Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-39537
Laird Superfood, Inc.
(Exact Name of Registrant as Specified in its Charter)
| | |
Delaware |
| 81-1589788 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer
Identification No.) |
275 W. Lundgren Mill Drive, Sisters, Oregon977595303 Spine Road, Suite 204, Boulder, Colorado 80301
(Address of principal executive offices, including Zip Code)
Registrant’s
Registrant’s telephone number, including area code: (888)670-6796 (541) 588-3600
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock | | LSF | | NYSE American |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | |
Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☒ | | Smaller reporting company | | ☒ |
| | | | Emerging growth company | | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 8, 20227, 2023 the registrant had 9,222,6229,349,445 shares of common stock, $0.001 par value per share, outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements convey our current expectations or forecasts of future events and are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will,” “seeks,” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements.
Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Key factors that could cause actual results to be different than expected or anticipated include, but are not limited to:
•our limited operating history and ability to become profitable;
•our reliance on third parties for raw materials and production of some of our products;
•our ability to manage our growth, including our human resource requirements;
•our future capital needs;
•our ability to retain and grow our customer base;
•our reliance on independent distributors for a substantial portion of our sales;
•our ability to evaluate and measure our business, prospects and performance metrics;
•our ability to compete and succeed in a highly competitive and evolving industry;
•the health of the premium organic and natural food industry as a whole;
•risks related to our intellectual property rights and developing a strong brand;
•our reliance on key personnel, including Laird Hamilton and Gabrielle Reece;
•risks associated with the COVID-19 pandemic, including those related to any variant strains of the virus that may emerge;
•risks related to our international operations;
•the risk of substantial dilution from future issuances of our equity securities; and
•the other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2021.
| ● | our limited operating history and ability to become profitable; |
| ● | our ability to manage our growth, including our human resource requirements; |
| ● | our reliance on third parties for raw materials and production of our products to our quality standards; |
| ● | our future capital resources and needs, including our ability to continue as a going concern; |
| ● | our ability to retain and grow our customer base; |
| ● | our reliance on independent distributors for substantially all of our sales; |
| ● | our ability to evaluate and measure our business, prospects and performance metrics; |
| ● | our ability to compete and succeed in a highly competitive and evolving industry; |
| ● | the health of the premium organic and natural food industry as a whole; |
| ● | risks related to our intellectual property rights and developing a strong brand; |
| ● | our reliance on key personnel, including Laird Hamilton and Gabrielle Reece; |
| ● | risks of major bank failure, sustained financial market illiquidity, or illiquidity at our financial institutions; |
| ● | the risk of substantial dilution from future issuances of our equity securities; and |
| ● | the other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2022. |
In light of these risks, uncertainties and assumptions, you are cautioned not to place undue reliance on forward-looking statements, which are inherently unreliable and speak only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. When considering forward-looking statements, you should keep in mind the cautionary statements in this report. We qualify all our forward-looking statements by these cautionary statements. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
| | | As of | | | As of | |
| | September 30,
2022 | | | December 31,
2021 | | | September 30, 2023 | | | December 31, 2022 | |
Assets | | | | | | | | | | | | |
Current assets | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | | $ | 21,018,103 | | | $ | 23,049,234 | | | $ | 7,425,050 | | | $ | 17,809,802 | |
Accounts receivable, net | | | 1,554,573 | | | | 1,268,718 | | | 2,186,645 | | | 1,494,469 | |
Investment securities available-for-sale | | | — | | | | 8,635,077 | | |
Inventory, net | | | 8,818,013 | | | | 10,221,343 | | | 6,552,571 | | | 5,696,565 | |
Prepaid expenses and other current assets, net | | | 1,801,955 | | | | 3,827,543 | | | 1,436,035 | | | 2,530,075 | |
Deposits | | | 90,297 | | | | 679,919 | | |
Total current assets | | | 33,282,941 | | | | 47,681,834 | | | | 17,600,301 | | | | 27,530,911 | |
Noncurrent assets | | | | | | | | | | |
Property and equipment, net | | | 4,213,404 | | | | 4,512,935 | | | 138,604 | | | 150,289 | |
Fixed assets held-for-sale | | | — | | | 800,000 | |
Intangible assets, net | | | 3,105,834 | | | | 4,838,854 | | | 1,136,953 | | | 1,292,118 | |
Goodwill | | | — | | | | 6,486,000 | | |
Right-of-use asset | | | 6,958,803 | | | | 2,327,752 | | |
Related party license agreements | | | 132,100 | | | 132,100 | |
Right-of-use assets | | | | 386,118 | | | | 133,922 | |
Total noncurrent assets | | | 14,278,041 | | | | 18,165,541 | | | | 1,793,775 | | | | 2,508,429 | |
Total assets | | $ | 47,560,982 | | | $ | 65,847,375 | | | $ | 19,394,076 | | | $ | 30,039,340 | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | |
Accounts payable | | $ | 826,688 | | | $ | 888,768 | | | $ | 1,869,458 | | | $ | 1,080,267 | |
Payroll liabilities | | | 989,458 | | | | 814,163 | | |
Accrued expenses | | | 3,133,121 | | | | 2,083,090 | | | 4,059,799 | | | 6,295,640 | |
Lease liability, current portion | | | 743,109 | | | | — | | |
Related party liabilities | | | 56,574 | | | 16,500 | |
Lease liabilities, current portion | | | | 129,274 | | | | 59,845 | |
Total current liabilities | | | 5,692,376 | | | | 3,786,021 | | | 6,115,105 | | | 7,452,252 | |
Long-term liabilities | | | | | | | |
Deferred tax liability, net | | | — | | | | 7,534 | | |
Lease liability | | | 4,129,831 | | | | — | | |
Total long-term liabilities | | | 4,129,831 | | | | 7,534 | | |
Lease liabilities | | | | 278,418 | | | | 76,076 | |
Total liabilities | | | 9,822,207 | | | | 3,793,555 | | | | 6,393,523 | | | | 7,528,328 | |
Stockholders’ equity | | | | | | | | | | |
Common stock, $0.001 par value, 100,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 9,566,174 and 9,200,470 issued and outstanding at September 30, 2022, respectively; 9,460,243 and 9,094,539 issued and outstanding at December 31, 2021, respectively | | | 9,201 | | | | 9,095 | | |
Common stock, $0.001 par value, 100,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 9,709,347 and 9,343,643 issued and outstanding at September 30, 2023, respectively; and 9,576,117 and 9,210,414 issued and outstanding at December 31, 2022, respectively. | | | 9,344 | | | 9,210 | |
Additional paid-in capital | | | 118,309,419 | | | | 117,903,455 | | | 119,432,281 | | | 118,636,834 | |
Accumulated other comprehensive loss | | | — | | | | (61,016 | ) | |
Accumulated deficit | | | (80,579,845 | ) | | | (55,797,714 | ) | | | (106,441,072 | ) | | | (96,135,032 | ) |
Total stockholders’ equity | | | 37,738,775 | | | | 62,053,820 | | | | 13,000,553 | | | | 22,511,012 | |
Total liabilities and stockholders’ equity | | $ | 47,560,982 | | | $ | 65,847,375 | | | $ | 19,394,076 | | | $ | 30,039,340 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Sales, net | | $ | 8,844,845 | | | $ | 10,865,914 | | | $ | 26,858,864 | | | $ | 27,443,394 | |
Cost of goods sold | | | (6,773,029 | ) | | | (7,667,075 | ) | | | (21,259,300 | ) | | | (20,225,269 | ) |
Gross profit | | | 2,071,816 | | | | 3,198,839 | | | | 5,599,564 | | | | 7,218,125 | |
General and administrative | | | | | | | | | | | | |
Salaries, wages and benefits | | | 1,766,450 | | | | 2,191,477 | | | | 4,511,546 | | | | 6,299,262 | |
Professional fees | | | 770,478 | | | | 551,368 | | | | 2,042,709 | | | | 1,504,438 | |
Insurance expense | | | 590,369 | | | | 537,174 | | | | 1,703,382 | | | | 1,560,395 | |
Impairment of goodwill | | | — | | | | — | | | | 6,486,000 | | | | — | |
Impairment of long-lived intangible assets | | | — | | | | — | | | | 1,540,000 | | | | — | |
Impairment of assets held-for-sale | | | — | | | | — | | | | 100,426 | | | | — | |
Gain on sale of assets held-for-sale | | | (3,240 | ) | | | — | | | | (577,058 | ) | | | — | |
Other expense | | | 1,259,811 | | | | 974,105 | | | | 3,041,032 | | | | 2,696,334 | |
Total general and administrative expenses | | | 4,383,868 | | | | 4,254,124 | | | | 18,848,037 | | | | 12,060,429 | |
Research and product development | | | 115,077 | | | | 242,604 | | | | 335,377 | | | | 858,143 | |
Sales and marketing | | | | | | | | | | | | |
Salaries, wages and benefits | | | 386,233 | | | | 655,382 | | | | 1,939,785 | | | | 2,016,556 | |
Advertising | | | 1,832,172 | | | | 1,954,377 | | | | 5,191,374 | | | | 5,313,881 | |
General marketing | | | 824,747 | | | | 1,131,023 | | | | 2,983,417 | | | | 3,079,181 | |
Other expense | | | 347,705 | | | | 273,971 | | | | 1,000,923 | | | | 824,147 | |
Total sales and marketing expenses | | | 3,390,857 | | | | 4,014,753 | | | | 11,115,499 | | | | 11,233,765 | |
Total expenses | | | 7,889,802 | | | | 8,511,481 | | | | 30,298,913 | | | | 24,152,337 | |
Operating loss | | | (5,817,986 | ) | | | (5,312,642 | ) | | | (24,699,349 | ) | | | (16,934,212 | ) |
Other income (expense) | | | 79,777 | | | | 10,721 | | | | (77,008 | ) | | | 36,246 | |
Loss before income taxes | | | (5,738,209 | ) | | | (5,301,921 | ) | | | (24,776,357 | ) | | | (16,897,966 | ) |
Income tax expense | | | — | | | | (49,777 | ) | | | (5,774 | ) | | | (86,495 | ) |
Net loss | | $ | (5,738,209 | ) | | $ | (5,351,698 | ) | | $ | (24,782,131 | ) | | $ | (16,984,461 | ) |
Net loss per share: | | | | | | | | | | | | |
Basic | | $ | (0.63 | ) | | $ | (0.59 | ) | | $ | (2.71 | ) | | $ | (1.90 | ) |
Diluted | | $ | (0.63 | ) | | $ | (0.59 | ) | | $ | (2.71 | ) | | $ | (1.90 | ) |
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted | | | 9,178,533 | | | | 9,001,912 | | | | 9,136,071 | | | | 8,954,875 | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Sales, net | | $ | 9,179,781 | | | $ | 8,844,845 | | | $ | 25,016,810 | | | $ | 26,858,864 | |
Cost of goods sold | | | (6,332,624 | ) | | | (6,773,029 | ) | | | (18,419,709 | ) | | | (21,259,300 | ) |
Gross profit | | | 2,847,157 | | | | 2,071,816 | | | | 6,597,101 | | | | 5,599,564 | |
General and administrative | | | | | | | | | | | | | | | | |
Impairment of goodwill and long-lived assets | | | — | | | | — | | | | — | | | | 8,126,426 | |
Other expense | | | 2,208,213 | | | | 4,383,868 | | | | 7,822,834 | | | | 10,721,611 | |
Total general and administrative expenses | | | 2,208,213 | | | | 4,383,868 | | | | 7,822,834 | | | | 18,848,037 | |
Research and product development | | | 40,123 | | | | 115,077 | | | | 206,313 | | | | 335,377 | |
Sales and marketing | | | | | | | | | | | | | | | | |
Advertising | | | 1,137,488 | | | | 1,832,172 | | | | 3,454,485 | | | | 5,191,374 | |
Related party marketing agreements | | | 141,712 | | | | 19,500 | | | | 435,084 | | | | 52,750 | |
Other expense | | | 2,106,690 | | | | 1,539,185 | | | | 5,423,541 | | | | 5,871,375 | |
Total sales and marketing expenses | | | 3,385,890 | | | | 3,390,857 | | | | 9,313,110 | | | | 11,115,499 | |
Total operating expenses | | | 5,634,226 | | | | 7,889,802 | | | | 17,342,257 | | | | 30,298,913 | |
Operating loss | | | (2,787,069 | ) | | | (5,817,986 | ) | | | (10,745,156 | ) | | | (24,699,349 | ) |
Other income (expense) | | | 132,185 | | | | 79,777 | | | | 452,288 | | | | (77,008 | ) |
Loss before income taxes | | | (2,654,884 | ) | | | (5,738,209 | ) | | | (10,292,868 | ) | | | (24,776,357 | ) |
Income tax expense | | | — | | | | — | | | | (13,172 | ) | | | (5,774 | ) |
Net loss | | $ | (2,654,884 | ) | | $ | (5,738,209 | ) | | $ | (10,306,040 | ) | | $ | (24,782,131 | ) |
Net loss per share: | | | | | | | | | | | | | | | | |
Basic | | $ | (0.28 | ) | | $ | (0.63 | ) | | $ | (1.11 | ) | | $ | (2.71 | ) |
Diluted | | $ | (0.28 | ) | | $ | (0.63 | ) | | $ | (1.11 | ) | | $ | (2.71 | ) |
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted | | | 9,337,789 | | | | 9,178,533 | | | | 9,279,541 | | | | 9,136,071 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Net loss | | $ | (5,738,209 | ) | | $ | (5,351,698 | ) | | $ | (24,782,131 | ) | | $ | (16,984,461 | ) |
Other comprehensive loss, net of tax | | | | | | | | | | | | |
Change in unrealized losses on available-for-sale debt securities before classifications, net of tax(1) | | | — | | | | 1,952 | | | | — | | | | (22,049 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | 61,016 | | | | — | |
Total other comprehensive income (loss) | | | — | | | | 1,952 | | | | 61,016 | | | | (22,049 | ) |
Comprehensive loss | | $ | (5,738,209 | ) | | $ | (5,349,746 | ) | | $ | (24,721,115 | ) | | $ | (17,006,510 | ) |
(1)The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. See note 11 for the estimated tax benefit deferred.
