winchester, Kentucky ("Kentucky Facility"). We embarked on a two-phase commissioning strategy for the Kentucky Facility. We commenced scale-up fermentation runs in December 2019 and had completed several components of the Phase I improvements by the end of 2020. As of March 31, 2021, we had invested $55.4 million for Phase I and related projects, excluding capitalized interest. Once Phase I is producing at full capacity, we expect to produce approximately 20 million pounds of finished product per year. We believe that the capacity of the plant can be expanded by another 45 million pounds of finished product, bringing total plant capacity up to 65 million pounds per year, by investing an estimated $114 million (plus or minus 4%) for the Phase II expansion, excluding capitalized interest and internal labor. We have commenced Phase II construction and expect to complete the buildout during the second quarter of 2022. We have invested $33.4 million in the Phase II expansion through March 31, 2021, excluding capitalized interest and internal labor.

PLA-Based Resins

Since 2004, we have been producing proprietary plastics using a natural plastic called polylactic acid ("PLA") as a base resin. While PLA is produced by other biopolymer manufacturers, PLA has limited functionality in its unformulated ("neat") form. We purchase neat PLA and formulate it into bioplastic applications by leveraging the expertise of our chemists and our proprietary reactive extrusion process. Our formulated PLA products allow many companies to begin to use renewable and compostable plastics to meet their customers' growing sustainability needs. We have expanded our product portfolio and now supply customers globally.

Research and Development ("R&D") and Other Services

Our technology team partners with global consumer product companies to develop custom biopolymer formulations for specific applications. R&D contracts are designed to develop a formulated resin using PHA, PLA and other biopolymers that can be run efficiently on existing conversion equipment. We expect successful R&D contracts to culminate in supply agreements with the customers. Our R&D services not only provide revenue but also a pipeline of future products.

In addition to producing our own products, we also toll manufacture for customers that need the unique extruder or reactor setup we employ for new or scale-up production. Our specialty tolling services primarily involve processing customer-owned raw materials to assist them in addressing their extrusion capacity constraints or manufacturing challenges.

Comparability of Financial Information

Our results of operations may not be comparable between periods as a result of the Business Combination with Live Oak.

As a result of the merger, we are an SEC-registered and NYSE-listed company, which will require us to continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to continue to incur additional expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below.





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Factors Impacting Our Revenue

We derive our revenue from product sales of PLA- and PHA-based resins as well as from services such as R&D and tolling.

Our product revenue is significantly impacted by our ability to successfully scale the Kentucky Facility for commercial production of PHA. The completion of Phase I and Phase II of the Kentucky Facility will significantly increase our capacity to produce and sell PHA, which is in high demand by our customers. Using our PHAs as base resin significantly expands the number of potential applications for bioplastics and also enables us to produce a resin that is not just compostable, but also fully biodegradable. Since we just recently introduced our PHA on a commercial scale, our product revenues are also impacted by the timing and success of customer trials as well as product degradation testing and certifications. Our product revenue from PLA-based resins is primarily impacted by the effective launch of new product offerings in new markets by our customers as well as the ability of our suppliers to continue to grow their production capacity of neat PLA. Finally, our product revenue is impacted by our ability to deliver biopolymer formulations that can be efficiently run on customer conversion equipment and meet customer application specifications and requirements. Revenue from product sales is generally recognized when the finished products are shipped to customers, as this represents the transfer of control of the product. Due to the highly specialized nature of our products, returns are infrequent and we do not offer rebates or volume discounts that would impact selling prices.

Our services revenue is primarily impacted by the timing of, and execution against, customer contracts. Research and development services generally involve milestone-based contracts to develop PHA-based solutions designed to a customer's specifications and may involve single or multiple performance obligations with the transaction price being allocated to each performance obligation based on the standalone selling price of the performance obligation. Service revenues are recognized over time with progress measured using an input method based on personnel hours incurred to date as a percentage of total estimated personnel hours for each performance obligation within the contract. Upon the completion of research and development contracts, customers generally have the option to enter into long-term supply agreements with us for the developed product solutions. Our ability to grow our services revenue depends on our ability to develop a track record of developing successful biopolymer formulations for our customers and our ability to effectively transition those customer formulations to commercial scale production.

Factors Impacting Our Operating Expenses

Costs of revenue

Cost of revenue is comprised of costs of goods sold and direct costs associated with research and development service projects. Costs of goods sold consists of raw materials and ingredients, labor costs including stock-based compensation for production staff, related production overhead, rent and depreciation costs. Costs associated with research and development service contracts include labor costs, related overhead costs and outside consulting and testing fees incurred in direct relation to the specific service contract.

