Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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Note 1. Basis of Presentation

Description of Business

Danimer Scientific, Inc., together with its subsidiaries ("Company", "Danimer", "we", "us", or "our"), is a performance polymer company specializing in bioplastic replacements for traditional petroleum-based plastics. Our common stock is listed on the New York Stock Exchange under the symbol "DNMR".

The Company (formerly Live Oak Acquisition Corp. ("Live Oak")), was incorporated in the State of Delaware on May 24, 2019 as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization, or similar business combination with one or more businesses. Live Oak completed its initial public offering in May 2020. On December 29, 2020 ("Closing Date"), Live Oak consummated a business combination ("Business Combination") with Meredian Holdings Group, Inc. ("MHG" or "Legacy Danimer"), with Legacy Danimer surviving the merger as a wholly owned subsidiary of Live Oak. The Business Combination was accounted for as a reverse recapitalization, meaning that Legacy Danimer was treated as the accounting acquirer and Live Oak was treated as the accounting acquiree. Effectively, the Business Combination was treated as the equivalent of Legacy Danimer issuing stock for the net assets of Live Oak, accompanied by a recapitalization. In connection with the Business Combination, Live Oak changed its name to Danimer Scientific, Inc. On August 11, 2021, we closed the acquisition of Novomer, Inc. (integrated into our business as "Danimer Catalytic Technologies").

Financial Statements

The accompanying condensed consolidated financial statements ("financial statements") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. The financial statements consolidate all assets and liabilities of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. We have made certain reclassifications to previously reported amounts to conform to the current presentation. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these 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, 2023 ("2023 Form 10-K").

We do not have any material items of other comprehensive income (loss); accordingly, there is nodifference between net loss and comprehensive loss and we have not presented a separate Statement of Comprehensive Income (Loss) that would otherwise be required.

There were no significant changes to our critical accounting estimates or our significant accounting policies as disclosed in our 2023 Form 10-K.

Strategic Reorganization and Other Charges

During the three months ended June 30, 2024, we announced the pending retirement of our Chief Executive Officer. This has resulted in approximately $0.2million and $0.5million in expense related to the associated transition and retirement agreement for the three and nine months ended September 30, 2024, respectively. Additionally, we launched a reduction in force and curtailed certain non-core product development activities and recorded $0.3million and $0.7million in strategic reorganization and other related charges, primarily related to severance costs for the three and nine months ended September 30, 2024, respectively.

In July 2024, we temporarily suspended our Danimer Catalytic Technologies business, including additional reduction in force, to further capital conservation. There were no asset impairments associated with this suspension, but we do expect to record additional strategic reorganization and other related charges in the quarter ending December 31, 2024 that will reduce the immediate cost savings realized.

Risk, Uncertainties and Going Concern

We have prepared the financial statements on a going concern basis, which assumes that we will continue our operations for the foreseeable future and be able to realize our assets and discharge our liabilities and commitments in the normal course of business. However, we believe that, with our history of negative cash flows and our current lack of financial resources, substantial doubt exists regarding our ability to continue as a going concern for a period of one year after the date of filing of this Quarterly Report on Form 10-Q. The financial statements do not reflect any adjustments that would be necessary if we became unable to continue as a going concern.

Historically, we have funded working capital, capital expenditures, and our day-to-day operations through issuance of equity (see Note 10) and debt financings (see Note 9). We do not have a history of generating cash flow from operations.

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Our ability to generate revenues is highly dependent on the successful commercialization of our biopolymer products, which is subject to certain risks and uncertainties. Even if the market for our products expands, we anticipate that it will take time for our PHA sales and production to reach an economic scale sufficient to fund our operations. In the meantime, we incur costs and expenses for the continued development and expansion of our business, including the costs of enhancing manufacturing capacity and ongoing product research and development, as well as significant costs to make interest payments on our debt. As a result, we have experienced significant losses and negative cash flows from operations in recent years and this may continue in the near term.

We are in discussions with, and in certain instances have begun production for, large restaurant chains and consumer goods companies and their converters to expand the use of our PHA-based resins in cutlery, straws, single-use food packaging and films. We believe these customers will order in sufficient volumes in the next year to allow our per-unit cost of production to decrease significantly, resulting in increased cash flow generation.