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Net loss | | $ | (2,654,884 | ) | | $ | (5,738,209 | ) | | $ | (10,306,040 | ) | | $ | (24,782,131 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | — | | | | 61,016 | |
Total other comprehensive income | | | — | | | | — | | | | — | | | | 61,016 | |
Comprehensive loss | | $ | (2,654,884 | ) | | $ | (5,738,209 | ) | | $ | (10,306,040 | ) | | $ | (24,721,115 | ) |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY
(Unaudited)
| | | Stockholders’ Equity | | | | | |
| | | Common Stock | | | Additional | | | Accumulated Other Comprehensive | | | Accumulated | | | | | |
| | | Shares | | | Amount | | | Paid-in Capital | | | Income (Loss) | | | Deficit | | | Total | |
Balances, January 1, 2023 | | | 9,210,414 | | | $ | 9,210 | | | $ | 118,636,834 | | | $ | — | | | $ | (96,135,032 | ) | | $ | 22,511,012 | |
Stock-based compensation | | | — | | | | — | | | | 147,635 | | | | | | | | | | | | 147,635 | |
Restricted stock units issued, net of taxes | | | 9,086 | | | | 10 | | | | (4,420 | ) | | | — | | | | — | | | | (4,410 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (4,143,910 | ) | | | (4,143,910 | ) |
Balances, March 31, 2023 | | | 9,219,500 | | | $ | 9,220 | | | $ | 118,780,049 | | | $ | — | | | $ | (100,278,942 | ) | | $ | 18,510,327 | |
Stock-based compensation | | | — | | | | — | | | | 306,076 | | | | — | | | | — | | | | 306,076 | |
Restricted stock units issued, net of taxes | | | 114,662 | | | | 115 | | | | (14,842 | ) | | | — | | | | — | | | | (14,727 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (3,507,246 | ) | | | (3,507,246 | ) |
Balances, June 30, 2023 | | | 9,334,162 | | | $ | 9,335 | | | $ | 119,071,283 | | | $ | — | | | $ | (103,786,188 | ) | | $ | 15,294,430 | |
Stock-based compensation | | | — | | | | — | | | | 364,936 | | | | — | | | | — | | | | 364,936 | |
Restricted stock units issued, net of taxes | | | 9,481 | | | | 9 | | | | (3,938 | ) | | | — | | | | — | | | | (3,929 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (2,654,884 | ) | | | (2,654,884 | ) |
Balances, September 30, 2023 | | | 9,343,643 | | | $ | 9,344 | | | $ | 119,432,281 | | | $ | — | | | $ | (106,441,072 | ) | | $ | 13,000,553 | |
| | | Stockholders’ Equity | | | | | |
| | | Common Stock | | | Additional | | | Accumulated Other Comprehensive | | | Accumulated | | | | | |
| | | Shares | | | Amount | | | Paid-in Capital | | | Income (Loss) | | | Deficit | | | Total | |
Balances, January 1, 2022 | | | 9,094,539 | | | $ | 9,095 | | | $ | 117,903,455 | | | $ | (61,016 | ) | | $ | (55,797,714 | ) | | $ | 62,053,820 | |
Stock-based compensation | | | — | | | | — | | | | 10,796 | | | | — | | | | — | | | | 10,796 | |
Stock option exercises | | | 1,750 | | | | 1 | | | | 14,247 | | | | — | | | | — | | | | 14,248 | |
Restricted stock units issued, net of taxes | | | 5,164 | | | | 5 | | | | (5 | ) | | | — | | | | — | | | | — | |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | — | | | | 61,016 | | | | — | | | | 61,016 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (14,139,402 | ) | | | (14,139,402 | ) |
Balances, March 31, 2022 | | | 9,101,453 | | | $ | 9,101 | | | $ | 117,928,493 | | | $ | — | | | $ | (69,937,116 | ) | | $ | 48,000,478 | |
Stock-based compensation | | | — | | | | — | | | | (209,242 | ) | | | — | | | | — | | | | (209,242 | ) |
Stock option exercises | | | 43,553 | | | | 44 | | | | 49,956 | | | | — | | | | — | | | | 50,000 | |
Restricted stock units issued, net of taxes | | | 13,897 | | | | 14 | | | | (14 | ) | | | — | | | | — | | | | — | |
Employee stock purchase plan shares issued | | | 11,055 | | | | 11 | | | | 28,276 | | | | — | | | | — | | | | 28,287 | |
Recovery of short-swing profits | | | — | | | | — | | | | 28,555 | | | | — | | | | — | | | | 28,555 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (4,904,520 | ) | | | (4,904,520 | ) |
Balances, June 30, 2022 | | | 9,169,958 | | | $ | 9,170 | | | $ | 117,826,024 | | | $ | — | | | $ | (74,841,636 | ) | | $ | 42,993,558 | |
Stock-based compensation | | | — | | | | — | | | | 483,426 | | | | — | | | | — | | | | 483,426 | |
Restricted stock units issued, net of taxes | | | 30,512 | | | | 31 | | | | (31 | ) | | | — | | | | — | | | | — | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (5,738,209 | ) | | | (5,738,209 | ) |
Balances, September 30, 2022 | | | 9,200,470 | | | $ | 9,201 | | | $ | 118,309,419 | | | $ | — | | | $ | (80,579,845 | ) | | $ | 37,738,775 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | |
| | Common Stock | | | Additional | | | Accumulated Other Comprehensive | | | Accumulated | | | | |
| | Shares | | | Amount | | | Paid-in Capital | | | Income (Loss) | | | Deficit | | | Total | |
Balances, January 1, 2021 | | | 8,892,886 | | | $ | 8,893 | | | $ | 111,452,346 | | | $ | 14,207 | | | $ | (31,927,168 | ) | | $ | 79,548,278 | |
Stock-based compensation | | | — | | | | — | | | | 1,010,003 | | | | — | | | | — | | | | 1,010,003 | |
Less: Withholding tax payments for share-based compensation | | | — | | | | — | | | | (188,793 | ) | | | — | | | | — | | | | (188,793 | ) |
Stock option exercises | | | 28,148 | | | | 28 | | | | 151,618 | | | | — | | | | — | | | | 151,646 | |
Common stock issuance costs | | | — | | | | — | | | | (82,043 | ) | | | — | | | | — | | | | (82,043 | ) |
Other comprehensive loss, net of tax | | | — | | | | — | | | | — | | | | (20,290 | ) | | | — | | | | (20,290 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (5,330,504 | ) | | | (5,330,504 | ) |
Balances, March 31, 2021 | | | 8,921,034 | | | $ | 8,921 | | | $ | 112,343,131 | | | $ | (6,083 | ) | | $ | (37,257,672 | ) | | $ | 75,088,297 | |
Stock-based compensation | | | — | | | | — | | | | 1,090,074 | | | | — | | | | — | | | | 1,090,074 | |
Less: Withholding tax payments for share-based compensation | | | (956 | ) | | | (1 | ) | | | (30,362 | ) | | | — | | | | — | | | | (30,363 | ) |
Stock option exercises | | | 23,169 | | | | 23 | | | | 243,000 | | | | — | | | | — | | | | 243,023 | |
Restricted stock units issued | | | 3,000 | | | | 3 | | | | (3 | ) | | | — | | | | — | | | | — | |
Common stock issued for business acquisition costs | | | 53,134 | | | | 53 | | | | 1,834,804 | | | | — | | | | — | | | | 1,834,857 | |
Other comprehensive income, net of tax | | | — | | | | — | | | | — | | | | (3,711 | ) | | | — | | | | (3,711 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (6,302,259 | ) | | | (6,302,259 | ) |
Balances, June 30, 2021 | | | 8,999,381 | | | $ | 8,999 | | | $ | 115,480,644 | | | $ | (9,794 | ) | | $ | (43,559,931 | ) | | $ | 71,919,918 | |
Stock-based compensation | | | — | | | | — | | | | 1,042,440 | | | | — | | | | — | | | | 1,042,440 | |
Less: Withholding tax payments for share-based compensation | | | (962 | ) | | | (1 | ) | | | — | | | | — | | | | — | | | | (1 | ) |
Restricted stock units issued | | | 28,513 | | | | 28 | | | | (28 | ) | | | — | | | | — | | | | — | |
Stock option exercises | | | 10,517 | | | | 11 | | | | 91,267 | | | | — | | | | — | | | | 91,278 | |
Other comprehensive income, net of tax | | | — | | | | — | | | | — | | | | 1,952 | | | | — | | | | 1,952 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (5,351,698 | ) | | | (5,351,698 | ) |
Balances, September 30, 2021 | | | 9,037,449 | | | $ | 9,037 | | | $ | 116,614,323 | | | $ | (7,842 | ) | | $ | (48,911,629 | ) | | $ | 67,703,889 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
Cash flows from operating activities | | | | | | | | |
Net loss | | $ | (10,306,040 | ) | | $ | (24,782,131 | ) |
Adjustments to reconcile net loss to net cash from operating activities: | | | | | | | | |
Depreciation and amortization | | | 235,025 | | | | 846,356 | |
Stock-based compensation | | | 818,647 | | | | 284,980 | |
Provision for inventory obsolescence | | | 1,260,580 | | | | 342,178 | |
Impairment of goodwill and other long-lived assets | | | — | | | | 8,126,426 | |
Other operating activities, net | | | 398,052 | | | | 527,740 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | (937,876 | ) | | | (417,670 | ) |
Inventory | | | (1,958,157 | ) | | | 1,061,152 | |
Prepaid expenses and other current assets | | | 1,061,879 | | | | 2,242,703 | |
Operating lease liability | | | (94,679 | ) | | | (556,597 | ) |
Accounts payable | | | 810,908 | | | | (62,080 | ) |
Accrued expenses | | | (2,217,484 | ) | | | 1,253,566 | |
Net cash from operating activities | | | (10,929,145 | ) | | | (11,133,377 | ) |
Cash flows from investing activities | | | | | | | | |
Proceeds from sale of investment securities available-for-sale | | | — | | | | 8,513,783 | |
Other investing activities, net | | | 567,459 | | | | 467,373 | |
Net cash from investing activities | | | 567,459 | | | | 8,981,156 | |
Cash flows from financing activities | | | (23,066 | ) | | | 121,090 | |
Net change in cash and cash equivalents | | | (10,384,752 | ) | | | (2,031,131 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | | | 17,809,802 | | | | 23,049,234 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 7,425,050 | | | $ | 21,018,103 | |
Supplemental disclosures of cash flow information | | | | | | | | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 344,382 | | | $ | 5,285,330 | |
Supplemental disclosures of non-cash investing activities | | | | | | | | |
Receivable from sale of assets held-for-sale included in other current assets at the end of the period | | $ | 126,268 | | | $ | — | |
Receivable from sale of assets held-for-sale included in accrued expenses at the end of the period | | $ | — | | | $ | 28,240 | |
Settlement recovery from business interruption claims included in other current assets | | $ | 158,429 | | | $ | — | |
Amounts reclassified from accumulated other comprehensive loss | | $ | — | | | $ | 61,016 | |
Amounts reclassified from property, plant, and equipment to fixed assets held-for-sale | | $ | — | | | $ | 947,394 | |
Amounts reclassified from property, plant, and equipment to intangible assets | | $ | — | | | $ | 153,691 | |
Purchases of equipment included in deposits at the beginning of the period | | $ | — | | | $ | 372,507 | |
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| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2022 | | | 2021 | |
Cash flows from operating activities | | | | | | |
Net loss | | $ | (24,782,131 | ) | | | (16,984,461 | ) |
Adjustments to reconcile net loss to net cash from operating activities: | | | | | | |
Depreciation | | | 496,932 | | | | 454,400 | |
Amortization | | | 349,424 | | | | 243,578 | |
(Gain) Loss on disposal of equipment | | | (279 | ) | | | 5,600 | |
Gain on sale of assets held-for-sale | | | (577,058 | ) | | | — | |
Stock-based compensation | | | 284,980 | | | | 3,142,517 | |
Provision for inventory obsolescence | | | 223,914 | | | | 168,436 | |
Provision for doubtful accounts | | | 131,815 | | | | — | |
Reserve for prepaid assets | | | — | | | | 179,000 | |
Impairment of goodwill | | | 6,486,000 | | | | — | |
Impairment of long-lived intangible assets | | | 1,540,000 | | | | — | |
Impairment of fixed assets held-for-sale | | | 100,426 | | | | |
Deferred taxes | | | (7,534 | ) | | | 86,495 | |
Loss on sale of investment securities available-for-sale | | | 182,310 | | | | 8,317 | |
Noncash lease costs | | | 798,486 | | | | — | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable, net | | | (417,670 | ) | | | (72,150 | ) |
Inventory, net | | | 1,179,416 | | | | (3,482,522 | ) |
Prepaid expenses and other current assets | | | 2,025,588 | | | | 1,137,741 | |
Operating lease liability | | | (556,597 | ) | | | 267,787 | |
Deposits | | | 217,115 | | | | 2,601 | |
Accounts payable | | | (62,080 | ) | | | 184,722 | |
Payroll liabilities | | | 175,295 | | | | 81,694 | |
Accrued expenses | | | 1,078,271 | | | | 333,246 | |
Net cash from operating activities | | | (11,133,377 | ) | | | (14,242,999 | ) |
Cash flows from investing activities | | | | | | |
Purchase of property, plant, and equipment | | | (1,139,219 | ) | | | (1,039,350 | ) |
Deposits on equipment to be acquired | | | — | | | | (462,507 | ) |
Proceeds on sale of property, plant, and equipment | | | 13,093 | | | | 700 | |
Purchase of software | | | (2,713 | ) | | | (141,546 | ) |
Acquisition of a business, net of cash acquired (note 2) | | | — | | | | (10,449,587 | ) |
Proceeds from sale of assets held-for-sale | | | 1,596,212 | | | | — | |
Proceeds from sale of investment securities available-for-sale | | | 8,513,783 | | | | — | |
Net cash from investing activities | | | 8,981,156 | | | | (12,092,290 | ) |
Cash flows from financing activities | | | | | | |
Common stock issuance costs | | | — | | | | (82,043 | ) |
Recovery of short-swing profits | | | 28,555 | | | | — | |
Employee stock purchase plan shares issued | | | 28,287 | | | | — | |
Withholding tax payments for share based compensation | | | — | | | | (219,157 | ) |
Stock options exercised | | | 64,248 | | | | 485,947 | |
Net cash from financing activities | | | 121,090 | | | | 184,747 | |
Net change in cash and cash equivalents | | | (2,031,131 | ) | | | (26,150,542 | ) |
Cash and cash equivalents beginning of year | | | 23,049,234 | | | | 57,208,080 | |
Cash and cash equivalents end of year | | $ | 21,018,103 | | | $ | 31,057,538 | |
Supplemental disclosures of cash flow information | | | | | | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 5,285,330 | | | $ | — | |
Supplemental disclosures of non-cash information | | | | | | |
Unrealized loss on available-for-sale securities | | $ | — | | | $ | (22,049 | ) |
Common stock issued in connection with the acquisition of a business (note 2) | | $ | — | | | $ | 1,834,857 | |
Sale of assets held-for-sale included in accrued expenses at the beginning of the period | | $ | (28,240 | ) | | $ | — | |
Amounts reclassified from accumulated other comprehensive loss | | $ | 61,016 | | | $ | — | |
Amounts reclassified from property, plant, and equipment to fixed assets held-for-sale | | $ | 100,000 | | | $ | — | |
Amounts reclassified from property, plant, and equipment to intangible assets | | $ | 153,691 | | | $ | — | |
Purchases of equipment included in deposits at the beginning of the period | | $ | 372,507 | | | $ | — | |
Property and equipment held-and-used reclassified to held-for-sale | | $ | 947,394 | | | $ | — | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
9
Notes to Unaudited Consolidated Condensed Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements include the accounts of Laird Superfood, Inc., a Delaware corporation, and its wholly owned subsidiary, Picky Bars, LLC, (collectively, the “Company”, “Laird Superfood”, “we”, or “Laird Superfood” or “we”"our").
Nature of Operations
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated, plant-based and functional foods from its headquarters in Sisters, Oregon.foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and functional roasted and instant coffees, teas and hot chocolate. The Company was founded in 2015.
Basis of Accounting
The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results include the three and nine months ended September 30, 2022 2023 and 2021.2022. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements.
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited consolidated condensed financial statements.
Unaudited Interim Consolidated Condensed Financial Information
In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ equity and cash flows. The balance sheet as of December 31, 2021 was derived from audited annual consolidated financial statements. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2022. The accompanying unaudited consolidated condensedfinancial statements and related financial information should be read in conjunction with the Company's fiscal year 20212022 Form 10-K10-K filed with the SEC on March 8, 2022.16, 2023. The unaudited consolidated condensed balance sheet as of December 31, 2022 was derived from the audited annual consolidated financial statements. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2023.
Use of Estimates
The preparation of the unaudited consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results. The most significant estimates and judgments include those related to a business combination, allowances for doubtful accounts and returns, inventory obsolescence, goodwill, intangible assets, valuation allowance for deferred taxes, reserves on prepaid expenses, the discount rates used in determining right of use assets and related lease liabilities, standard costvaluation of inventory, trade and sales promotion liabilities, and fair value of stock-based compensation.
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited consolidated financial statements.
Business Combinations
Business combinations are accounted for under the acquisition method which requires identifiable assets acquired and liabilities assumed in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. The amount by which the net fair value of assets acquired, and liabilities assumed exceeds the fair value of consideration transferred as the purchase price is recorded as a bargain purchase gain. Acquisition-related transaction costs are expensed as incurred. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill or bargain purchase gain. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s Consolidated Statements of Operations.
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Segment reporting
The Company currently has one operating segment. In accordance with ASC 280,Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management reviews financial information presented on a consolidated basis for purposes of allocation ofallocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.
Substantially all product sales for the periods provided were derived from domestic sales.
See Note 1612 for additional information regarding sales by platform within the Company’s single segment.
Notes to Unaudited Consolidated Condensed Financial Statements
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash are highly liquid instruments with an original maturity of three months or less when purchased. For the purposes of the unaudited consolidated condensed statements of cash flows, the Company includes cash on hand, cash in clearing accounts, cash on deposit with financial institutions, investments with an original maturity of three months or less, and restricted cash in determining the total balance.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the unaudited consolidated condensed balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.sheets.
| | | | | | | | |
| | September 30,
2022 | | | December 31,
2021 | |
Cash and cash equivalents | | $ | 20,918,235 | | | $ | 22,932,663 | |
Restricted cash | | | 99,868 | | | | 116,571 | |
Total cash, cash equivalents, and restricted cash shown in the
statement of cash flows | | $ | 21,018,103 | | | $ | 23,049,234 | |
| | | September 30, | | | December 31, | |
| | | 2023 | | | 2022 | |
Cash and cash equivalents | | $ | 7,136,639 | | | $ | 17,293,959 | |
Restricted cash | | | 288,411 | | | | 515,843 | |
Total cash, cash equivalents, and restricted cash | | $ | 7,425,050 | | | $ | 17,809,802 | |
Amounts in restricted cash represent those that are required to be set aside by the following contractual agreement. On December 3, 2020, the Company entered into an agreement with Danone Manifesto Ventures, PBC, which provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. During the three and nine months ended September 30, 2022 we contributed $1,864 and $16,703, respectively, to these projects. During the three and nine months ended September 30, 2021, we contributed $30,526 and $111,489, respectively, to these projects. The restriction will be released upon the completion of the projects.
Concentration of Riskagreements:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit and cash equivalents. At times, cash
| ● | On December 3, 2020, the Company entered into an agreement with Danone Manifesto Ventures, PBC, which provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. As of September 30, 2023 andDecember 31, 2023, cash equivalents in the amount of $99,525 were restricted under this agreement. During the three and nine months ended September 30, 2023, we contributed $0 to these projects. During the three and nine months ended September 30, 2022, we contributed $1,864 and $16,703, respectively, to these projects. The restriction will be released upon the completion of the projects. |
| ● | Cash equivalents of $530,000 were pledged to secure our company credit card limits. As of September 30, 2023 and December 31, 2022, respectively, $188,886 and $416,318 of these funds were restricted to collateralize borrowings against these company credit cards. |
Cash, cash equivalents, and restricted cash balances may exceedthat exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurable limits. The Company’s investment account (recognizedlimits as cashof September 30, 2023 and cash equivalents) is with what the Company believes to be a high-quality issuer.December 31, 2022 totaled $416,684 and $2,747,721, respectively. The Company has never experienced any losses related to these balances. Non-interest-bearing amounts on depositThe Company’s cash, cash equivalents, and restricted cash are with what the Company believes to be a high-quality financial institution and considers the risks associated with these funds in excess of FDIC insurable limits as of September 30, 2022 and December 31, 2021 approximated $11,608,726 and $10,835,360, respectively.to be low.