Selling, general and administrative expense

Selling, general and administrative expense consists of salaries, marketing expense, corporate administration expenses, stock-based compensation not allocated to research and development or costs of revenue personnel, and elements of depreciation, rent and facility expenses that are not directly attributable to direct costs of production or associated with research and development activities.

Research and development expense

Research and development expense include salaries, stock-based compensation, third-party consulting and testing fees, and rent and related facility expenses directly attributable to research and development activities not associated with revenue generating service projects.





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Impacts Related to the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. In response, government authorities have issued an evolving set of mandates, including requirements to shelter-in-place, curtail business operations, restrict travel and avoid physical interaction. These mandates and the continued spread of COVID-19 have disrupted normal business activities in many segments of the global economy, resulting in weakened economic conditions. Government mandates have been lifted by certain public authorities and economic conditions have improved in certain sectors of the economy. Certain regions of the world have experienced increasing numbers of COVID-19 cases, however, and if this continues and if public authorities intensify efforts to contain the spread of COVID-19, normal business activity may be further disrupted and economic conditions could weaken.

Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees and our supply chain. We have endeavored to follow actions recommended by governments and health authorities to protect our employees, with particular measures in place for those working in our manufacturing and laboratory facilities. We have been able to broadly maintain our operations, and we intend to continue to work with our stakeholders (including customers, employees, suppliers and local communities) to responsibly address this global pandemic. However, uncertainty resulting from the global pandemic could result in an unforeseen disruption to our supply chain (for example a closure of a key manufacturing or distribution facility or the inability of a key material or transportation supplier to source and transport materials) that could impact our operations.

Although our revenue has continued to grow during the continuing global pandemic, we believe that some of our customers have deferred decision making and commitments regarding future orders and new contracts. The global pandemic has also resulted in delays in performing trials with new customers and obtaining certification for new products. During this period and especially prior to the merger, we have delayed certain capital expenditures in order to conserve financial resources, resulting in a slower than expected scale up of the Kentucky Facility. We have not observed any material impairments of our assets or a significant change in the fair value of assets due to the COVID-19 pandemic.

For additional information on risk factors that could impact our results, please refer to "Risk Factors" located elsewhere in this Report.

Current Developments

On March 29, 2021, we announced that we have selected Bainbridge, Georgia as the site of our planned greenfield PHA plant. We anticipate the development of this manufacturing complex will require a capital investment of approximately $700 million. This complex has a planned annual production capacity of approximately 250 million pounds and we expect to begin operations there in mid-to-late 2023.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, stock-based compensation, leases and derivatives. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are set forth in our Annual Report on Form 10-K/A for the year ended December 31, 2020.

Revenue recognition

We recognize revenue from product sales and services in accordance with Financial Accounting Standards Board ("FASB") ASC Topic 606, Revenue from Contracts with Customers ("ASC 606").

We derive our revenues from: 1) product sales of developed compostable resins based on PLA, PHA, and other renewable materials; and 2) research and development (R&D) services related to developing customized formulations of biodegradable resins based on PHA as well as tolling revenues.

We generally produce and sell resin pellets, for which we typically recognize revenue upon shipment. Due to the highly specialized nature of our products, returns are infrequent, and therefore we do not estimate amounts for sales returns and allowances. We offer a standard quality assurance warranty related to the fitness of our finished goods. There are no forms of variable consideration such as discounts, rebates, or volume discounts.

R&D service revenues generally involve milestone-based contracts under which we work with a customer to develop a PHA-based solution designed to the customer's specifications, which may involve a single or multiple performance obligations. When an R&D contract has multiple performance obligations, we allocate the transaction price to the performance obligations utilizing a cost-plus approach to estimate the stand-alone selling price, which contemplates the level of effort to satisfy the performance obligations, and then allocate the transaction price to each of the performance obligations based on the relative percentage of the stand-alone selling price. We recognize revenue for these R&D services over time with progress measured utilizing an input method based on personnel hours incurred to date as a percentage of total estimated personnel hours for each performance obligation identified within the contract.





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Upon completion of the R&D services, the customers have an option to enter into long-term supply agreements with us for the product(s) that were developed within the respective contracts. We concluded these customer options were marketing offers, not separate performance obligations, since the options did not provide a material right to any of our customers.