However, these volumes may not materialize or we may not be able to produce sufficient inventory profitably. In order to preserve cash until these expected sales reach their full potential, we have taken actions to reduce our operating costs across all areas of the business and to more closely monitor our liquidity position. For example, we have reduced discretionary spending, reduced labor costs through employee headcount rationalization, increased senior management focus on collections of accounts receivable, postponed certain capital expenditures, and launched an initiative to reduce on-hand inventory levels. We have also temporarily suspended operations at our Danimer Catalytic Technologies business to further capital conservation. We also expect to take further actions, which could include securing alternative funding sources or restructuring existing debt facilities, to preserve our liquidity as we work towards achieving a sustainable capital structure for our operations, but there can be no assurance that these actions will be successful.

In addition, if substantial doubt continues to exist as of December 31, 2024 and our filing of the Annual Report on Form 10-K contains a Report of Independent Registered Public Accounting Firm that includes disclosure regarding going concern, that would constitute an event of default under our Senior Secured Term Loan, which would cause cross-default of substantially all of our debt. (See Note 9).

Note 2. Inventories, net

At September 30, 2024 and December 31, 2023, finished goods and related items included $9.9million and $7.6million, respectively, of finished neat PHA. Inventory at September 30, 2024 and at December 31, 2023 is stated net of slow moving inventory reserves of $1.5million and $0.9million, respectively.

Note 3. Property, Plant and Equipment, net

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Construction in progress consists primarily of the early phases of construction of our PHA plant in Bainbridge, Georgia ("Greenfield Facility") as noted in the table below. We do not have expected in-service dates for our Greenfield Facility, since we have paused major construction. We will need to obtain additional financing to complete our Greenfield Facility. In 2022, the engineering cost estimate ranged from $515million to $665million, which does not consider any effect of subsequent inflation, and if we do not obtain financing, our investment could be impaired.

Property, plant and equipment includes gross capitalized interest of $15.0million as of both September 30, 2024 and December 31, 2023. For the three and nine months ended September 30, 2024 and 2023, capitalized interest costs were immaterial.

Note 4. Intangible Assets

Our recognized intangible assets consist of patents and the unpatented technological know-how of Danimer Catalytic Technologies. Our legacy patents were initially recorded at cost. The values of Danimer Catalytic Technologies' patents and unpatented know-how are inseparable and represent their acquisition-date fair value, less subsequent amortization.

We capitalize patent defense and application costs and amortize these costs on a straight-line basis over their estimated useful lives, which range from 10 to 20years. Our intangible portfolio has an estimated weighted average useful life of 16.8years.

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Amortization expense was $1.1million and $1.2million for the three months ended September 30, 2024 and 2023, respectively, and $3.3million and $3.5million for the nine months ended September 30, 2024 and 2023, respectively. This expense was included in research and development costs.

Note 5. Accrued Liabilities

Note 6. Income Taxes

We reported immaterial income tax expense for the three and nine months ended September 30, 2024, which resulted in an effective income tax rate of zeropercent. We reported an income tax expense for the three and nine months ended September 30, 2023 of $0.5millionand $0.3million, respectively, which resulted in effective income tax rates of -1.18% and -0.27%, respectively. Our effective tax rates differed from the federal statutory rate of 21% due to our valuation allowances against substantially all of our net deferred income tax assets.

In assessing the realizability of deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods at which time those temporary differences become deductible.

In making valuation allowance determinations, we consider all available evidence, positive and negative, affecting specific deferred income tax assets, including the scheduled reversal of deferred income tax liabilities, projected future taxable income, the length of carry-back and carry-forward periods, and tax planning strategies in making this assessment. At September 30, 2024, we maintained a full valuation allowance against our net deferred income tax assets due to the uncertainty surrounding realization of such assets.

Note 7. Leases

Note 8. Warrant Liability

Private Warrants

At September 30, 2024 and December 31, 2023, there were 3,914,525outstanding warrants to purchase shares of our common stock at an exercise price of $11.50per share, subject to adjustments, which were privately placed prior to the Business Combination ("Private Warrants"). The Private Warrants have been exercisable since May 7, 2021. On December 28, 2025, any then-outstanding Private Warrants will expire.

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The Private Warrants meet the definition of derivative instruments and are reported as liabilities at their fair values at each period end, with changes in the fair value of the Private Warrants recorded as a non-cash loss or gain. A rollforward of the Private Warrants liability is below.