Accounts Receivable, net
Accounts receivable, net consists principally of trade receivables, which are recorded at the invoiced amount, net of allowances for doubtful accounts.credit loss. Trade receivables do not bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The Company provides for estimated lossesprimary indicators of the credit quality of our receivables are aging and payment history and are assessed on a quarterly basis. Our credit loss exposure is concentrated in our accounts receivable portfolio. Our allowance for credit losses is calculated using a loss-rate method based on prior bad debthistorical experience and a review of existing receivables.reasonable forecasts. Based on these factors, management determined an allowance for doubtful accountscredit loss of $131,815$323,136 and $0$77,436 as of September 30, 20222023 and December 31, 2021,2022, respectively.
Available-for-sale Debt Securities
Our investment securities consisted entirely of investment-grade debt securities, all of which were classified as available-for-sale. Available-for-sale debt securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining maturities of less than one year and those identified by management at the time of purchase to be used to fund operations within one year are classified as short-term. All other available-for-sale securities are classified as long-term. We evaluate our available-for-sale securities for other-than-temporary impairment on a quarterly basis. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. We review several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether we have the intent to sell or will more likely than not be required to sell before the securities' anticipated recovery, which may be at maturity. Realized gains and losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date basis.
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial StatementsInventory
Inventory
Inventory is stated at the lower of cost or net realizable value, or the value of consideration that can be received upon sale of said product, and approximate costs determined on the first-in first-out basis and consists primarily of raw materials and packaging and finished goods and include directincludes co-packing fees, indirect labor and allocable overhead. The following table presents the components of inventory, net of reserves, as of:
| | | | | | | | |
| | September 30,
2022 | | | December 31,
2021 | |
Raw materials and packaging | | $ | 4,821,400 | | | $ | 4,771,671 | |
Finished goods | | | 4,169,512 | | | | 5,449,672 | |
Total inventory | | | 8,990,912 | | | | 10,221,343 | |
Inventory reserve | | | (172,899 | ) | | | — | |
Total Inventory, net | | $ | 8,818,013 | | | $ | 10,221,343 | |
| | | September 30, | | | December 31, | |
| | | 2023 | | | 2022 | |
Raw materials and packaging | | $ | 1,854,333 | | | $ | 3,764,804 | |
Finished goods | | | 4,698,238 | | | | 1,931,761 | |
Total inventory, net | | $ | 6,552,571 | | | $ | 5,696,565 | |
The Company periodically reviews the value of items in inventory and provides write-offs of inventory based on current market assessment, which are charged to cost of goods sold. For the three and nine months ended September 30, 2022,2023, the Company recorded $189,071$881,721 and $223,914,$1,260,580, respectively, of inventory obsolescence.obsolescence and disposal costs. For the three and nine months ended September 30, 2021,2022, the Company recorded $21,614$236,946 and $168,436,$342,178, respectively, of inventory obsolescence.obsolescence and disposal costs.
As of September 30, 20222023 inventory reserves totaled $1,614,840. This is comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $473,888, as well as raw materials and finished goods specifically identified for disposal related to a product quality issue of $838,276 and discontinued inventories of $302,676. As of December 31, 2021,2022, inventory reserves totaled $1,545,033. This was comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $746,966, reserves specifically identified for disposal related to a product quality issue of $559,042 and discontinued inventories following exit activities of $239,025.
As of September 30, 2023 and December 31, 2022, the Company had a total of $632,006$482,585 and $1,009,954,$897,108, respectively, of prepayments for future raw materials inventory net of reserve for prepaid assets of $0 and $179,000, respectively, which isare included in prepaid expenses and other current assets, net on the unaudited consolidated condensed balance sheets.
Notes to Unaudited Consolidated Condensed Financial Statements
Property and Equipment, net
Property and equipment are valued at cost, net of accumulated depreciation. Expenditures for maintenance and repairs that do not extend the useful life or increase the value of the assets are charged to expense in the period incurred. Additions and betterments are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for depreciation purposes for furniture and factory equipment range from 3 to 10 years.7 years. The useful life for leasehold improvements is the lesser of the lease term or the useful life. Construction in progress is not depreciated until such a time that the assets are completed and placed into service. For the three and nine months ended September 30, 2022, depreciation expense was $167,794 and $496,932, respectively. For the three and nine months ended September 30, 2021, depreciation expense was $152,139 and $454,400, respectively.
As of September 30, 2022 and December 31, 2021, the Company had a total of $0 and $489,325, respectively, of deposits for future equipment purchases, which is included in deposits on the unaudited consolidated balance sheets.
Fixed Assets Held-for-Sale
Long-lived assets identified by the Company for sale, which have met all criteria to be classified as held for sale, are disclosed separately on the unaudited consolidated condensed balance sheet.sheets. Fixed assets held for sale are measured at the lower of the assets carrying amount or fair value less costs to sell, and depreciation is no longer recorded. During the nine months ended September 30, 2022,See Note 4 for more information.
Leases
In accordance with ASC 842,Leases, the Company identified assets heldaccounts for sale consistinga contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the Company’s intermittent motion form (“IMF”) production line. The Company determined a fair value less costs to sell of $100,000 for all assets associated with the IMF production line. As the determined fair value is less than the net carrying value of the assets, the Company recorded an impairment loss of $0 and $100,426 during the three and nine months ended September 30, 2022. We sold these assets during the three months ended September 30, 2022, for $103,240, recognizing a gain of $3,240. The Company had no fixed assets held for sale as of September 30, 2022 or December 31, 2021.
Leases
asset’s economic benefits. We categorize leases at their inception as either operating, finance, or finance leases.short-term leases and determine if an arrangement contains an embedded lease. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and, thereafter, if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. Lease agreements effective during the three and nine months ended September 30, 2023 and 2022cover, or covered, office space, warehouse and distribution space, equipment,vehicles, and vehicles.equipment. All of theseour long-term leases are operating leases. Operating leases are included in right-of-use assets, current lease liabilities, and long-term lease liabilities in our unaudited consolidated condensed balance sheets.
In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and liability. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use a secured incremental borrowing rate as the discount rate for the present value of lease payments when the rate implicit in the contract is not readily determinable. For operating leases with variable payments dependent upon an index or rate that commenced subsequent to the adoption of ASU No. 2016-02,ASC 842,Leases, we apply the active index or rate as of the lease commencement date. Variable lease payments not based on an index or rate are not included in the operating lease liability as they cannot be reasonably estimated and are recognized in the period in which the obligation for those payments is incurred. Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the unaudited consolidated condensed balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.
We are the lessor in a sublease agreement. This lease is an operating lease and is recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs.
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Notes to Unaudited Consolidated Financial Statements
Revenue Recognition
The Company recognizes revenue in accordance with the five-stepfive-step model as prescribed by ASU 2014-09ASC 606,Revenue from Contracts with Customers, in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 2014-09,ASC 606, the Company performs the following five steps: (1)(1) identify the contract(s) with a customer, (2)(2) identify the performance obligations in the contract, (3)(3) determine the transaction price, (4)(4) allocate the transaction price to the performance obligations in the contract, and (5)(5) recognize revenue when (or as) the entityCompany satisfies a performance obligation. See Note 16 for additional information regarding revenue recognition. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue and a refund liability for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. See Note 12 for additional information regarding revenue recognition.
Cost of Goods Sold
Cost of goods sold includes material, packaging, co-packing fees, distribution freight, indirect labor and overhead costs incurred in the storage and distribution of products sold in the period. Material costs include the cost of products purchased. LaborIn 2023, labor and overhead costs consistconsisted of indirect product costs, includinglabor, inbound freight for raw materials and warehouse rent, and in 2022 also included wages and benefits for manufacturing, planning, and logistics personnel, depreciation, and facility costs and freight.costs.
Shipping and Handling
Costs of shipping and handling related to sales revenue are included in cost of goods sold. Shipping and handling costs totaled $1,622,290$1,132,930 and $4,763,845$4,002,244, respectively, for the three and nine months ended September 30, 2022, respectively.2023. Shipping and handling costs totaled $1,675,438$1,622,290 and $4,506,386$4,763,845 for the three and nine months ended September 30, 2021, respectively.2022. Income generated from shipping costs billed through to customers was included in Sales, net sales in the unaudited consolidated condensed statements of operations. Shipping income totaled $289,505$214,982 and $829,107$778,051, respectively, for the three and nine months ended September 30, 2022, respectively.2023. Shipping income totaled $195,085$289,505 and $261,495$829,107, respectively, for the three and nine months ended September 30, 2021, respectively.2022.
Notes to Unaudited Consolidated Condensed Financial Statements
Research and Product Development
Amounts spent on research and development activities are expensed as incurred as research and product development expense on the unaudited consolidated condensed statements of operations. Research and product development expense was $115,077$40,123 and $335,377$206,313, respectively, for the three and nine months ended September 30, 2022, respectively.2023. Research and product development expense was $242,604$115,077 and $858,143$335,377, respectively, for the three and nine months ended September 30, 2021, respectively.
Advertising2022.
Advertising
Advertising costs are expensed when incurred. Advertising expenses for the three and nine months ended September 30, 2022 was $1,832,1722023 were $1,137,488 and $5,191,374,$3,454,485, respectively. Advertising expenses for the three and nine months ended September 30, 2021 was $1,954,3772022 were $1,832,172 and $5,313,881,$5,191,374, respectively.
Marketing
Marketing
Marketing costs are expensed when incurred.incurred, and are included in other sales and marketing expenses on the unaudited consolidated condensed statements of operations. Marketing expenses for the three and nine months ended September 30, 20222023 were $824,747$1,226,909 and $2,983,417,$3,012,473, respectively. Marketing expenses for the three and nine months ended September 30, 20212022 were $1,131,023$824,747 and $3,079,181,$2,983,417, respectively.
Income Taxes
Income taxes provide for the tax effects of transactions reported in the unaudited consolidated condensed financial statements and consist of income taxes currently due and deferred tax assets and liabilities. The Company may also be subject to interest and penalties from taxing authorities on underpayment of income taxes. In such an event, interest and penalties are included in income tax expense. Deferred tax assets and liabilities are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes), stock-based compensation, right of use assets, and net operating losses. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Due to the historical net loss position of the Company, the Company recorded a deferred tax valuation allowance of $18,988,642$26,661,284 and $13,124,828$23,928,265 as of September 30, 20222023 and December 31, 2021,2022, respectively.
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Stock Incentive Plan
The compensation cost relating to share-based payment transactions is recognized in the unaudited consolidated condensed financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock option awards or vesting of restricted stock units ("RSUs") and market-based stock units ("MSUs"), recipients are issued shares of common stock. Pre-vesting forfeitures result in the reversal of all compensation cost as of the date of termination; post-vesting cancellation does not.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock that were outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all dilutive potential common stock had been issued and is calculated under the treasury stock method. Due to the Company’s net loss, all outstanding stock options, RSUs, and MSUs are anti-dilutive and excluded.
License Agreement – Indefinite Lived Intangible Asset
On August 3, 2015, the Company entered into a license agreement with the Company’s co-founder Laird Hamilton (the “LH License”). The LH License stated LairdMr. Hamilton’s contribution to the Company was in the form of intellectual property, granting the Company the right to use LairdMr. Hamilton’s name and likeness. This contribution, which was reported on the unaudited consolidated condensed balance sheets as of September 30, 20222023 and December 31, 2021,2022, was valued at $132,000$132,000 and satisfied with the issuance of 660,000 shares of common stock. The Company has determined that the intangible asset associated with the LH License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 15 for more information on the Company’s related party transaction with Mr. Hamilton.
On May 2, 2018, the Company entered into a license agreement with Gabrielle Reece, who is married to Mr. Hamilton (the “GR License”). Pursuant to the GR License, Ms. Reece granted the Company rights to her name, signature, voice, picture, image, likeness and biographical information commencing on July 1, 2015. This contribution, which is reported on the unaudited consolidated condensed balance sheets as of September 30, 20222023 and December 31, 2021,2022, was valued at $100$100 based on the consideration exchanged. The Company has determined that the intangible asset associated with the GR License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 15 for more information on the Company’s related party transaction with Ms. Reece.
On November 19, 2018, the Company executed a License and Preservation Agreement with Mr. Hamilton and Ms. Reece which superseded the predecessor license agreements with both individuals. The agreement added specific terms related to noncompetitionnon-competition and allowable usage of the property under the license. No additional consideration was exchanged in connection with the agreement and the life of the agreement was set at 100 years.
Notes to Unaudited Consolidated Condensed Financial Statements
On May 26, 2020, the Company executed a License and Preservation Agreement with Mr. Hamilton and Ms. Reece (the “2020“2020 License”), which superseded the predecessor license and preservation agreement with both individuals. Among other modifications, the agreement (i) modified certain approval rights of Mr. Hamilton and Ms. Reece for use of their respective images, signatures, voices, and names (other than those owned by the Company), rights of publicity and common law and statutory rights to the foregoing in the Company’s products, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional tenten-year-year terms upon the expiration of the initial one-hundredone-hundred year term. No additional consideration was exchanged in connection with the agreement. As indefinite-lived intangibles, the Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the licensing agreements were less than the carrying amounts. Upon considering these factors, the Company determined it was more likely than not that the fair value of the 2020 License was not less than the carrying amount; therefore, the Company recognized no impairment for the three and nine months ended September 30, 2022 2023 and 2021.2022.
Definite Lived Intangible Assets, net
Definite lived intangible assets are valued at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for amortization purposes range between 3 and 10 years. Amortization expense is allocated to general and administrative expense. For the three and nine months ended September 30, 2022,2023, amortization expense was $104,201expenses were $51,721 and $349,424,$155,165, respectively. For the three and nine months ended September 30, 2021,2022, amortization expense was $139,775expenses were $104,201 and $243,578,$349,424, respectively. The Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the definite lived intangible assets were less than the carrying amounts. There were no impairment charges in the three and nine months ended September 30, 2023. In the last month of the first quarter of 2022, management determined the sustained decline in stock price, coupled with changes in market conditions, was a triggering event. Upon considering these factors, the Company determined it was more likely than not that the fair value was less than the carrying amount;amounts of long-lived intangible assets; therefore, the Company recognized impairment charges of $0$0 and $1,540,000$1,540,000 for the three and nine months ended September 30, 2022, respectively. There were no impairment charges in the three and nine months ended September 30, 2021.
See Note 5 for more information.
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Notes to Unaudited Consolidated Financial StatementsGoodwill
Goodwill
Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in conjunction with a business combination. Goodwill is reviewed for impairment annually as of December 31, or whenever events occur or circumstances change that indicate goodwill may be impaired. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-notmore-likely-than-not (more than 50%50%) that the fair value of goodwill is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that it is more-likely-than-notmore-likely-than-not that the fair value of goodwill is less than its carrying amount, or if the Company chooses not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the fair value, not to exceed the total amount of goodwill. In the last month of the first quarter of 2022, management had determined the sustained decline in stock price, coupled with a change in market conditions, was determined to be a triggering event. The Company performed a qualitative and quantitative analysis on the Company's goodwill for impairment concluding that the fair value of goodwill as calculated using a discounted cash flow model exceeds the carrying value, indicating that goodwill iswas impaired. The Company recorded goodwill impairment charges of $0$0 and $6,486,000$6,486,000, respectively, during the three and nine months ended September 30, 2022.2022. There were was no goodwill impairment charges in the three and nine months ended as of September 30, 2021.2023 or December 31, 2022.