Stock-based compensation

Awards to employees have been granted with either service-based conditions only or market-based and service-based conditions that affect vesting. Service-based condition only awards have graded vesting features, usually over three-year periods. Expense associated with service-based only condition awards with graded vesting features is recognized on a straight-line basis over the requisite service period. Expense associated with market-based and service-based vesting conditions is recognized on a straight-line basis over the longest of the explicit, implicit or derived service period of the award.

Stock-based compensation awards have a contractual life that ranges from less than one year to ten years and are recognized in the Condensed Consolidated Financial Statements based on their grant date fair value. The fair value of each stock option award is estimated using an appropriate valuation method. We use a Black-Scholes option pricing model to value service-based only option awards and a Monte Carlo simulation to value market-based and service-based option awards. The resulting value for the employee options is used for financial reporting purposes.

Leases

We account for leases in accordance with ASC 842, Leases, and we determine if an arrangement is a lease at inception. We use our incremental borrowing rate based on the information available at lease commencement dates, such as rates recently offered to us by lenders on proposed borrowings, in determining the present values of future payments. Our incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Our lease terms may include options to extend or terminate the lease, typically at our own discretion. We evaluate the renewal options at commencement and if they are reasonably certain of exercise, we include the renewal period in the lease term.

Lease costs associated with operating leases consist of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable payments, such as insurance and property taxes, are recorded as incurred and are not included in the initial lease liability.

Derivatives

We account for outstanding privately-held warrants to purchase our common stock for $11.50 per share as derivatives under ASC 815, Derivatives and Hedging and therefore we report these warrants at their fair value on our Condensed Consolidated Balance Sheets and report changes in the fair value of the private warrants in current income.



Condensed Consolidated Results of Operations for the three months ended
March 31, 2021 and 2020:

(in thousands)                           Three Months Ended March 31,
                                          2021                  2020            Change
Revenue:
Products                             $        11,024       $        9,179     $     1,845
Services                                       2,157                1,419             738
Total revenue                                 13,181               10,598           2,583
Cost of revenue                               11,725                7,429           4,296
Gross profit                                   1,456                3,169          (1,713 )
Gross profit percentage                        11.05 %              29.90 %
Operating expense:
Selling, general and                          10,120                2,980           7,140
administrative
Research and development                       2,619                1,247           1,372
Total operating expenses                      12,739                4,227           8,512
Loss from operations                         (11,283 )             (1,058 )       (10,225 )
Nonoperating expense:
Loss on remeasurement of private             (80,697 )                  -         (80,697 )
warrants
Interest expense, net                           (200 )               (713 )           513
Loss on debt extinguishment                   (2,604 )                  -          (2,604 )
Other income, net                                 50                   90             (40 )
Total nonoperating expenses                  (83,451 )               (623 )       (82,828 )
Net loss                             $       (94,734 )     $       (1,681 )   $   (93,053 )




Revenue



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Total revenue for the three months ended March 31, 2021 was $13.2 million compared to total revenue of $10.6 million for the three months ended March 31, 2020. Revenue from product sales was $11.0 million for the three months ended March 31, 2021 compared to $9.2 million for the same period in 2020. Driving this increase in product revenue was a 9% increase in pounds sold and an approximately 9% increase in our weighted average selling price. The $1.8 million increase in product revenue was primarily attributable to increases in PHA-based product sales of $3.6 million offset by a decrease in PLA-based product sales of $1.8 million. The increase in PHA-based product sales was the result of the continued ramp-up of production capacity at our Kentucky Facility. The decrease in PLA-based product sales was primarily the result of fluctuations in customer demand for a specific application of a recently introduced PLA solution for a developing consumer market application. Additionally, some of our customers purchasing PLA-based products decided to increase their inventory levels in 2020 to protect against potential supply chain disruptions that might have arisen due to the spread of the COVID-19 virus. Once their higher inventory levels were achieved in late 2020, certain customers slowed their orders in early 2021. Services revenue was $2.1 million for the three months ended March 31, 2021 compared to $1.4 million for the three months ended March 31, 2020. The increase in services revenue relates primarily to a $0.8 million increase in revenue from research and development projects. We have three customers that accounted for 53% of the total revenue for the three months ended March 31, 2021, which compares with three customers that accounted for 58% of the total revenue during the three months ended March 31, 2020.