Common Warrants

On March 25, 2024, we closed a registered direct offering of our common stock that included accompanying warrants to purchase up to an aggregate of 15,000,000shares of Common Stock ("Common Warrants").

The Common Warrants have an exercise price of $1.33per share, are exercisable beginning on September 25, 2024, and expire on September 25, 2029. The Common Warrants meet the definition of derivative instruments and are reported as liabilities at their fair values at each period end, with changes in the fair value of the Common Warrants recorded as a non-cash loss or gain. A rollforward of the Common Warrants liability is below.

Dividend Warrants

On July 12, 2024, we distributed 46,756,215warrants to purchase shares of common stock ("Dividend Warrants") to stockholders, holders of Pre-Funded Warrants and holders of Convertible Notes, in each case as of the record date of May 13, 2024. Each Dividend Warrant entitles the holder to purchase one share of our common stock plus, if applicable, a bonus share fraction of one-half of one share of our common stock, at an initial exercise price of $5.00per Dividend Warrant. Any remaining unexercised Dividend Warrants expire on July 15, 2025.

In addition to Dividend Warrants being exercisable for cash, beginning on July 26, 2024, and subject to the terms and conditions of the warrant agreement, holders of Dividend Warrants can also exercise their Dividend Warrants with Convertible Notes at face value, meaning that one Convertible Note having a principal amount of $1,000may be surrendered as consideration to exercise 200Dividend Warrants. We plan to retire any Convertible Notes surrendered to pay the exercise price for Dividend Warrants. As of September 30, 2024, we had retired $8.1million of our 3.25% Convertible Notes, resulting in a $6.8million gain on early extinguishment of debt. At September 30, 2024, 45,128,594Dividend Warrants remain outstanding.

The Dividend Warrants meet the definition of derivative instruments and are reported as liabilities at their fair values at each period end, with changes in the fair value of the Dividend Warrants recorded as a non-cash loss or gain. A rollforward of the Dividend Warrants liability is below.

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Note 9. Debt

3.25% Convertible Senior Notes

On December 21, 2021, we issued $240million principal amount of our 3.25%Convertible Senior Notes due 2026("Convertible Notes"), subject to an indenture ("Indenture").

The Convertible Notes are our senior, unsecured obligations and accrue interest at a rate of 3.25%per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2022. We will settle conversions by paying or delivering, as applicable, cash, shares of common stock or a combination of cash and shares, at our election. The initial conversion rate, which is subject to change, is approximately $10.79per share of common stock. If certain liquidity conditions are met, we may redeem the Convertible Notes between December 19, 2024 and October 20, 2026. The Convertible Notes mature on December 15, 2026.

The Indenture requires us to offer to repurchase the Convertible Notes upon the occurrence of certain "Fundamental Change" events, including specified change of control transactions and any delisting of our Common Stock. In addition, upon the occurrence of certain events, including the acceleration of the Senior Secured Term Loan, the holders of 25% of the Convertible Notes may accelerate the principal balance of the Convertible Notes. If such acceleration occurs, it would cause an event of default under the Senior Secured Term Loan and the Revolving Credit Agreement, which could result in the principal and interest on our Senior Secured Term Loan and Revolving Credit Agreement becoming immediately due and payable.

On July 12, 2024, we completed the distribution of Dividend Warrants as described in Note 8. In addition to Dividend Warrants being exercisable for cash, beginning on July 26, 2024 and subject to the terms and conditions of the warrant agreement governing the Dividend Warrants, holders of Dividend Warrants could also exercise their Dividend Warrants with Convertible Notes at face value, meaning that one Convertible Note having a principal amount of $1,000may be surrendered as consideration to exercise 200Dividend Warrants. Convertible Notes surrendered to pay the exercise price for Dividend Warrants will be retired. As of September 30, 2024, we have retired $8.1million of previously outstanding convertible notes resulting in a gain on extinguishment of $6.8million.

Capped Calls

Also in December 2021, in connection with the Convertible Notes, we purchased call options ("Capped Calls") from certain well-capitalized financial institutions for $35million. The Capped Calls permit us to require the counterparties to deliver to us shares of our common stock, subject to a capped number of shares. We may also net-settle the Capped Calls and receive cash instead of shares. We have not exercised any of the Capped Calls at September 30, 2024, and the Capped Calls expire on April 12, 2027.