Employee Benefit Plan
The Company sponsors a defined contribution 401(k)401(k) plan (the “401(k)“401(k) plan”) for all employees 18 years or older. The 401(k)401(k) plan was initiated on July 1, 2018. Employee contributions may be made on a before-tax basis, limited by Internal Revenue Service regulations. ForIn 2023, the three and nine months ended Company established a 3% safe harbor contribution to be remitted in the first quarter of 2024. As of September 30, 2022 and 2021, we did not match employee contributions.2023, there were $135,722 of 401(k) contribution liabilities included in accrued expenses on the unaudited consolidated condensed balance sheets. The Company recorded related expenses as follows:
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, 2023 | | | September 30, 2023 | |
Cost of goods sold | | $ | 2,330 | | | $ | 9,624 | |
General and administrative | | | 16,359 | | | | 76,235 | |
Research and development | | | 695 | | | | 2,603 | |
Sales and marketing | | | 13,296 | | | | 37,972 | |
Total 401(k) contribution expense | | $ | 32,680 | | | $ | 126,434 | |
JOBS Act Accounting Election
The Company qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. An emerging growth company can elect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. Currently, the Company has elected to file as an emerging growth company defined under the JOBS Act, and as such, these unaudited consolidated condensed financial statements may not be comparable to the financial statements of companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Notes to Unaudited Consolidated Condensed Financial Statements
Exit and Disposal Costs
The Company follows the guidance in ASC 420,Exit or Disposal Cost Obligations, to record exit and disposal related costs. The Company recorded $8.7 million of exit and disposal costs in the fourth quarter of 2022 and insignificant residual costs in the nine months ended September 30, 2023, associated with the closure of the Sisters, Oregon manufacturing sites and subsequent transition to a co-manufacturing model for all production and fulfillment. ASC 420 requires the recognition of costs associated with exit or disposal activities when they are incurred, generally the cease-use date. Exit and disposal activities are summarized below:
| ● | We entered into a lease termination agreement on December 12, 2022. All production activities taking place in the related properties ceased in December 2022. Pursuant to this agreement, our lease was fully terminated as of January 31, 2023, and we owed a total of $1.6 million in early lease termination costs of which $0.5 million was remitted in December 2022 and $1.1 million was satisfied in January 2023. We recognized lease termination costs, including the elimination of right of use assets net of lease liabilities, and early lease termination penalties, of $3.6 million which are included in general and administrative expenses for the year ended December 31, 2022. |
| ● | We signed an asset purchase agreement with our new co-manufacturer for the sale of the majority of our production equipment for a purchase price of $0.8 million and an agreement to sell certain leasehold improvements for $0.1 million. Certain equipment, furniture, and leasehold improvements were abandoned upon exit of the lease. The net book value of this property exceeds the recoverability of the assets. As such, we recorded impairment charges of property, plant, and equipment and internal-use production software of $3.1 million and $0.1 million, respectively, which are included in general and administrative expenses for the year ended December 31, 2022. Consideration was received in the amount of $0.7 million in the first half of 2023 and consideration receivable of $0.1 million is included in Prepaid and other current assets on the unaudited consolidated condensed balance sheets as of September 30, 2023. |
| ● | We incurred one-time termination benefits consisting of severances primarily for operations, production, and fulfillment personnel, of $0.6 million, which are included in general and administrative expenses for the year ended December 31, 2022. These were paid by January 2023. In the first quarter of 2023, we recognized a net reversal of expense of $0.1 million related to severances and forfeitures of stock-based compensation, which are included in general and administrative expenses. |
| ● | We moved the majority of our raw materials inventory to our co-manufacturer and the majority of our finished goods inventory to our third-party logistics partners. Because we no longer have storage space in our warehouses, we determined that it was not cost-effective to pay for freight and storage fees to move and house certain inventories at our third-party partners' facilities. As a result, we disposed of, or reserved for disposal, certain inventories remaining at the Sisters, Oregon facilities which were not shipped to our third-party partners' facilities, in the amount of $1.1 million, which are included in cost of goods sold for the year ended December 31, 2022. All such inventory remaining on-hand as of December 31, 2022 was disposed of in January 2023. |
| ● | We incurred other costs for moving inventory, IT setup and integration costs, repayment of property tax abatements, and other costs totaling $0.2 million, which were included in general and administrative expenses for the year ended December 31, 2022. We recognize these costs as incurred or when they become realizable. |
Loss Contingencies
We may be subject to contingencies arising in the ordinary course of business, such as product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations and guarantees and indemnifications. In assessing contingencies related to legal and environmental proceedings that are pending against the Company, or unasserted claims that are probable of being asserted, we record accruals for these contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. If an amount within a range of loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.
Notes to Unaudited Consolidated Condensed Financial Statements
Going Concern
The unaudited consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the unaudited consolidated condensed financial statements, the Company has $7.4 million of cash and cash equivalents, and cash used in operations was $10.9 million in the nine months ended September 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Absent any other action, the Company will require additional liquidity to continue its operations over the next 12 months from the date of this Quarterly Report on Form 10-Q.
At the end of the fourth quarter of 2022, the Company transitioned to a variable cost third-party co-manufacturing business model. As part of this transition, the Company greatly reduced overhead costs while simultaneously improving margins. Cash used in operations in the firstnine months of 2023 is inclusive of costs which were incurred in connection with the exit and disposal activities, annual bonus payments, discounts for replacement orders, as well as out of stock items following a product quality issue which resulted in reduced top line revenue for the impacted SKUs in the quarter. These factors exacerbate the cash used in the first half of the year. Even with a product quality issue impacting net sales and cost of goods sold we have already realized margin improvements to 26.4% in the firstnine months of 2023 compared to 14.5% for fiscal year 2022. Management has specific plans to further improve gross margins, optimize marketing spend, and cut selling, general, and administrative costs later in the year which management believes will significantly reduce expected future cash outlays.
However, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The unaudited consolidated condensed financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Recoveries on claims for business interruptions
In the first quarter of 2023, we discovered a product quality issue with coconut milk powder from one of our suppliers and immediately initiated a voluntary product withdrawal and contacted all impacted wholesale customers and e-commerce consumers to aggressively pull back as much as of the affected product as possible. In connection with this withdrawal, we incurred costs associated with inventory obsolescence, quality testing, and remedial discounts and replacement orders of $0.5 million in the fourth quarter of 2022 and $0.4 million in the first quarter of 2023. In addition, we implemented a robust new sensory testing program to prevent future quality issues. In the third quarter of 2023, we reached settlement with the vendor and recognized $0.2 million of recoveries which were included in cost of goods sold in the unaudited consolidated condensed statements of operations. As of September 30, 2023, $0.2 million of these recoveries were included in other current assets on the unaudited consolidated condensed balance sheets.
Recently Adopted Accounting Pronouncements
In FebruaryJune 2016, the FASB issued Leases (Topic 842) (“ASU 2016-02”), whereby a lessee will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. ASU 2016-02 is effective for the Company’s annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
On January 1, 2022, we adopted ASU 2016-02 and subsequent updates, collectively referred to as Topic 842, using the modified retrospective transition method. In addition, we adopted the package of practical expedients in transition, which permits us to not reassess our prior conclusions pertaining to lease identification, lease classification and initial direct costs on leases that commenced prior to our adoption of the new standard. We also elected the ongoing practical expedient to not recognize operating lease right-of-use assets and operating lease liabilities related to short-term leases.
The Company adopted Topic 842 using the modified retrospective transition approach provided in ASC 842-10-65-1(c)(2), which requires recognition of the cumulative effect adjustment, if any, of initially applying the standard to the opening balance of retained earnings in the period of adoption (i.e., January 1, 2022). There was no cumulative adjustment to be recognized at January 1, 2022.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on No.2016-13, “Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We adopted ASU 2020-04 in the first quarter of 2022. The adoption had no impact on our consolidated financial position, results of operations, or cash flows.
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Notes to Unaudited Consolidated Financial Statements
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (“(“Topic 326”326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs 2018-192018-19 (issued November 2018), 2019-042019-04 (issued April 2019), 2019-052019-05 (issued May 2019), 2019-112019-11 (issued November 2019), 2020-022020-02 (issued February 2020) and 2020-032020-03 (issued March 2020). Topic 326 modifies the measurement and recognition of credit losses for most financial assets and certain other instruments, requiring the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard requires a modified retrospective approach with a cumulative effect adjustment to retained earnings. ASU 2016-132016-13 is effective for the Company’s annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted ASU 2016-13 in the first quarter of 2023.The adoption of ASU 2016-13 is not expected to have a materialhad no impact on itsour unaudited consolidated condensed financial statements.
Reclassification of Prior Period Presentation
Certain prior period amounts have been reclassified for consistency with the current year presentation. As a result, certain line items have been amended in the statementsposition, results of operations, statements ofor cash flow, and the related notes to the unaudited consolidated financial statements.flows.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the unaudited consolidated condensed financial statements are available to be issued. The Company has evaluated events and transactions subsequent to September 30, 20222023 for potential recognition of disclosure in the unaudited consolidated condensed financial statements. There were no such subsequent events.
On October 12, 2022, the Board of Directors of the Company approved a plan to transition the production of substantially all products that the Company internally manufactures to third-party co-packers, which is expected to improve operating margins and permit the Company to focus its resources on brand development, sales, and marketing.
As part of the plan, the Company will close its production facilities in Sisters, Oregon and reduce headcount by approximately 46 employees, which represents approximately 55% of its total employees. The Company expects to recognize approximately $0.5 million of restructuring charges consisting of severance and other employee-related costs. Other costs associated with building and lease exit costs, any impairments of assets, and other related restructuring and exit costs are still being evaluated. The Company expects substantially all charges associated with the workforce reduction to be incurred during the quarter ending December 31, 2022, with related cash payments expected to be substantially paid out by the end of the first quarter of 2023.
Notes to Unaudited Consolidated
Condensed Financial Statements
2. Business Combination
On May 3, 2021, the Company entered into a definitive agreement to purchase all of the outstanding membership interest units in Picky Bars, LLC (“Picky Bars”), innovators in the healthy snack industry focused on nutritionally balanced, real-food products to fuel performance, for a debt-free purchase price of $11,111,830 in cash, subject to customary working capital adjustments, and 53,133 shares of Company common stock, subject to certain vesting conditions. The transaction closed simultaneously with execution of the agreement. Picky Bars results of operations were included in the Company’s results beginning May 2021. The fair value of the shares of common stock issued as part of the consideration paid for Picky Bars was determined on the basis of the closing price of the Company’s common stock on the acquisition date.
The following table summarizes the consideration paid for Picky Bars and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:
| | | | |
Consideration | | | |
Cash | | $ | 11,111,830 | |
Equity instruments | | | 1,834,857 | |
Fair value of total consideration transferred | | $ | 12,946,687 | |
Recognized amounts of identifiable assets acquired and liabilities assumed | | | |
Cash | | $ | 662,243 | |
Accounts receivable | | | 48,517 | |
Prepaid expenses and other current assets | | | 237,166 | |
Deposits | | | 6,000 | |
Inventory | | | 726,006 | |
Property and equipment, net | | | 55,378 | |
Intangible assets | | | 4,930,000 | |
Total assets acquired | | | 6,665,310 | |
Accounts payable | | | 47,323 | |
Accrued expenses | | | 131,661 | |
Payroll liabilities | | | 9,189 | |
Contract liabilities | | | 16,450 | |
Total liabilities assumed | | | 204,623 | |
Total identifiable net assets | | | 6,460,687 | |
Goodwill | | $ | 6,486,000 | |
The transaction is aligned with Laird Superfood’s strategic goals, specifically the addition of unique and innovative daily-use products across the Company’s omnichannel platform, and the acquisition of highly complementary assets such as a recurring direct-to-consumer customer base, and is expected to support continued net sales growth and improve the gross margin profile of the Company. Goodwill arising as a result of the acquisition of Picky Bars is primarily the result of synergies in business strategy, target market, and values, from expected cost savings from consolidating operations, and from the anticipated growth that the Company’s supply chain and resources will bring to Picky Bars’ operations. Operations have been fully integrated under management of the Company in Sisters, Oregon. The Company continues to operate as one segment. Our estimates of fair value of intangible assets are based upon assumptions believed to be reasonable, yet are inherently uncertain and, as a result, may differ from actual performance. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill, as appropriate, in the period in which such revised estimates are identified. The measurement period is complete, and the Company recorded goodwill and intangible asset impairment charges in the first quarter of 2022 of $6,486,000 and $1,540,000, respectively. See Note 9 of the notes to these consolidated unaudited financial statements.
The following table summarizes the components of the intangible assets acquired as of the acquisition date and their estimated useful lives:
| | | | | | |
| | Estimated Useful
Life | | Fair Value | |
Trade names | | 10 years | | $ | 2,530,000 | |
Customer relationships | | 10 years | | | 1,990,000 | |
Recipes | | 10 years | | | 330,000 | |
Social media agreements | | 3 years | | | 80,000 | |
Total intangible assets acquired | | | | $ | 4,930,000 | |
The following unaudited pro forma summary presents the results of the Company as if the acquisition of Picky Bars had occurred on January 1 of the year of the acquisition:
| | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, 2021 | | | September 30, 2021 | |
Net Sales | | $ | 10,865,914 | | | $ | 29,191,720 | |
Net Loss | | $ | (5,351,698 | ) | | $ | (16,712,048 | ) |
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
This unaudited pro forma financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisition had occurred on January 1 of the year prior to the acquisition. Moreover, this information is not indicative of what the Company’s future operating results will be. The information prior to the acquisition is included based on prior accounting records maintained by Picky Bars. The pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Picky Bars to reflect the accrual of payroll related costs and depreciation. The unaudited pro forma financial information includes non-recurring adjustments to remove transaction costs directly attributable to the acquisition.
3.2. Prepaid Expenses and Other Current Assets Net
The following table presents the components of prepaid expenses and other current assets, net, as of:
| | | | | | | | |
| | September 30,
2022 | | | December 31,
2021 | |
Prepaid insurance | | $ | 101,868 | | | $ | 1,586,768 | |
Prepaid inventory | | | 632,006 | | | | 1,009,954 | |
Prepaid subscriptions and license fees | | | 451,120 | | | | 455,781 | |
Prepaid, other | | | 176,862 | | | | 240,657 | |
Prepaid advertising | | | 253,716 | | | | 253,750 | |
Other current assets | | | 186,383 | | | | 459,633 | |
Total prepaid and other assets | | | 1,801,955 | | | | 4,006,543 | |
Reserve for prepaid inventory | | | — | | | | (179,000 | ) |
Prepaid and other assets, net | | $ | 1,801,955 | | | $ | 3,827,543 | |
| | | September 30, | | | December 31, | |
| | | 2023 | | | 2022 | |
Prepaid insurance | | $ | 107,762 | | | $ | 761,147 | |
Prepaid inventory | | | 482,585 | | | | 897,108 | |
Prepaid subscriptions and license fees | | | 173,684 | | | | 292,622 | |
Prepaid advertising | | | 154,033 | | | | 166,872 | |
Deposits | | | 197,643 | | | | 134,896 | |
Other current assets | | | 320,328 | | | | 277,430 | |
Prepaid and other current assets | | $ | 1,436,035 | | | $ | 2,530,075 | |
4. Investment securities
The Company held no investment securities as of September 30, 2022. Investment securities as of December 31, 2021 consisted of the following:
| | | | | | | | | | | | | | | | |
December 31, 2021 | | Amortized
cost | | | Gross
unrealized
gains | | | Gross
unrealized
losses | | | Estimated
fair value | |
Federal agency bonds — mortgage-backed | | $ | 8,696,093 | | | $ | — | | | $ | (61,016 | ) | | $ | 8,635,077 | |
Total debt securities available-for-sale | | $ | 8,696,093 | | | $ | — | | | $ | (61,016 | ) | | $ | 8,635,077 | |
The amortized cost and estimated fair value of investment securities as of December 31, 2021, by contractual maturity, are shown below:
| | | | | | | | |
| | Available-for-sale | |
December 31, 2021 | | Amortized
cost | | | Estimated
fair value | |
Due after one year through five years | | $ | 8,696,093 | | | $ | 8,635,077 | |
Total debt securities available-for-sale | | $ | 8,696,093 | | | $ | 8,635,077 | |
Investment securities with an estimated fair value of $8,635,077 as of December 31, 2021 were pledged to secure our revolving line of credit. See Note 6 for additional information.
The Company recorded sales of available-for-sale debt securities during the three and nine months ended September 30, 2022 of $0 and $8,513,783, respectively, and recognized a loss on the sale of $182,310 in the first quarter of 2022. The Company recorded no sales or maturities of available-for-sale securities during the three and nine months ended September 30, 2021.
5. Fair Value Measurements
Factors used in determining the fair value of our assets and liabilities are summarized into three broad categories:
•Level 1 – quoted prices in active markets for identical securities as of the reporting date;
•Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and
•Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.
The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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Table of Contents
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
The Company held no assets subject to fair value measurements as of September 30, 2022. The following tables summarize assets subject to fair value measurements as of December 31, 2021:
| | | | | | | | | | | | |
Fair Value as of December 31, 2021 | | Level 1 | | | Level 2 | | | Level 3 | |
Federal agency bonds — mortgage-backed | | $ | — | | | $ | 8,635,077 | | | $ | — | |
The Company believes the carrying amounts of Cash and cash equivalents, Accounts receivable, Prepaid expenses and other current assets, Deposits, Other Assets, Accounts payable, Payroll liabilities and Accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
The Company believes that fair values of U.S. Agency Bonds issued by the Federal Home Loan Mortgage Corporation are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. agency bonds are included in the Level 2 fair value hierarchy.
6.3. Revolving Lines of Credit
On September 2, 2021, the Company entered into a revolving line of credit with Wells Fargo Bank National Association in a principal amount not exceeding $9,500,000.$9,500,000. The line of credit was renewed on September 1, 2022, with a maturity date of August 31, 2023,, and the available credit was reduced to $5,000,000. The outstanding amounts under the line of credit have an interest rate calculated as Daily Simple Secured Overnight Financing Rate (“SOFR”) plus 1.5% per annum until paid in full. The balance on the line of credit was $0 as of September 30, 2022 and December 31, 2021. Management was in compliance with all financial covenants as of September 30, 2022 and December 31, 2021.
On February 5, 2019, the Company entered into a revolving line of credit with First Interstate Bank (“FIB”) in a principal amount not exceeding $5,000,000.$5,000,000. The line of credit was secured by the Company’s investment account held at FIB. not renewed on August 31, 2023. The outstanding amounts under the line of credit had an interest rate calculated as LIBORDaily Simple Secured Overnight Financing Rate (“SOFR”) plus 2.0%1.5% per annum until paid in full. The loan agreementbalance on the line of credit was renewed by the Company on March 1, 2021$0 as of September 30, 2023 and December 31, 2022. Management was closed on September 23, 2021.in compliance with all financial covenants as of December 31, 2022.
On August 10, 2017, the Company entered into a revolving line of credit with East Asset Management, LLC (“East”) in a principal amount not exceeding the lesser of the borrowing base or $3,000,000.$3,000,000. The outstanding amounts under the line of credit had a fixed interest rate of 15%15% per annum until paid in full and the line of credit hashad a maturity date of August 10, 2022. The balance on the line of credit was $0 as of December 31, 2021. Management was in compliance with all financial covenants as of December 31, 2021. 2022. The loan agreement was closed on May 19, 2022.