Cost of revenue and gross profit

Cost of revenue for the three months ended March 31, 2021 was $11.7 million compared to $7.4 million for the three months ended March 31, 2020, an increase of 57.8%. The increase in cost of revenue is primarily a result of the cost of PHA-based products representing a significantly larger portion of our total cost of revenue during the first quarter of 2021 compared to the first quarter of 2020, reflecting a shift in product mix between the periods. In the first three months of 2021, PHA-based products represented 29% of our total revenue compared to only 2% during the same period in the prior year. The average cost per pound of PHA-based products sold in the first quarter of 2021 was significantly higher than our PLA-based products due to elevated fixed-cost absorption at our Kentucky Facility as we scale up production. We expect our average cost per unit sold to improve as the Kentucky Facility continues to scale up production. Included in the increase in cost of revenue was a $1.2 million increase in depreciation expense and a $0.3 million increase in rent expense primarily related to completing the installation of certain assets at the Kentucky Facility and commencing production. We anticipate that rent and depreciation will become a smaller portion of our cost of revenue as we continue to scale up PHA production at the Kentucky Facility. Gross margin percentage decreased to 11.1% for the three months ended March 31, 2021 from 29.9% for the three months ended March 31, 2020. The decline in our gross profit margin was primarily the result of commencing limited PHA manufacturing activities in early 2020 at the Kentucky Facility and the incurrence of associated incremental ramp-up costs, including increased depreciation expense.

Operating expenses

Operating expense for the three months ended March 31, 2021 increased by $8.5 million compared to the same period in 2020. Selling, general and administrative expense for the three months ended March 31, 2021 totaled $10.1 million compared to $3.0 million for the three months ended March 31, 2020 while research and development expense totaled $2.6 million for the three months ended March 31, 2021 compared to $1.2 million for the three months ended March 31, 2020. The increase in selling, general and administrative expense was due primarily to an increase in stock-based compensation expense of $5.8 million primarily related to equity awards that were granted in conjunction with the Business Combination, an increase of $0.5 million in accounting and auditing fees representing costs incurred to address the financial reporting requirements of becoming a public company, a $0.4 million increase in property and other insurance costs, as well as increased accrued property taxes associated with our growing asset base and increases in compensation and benefits related to hiring additional finance and administrative staff. The increase in research and development expense period over period was primarily attributed to increases in stock-based compensation expense of $0.8 million primarily related to equity awards that were granted in conjunction with the Business Combination. Also contributing to the increase were increased compensation and benefits costs of $0.7 million related to additional headcount in the research and development areas.

Loss on remeasurement of private warrants

During the quarter ended March 31, 2021, we recognized a loss on our Private Warrants, which we account for as derivative instruments. This loss represents an increase in the fair value of each of the 5.4 million outstanding Private Warrants of $13.49 due primarily to an increase in the market price of our common stock between December 31, 2020 and March 31, 2021, as further described in Note 9 of our Condensed Consolidated Financial Statements.

Interest expense

Interest expense for the three months ended March 31, 2021 decreased by $0.5 million compared to the three months ended March 31, 2020 primarily resulting from the payoff the 2019 Term Loan in January 2021, the settlement of convertible notes into equity in the fourth quarter of 2020, and the extinguishment of certain loans issued in connection with the new market tax credit program. This decrease was offset by capitalized interest declining to $0.2 million for the three months ended March 31, 2021 from $0.8 million for the three months ended March 31, 2020. The interest capitalization primarily relates to the purchase, modification and installation of machinery and equipment at the Kentucky Facility.



Loss on loan extinguishment



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During the quarter ended March 31, 2021, we voluntarily paid off our 2019 Term Loan balance of $27.0 million. We recognized a loss of $2.6 million upon this extinguishment due to the write off of unamortized debt issuance costs and prepayment and other fees.

Income tax expense

For the three months ended March 31, 2021 and 2020, we had no income tax expense or benefit. Our effective tax rate differed from the federal statutory rate of 21% due to our net loss position and maintaining a full valuation allowance.

On March 31, 2021, we continued to maintain a full valuation allowance against our net deferred tax assets due to the uncertainty surrounding realization of such assets.

Net loss

The net loss was $94.7 million for the three months ended March 31, 2021 compared to a net loss of $1.7 million for the three months ended March 31, 2020. The change from 2020 to 2021 was primarily attributable to the loss on remeasurement of private warrants of $80.7 million and the increase in loss from operations of $10.2 million as discussed in the sections above.