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Senior Secured Term Loan

On March 17, 2023, we closed a $130million principal amount senior secured term loan ("Senior Secured Term Loan"). The Senior Secured Term Loan is secured by substantially all of our assets, other than the assets of Danimer Catalytic Technologies and assets associated with the Greenfield Facility. The Senior Secured Term Loan matures on the earlier of March 17, 2027 or September 15, 2026 if more than $100million of the existing Convertible Notes remain outstanding on that date. After payment of the lender's expenses, including the first three years of premiums for a collateral protection insurance policy for the benefit of the lender, we received net proceeds of $98.6million. The Senior Secured Term Loan accrues interest at a stated annual rate of 14.4%, payable monthly. As part of the Senior Secured Term Loan agreement, we are required to hold $12.5million in an interest-payment reserve account, which we have reported as restricted cash.

Upon the occurrence of certain events, including a Fundamental Change, the acceleration of the Convertible Notes, Revolving Credit Agreement or certain other debt or outstanding obligations, or our filing of an Annual Report on Form 10-K containing a Report of Independent Registered Public Accounting Firm that includes disclosure regarding going concern, the principal balance under the Senior Secured Term Loan may accelerate and become due immediately. If such acceleration were to occur, that would cause a cross-default of substantially all of our other debt.

In connection with the Senior Secured Term Loan, we also issued warrants with a five-year maturity to the lender to purchase 1.5million shares of our common stock at an exercise price of $7.50per share. We determined the fair value of these warrants as of the closing date was $0.5million using the Black-Scholes model and included this amount in additional paid-in capital.

New Markets Tax Credit Transactions

We entered into financing arrangements under the New Markets Tax Credit ("NMTC") program with various unrelated third-party financial institutions (individually and collectively referred to as "Investors"), which then invest in certain "Investment Funds".

In each of the financing arrangements, we loaned money to the Investment Funds. These loans of $31.4million are recorded as leveraged loan receivables at September 30, 2024 and December 31, 2023, respectively. Each Investment Fund then contributed the funds from our loan and the Investor's investment to a special purpose entity, which then in turn loaned the contributed funds to a wholly owned subsidiary of the Company.

We believe these borrowings, and our related loans to the Investment Funds, will be forgiven in 2026 and 2029.

Revolving Credit Agreement

On April 19, 2024, we entered into an asset-based lending agreement ("Revolving Credit Agreement"). The Revolving Credit Agreement provides for borrowings under a revolving commitment of $20.0million. Subject to the terms and conditions of the Revolving Credit Agreement, we may request an increase in the Revolving Commitment by an amount between $2.5million and $5.0million. The amount of the Revolving Commitment available for borrowing at any given time is $18.5million, subject to a borrowing base formula that is based upon our accounts receivable and inventory, as more fully described in the Revolving Credit Agreement. We are required to borrow a minimum of 50% of the calculated weekly borrowing base formula at all times. At September 30, 2024, the remaining availability under the Revolving Credit Agreement is $4.8million.

Amounts borrowed under the Revolving Credit Agreement accrue interest at an annual rate equal to the Secured Overnight Financing Rate plus 7%, and any unused Revolving Commitment accrues an unused facility fee at an annual rate of 0.5%, each payable monthly. As of September 30, 2024, the interest rate in effect on the Revolving Credit Agreement was 12.2%. The Revolving Credit Agreement matures on April 19, 2027; however, certain provisions exist that can accelerate the maturity date.The Revolving Credit Agreement also contains other customary representations, warranties, and affirmative and negative covenants. Upon the occurrence of certain events, including a Fundamental Change, the acceleration of the Convertible Notes and the Senior Secured Term Loan or certain of our other debt and any other outstanding obligations, the principal balance of the Revolving Credit Agreement may accelerate and become due immediately.

The Revolving Credit Agreement is secured by a lien on all of our accounts receivable and inventory and the proceeds thereof and certain other assets as set forth in the Revolving Credit Agreement.

Insurance Premium Finance Notes

In December 2023 and June 2024, we entered into financing agreements related to the premiums of certain insurance policies. Each of these notes have a one-year term and bear interest at 8.24%and 8.49%, respectively.