A secondary line of credit with East in an amount up to $200,000$200,000 was available to the Company, which was not subject to the requirements of the borrowing base. The secondary line was available with the same draw and payback conditions as the primary line. The balance on the line of credit was $0 as of December 31, 2021. The loan agreement was closed on May 19, 2022.
East was also granted a right of first refusal on any future equity offerings by the Company to purchase up to 20%20% of equity in any such offerings at a 20%20% price per share discount, subject to certain exclusions. These rights terminated concurrently with the closure of the associated loan agreements on May 19, 2022.
7. Long-term Debt
City of Sisters
On May 30, 2017, the Company entered into a forgivable loan agreement with the City of Sisters in the amount of $51,000. This forgivable loan was issued to help the Company expand its business operations in the city of Sisters, Oregon through eligible jobs. The Company had until May 30, 2020 to create jobs for 30 full-time employees with an average annual salary of $40,000 per person, and, once created and filled, the Company must maintain those jobs for an additional period of three years for the loan to be converted to a grant. If the requirements were not met, the Company would have been required to pay the loan in full, including interest of eight percent per annum on the unpaid principal amount. The Company created the eligible jobs as of April 1, 2018, and the loan was converted to a grant effective December 8, 2021.
Notes to Unaudited Consolidated Condensed Financial Statements
8.4. Property and Equipment, net
Property and Equipment, net
Property and equipment, net is comprised of the following as of:
| | | | | | | | |
| | September 30,
2022 | | | December 31,
2021 | |
Factory equipment | | $ | 4,228,350 | | | $ | 3,278,035 | |
Land | | | — | | | | 947,394 | |
Furniture and office equipment | | | 728,612 | | | | 592,316 | |
Leasehold improvements | | | 1,170,462 | | | | 993,581 | |
Construction in progress | | | — | | | | 148,984 | |
| | | 6,127,424 | | | | 5,960,310 | |
Accumulated depreciation | | | (1,914,020 | ) | | | (1,447,375 | ) |
Property and equipment, net | | $ | 4,213,404 | | | $ | 4,512,935 | |
| | | September 30, 2023 | | | December 31, 2022 | |
| | | Gross Carrying Amount | | | Accumulated Depreciation | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Depreciation | | | Net Carrying Amount | |
Factory equipment | | $ | — | | | $ | — | | | $ | — | | | $ | 66,276 | | | $ | (43,051 | ) | | $ | 23,225 | |
Furniture and office equipment | | | 220,190 | | | | (107,393 | ) | | | 112,797 | | | | 318,795 | | | | (211,529 | ) | | | 107,266 | |
Leasehold improvements | | | 46,276 | | | | (20,469 | ) | | | 25,807 | | | | 34,946 | | | | (15,148 | ) | | | 19,798 | |
| | | $ | 266,466 | | | $ | (127,862 | ) | | $ | 138,604 | | | $ | 420,017 | | | $ | (269,728 | ) | | $ | 150,289 | |
Depreciation expense was $167,794$19,772 and $496,932$79,860 for the three and nine months ended September 30, 2022,2023, respectively. Depreciation expense was $152,139$167,794 and $454,400$496,932 for the three and nine months ended September 30, 2021,2022, respectively.
Assets Classified as Held-for-Sale
In the first quarter of 2022, the Company entered into a vacant land real estate sale agreement for the sale of excess unused lots in Sisters, Oregon for a sales price of $1,572,512.$1,572,512. The Company sold the land in the second quarter of 2022 resulting in a gain of $573,818$573,818 included in general and administrative expenses.
In the second quarter of 2022, the Company entered into a purchase order agreement for the sale of the intermittent motion form (“IMF”) production line for a sales price of $100,000.$100,000. The book value exceeded the fair market value and, as such, the Company recorded an impairment charge of $0 and $100,426 for$100,426 in the three and nine months ended September 30, second quarter of 2022. The Company sold these assets in the third quarter of 2022 for $103,240,$103,240, recording a gain of $3,240$3,240 included in general and administrative expenses.
In the fourth quarter of 2022, the Company entered into purchase agreements for the sale of the production equipment for a sales price of $800,000. The book value exceeded the fair market value and, as such, the Company recorded impairment charges of $3,105,435, included in general and administrative expenses. In the firstthree quarters of 2023, consideration amounting to $673,732 was received and $126,268 was receivable and included in other current assets as of September 30, 2023.
9.5. Goodwill and Intangible Assets, Net
Goodwill
Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in connection with the acquisition of Picky Bars.
The carrying amount of goodwill attributed to the acquisition of Picky Bars was $6,486,000$6,486,000 as of the acquisition date.
Goodwill is reviewed for impairment annually at December 31. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, or if the Company chooses not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions and their impact on the Company, as well as the current market capitalization.
In the last month of the first quarter of 2022, management determined the sustained decline in stock price, coupled with changes in market conditions, was a triggering event. The Company performed a qualitative and quantitative analysis on the Company's goodwill for impairment, concluding that the fair value of goodwill as calculated using a discounted cash flow model exceeds the carrying value, this indicating that goodwill is impaired. As such, the Company recorded a goodwill impairment of $0$0 and $6,486,000$6,486,000 for the three and nine months ended September 30, 2022 respectively.. There was no goodwill as of September 30, 2023 or December 31, 2022.
20
Notes to Unaudited Consolidated Condensed Financial Statements
Intangible Assets, Net
Intangible Assets, net is comprised of the following:
| | | | | | | | |
| | September 30,
2022 | | | December 31,
2021 | |
Trade names (10 years) | | $ | 2,190,083 | | | $ | 2,530,000 | |
Customer relationships (10 years) | | | 371,898 | | | | 1,990,000 | |
Recipes (10 years) | | | 330,000 | | | | 330,000 | |
Social media agreements (3 years) | | | 80,000 | | | | 80,000 | |
Software (3-15 years) | | | 345,067 | | | | 188,662 | |
Amortizable intangible assets | | | 3,317,048 | | | | 5,118,662 | |
Accumulated amortization | | | (343,314 | ) | | | (411,908 | ) |
Amortizable intangible assets, net | | | 2,973,734 | | | | 4,706,754 | |
Licensing agreements (indefinite) | | | 132,100 | | | | 132,100 | |
Total Intangible assets, net | | $ | 3,105,834 | | | $ | 4,838,854 | |
| | | September 30, 2023 | | | December 31, 2022 | |
| | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Trade names (10 years) | | $ | 890,827 | | | $ | (80,175 | ) | | $ | 810,652 | | | $ | 890,827 | | | $ | — | | | $ | 890,827 | |
Recipes (10 years) | | | 330,000 | | | | (79,750 | ) | | | 250,250 | | | | 330,000 | | | | (55,000 | ) | | | 275,000 | |
Social media agreements (3 years) | | | 80,000 | | | | (64,444 | ) | | | 15,556 | | | | 80,000 | | | | (44,444 | ) | | | 35,556 | |
Software (3 years) | | | 131,709 | | | | (71,214 | ) | | | 60,495 | | | | 131,710 | | | | (40,975 | ) | | | 90,735 | |
Definite-lived intangible assets | | | 1,432,536 | | | | (295,583 | ) | | | 1,136,953 | | | | 1,432,537 | | | | (140,419 | ) | | | 1,292,118 | |
Licensing agreements (indefinite) | | | 132,100 | | | | — | | | | 132,100 | | | | 132,100 | | | | — | | | | 132,100 | |
Total intangible assets | | $ | 1,564,636 | | | $ | (295,583 | ) | | $ | 1,269,053 | | | $ | 1,564,637 | | | $ | (140,419 | ) | | $ | 1,424,218 | |
The weighted-average useful life of all the Company’s intangible assets is 8.07.1 years.
For the three and nine months ended September 30, 2023, amortization expense was $51,721 and $155,165, respectively. For the three and nine months ended September 30, 2022, amortization expense was $104,201 and $349,424, respectively.
Definite life intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset, or an unexpected change in financial performance. When evaluating definite life intangible assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. The Company considered the above factors when assessing whether the Company’s long-lived assets will be recoverable.
Based on the analysis of the qualitative factors above, management determined that there were no triggering events or impairment charges in the three and nine months ended September 30, 2023. In 2022, with changes in market conditions and developments in the forecasts for e-commerce and wholesale sales of legacy Picky Bars products were triggering events during the nine months ended September 30, 2022 amortization expense was $104,201and $349,424, respectively. Forin the three and nine months ended September 30, 2021, amortization expense was $139,775 and $243,578, respectively.December 31, 2022.
During the three and nine months ended September 30, 2022, the
The Company assessed whetherperformed a triggering event has occurred which would require interim impairment testing long-lived intangible assets for impairment. In the first quarter of 2022, the Company determined that a triggering event had occurred which would require an interim impairment test to be performed. In conjunction with the goodwill qualitative and quantitative assessment performed,analysis over the period May 1, 2021 through March 31, 2022 and from March 31, 2022 through December 31, 2022 on the Company's estimates of the fair values of acquired customer relationships utilizing the Multiperiod Excess Earnings Method variation of discounted cash-flow model, which exceeded the carrying value, indicating that these assets were impaired. In the three and nine months ended September 30, 2022, the Company recorded impairment charges of $0 and $1,432,000, respectively, net of accumulated amortization. In the three months ended December 31, 2022, the Company recorded impairment charges of $344,006, net of accumulated amortization.
The Company performed a qualitative and quantitative assessmentanalysis over the period May 1, 2021 through March 31, 2022 and from March 31, 2022 through December 31, 2022 on the Company's estimates of intangiblethe fair values of acquired trade names utilizing the Relief From Royalty Method variation discounted cash-flow model, which exceeded the carrying value, indicating that these assets acquired inwere impaired. In the business combination with Picky Bars,three andnine months ended September 30, 2022, the Company recorded impairment charges of $0 and $108,000, respectively, net of accumulated amortization. In the related long-lived intangible assets of $0 and $1,540,000 for the three and nine months ended September 30,December 31, 2022 respectively., the Company recorded impairment charges of $1,135,000, net of accumulated amortization.
Intangible assets are amortized using the straight-line method over estimated useful lives ranging from threeto tenfifteen years. years. The estimated amortization expense for each of the next five years and thereafter is as follows:
2023 (excluding the nine months ended September 30, 2023) | | $ | 51,721 | |
2024 | | | 189,108 | |
2025 | | | 149,994 | |
2026 | | | 139,899 | |
2027 | | | 139,899 | |
Thereafter | | | 466,332 | |
| | | $ | 1,136,953 | |
| | | | |
2022 (excluding the nine months ended September 30, 2022) | | $ | 104,063 | |
2023 | | | 415,746 | |
2024 | | | 359,875 | |
2025 | | | 306,502 | |
2026 | | | 296,407 | |
Thereafter | | | 1,491,141 | |
| | $ | 2,973,734 | |
10. Leases
In February 2016, the FASB issued new accounting guidance on leases. Effective January 1, 2022, we adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the unaudited consolidated balance sheet without adjusting comparative periods.
Lessee
In accordance with Topic 842, Leases, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise.
In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and liability. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
21
Notes to Unaudited Consolidated Condensed Financial Statements
6. Leases
Lessee
The Company currently leasesleased its warehouse space under a commercial lease with RII Lundgren Mill, LLC, dated March 1, 2018. The lease commenced March 1, 2018 with monthly payments of $6,475, to escalate after 24 months by the lesser of 3% or the Consumer Price Index (“CPI”) adjustment. 2018. The initial lease term is was ten years, and the Company hashad the option to renew the lease for two additional five-yearfive-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On November 20, 2018, the Company completed the reimbursement of $797,471. The Company also issued the landlord 2,000 stock options on April 15, 2018 with a strike price of $7.50 per share in conjunction with this lease agreement.
The Company executed a second lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated December 17, 2018. The lease commenced on July 1, 2019 with monthly payments of $12,784, to escalate after 24 months by the lesser of 3% or the CPI adjustment. 2019. However, for accounting purposes the lease commencement date was June 6, 2019. The initial lease term is was ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On December 20, 2018, the Company completed the initial reimbursement of $1,202,529. The Company made the final reimbursement in the amount of $1,399,001 on December 31, 2019.
years.
The Company executed a third lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated October 1, 2021. The lease commenced on October 1, 2021 with monthly payments of $38,869, to escalate after 24 months by the lesser of 3% or the CPI adjustment. 2021. The initial lease term is was ten years, years.
The Company executed a lease cancellation agreement dated December 12, 2022. Under this agreement, the Company's three leases with RII Lundgren Mill, LLC, were terminated effective January 31, 2023, and the Company hasagreed to pay $1,550,000, of which $500,000 was remitted in 2022 and $1,050,000 was satisfied in the optionfirst quarter of 2023. The Company ceased to renewrealize any operational benefit from the leases as of December 31, 2022, and recorded losses on lease termination consisting of the write off of the related right of use assets, net of lease liabilities, as well as the lease termination fee, for two additional five-year periods.a total of $3,596,365, which were included in General and administrative expenses for the year ended December 31, 2022.
The Company assumed an operating lease in the acquisition of Picky Bars, LLC on May 3, 2021. The Company pays monthly rent of $4,609, which escalates by 3% in months 15, 27, 39, and 51. The initial lease term is 62 months,, and the Company has the option to renew the lease for two additional three-yearthree-year periods.
The Company entered into a sublease agreement with Somatic Experiencing Trauma Institute with a commencement date of January 1, 2023, for a 5,257 square foot office space in Boulder, Colorado which serves as the Company's new headquarters. This lease will expire on July 1, 2027.
The components of lease expense were as follows:
| | | | | | | | |
| | Three Months Ended
September 30, 2022 | | | Nine Months Ended
September 30, 2022 | |
Operating leases | | | | | | |
Operating lease cost | | $ | 267,027 | | | $ | 801,240 | |
Variable lease cost | | | 27,635 | | | | 108,274 | |
Operating lease expense | | | 294,662 | | | | 909,514 | |
Short-term lease rent expense | | | 88,302 | | | | 191,799 | |
Total rent expense | | $ | 382,964 | | | $ | 1,101,313 | |
| | | | |
| | Nine Months Ended
September 30, 2022 | |
Operating cash flows - operating leases | | $ | 556,597 | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 5,285,330 | |
| | | | |
|
| September 30, 2022
|
|
Weighted-average remaining lease term – operating leases (in years)
|
|
| 8.1
|
|
Weighted-average discount rate – operating leases
|
|
| 3.75
| %
|
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, 2023 | | | September 30, 2023 | |
Operating leases | | | | | | | | |
Operating lease cost | | $ | 38,085 | | | $ | 114,254 | |
Variable lease cost | | | 5,554 | | | | 24,022 | |
Operating lease expense | | | 43,639 | | | | 138,276 | |
Short-term lease rent expense | | | 69,630 | | | | 242,817 | |
Total rent expense | | $ | 113,269 | | | $ | 381,093 | |
| | | Nine Months Ended | | | Nine Months Ended | |
| | | September 30, 2023 | | | September 30, 2022 | |
Operating cash flows - operating leases | | $ | 94,679 | | | $ | 556,597 | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 344,382 | | | $ | 5,285,330 | |
| | | September 30, 2023 | | | September 30, 2022 | |
Weighted-average remaining lease term – operating leases (in years) | | | 3.2 | | | | 8.1 | |
Weighted-average discount rate – operating leases | | | 6.63 | % | | | 3.75 | % |
Notes to Unaudited Consolidated Condensed Financial Statements
As of September 30, 2022,2023, future minimum payments during the next five years and thereafter are as follows:
| | | | |
2022 (excluding the nine months ended September 30, 2022) | | $ | 185,594 | |
2023 | | | 743,549 | |
2024 | | | 745,345 | |
2025 | | | 704,453 | |
2026 | | | 683,704 | |
Thereafter | | | 2,593,723 | |
Total | | | 5,656,368 | |
Less imputed interest | | | (783,428 | ) |
Operating lease liabilities | | $ | 4,872,940 | |
2023 (excluding the nine months ended September 30, 2023) | | $ | 31,755 | |
2024 | | | 138,800 | |
2025 | | | 126,714 | |
2026 | | | 109,145 | |
2027 | | | 56,210 | |
Total | | | 462,624 | |
Less imputed interest | | | (54,932 | ) |
Operating lease liabilities | | $ | 407,692 | |
Lessor
22
Table of Contents
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Lessor
The Company executed a sublease agreement of the Picky Bars, LLC operating lease on March 1, 2022. The lease commenced on April 1, 2022. The sublessee pays monthly rent of $4,889 beginning August 1, 2022, to escalate after 12 months by 3%. The initial lease term expires on April 30, 2025. 2025. The lease meets all of the criteria of an operating lease and is accordingly recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs. The Company had $20,293$13,769 and $0$18,846 of sublease rental assets as of September 30, 20222023 and December 31, 2021,2022, respectively, included in prepaid and other current assets on the unaudited consolidated condensed balance sheets.