Liquidity and capital resources

Our primary sources of liquidity are currently equity issuances and debt financings. We had accumulated deficit of $153.5 million and $58.8 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, we had $312.9 million in cash and cash equivalents and working capital of $321.6 million. While we believe we have established an ongoing source of revenue that will be sufficient to cover our ongoing operating costs, we are currently experiencing a period of significant capital expenditures resulting from the ongoing expansion and construction of our manufacturing and production facilities.

At March 31, 2021, our most significant borrowing facility was our "Subordinated Term Loan" described below. However, we secured an additional source of liquidity on April 29, 2021, when we entered into a credit facility with Truist Bank that includes a $20.0 million variable interest rate asset-backed lending arrangement and a $1.0 million capital expenditure line with customary terms and conditions. These arrangements mature on April 29, 2026.

Subordinated Term Loan

In March 2019, we, through a subsidiary ("DSH"), entered into a subordinated second credit agreement ("Subordinated Term Loan") for $10 million in term loans consisting of two loans in the amounts of $5.5 million and $4.5 million with essentially the same terms. The term loans mature on February 13, 2024 and require monthly interest only payments, with the outstanding principal balance due at maturity. The base interest rate is the "Prime Rate" as quoted by the Wall Street Journal (adjusted each calendar quarter; 3.25% and 3.25% at March 31, 2021 and December 31, 2020, respectively) plus 2.75%. We have the option to pay up to two percent (2%) in any interest payable in any fiscal quarter by adding such interest payment to the principal balance of the related note ("PIK Interest"). During the year ended December 31, 2020, we used the PIK Interest option and an additional $0.2 million was included in the principal balance at December 31, 2020. The Subordinated Term Loan provided for financial covenants including a maximum capital expenditures limit, leverage ratio, fixed charge coverage ratio and adjusted EBITDA, certain of which became more restrictive over time.

On March 18, 2021, we amended the Subordinated Term Loan to, among other things, change the base rate from the prime rate to LIBOR, lower the applicable margin to 2% from 2.75%, remove certain prepayment requirements, convert the financial covenants to "springing" covenants that do not apply as long as DSH has at least $10 million of unrestricted cash on deposit, increase the capital expenditure covenant, and restrict our ability to prepay the loan until after July 1, 2022.

Cash flows for the three months ended March 31, 2021 and 2020



The following table summarizes our cash flows from operating, investing and
financing activities:

                                                        For the Three Months
                                                           Ended March 31,
(in thousands)                                           2021           2020
Net cash (used in) operating activities               $   (14,208 )   $  (5,615 )
Net cash (used in) investing activities               $   (23,893 )   $ (15,340 )

Net cash (used in) provided by financing activities $ (26,566 ) $ 27,011

Cash flows from operating activities

Net cash used in operating activities was $14.2 million during three months ended March 31, 2021 compared to net cash used in operating activities of $5.6 million during the comparable period for 2020. The period-to-period change was primarily attributable to changes in working capital, such as increases in our accounts receivable, inventory, prepaid expenses and other current assets, a decrease in contract liabilities, as well as an increase in net loss (after adjusting for non-cash items).

Cash flows from investing activities





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For the three months ended March 31, 2021, we used $23.9 million for the purchase of property, plant and equipment which compares to $15.3 million for the purchase of property, plant and equipment for three months ended March 31, 2020. During 2021, we commenced a further expansion of the production capacity of our Kentucky Facility (Phase II). Through March 31, 2021, we have invested approximately $38.1 million, excluding capitalized interest for the Phase II expansion project.

Cash flows from financing activities

For the three months ended March 31, 2021, net cash used in financing activities was $26.6 million which consisted of:

· Principal payment of long-term debt of $27.0 million

· Proceeds from the exercise of stock options of $1.2 million

This compares to net cash provided by financing activities of $27.0 million for the three months ended March 31, 2020, which consisted of:



    ·   Proceeds of $24.9 million from the issuance of common stock, net of
        issuance costs
    ·   Proceeds from issuance of long term debt of $2.4 million

Off-balance sheet arrangements

At March 31, 2021 we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement, or other contractual arrangement to which an unconsolidated entity is a party, under which we have any obligation arising under a guarantee contract, derivative instrument, or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity, or market risk support for such assets.

Currently we do not engage in off-balance sheet financing arrangements.

Emerging Growth Company Status

We are an emerging growth company ("EGC"), as defined in the JOBS Act. The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; and (iii) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer's compensation to median employee compensation.

We will remain an EGC under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the closing of Live Oak's initial public offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a "large accelerated filer" under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three-years.

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