Vehicle and Equipment Notes

We have eleven vehicle and equipment notes outstanding at September 30, 2024, primarily relating to motor vehicles and warehouse equipment. We make monthly payments on these notes at interest rates ranging from 3.75%to 6.99%.

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Mortgage Notes

We have a mortgage note secured by a residential property. This note bears interest at 5.25% with a maturity date in May 2025.

Note 10. Equity

Common Stock

Preferred Stock

We are authorized to issue up to 10,000,000shares of preferred stock, each with a par value of $0.0001per share. At September 30, 2024 and December 31, 2023, noshares of preferred stock were issued or outstanding.

Non-Plan Legacy Danimer Options

Prior to 2017, Legacy Danimer had issued 208,183stock options that were not a part of either the 2016 Executive Plan or the 2016 Omnibus Plan. These options had a weighted average exercise price of $30per share. On December 29, 2020, the then-remaining 30,493of these options were converted to options to purchase 279,255shares of our common stock with a weighted average exercise price of $3.28per share. During 2021, 153,763of these options were exercised. There were 125,492of these options remaining outstanding at September 30, 2024 and December 31, 2023.

Equity Distribution Agreement

On September 7, 2022, we entered into an equity distribution agreement with Citigroup Global Markets Inc. ("Manager"), under which we may issue and sell shares of our common stock "at the market" from time-to-time with an aggregate offering price of up to $100.0million ("ATM Offering"). Under the ATM Offering, the Manager may sell small volumes of our common stock at the prevailing market price, during such times and on such terms as we have predesignated. We have no obligation to sell any shares and may at any time suspend offers and sales that are part of the ATM Offering and may terminate the ATM Offering without penalty. On a life-to-date basis, we have issued 590,661shares at an average price of $2.72resulting in proceeds of $1.4million. We incurred life-to-date issuance costs of $1.4million, which were primarily one-time costs, but which also included less than $0.1million in commissions to the Manager.

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On March 20, 2024, we amended the prospectus supplement relating to the ATM Offering to reduce the amount available for sale pursuant to the agreement from $100.0million to $50.0million. At September 30, 2024, $48.6million remains available for distribution under the ATM Offering.

Anti-dilutive Instruments

Senior Secured Term Loan Warrants

On March 17, 2023, we issued warrants to purchase 1.5million shares of our common stock for $7.50per share in connection with the closing of the Senior Secured Term Loan. These warrants were accounted for as an equity arrangement and were included in additional paid-in-capital at September 30, 2024 and 2023. These warrants expire on March 17, 2028.

Pre-Funded Warrants

On March 25, 2024, we completed a registered direct offering for the purchase and sale of an aggregate of 11,250,000shares of our common stock, as well as pre-funded warrants to purchase up to an aggregate of 3,750,000shares of our common stock ("Pre-Funded Warrants") resulting in gross proceeds of approximately $15.0million less customary closing fees.

The Pre-Funded Warrants have an exercise price of $0.0001per share and expire on March 26, 2029. The Pre-Funded Warrants were accounted for as an equity arrangement and were included in additional paid-in-capital at September 30, 2024. The Pre-Funded Warrants are included in the determination of basic earnings per share.

At September 30, 2024, all Pre-Funded Warrants had been exercised, resulting in an immaterial cash receipt.

Note 11. Revenue

We evaluate financial performance and make resource allocation decisions based upon the results of our single operating and reportable segment; however, we believe presenting revenue split between our primary revenue streams of products and services best depicts how the nature, amount, timing and certainty of our net sales and cash flows are affected by economic factors.

We generally produce and sell finished products, for which we recognize revenue upon shipment. We provide for expected returns based on historical experience and future outlook. Variable consideration such as discounts, rebates, or volume discounts that we estimate to reduce our transaction price are not material.

We defer certain contract fulfillment costs and amortize these costs to cost of revenue on a per-pound basis as we sell the related product or when the related contracts expire. During the three and nine months ended September 30, 2024 and 2023, amortization of these contract fulfillment costs was immaterial. At each of September 30, 2024 and December 31, 2023, we had gross contract fulfillment costs of $1.3million and net contract fulfillment costs of $1.1million, which were included in other assets.

Our research and development ("R&D") services contract customers generally pay us at the commencement of the agreement and then at additional intervals as outlined in each contract. We recognize contract liabilities for such payments and then recognize revenue as we satisfy the related performance obligations. To the extent collectible revenue recognized under this method exceeds the consideration received, we recognize contract assets for such unbilled consideration.