The components of rental income were as follows:
| | | | | | | | |
| | Three Months Ended
September 30, 2022 | | | Nine Months Ended
September 30, 2022 | |
Operating leases | | | | | | |
Operating lease income | | $ | 14,055 | | | $ | 28,109 | |
Variable lease income | | | 4,844 | | | | 7,555 | |
Total rental income | | $ | 18,899 | | | $ | 35,664 | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, 2023 | | | September 30, 2023 | |
Operating leases | | | | | | | | |
Operating lease income | | $ | 14,054 | | | $ | 42,164 | |
Variable lease income | | | 5,318 | | | | 15,953 | |
Total rental income | | $ | 19,372 | | | $ | 58,117 | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, 2022 | | | September 30, 2022 | |
Operating leases | | | | | | | | |
Operating lease income | | $ | 14,055 | | | $ | 42,164 | |
Variable lease income | | | 5,318 | | | | 15,953 | |
Total rental income | | $ | 19,373 | | | $ | 58,117 | |
As of September 30, 2022,2023, future minimum payments to be received during the next five years and thereafter are as follows:
| | | | |
2022 (excluding the nine months ended September 30, 2022) | | $ | 14,668 | |
2023 | | | 59,845 | |
2024 | | | 61,640 | |
2025 | | | 20,748 | |
2026 | | | — | |
Thereafter | | | — | |
Total | | $ | 156,901 | |
2023 (excluding the nine months ended September 30, 2023) | | | 30,216 | |
2024 | | | 61,640 | |
2025 | | | 20,748 | |
Total | | $ | 112,604 | |
11.7. Deferred Tax Assets and Liabilities
The Company had a tax net loss for the three and nine months ended September 30, 2022 2023 and 2021,2022, and therefore has recorded no assessment of current federal income taxes. The Company is subject to minimum state taxes for various jurisdictions as well as subject to franchise taxes considered income taxes under ASC 740. 740,Income Taxes. A reconciliation of income tax expense at the federal statutory rate to the income tax provision at the Company's effective rate is as follows for nine months ended September 30, 2022 and 2021:follows:
| | | Nine Months Ended | |
| | | September 30, 2023 | | | September 30, 2022 | |
| | | | | | | | | |
Income tax benefit at statutory rates | | $ | 2,184,272 | | | $ | 2,968,062 | |
Valuation allowance for deferred tax assets | | | (2,239,858 | ) | | | (2,947,086 | ) |
Stock-based compensation | | | (16,751 | ) | | | (12,642 | ) |
Other benefit, net | | | 59,165 | | | | (14,108 | ) |
Reported income tax expense | | $ | (13,172 | ) | | $ | (5,774 | ) |
Effective tax rate: | | | 0.1 | % | | | 0.0 | % |
| | | | | | | | |
| | Nine Months Ended | |
| | September 30,
2022 | | | September 30,
2021 | |
| | | | | | |
Income tax benefit at statutory rates | | $ | 5,203,100 | | | $ | 3,548,573 | |
Valuation allowance for deferred tax assets | | | (5,066,864 | ) | | | (4,055,676 | ) |
Stock-based compensation | | | (264,458 | ) | | | (237,600 | ) |
Other benefit, net | | | 122,448 | | | | 658,208 | |
Reported income tax expense | | | (5,774 | ) | | | (86,495 | ) |
Effective tax rate: | | | 0.00 | % | | | 0.00 | % |
23
Notes to Unaudited Consolidated Condensed Financial Statements
The Company’s deferred tax assets and liabilities consisted of the following as of:
| | | | | | | | |
| | September 30,
2022 | | | December 31,
2021 | |
Noncurrent deferred tax assets: | | | | | | |
Net operating loss carryforwards | | $ | 15,985,235 | | | $ | 11,999,882 | |
Intangible assets | | | 1,858,964 | | | | 17,951 | |
Property and equipment | | | 609,050 | | | | 686,601 | |
Research and development credits | | | 223,613 | | | | 165,216 | |
Accrued expenses | | | 70,850 | | | | 98,296 | |
Bad debt reserve | | | 32,209 | | | | — | |
Charitable contributions | | | 40,471 | | | | 38,447 | |
Unexercised options | | | 677,931 | | | | 679,688 | |
Total noncurrent deferred tax assets | | | 19,498,323 | | | | 13,686,081 | |
Noncurrent deferred tax liabilities: | | | | | | |
Right of use asset | | | 509,681 | | | | 568,787 | |
Total noncurrent deferred tax liabilities | | | 509,681 | | | | 568,787 | |
Net noncurrent deferred tax assets | | | 18,988,642 | | | | 13,117,294 | |
Valuation allowance | | | (18,988,642 | ) | | | (13,124,828 | ) |
Total net noncurrent deferred tax liabilities | | $ | — | | | $ | (7,534 | ) |
| | | September 30, 2023 | | | December 31, 2022 | |
Noncurrent deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 20,070,340 | | | $ | 17,428,266 | |
Intangible assets | | | 2,262,377 | | | | 2,382,397 | |
Property and equipment | | | 1,587,209 | | | | 1,660,954 | |
Research and development credits | | | 372,587 | | | | 300,105 | |
Accrued expenses | | | 544,246 | | | | 766,385 | |
Right of use asset | | | 5,652 | | | | 524 | |
Bad debt allowance | | | 84,637 | | | | 20,282 | |
Charitable contributions | | | 40,867 | | | | 38,557 | |
Unexercised options | | | 1,436,395 | | | | 1,136,475 | |
Capitalized research and development costs | | | 256,974 | | | | 194,320 | |
Total noncurrent deferred tax assets | | | 26,661,284 | | | | 23,928,265 | |
Valuation allowance | | | (26,661,284 | ) | | | (23,928,265 | ) |
Total net deferred tax assets | | $ | — | | | $ | — | |
The Company assesses its deferred tax assets and liabilities to determine if it is more likely than not that they will be realized; if not, a valuation allowance is required to be recorded. During the nine months ended As of September 30, 2022, the Company recorded an indefinite-lived deferred tax asset of $1.5 million to account for the book vs. tax basis difference related to the goodwill intangible asset acquired in the Picky Bars acquisition. During the nine months ended September 30, 2022, the goodwill relating to the Picky Bars stock acquisition was fully impaired for GAAP. Due to the impairment, there is a deferred tax asset associated with the indefinite-lived intangible asset. The valuation allowance is increased by the indefinite-lived intangible assets. Previously, there was an indefinite-lived deferred tax liability that was excluded from sources of future taxable income, as the timing of its reversal cannot be predicted due to the indefinite life of the goodwill and U.S. federal net operating losses (“NOLs”). A naked credit resulted due to indefinite-lived deferred tax liability's inability to reduce the valuation allowance for U.S. federal income tax purposes
As of September 30, 2022,2023, the Company did not provide a current or deferred U.S. federal or state income tax provision or benefit for any of the periods presented because the Company has reported cumulative losses since inception. Management has determined that it was not more likely than not that the deferred tax assets would be realized, thus a full valuation allowance was recorded against the deferred tax assets. The Company may reduce the valuation allowance against definite-lived deferred tax assets at such a time when it becomes more likely than not that the definite-lived deferred tax assets will be realized. The Company has recorded a provision for state income taxes and a corresponding current state tax payable of $13 thousand.approximately $9,850 and $9,803 as of September 30, 2023 and December 31,2022, respectively.
The changechanges in the valuation allowance for deferred tax assets and liabilities for the nine months ended September 30, 2023 and 2022 was a were net increaseincreases of $5.8 million.$2.7 million and $5.8 million, respectively. At September 30, 20222023 and December 31, 2021,2022, the Company had NOLsnet operating loss carryforwards ("NOLs") totaling approximately $95.6$137.0 million and $72.6$118.6 million, respectively. At September 30, 20222023 and December 31, 2021,2022, the Company had federal NOLs totaling approximately $1.9$1.9 million from 2017 and prior years that can be carried forward for 20 years,, which begin to expire in 2036. At September 30, 20222023 and December 31, 2021,2022, the Company had federal NOLs totaling approximately $62.2$77.6 million and $46.2$67.5 million, respectively from 2018 and subsequent years that can be carried forward indefinitely.indefinitely. At September 30, 20222023 and December 31, 2021,2022, the Company had state NOLs totaling $32.1$57.6 million and $24.5$49.3 million, respectively, that can be carried forward for between 15 and 20 years. At September 30, 20222023 and December 31, 2021,2022, the Company had credits totaling $0.5$0.4 million and $0.4$0.3 million, respectively, that can be carried forward for between 5 and 20 years.
GAAP requires management to evaluate and report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether there are any tax positions that have met the recognition threshold and has measured the Company’s exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. U.S. and state jurisdictions have statutes of limitations that generally range from 3 to 5 years.
24
Notes to Unaudited Consolidated Condensed Financial Statements
12.8. Stock Incentive Plan
The Company adopted an incentive plan (the “2020“2020 Omnibus Incentive Plan”) on September 22, 2020, to provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units,RSUs, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to Company employees, employees of the Company’s affiliates, non-employee directors, and certain consultants and advisors. TheAs of September 30, 2023, the Company is authorized to award 1,355,7151,124,160 shares under the 2020 Omnibus Incentive Plan. Previously, the Company had adopted its 2018 Equity Incentive Plan and 2016 Stock Incentive Plan (together with the 2020 Omnibus Incentive Plan, the “Stock Incentive Plans”), under which the Company had issued stock options and restricted stock units. Following the effective date of the 2020 Omnibus Incentive Plan, no additional awards may be made under the 2018 Equity Incentive Plan or 2016 Stock Incentive Plan. The Stock Incentive Plans were established to provide eligible individuals with an incentive to contribute to the Company’s success and to operate and manage the Company’s business in a manner that will provide for its long-term growth and profitability and that will benefit the Company’s shareholders and other stakeholders, including employees and customers. The Stock Incentive Plans are also intended to provide a means of recruiting, rewarding, and retaining key personnel.
Stock Options
The Stock Incentive Plans prescribe various terms and conditions for the award of options and the total number of shares authorized for this purpose. For options, the strike price is equal to the fair market value of the Company’s stock price at the date of grant. Generally, options become exercisable based on years of service and vesting schedules, and expire after (i) a period of ten years from the date of grant, (ii) three months following the date of termination of employment from the Company, (iii) one year following the date of termination from the Company by reason of death or disability, (iv) the date of termination of employment for cause, or (v) the fifth anniversary of the date of the grant if it is held by a 10 percent or greater stockholder.
The following tables summarize the Company’s stock option activity:
| | | | | | | | | | | | | | | | | | | | | Weighted | | Weighted | | | |
| | Options
Activity | | | Weighted Average
Exercise Price
(per share) | | | Weighted Average
Remaining Contractual
Term (years) | | | Aggregate
Intrinsic Value | | | | | | Average | | Average | | | |
Balance at January 1, 2022 | | | 747,800 | | | $ | 11.51 | | | | 6.57 | | | $ | 1,143,013 | | |
| | | | Options | | Exercise Price | | Contractual | | Aggregate | |
| | | | Activity | | | (per share) | | | Term (years) | | | Intrinsic Value | |
Balance at January 1, 2023 | | | 921,657 | | | $ | 6.86 | | | 8.00 | | | $ | — | |
Granted | | | 453,498 | | | | 7.21 | | | | | | | | | 700,000 | | | $ | 0.89 | | | | | | |
Exercised/released | | | (76,750 | ) | | | 2.14 | | | | | | | | | — | | | $ | — | | | | | | |
Cancelled/forfeited | | | (317,185 | ) | | | 15.25 | | | | | | | | | | (360,317 | ) | | $ | 3.52 | | | | | | |
Balance at September 30, 2022 | | | 807,363 | | | $ | 8.50 | | | | 7.73 | | | $ | — | | |
Exercisable at September 30, 2022 | | | 314,343 | | | $ | 8.72 | | | | 5.42 | | | $ | — | | |
Balance at September 30, 2023 | | | | 1,261,340 | | | $ | 4.50 | | | 8.17 | | | $ | 75,000 | |
Exercisable at September 30, 2023 | | | 672,187 | | | $ | 4.69 | | | 7.53 | | | $ | 9,000 | |
| | | | | | | | | | | | | | | | | | | | | Weighted | | Weighted | | | |
| | Options
Activity | | | Weighted Average
Exercise Price
(per share) | | | Weighted Average
Remaining Contractual
Term (years) | | | Aggregate
Intrinsic Value | | | | | | Average | | Average | | | |
Balance at January 1, 2021 | | | 887,640 | | | $ | 9.65 | | | | 6.42 | | | $ | 33,433,274 | | |
| | | | Options | | Exercise Price | | Contractual | | Aggregate | |
| | | | Activity | | | (per share) | | | Term (years) | | | Intrinsic Value | |
Balance at January 1, 2022 | | | 747,800 | | | $ | 11.51 | | | 6.57 | | | $ | 1,143,013 | |
Granted | | | 56,541 | | | | 41.03 | | | | | | | | | 453,498 | | | $ | 7.21 | | | | | | |
Exercised/released | | | (61,119 | ) | | | 8.21 | | | | | | | | | (76,750 | ) | | $ | 2.14 | | | | | | |
Cancelled/forfeited | | | (82,833 | ) | | | 15.79 | | | | | | | | | | (317,185 | ) | | $ | 15.25 | | | | | | |
Balance at September 30, 2021 | | | 800,229 | | | $ | 11.41 | | | | 6.83 | | | $ | 6,135,017 | | |
Exercisable at September 30, 2021 | | | 580,601 | | | $ | 7.92 | | | | 6.27 | | | $ | 11,077,867 | | |
Balance at September 30, 2022 | | | | 807,363 | | | $ | 8.50 | | | 7.73 | | | $ | — | |
Exercisable at September 30, 2022 | | | 314,343 | | | $ | 8.72 | | | 5.42 | | | $ | — | |
25
Notes to Unaudited Consolidated Condensed Financial Statements
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option-pricing model. ASC 718, “Compensation-Compensation - Stock Compensation”Compensation (“ASC 718”), requires the use of the fair-value-based method for measuring the value of stock-based compensation. The estimated fair value of each grant of stock options awarded during the three and nine months ended September 30, 2022 and 2021 was determined using the following assumptions:
•Expected Volatility. The expected volatility is based on the volatility of the historical stock prices of identified peer companies.
•Expected Term. Due to the lack of a public market for the trading of shares of the Company’s common stock prior to the Company’s initial public offering that closed on September 25, 2020, and the lack of sufficient Company-specific historical data, the expected term of employee stock options is determined using the “simplified” method, as prescribed in SEC Staff Accounting Bulletin No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.
•Risk-free Interest Rate. The risk-free interest rate is based on the interest rate payable on the United States Treasury yield curve in effect at the time of grant for a period that is commensurate with the assumed expected term.
•Dividend Yield. The dividend yield is 0% because the Company has never paid, and for the foreseeable future does not expect to pay, dividends on its shares of common stock.
| ● | Expected Volatility. The expected volatility is based on the volatility of the historical stock prices of identified peer companies. |
| ● | Expected Term. Due to the lack of a public market for the trading of shares of the Company’s common stock prior to the Company’s initial public offering that closed on September 25, 2020, and the lack of sufficient Company-specific historical data, the expected term of employee stock options is determined using the “simplified” method, as prescribed in SEC Staff Accounting Bulletin No.107,Share Based Payments, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option. |
| ● | Risk-free Interest Rate. The risk-free interest rate is based on the interest rate payable on the United States Treasury yield curve in effect at the time of grant for a period that is commensurate with the assumed expected term. |
| ● | Dividend Yield. The dividend yield is 0% because the Company has never paid, and for the foreseeable future does not expect to pay, dividends on its shares of common stock. |
The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, the Company’s share-based compensation expense could be materially different for future awards.
For the nine months ended September 30, 2022 and 2021, the
The grant-date fair value of stock options was estimated at the time of grant using the following weighted-average inputs and assumptions in the Black-Scholes option pricing model:
| | | | | | | | |
| | For the Nine Months Ended
September 30, | |
| | 2022 | | | 2021 | |
Weighted-average expected volatility | | | 52.36 | % | | | 52.12 | % |
Weighted-average expected term (years) | | | 6.25 | | | | 6.23 | |
Weighted-average expected risk-free interest rate | | | 2.27 | % | | | 0.72 | % |
Dividend yield | | | — | | | | — | |
Weighted-average fair value of options granted | | $ | 2.79 | | | $ | 20.78 | |
| | | Nine Months Ended | |
| | | September 30, | |
| | | 2023 | | | 2022 | |
Weighted-average expected volatility | | | 59.43 | % | | | 52.36 | % |
Weighted-average expected term (years) | | | 5.71 | | | | 6.25 | |
Weighted-average expected risk-free interest rate | | | 3.87 | % | | | 2.27 | % |
Dividend yield | | | — | | | | — | |
Weighted-average fair value of options granted | | $ | 0.57 | | | $ | 2.79 | |
Restricted Stock Units
The following tables summarize the Company’s RSU activity during the nine months ended September 30, 2022 and 2021:activity:
| | | | | | | | | | | | | | | | | | | | | Weighted Average | | Weighted Average | | | |
| | Number of RSUs | | | Weighted Average
Grant Date Fair Value
(per share) | | | Weighted Average
Remaining Vesting
Term (years) | | | Aggregate
Fair Value | | | | | | Grant Date Fair | | Remaining Vesting | | Aggregate | |
Balance at January 1, 2022 | | | 91,438 | | | $ | 32.91 | | | | 2.17 | | | $ | 2,982,931 | | |
| | | | Number of RSUs | | | Value (per share) | | | Term (years) | | | Fair Value | |
Balance at January 1, 2023 | | | 504,420 | | | $ | 4.22 | | | 2.94 | | | $ | 2,127,734 | |
Granted | | | 452,702 | | | | 4.70 | | | | | | | | | 745,000 | | | $ | 0.81 | | | | | | |
Exercised/released | | | (55,634 | ) | | | 20.62 | | | | | | | | | (154,674 | ) | | $ | 4.36 | | | | | | |
Cancelled/forfeited | | | (46,240 | ) | | | 21.63 | | | | | | | | | | (260,639 | ) | | $ | 2.20 | | | | | | |
Balance at September 30, 2022 | | | 442,266 | | | $ | 6.74 | | | | 2.99 | | | $ | 2,980,838 | | |
Balance at September 30, 2023 | | | | 834,107 | | | $ | 1.77 | | | 2.18 | | | $ | 1,480,161 | |
| | | | | | | | | | | | | | | | |
| | Number of RSUs | | | Weighted Average
Grant Date Fair Value
(per share) | | | Weighted Average
Remaining Vesting
Term (years) | | | Aggregate
Fair Value | |
Balance at January 1, 2021 | | | 57,187 | | | $ | 33.16 | | | | 2.08 | | | $ | 1,896,221 | |
Granted | | | 88,407 | | | | 30.33 | | | | | | | |
Exercised/released | | | (31,513 | ) | | | 24.44 | | | | | | | |
Cancelled/forfeited | | | (18,186 | ) | | | 28.10 | | | | | | | |
Balance at September 30, 2021 | | | 95,895 | | | $ | 34.37 | | | | 2.37 | | | $ | 3,295,885 | |
| | | | | | | Weighted Average | | | Weighted Average | | | | | |
| | | | | | | Grant Date Fair | | | Remaining Vesting | | | Aggregate | |
| | | Number of RSUs | | | Value (per share) | | | Term (years) | | | Fair Value | |
Balance at January 1, 2022 | | | 91,438 | | | $ | 32.91 | | | | 2.17 | | | $ | 2,982,931 | |
Granted | | | 452,702 | | | $ | 4.70 | | | | | | | | | |
Exercised/released | | | (55,634 | ) | | $ | 20.62 | | | | | | | | | |
Cancelled/forfeited | | | (46,240 | ) | | $ | 21.63 | | | | | | | | | |
Balance at September 30, 2022 | | | 442,266 | | | $ | 6.74 | | | | 2.99 | | | $ | 2,980,838 | |
The Company estimates the fair value of each restricted stock unit using the fair value of the Company’s stock on the date of grant.
26
Notes to Unaudited Consolidated Condensed Financial Statements
Market-Based Stock Units
The following tables summarize the Company’s market-based stock unit ("MSU") activity during the nine months ended September 30, 2022 and 2021:MSU activity:
| | | | | | | | | | | | | | | | |
| | Number of MSUs | | | Weighted Average
Grant Date Fair Value
(per share) | | | Weighted Average
Remaining Vesting
Term (years) | | | Aggregate
Fair Value | |
Balance at January 1, 2022 | | | 160,301 | | | $ | 43.53 | | | | 1.20 | | | $ | 6,977,903 | |
Granted | | | — | | | | — | | | | | | | |
Exercised/released | | | — | | | | — | | | | | | | |
Cancelled/forfeited | | | (129,218 | ) | | | 43.53 | | | | | | | |
Balance at September 30, 2022 | | | 31,083 | | | $ | 43.53 | | | | 0.73 | | | $ | 1,353,043 | |
| | | | | | | | | | | | | | | | |
| | Number of MSUs | | | Weighted Average
Grant Date Fair Value
(per share) | | | Weighted Average
Remaining Vesting
Term (years) | | | Aggregate
Fair Value | |
Balance at January 1, 2021 | | | — | | | $ | — | | | | — | | | $ | — | |
Granted | | | 189,608 | | | | 43.53 | | | | | | | |
Exercised/released | | | — | | | | — | | | | | | | |
Cancelled/forfeited | | | (29,307 | ) | | | 43.53 | | | | | | | |
Balance at September 30, 2021 | | | 160,301 | | | $ | 43.53 | | | | 1.31 | | | $ | 6,977,903 | |
| | | | | | | Weighted Average | | | Weighted Average | | | | | |
| | | | | | | Grant Date Fair | | | Remaining Vesting | | | Aggregate | |
| | | Number of MSUs | | | Value (per share) | | | Term (years) | | | Fair Value | |
Balance at January 1, 2023 | | | 31,083 | | | $ | 43.53 | | | | 0.60 | | | $ | 1,353,043 | |
Granted | | | 600,000 | | | $ | 0.08 | | | | | | | | | |
Exercised/released | | | — | | | $ | — | | | | | | | | | |
Cancelled/forfeited | | | (9,769 | ) | | $ | 43.53 | | | | | | | | | |
Balance at September 30, 2023 | | | 621,314 | | | $ | 1.57 | | | | 0.85 | | | $ | 977,558 | |
| | | | | | | Weighted Average | | | Weighted Average | | | | | |
| | | | | | | Grant Date Fair | | | Remaining Vesting | | | Aggregate | |
| | | Number of MSUs | | | Value (per share) | | | Term (years) | | | Fair Value | |
Balance at January 1, 2022 | | | 160,301 | | | $ | 43.53 | | | | 1.20 | | | $ | 6,977,903 | |
Granted | | | — | | | $ | — | | | | | | | | | |
Exercised/released | | | — | | | $ | — | | | | | | | | | |
Cancelled/forfeited | | | (129,218 | ) | | $ | 43.53 | | | | | | | | | |
Balance at September 30, 2022 | | | 31,083 | | | $ | 43.53 | | | | 0.73 | | | $ | 1,353,043 | |
These MSUs vest upon the 30-day weighted average stock price reaching or exceeding established targets, after reaching certain time targets. We estimate the grant-date fair value of the MSUs using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rate of return and dividend yield. Expected volatilitiesvolatility within the index are derived using historical volatilitiesvolatility of a selected peer group over a period equal to the length of the performance period. We base the risk-free rate of return on the yield of a zero-couponzero-coupon U.S. Treasury bond with a maturity equal to the performance period and assume a 0%0% dividend rate. Compensation expense for these MSUs is recognized over the requisite service period regardless of whether the market conditions are satisfied.
Employee Stock Purchase Plan
On September 25, 2020, the Company established an Employee Stock Purchase Plan (“ESPP”) which allows employees of the Company to purchase common stock of the Company through accumulated payroll deductions. Offerings under this plan have a duration of six months. On the exercise date, the participant may acquire a maximum of 650 shares per participant, per offering period, at the lower of 85%85% of the market value of a share of our common stock on the enrollment date or the exercise date. Participants may terminate their interest in a given offering or a given exercise period by withdrawing all of their accumulated payroll deductions at any time prior to the end of the offering period. The fair value of the estimated number of shares to be issued under each offering iswas determined using a component valuation model. We estimate that 9,174 shares of common stock will be issued in accordance with theThis plan to those enrolleeswas terminated in the enrollment period commencing on May 1, fourth quarter of 2022.
Stock-Based Compensation
Stock-based compensation expense is recognized ratably over the requisite service period for all awards. The following tables summarize the Company’s stock-based compensation recorded as a result of applying the provisions of ASC 718 to equity awards:
| | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | Unrecognized Compensation Cost Related to Non-Vested Awards as of | | Weighted-Average Remaining Vesting Period as of | |
| | Three months ended
September 30, 2022 | | | Nine months ended
September 30, 2022 | | | Unrecognized compensation cost related to non-vested awards as of September 30, 2022 | | | Weighted-average remaining vesting period as of September 30, 2022 (years) | | | September 30, 2023 | | | September 30, 2023 | | | September 30, 2023 | | | September 30, 2023 (years) | |
Stock options | | $ | 96,897 | | | | 283,754 | | | $ | 1,176,040 | | | | 3.17 | | | $ | 221,106 | | | $ | 382,790 | | | $ | 728,426 | | | 2.59 | |
RSUs | | | 341,798 | | | | 1,082,674 | | | | 2,425,827 | | | | 2.91 | | | 127,252 | | | 481,881 | | | 1,296,981 | | | 2.34 | |
MSUs | | | 43,380 | | | | (1,089,864 | ) | | | 107,773 | | | | 1.34 | | | | 16,578 | | | | (46,024 | ) | | | 56,830 | | | 0.75 | |
ESPP | | | 1,351 | | | | 8,416 | | | | — | | | | — | | |
Total stock-based compensation | | $ | 483,426 | | | $ | 284,980 | | | $ | 3,709,640 | | | | 2.94 | | | $ | 364,936 | | | $ | 818,647 | | | $ | 2,082,236 | | | 2.79 | |
| | | | | | | | | | | |
Cost of goods sold | | | $ | 146 | | | $ | 30 | | | $ | 3,450 | | | 1.87 | |
General and administrative | | | 195,458 | | | 617,382 | | | 1,913,478 | | | 2.49 | |
Sales and marketing | | | | 169,332 | | | | 201,235 | | | | 165,308 | | | 1.25 | |
Total stock-based compensation | | | $ | 364,936 | | | $ | 818,647 | | | $ | 2,082,236 | | | 2.79 | |
27
Notes to Unaudited Consolidated Condensed Financial Statements
| | | Three Months Ended | | | Nine Months Ended | | | Unrecognized Compensation Cost Related to Non-Vested Awards as of | | | Weighted-Average Remaining Vesting Period as of | |
| | | September 30, 2022 | | | September 30, 2022 | | | December 31, 2022 | | | December 31, 2022 (years) | |
Stock options | | $ | 96,897 | | | $ | 283,754 | | | $ | 1,173,758 | | | | 3.24 | |
RSUs | | | 341,798 | | | | 1,082,674 | | | | 1,707,145 | | | | 2.91 | |
MSUs | | | 43,380 | | | | (1,089,864 | ) | | | 71,059 | | | | 1.09 | |
ESPP | | | 1,351 | | | | 8,416 | | | | — | | | | — | |
Total stock-based compensation | | $ | 483,426 | | | $ | 284,980 | | | $ | 2,951,962 | | | | 3.07 | |
| | | | | | | | | | | | | | | | | |
Cost of goods sold | | $ | 8,384 | | | $ | 33,890 | | | $ | 14,354 | | | | 2.56 | |
General and administrative | | | 462,474 | | | | 148,505 | | | | 2,734,728 | | | | 2.93 | |
Research and product development | | | 2,575 | | | | (3,492 | ) | | | 2,517 | | | | 0.73 | |
Sales and marketing | | | 9,993 | | | | 106,077 | | | | 200,363 | | | | 3.84 | |
Total stock-based compensation | | $ | 483,426 | | | $ | 284,980 | | | $ | 2,951,962 | | | | 3.07 | |
| | | | | | | | | | | | | | | | |
| | Three months ended
September 30, 2021 | | | Nine months ended
September 30, 2021 | | | Unrecognized compensation cost related to non-vested awards as of December 31, 2021 | | | Weighted-average remaining vesting period as of September 30, 2021 (years) | |
Stock options | | $ | 191,889 | | | $ | 654,929 | | | $ | 1,638,717 | | | | 2.21 | |
RSUs | | | 438,542 | | | | 1,166,871 | | | | 2,282,174 | | | | 2.22 | |
MSUs | | | 399,490 | | | | 1,293,055 | | | | 1,927,898 | | | | 2.34 | |
ESPP | | | 12,519 | | | | 27,662 | | | | — | | | | — | |
Total stock-based compensation | | $ | 1,042,440 | | | $ | 3,142,517 | | | $ | 5,848,789 | | | | 2.26 | |
During the three and nine months ended September 30, 2022, thereThere were forfeitures of MSU awards of certain members of executive leadership of $0$0 and $1,785,125$149,735 for the three and nine months ended September 30, 2023, and of $0 and $1,785,125 during the three and nine months ended September 30, 2022, respectively, representing discrete reversals of stock compensation expense to the periods. There were no such forfeitures of MSUs in the three and nine months ended September 30, 2021.
There were no payroll taxes withheld from stock-based compensation during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, there were $1 and $219,157, respectively, of payroll taxes withheld from stock-based compensation which were remitted directly to the tax authorities on the behalf of the recipients of the awards.
13.9. Earnings per Share
Basic earnings (loss) per share is determined by dividing the net loss attributable to Laird Superfood, Inc. common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common and preferred shares had been issued. Dilutive potential common shares consist of employee stock options, RSUs, and restricted stock units.MSUs. The dilutive effect of employee stock options, RSUs, and restricted stock units issuedMSUs by the Company isare calculated using the treasury stock method. Because the Company was in a loss position for all periods presented, all stock options and restricted stock units are anti-dilutive and excluded. The computation of basic and dilutedBasic earnings (loss) per share is set forthreconciled to diluted earnings per share in the following table:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Net loss | | $ | (2,654,884 | ) | | $ | (5,738,209 | ) | | $ | (10,306,040 | ) | | $ | (24,782,131 | ) |
Weighted average shares outstanding - basic and diluted | | | 9,337,789 | | | | 9,178,533 | | | | 9,279,541 | | | | 9,136,071 | |
Basic and diluted: | | | | | | | | | | | | | | | | |
Net loss per share, basic and diluted | | $ | (0.28 | ) | | $ | (0.63 | ) | | $ | (1.11 | ) | | $ | (2.71 | ) |
Common stock options, restricted stock awards, and market-based stock awards excluded due to anti-dilutive effect | | | 2,716,761 | | | | 1,280,712 | | | | 2,716,761 | | | | 1,280,712 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Net loss | | $ | (5,738,209 | ) | | $ | (5,351,698 | ) | | $ | (24,782,131 | ) | | $ | (16,984,461 | ) |
Weighted average shares outstanding- basic and diluted | | | 9,178,533 | | | | 9,001,912 | | | | 9,136,071 | | | | 8,954,875 | |
Common stock options, restricted stock awards, and market-based stock awards excluded due to anti-dilutive effect | | | 1,280,712 | | | | 907,085 | | | | 1,280,712 | | | | 907,085 | |
Basic and diluted: | | | | | | | | | | | | |
Net loss per share, basic and diluted | | $ | (0.63 | ) | | $ | (0.59 | ) | | $ | (2.71 | ) | | $ | (1.90 | ) |
10. Concentrations
28
Table of Contents
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
14. Concentrations
The Company had 43%85% of trade accounts receivable from threetwo customers as of September 30, 2022.2023. The Company had 57%68% of trade accounts receivable from twothree customers as of December 31, 2021.2022.
The Company had 29%no significant accounts payable concentrations due to a vendor as of September 30, 2023. The Company had 41% of accounts payable due to two vendors as of September 30, 2022. The Company had 12% of accounts payable due to one vendor as of December 31, 2021.2022.
The Company sold a substantial portion of products to threetwo customers ((50%) and three21% customers (46%), respectively, for the three and nine months ended September 30, 2022. There were no significant customers for the nine months ended 2023. As of September 30, 2022. As of September 30, 2022,2023, the amount due from these customers was $1,134,994.$2,439,551. The Company sold a substantial portion of products to twoone customer (19% customers (21%) and one customer (28%)no customers for the three and nine months ended September 30, 2021, respectively.2022. As of September 30, 2021,2022, the amount due from these customer(s)customers included in accounts receivable was $285,342.$1,134,994.
The Company purchased a substantial portion of products from twothree suppliers (68%(52%) and one supplier (48%two suppliers (40%), respectively, for the three and nine months ended September 30, 2022, respectively.2023. The Company purchased a substantial portion of products from one supplier (three41% suppliers (68%) and one supplier (47%(48%), respectively, for the three and nine months ended September 30, 2021, respectively.2022.
In addition, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. Vietnam geographically accounted for approximately 41%29% and 48%17%, respectively, of our total raw materials and packaging purchases for the three and nine months ended September 30, 2022, respectively. Sri Lanka, and2023. Vietnam geographically accounted for approximately 67%41% and 64%48%, respectively, of our total raw materials and packaging purchases for the three and nine months ended September 30, 2021.2022.
Notes to Unaudited Consolidated Condensed Financial Statements
15.11. Related Party
FASB ASC Topic 850,Related Party Disclosures, requires that information about transactions with related parties that would make a difference ininfluence decision making shall be disclosed so that users of the financial statements can evaluate their significance. The Company conducts business with suppliers and service providers who are also stockholders of the Company. From time to time, service providers are offered shares of common stock as compensation for their services. Shares provided as compensation are calculated based on the grant date fair value of the service provided. Additional material related party transactions are noted below.
License Agreements
On May 26, 2020, the Company executed a License and Preservation Agreement which superseded the predecessor license and preservation agreement with both Mr. Hamilton and Ms. Reece. Among other modifications, the agreement (i) modified certain approval rights, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional ten-yearten-year terms upon the expiration of the initial one-hundred-yearone-hundred-year term. No additional consideration was exchanged in connection with the agreement. See additional discussion related to the 2020 License in Note 1 of the unaudited consolidated condensed financial statements.
Shareholder Contribution
On December 3, 2020, Danone Manifesto Ventures, PBC, one of the Company's largest shareholders, provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects.
Social Media Marketing Agreements
The Company entered into social media marketing agreementshas an influencer agreement with Lauren Thomas and Stephanie Bruce, former co-owners of Picky Bars,Gabby Reece to provide certain marketing services. In connection with these services, on an annual basis, for $40,000 each per annum. The Company entered into a social mediain the three and nine months ended September 30, 2023, advertising expenses totaling $141,712 and $435,084, respectively, were included in sales and marketing agreement with Jesse Thomas, former co-ownerexpenses in the unaudited consolidated condensed statements of Picky Bars, to provide certain marketing services at no cost to the Company.