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R&D contract assets, net were $4.5million and $3.7million at September 30, 2024 and December 31, 2023, respectively. The long-term portion of these assets were $0.1million and $0.7million at September 30, 2024 and December 31, 2023, respectively, and are included in other assets. Revenue recognized that was included in contract liabilities at the beginning of the period was not material for any period presented.

Disaggregated Revenues

Note 12. Stock-Based Compensation

We grant various forms of stock-based compensation, including restricted stock, restricted stock units, stock options, stock appreciation rights, and performance-based restricted stock units under our Danimer Scientific, Inc. 2020 Long-Term Equity Incentive Plan ("2020 Incentive Plan") and employee stock purchase plan instruments under our 2020 Employee Stock Purchase Plan ("2020 ESPP Plan").

We also have outstanding employee and director stock options that were issued prior to the Business Combination under legacy stock plans.

The 2020 Incentive Plan provides for the grant of stock options, stock appreciation rights, and full value awards. Full value awards include restricted stock, restricted stock units, deferred stock units, performance stock and performance stock units.

On September 30, 2024 and December 31, 2023, 8,005,154shares and 4,823,519shares, respectively, of our common stock remained authorized for issuance with respect to awards under the 2020 Incentive Plan.

The 2020 ESPP Plan provides for the sale of our common stock to our employees through payroll withholding at a discount of 15% from the lower of the closing price of our common stock on the first or last day of each biannual offering period. Up to 2,571,737shares of our common stock were authorized to be issued under this plan, and we issued 250,549shares during the nine months ended September 30, 2024 resulting in 515,767shares issued since the inception of the plan.

These share pool limits are subject to adjustment in the event of a stock split, stock dividend or other changes in our capitalization.

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Service-based Restricted Stock and RSUs

We recognize the compensation expense for these shares on a straight-line basis from the grant date through the relevant vesting dates, which range from one to three years. We recognized $0.2million and $4.7million of expense related to these awards during the three months ended September 30, 2024 and 2023, respectively. We recognized $0.6million and $9.2million of expense related to these awards during the nine months ended September 30, 2024 and 2023, respectively.

Market-based Restricted Stock

During 2021, we granted 1,517,840shares of restricted stock for which the restrictions lapse on successive thirds of the award on the first date the volume-weighted average price per share of our common stock equals or exceeds $24.20for any 20 trading dates within 30-day trading periods beginning on December 29, 2021, 2022, and 2023, respectively. These awards were fully amortized at December 31, 2023. We recognized $4.6million and $13.9million of related expense during the three and nine months ended September 30, 2023. During 2023, we instituted a cash settlement feature for certain of these awards if the 2020 Incentive Plan does not have enough shares remaining to fulfill these awards at the time of vesting. As such, 754,818of the 1,517,840shares of market-based restricted stock are accounted for as liabilities that are marked to market each period. We maintained a liability of $0.3million as a result of this feature as of September 30, 2024 and December 31, 2023. All of these shares remained outstanding at September 30, 2024.

Performance-based Restricted Stock Units

During 2021, we initiated a Performance-based RSU program. Under this program, each participant is awarded a number of units ("PRSU"s) that may vest based on our performance against one or more specified metrics, with 50% to 100% of these PRSUs vesting proportionally with achieved threshold and target attainment levels. We previously had certain PRSUs that contained a cash settlement feature and we accounted for these PRSUs as liabilities that are marked to market using the price of our common stock at the end of each reporting period with a life-to-date expense adjustment. These 824,698outstanding cash-settleable PRSUs were forfeited during the nine months ending September 30, 2024 in association with the transition and retirement agreement of the Chief Executive Officer. As such, we relieved the previously-maintained $0.1million long-term liability associated with these awards.

For the three months ended September 30, 2024 and 2023, respectively, we recognized related compensation expense of $0.1million and $0.3 million. For the nine months ended September 30, 2024 and 2023, respectively, we recognized related compensation expense of $0.2million and less than $0.1million. These expenses areincluded in selling, general and administrative expenses. We recognize expense on a straight-line basis between the dates of grant and the vesting dates, which we anticipate will be in March 2025, February 2026 and April 2027, for awards granted in 2022, 2023 and 2024, respectively. Our performance did not meet the required conditions for vesting for the PRSUs that were scheduled to vest in February 2024 and accordingly they expired unvested during the nine months ended September 30, 2024. We are currently assuming 100% attainment of our 2026 and 2025 metrics and 0%attainment of our 2024 metrics. All of the PRSUs granted in 2022, 2023 and 2024 remained outstanding at September 30, 2024.

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Stock Appreciation Rights

On April 3, 2024, we awarded 1,732,854stock appreciation rights ("SARs"). The weighted average grant price of these awards was $1.06and the weighted average grant date fair value of these awards was $0.61. These SARs vest ratably on April 3, 2025, April 3, 2026 and April 3, 2027. We recognized $0.2million in expense for these awards during the nine months ended September 30, 2024.

Stock Options

The aggregate intrinsic values are calculated as the difference between the exercise price of the indicated stock options and the fair value of our common stock on September 30, 2024.

There were nostock options granted during the three or nine months ended September 30, 2024.

We granted 204,254share-settled options with a weighted average grant date fair value of $1.17during the three months ended March 31, 2023.

We also granted 1,050,000stock options with a weighted average grant date fair value of $1.17that contained a cash-settlement feature if adequate shares were not available to settle the award by the vesting dates. For the three and nine months ended September 30, 2024, we recognized expense of $0.2million and $0.3million, respectively for all outstanding cash-settleable stock options. For the nine months ended September 30, 2023, we recognized expense of $0.4million for all cash-settleable stock options. We maintained long-term liabilities of $1.0million and $0.1million at September 30, 2024 and December 31, 2023, respectively, related to our outstanding cash-settleable stock options.

Note 13. Fair Value Considerations

GAAP defines "fair value" as the price we would receive to sell an asset or pay to transfer a liability in a timely transaction with an independent buyer. GAAP also sets forth a framework for measuring fair value utilizing a three-tier hierarchy based on the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

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The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities;

Level 2 - Observable inputs other than quoted prices in active markets, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3 - Unobservable inputs reflecting management's assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Level 1

The carrying amounts of our cash and cash equivalents and restricted cash were measured using quoted market prices in active markets and represent Level 1 investments. Our other financial instruments such as accounts receivable, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The September 30, 2024 fair value of our Convertible Notes, based on trades made around that date, was approximately $35.7million.

We set the values of our restricted stock unit and restricted stock awards without market-based vesting provisions on their respective grant dates at the closing price of a share of our common stock on each grant date.

We re-value our restricted stock unit awards that include a cash settlement feature each month at the closing price of a share of our common stock on the last trading day of the month, or $0.45at September 30, 2024.

We re-value our dividend warrant liability at the end of each reporting period using the closing price of a share our of Dividend Warrants on the last trading day of the period, or $0.08at September 30, 2024.

Level 2

We valued our restricted stock awards that contain a market-based vesting provision on the grant date using a Monte Carlo simulation, which takes into account a large number of potential stock price scenarios over time and incorporates varied assumptions about volatility and exercise behavior for those various scenarios. These assumptions are based on market data but cannot be directly observed.

We estimated the fair value of our Senior Secured Term Loan based on an analysis of market activity since loan inception at September 30, 2024 and determined it was approximately $54.9million.

Level 3

We value our stock options, ESPP instruments, Private Warrants and Common Warrants using the Black-Scholes option pricing model on the respective grant dates. We re-value the Private Warrants, Common Warrants and any stock options with a cash-settlement feature at the end of each period. Since our stock price history as a publicly traded company is shorter in duration than the expected lives of our options (other than ESPP instruments), we use the historical volatility of a group of peer companies in combination with our own historical volatility to assess expected volatility. We have not paid and do not currently anticipate paying a cash dividend on our common stock, so we have set the expected annual dividend yield to zero for all calculations. We used risk-free rates equal to the U.S. Treasury yield curves in effect as of each valuation date for durations equal to the expected lives of each instrument. We use the simplified method under Staff Accounting Bulletin Topic 14, defined as the mid-point between the vesting period and the contractual term for each option, to determine the expected lives of stock-settled stock options and we use the remaining contractual lives of ESPP instruments, Private Warrants, Common Warrants, and stock options with a cash-settlement feature as their expected lives.