Recovery of Short-Swing Profits
operations. In the second quarter of 2022, the Company recorded $28,555 related to the recovery of short-swing profits from one of the Company’s directors under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds as an increase to additional paid-in capital in the accompanying unaudited consolidated balance sheet as of three and nine months ended September 30, 2022 as well as cash proceeds as cash provided by financing activities, advertising expenses totaling $19,500 and $52,750, respectively, were included in sales and marketing expenses in the accompanying unaudited consolidated statementcondensed statements of cash flows for nine months ended operations. As of September 30, 2022.2023 and December 31, 2022, amounts payable to Gabby Reece of $56,574 and $16,500, respectively, included in related party liabilities in the unaudited consolidated condensed balance sheets.
Notes to Unaudited Consolidated Condensed Financial Statements
16.12. Revenue Recognition
The Company’s primary source of revenue is sales of coffee creamers, hydration and beverage enhancing supplements, harvest snacks and other food items, and coffee, tea and hot chocolate products. The Company recognizes revenue when control of the promised good or service is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales. Each delivery or shipment made to a third-partythird-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection ofcollect the sales price under normal credit terms. Additionally, the Company estimates the impact of certain common practices employed by us and other manufacturers of consumer products, such as scan-based trading, product rebate and other pricing allowances, product returns, trade promotions, sales broker commissions and slotting fees. These estimates are recorded at the end of each reporting period.
29
Table of Contents
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
In accordance with ASC Topic 606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | |
| | 2022 | | | 2021 | |
| | $ | | | % of Total | | | $ | | | % of Total | |
Coffee creamers | | $ | 4,716,650 | | | | 53 | % | | $ | 6,489,895 | | | | 60 | % |
Hydration and beverage enhancing supplements | | | 1,061,136 | | | | 12 | % | | | 1,541,418 | | | | 14 | % |
Harvest snacks and other food items | | | 1,935,812 | | | | 22 | % | | | 1,866,710 | | | | 17 | % |
Coffee, tea, and hot chocolate products | | | 1,455,888 | | | | 16 | % | | | 1,724,919 | | | | 16 | % |
Other | | | 437,210 | | | | 5 | % | | | 241,489 | | | | 2 | % |
Gross sales | | | 9,606,696 | | | | 108 | % | | | 11,864,431 | | | | 109 | % |
Shipping income | | | 289,505 | | | | 3 | % | | | 195,085 | | | | 2 | % |
Returns and discounts | | | (1,051,356 | ) | | | (11 | )% | | | (1,193,602 | ) | | | (11 | )% |
Sales, net | | $ | 8,844,845 | | | | 100 | % | | $ | 10,865,914 | | | | 100 | % |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2022 | | | 2021 | |
| | $ | | | % of Total | | | $ | | | % of Total | |
Coffee creamers | | $ | 14,866,032 | | | | 55 | % | | $ | 16,590,542 | | | | 60 | % |
Hydration and beverage enhancing supplements | | | 3,815,346 | | | | 14 | % | | | 3,907,111 | | | | 14 | % |
Harvest snacks and other food items | | | 5,336,043 | | | | 20 | % | | | 3,353,178 | | | | 12 | % |
Coffee, tea, and hot chocolate products | | | 4,840,215 | | | | 18 | % | | | 5,286,882 | | | | 19 | % |
Other | | | 1,094,924 | | | | 4 | % | | | 987,076 | | | | 4 | % |
Gross sales | | | 29,952,560 | | | | 111 | % | | | 30,124,789 | | | | 109 | % |
Shipping income | | | 829,107 | | | | 3 | % | | | 261,495 | | | | 1 | % |
Returns and discounts | | | (3,922,803 | ) | | | (14 | )% | | | (2,942,890 | ) | | | (10 | )% |
Sales, net | | $ | 26,858,864 | | | | 100 | % | | $ | 27,443,394 | | | | 100 | % |
| | | Three Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| | | $ | | | % of Total | | | $ | | | % of Total | |
Coffee creamers | | $ | 5,795,991 | | | | 63 | % | | $ | 4,716,650 | | | | 53 | % |
Hydration and beverage enhancing supplements | | | 1,726,512 | | | | 19 | % | | | 1,061,136 | | | | 12 | % |
Harvest snacks and other food items | | | 1,747,873 | | | | 19 | % | | | 1,935,812 | | | | 22 | % |
Coffee, tea, and hot chocolate products | | | 1,990,013 | | | | 22 | % | | | 1,455,888 | | | | 16 | % |
Other | | | 132,319 | | | | 1 | % | | | 437,210 | | | | 5 | % |
Gross sales | | | 11,392,708 | | | | 124 | % | | | 9,606,696 | | | | 108 | % |
Shipping income | | | 214,982 | | | | 2 | % | | | 289,505 | | | | 3 | % |
Returns and discounts | | | (2,427,909 | ) | | | (26 | )% | | | (1,051,356 | ) | | | (11 | )% |
Sales, net | | $ | 9,179,781 | | | | 100 | % | | $ | 8,844,845 | | | | 100 | % |
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| | | $ | | | % of Total | | | $ | | | % of Total | |
Coffee creamers | | $ | 15,550,157 | | | | 62 | % | | $ | 14,866,032 | | | | 55 | % |
Hydration and beverage enhancing supplements | | | 3,395,671 | | | | 14 | % | | | 3,815,346 | | | | 14 | % |
Harvest snacks and other food items | | | 5,345,915 | | | | 21 | % | | | 5,336,043 | | | | 20 | % |
Coffee, tea, and hot chocolate products | | | 5,932,745 | | | | 24 | % | | | 4,840,215 | | | | 18 | % |
Other | | | 287,001 | | | | 1 | % | | | 1,094,924 | | | | 4 | % |
Gross sales | | | 30,511,489 | | | | 122 | % | | | 29,952,560 | | | | 111 | % |
Shipping income | | | 778,051 | | | | 3 | % | | | 829,107 | | | | 3 | % |
Returns and discounts | | | (6,272,730 | ) | | | (25 | )% | | | (3,922,803 | ) | | | (14 | )% |
Sales, net | | $ | 25,016,810 | | | | 100 | % | | $ | 26,858,864 | | | | 100 | % |
Notes to Unaudited Consolidated Condensed Financial Statements
The Company generates revenue through threetwo channels: online, wholesale,e-commerce and food service:wholesale:
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | |
| | 2022 | | | 2021 | |
| | $ | | | % of Total | | | $ | | | % of Total | |
Online | | $ | 5,808,186 | | | | 66 | % | | $ | 6,331,003 | | | | 58 | % |
Wholesale | | | 3,004,875 | | | | 34 | % | | | 4,415,867 | | | | 41 | % |
Food service | | | 31,784 | | | | 0 | % | | | 119,044 | | | | 1 | % |
Sales, net | | $ | 8,844,845 | | | | 100 | % | | $ | 10,865,914 | | | | 100 | % |
| | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | |
| | 2022 | | | 2021 | |
| | $ | | | % of Total | | | $ | | | % of Total | |
Online | | $ | 16,410,956 | | | | 61 | % | | $ | 16,492,512 | | | | 60 | % |
Wholesale | | | 10,141,518 | | | | 38 | % | | | 10,529,594 | | | | 38 | % |
Food service | | | 306,390 | | | | 1 | % | | | 421,288 | | | | 2 | % |
Sales, net | | $ | 26,858,864 | | | | 100 | % | | $ | 27,443,394 | | | | 100 | % |
| | | Three Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| | | $ | | | % of Total | | | $ | | | % of Total | |
E-commerce | | $ | 4,842,389 | | | | 53 | % | | $ | 5,808,186 | | | | 66 | % |
Wholesale | | | 4,337,392 | | | | 47 | % | | | 3,036,659 | | | | 34 | % |
Sales, net | | $ | 9,179,781 | | | | 100 | % | | $ | 8,844,845 | | | | 100 | % |
Contract assets (deferred costs of goods sold associated with deferred revenue), contract liabilities (deferred revenue, customer deposits, rewards programs), and refund liabilities (accrued returns) have been estimated and recorded as of September 30, 2022. Contract assets included in finished goods inventories were $55,490 and $8,316 as of September 30, 2022 and December 31, 2021, respectively. Contract liabilities and refund liabilities included in accrued expenses were $73,977 and $40,500 as of September 30, 2022 and December 31, 2021, respectively.
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| | | $ | | | % of Total | | | $ | | | % of Total | |
E-commerce | | $ | 13,409,443 | | | | 54 | % | | $ | 16,410,956 | | | | 61 | % |
Wholesale | | | 11,607,367 | | | | 46 | % | | | 10,447,908 | | | | 39 | % |
Sales, net | | $ | 25,016,810 | | | | 100 | % | | $ | 26,858,864 | | | | 100 | % |
Receivables from contracts with customers are included in Accounts receivable, net on the Company’s consolidated balance sheets. Asaccounts receivable. Contract assets include deferred cost of September 30, 2022goods sold associated with deferred revenue and December 31, 2021, Accounts receivable, netare included $1,554,573in finished goods inventories. Contract liabilities include deferred revenue, customer deposits, rewards programs, and $1,268,718, respectively,refund liabilities, and are included in accrued expenses. The balances of receivables from contracts with customers.customers, contract assets, and contract liabilities were as follow:
| | | January 1, | | | December 31, | | | September 30, | |
| | | 2022 | | | 2022 | | | 2023 | |
Accounts receivable, net | | $ | 1,268,718 | | | $ | 1,494,469 | | | $ | 2,186,645 | |
Contract assets | | $ | 8,316 | | | $ | 57,249 | | | $ | — | |
Contract liabilities | | $ | (467,861 | ) | | $ | (729,667 | ) | | $ | (625,557 | ) |
30
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with the unaudited consolidated condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2021.2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary“Cautionary Note Regarding Forward-Looking Statements”Statements” included elsewhere in this Quarterly Report on Form 10-Q and the section titled “Risk Factors”“Risk Factors” included herein and in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Overview
Overview
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Functional and organic roasted and instant coffees, teas, and hot chocolate, Hydrate hydration products and beverage enhancing supplements, and Harvest snacks and other food items, and roasted and instant coffees, teas and hot chocolate.items. Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients. Laird Superfood’s long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market.
Net sales decreased to $8.8were $9.2 million and $25.0 million, respectively, for the three and nine months ended September 30, 2022 from $10.92023 and were $8.8 million and $26.9 million, respectively, for the three and nine months ended September 30, 2021. Net2022. Wholesale net sales grew 43% in the third quarter of 2023 compared to same period prior year, driven by distribution gains in the natural and conventional channels, seasonal program expansion in the club channel, pricing actions, and velocity improvements behind our new packaging and the re-branding campaign launched earlier this year. E-commerce channel sales decreased 17% in the third quarter of 2023 driven by a planned media spend reduction across the Amazon and direct-to-consumer channels. Amazon sales were also negatively impacted by inventory out of stocks related to $26.9 millionthe product quality withdrawal issue that we experienced in the first quarter of 2023. By the end of the third quarter of 2023, we had fully mitigated the out-of-stock issue. Wholesale net sales for year-to-date ("YTD") 2023 increased by 11% compared to YTD 2022 primarily due to club sales, despite elevated trade discounts in 2023. E-commerce channel sales for YTD 2023 decreased 18% year over year driven by significant planned reductions in marketing media spend, as well as out of stocks related to the product quality withdrawal issue as we rebuilt our inventory.
Our e-commerce business is two-pronged and consists of direct-to-consumer sales (lairdsuperfood.com and pickybars.com) and Amazon.com. For the three and nine months ended September 30, 2023, the e-commerce business made up 53% and 54% of net sales, respectively. For the three and nine months ended September 30, 2022 from $27.4 million for the nine months ended September 30, 2021. The decline was primarily in our club and online direct to consumer ("DTC") channels as we significantly reduced inefficient marketing spend. We continue to optimize our marketing investment by cutting out inefficient spend and spending less on direct media for the DTC channel compared to the prior year. Lower media spend resulted in significant reduction of new customer orders in the quarter. Additionally, online segment sales were impacted by price increases implemented at the end of the second quarter and cancellation of free shipping due to inflationary concerns. Declines in DTC were in part offset by substantial growth on Amazon.com, reflecting a momentum driven by changes we have made with regard to our approach to this channel. Our wholesale channel sales, excluding club, were challenged by distributor to retailer fulfilment issues resulting in out of stocks on shelves. We are actively addressing these issues in partnering up with brokers and retailers.
Our omnichannel distribution strategy has three key components: online, wholesale and food service. In aggregate, this omnichannel strategy provides us with a diverse set of customers and wholesale partners, along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com and pickybars.com. We believe that, along with trusted brand names, extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry.
Our online business is two pronged and consists of direct-to-consumer sales (lairdsuperfood.com and pickybars.com) and Amazon.com. For the three months ended September 30, 2022 and 2021, the onlinee-commerce business made up 66% and 58%61% of our net sales, respectively. For the nine months ended September 30, 2022Lairdsuperfood.com and 2021, the online business made up 61% and 60% of our net sales, respectively. Lairdsuperfood.com is a platformpickybars.com are platforms that providesprovide an authentic brand experience for our customers that drives engagement and provides feedback for future product development. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our websites allows Laird Superfood to educate consumers on the benefits of our products and ingredients, while providing a positive customer experience. We believe this experience leads to higher retention rates among repeat users and subscribers, as evidenced by repeat users and subscribers accounting for approximately three-fourths87% of direct-to-consumer sales for the nine months ended September 30, 2023.
For the three and nine months ended September 30, 2022.
Our2023, wholesale business addresses the $766 billion grocery industry, specifically the $281 billion Natural, Organicmade up 47% and Functional Foods and Beverages sub-segment, which has been increasing its proportion46% of the grocery industry, as well as many non-grocery retail channels.our net sales, respectively. For the three and nine months ended September 30, 2022, wholesale made up 34% and 38% of our net sales, respectively. For the three and nine months ended September 30, 2021, wholesale made up 41% and 38%39% of our net sales, respectively. Laird Superfood products are sold through a diverse set of retailwholesale channels, including conventional, natural and specialty grocery, conventional grocery, club, outdoorfood service, and drug stores. We currently estimate our products are in approximately 5,000 retail door locations with over 26,000 points of distribution and we believe the long-term potential store base exceeds 20,000 retail locations in the United States. The diversity of our retailwholesale channel represents a strong competitive advantage for Laird Superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market.
Recent Developments
Entry into Co-Packer Agreement
As part of the plan, the Company will close its production facilities in Sisters, Oregon and reduce headcount by approximately 46 employees, which represents approximately 55% of its total employees. The Company expects to recognize approximately $0.5 million of restructuring charges consisting of severance and other employee-related costs. Other costs associated with building and lease exit costs, any impairments of assets, and other related restructuring and exit costs are still being evaluated. The Company expects substantially all charges associated with the workforce reduction to be incurred during the quarter ending December 31, 2022, with related cash payments expected to be substantially paid out by the end ofProduct quality issue
In the first quarter of 2023, we discovered a product quality issue with coconut milk powder from one of our suppliers and immediately initiated a voluntary product withdrawal and contacted all impacted wholesale customers and e-commerce consumers to aggressively pull back as much as of the affected product as possible. In connection with this withdrawal, we incurred costs associated with inventory obsolescence, quality testing, and remedial discounts and replacement orders of $0.5 million in the fourth quarter of 2022 and $0.4 million in the first quarter of 2023. In addition, we implemented a robust new sensory testing program to prevent future quality issues. In the third quarter of 2023, we reached settlement with the vendor and recovered $0.2 million of these costs.
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Executive Transitions
Effective January 31, 2022, the Company’s Board of Directors appointed Jason Vieth as the Company’s President and Chief Executive Officer and elected Mr. Vieth as a director of the Company. Mr. Vieth joined the Company from Sovos Brands, Inc., where he most recently served as executive vice president and group general manager of the Breakfast and Snacks segment. Before joining Sovos Brands in January 2020, Mr. Vieth served as chief executive officer of Poppi, a producer of prebiotic soda, from April 2019 to January 2020 and president of Life Time Fitness’ Life Cafe from April 2017 to April 2019 and held various management positions for WhiteWave Foods Company from January 2008 to April 2017. Mr. Vieth replaced Paul Hodge, who stepped down as President and Chief Executive Officer and a director of the Company upon Mr. Vieth’s appointment.
On April 1, 2022, Andrew Judd was appointed as Chief Commercial Officer, responsible for the commercial strategy and the development of the Company. Mr. Judd oversees marketing, sales, product development, and customer experience to drive business growth and expand market share. Mr. Judd is an experienced marketing leader focused on building exceptional teams and go-to-market models that build brands and businesses. He has led teams across brand marketing, insights, and creative services from large strategic CPG enterprises to emerging high-growth brands. Most recently, he was CMO of Yasso. Before that he served as CMO of ONE Brands and VP Marketing for the Boulder Brands business unit of Pinnacle Foods. Previous roles included leading the management of the So Delicious brand at WhiteWave, Category Director for ice cream, iced coffee, blended beverages and value-added milk portfolio at Saputo Dairy Foods, and various roles at Campbell Soup Company.
On May 17, 2022, the Company’s Board of Directors appointed Anya Kochetova Hamill as the Company’s interim Chief Financial Officer, effective July 1, 2022.
Ms. Hamill possesses more than 20 years of strategic finance experience in both public consumer packaged goods and private equity backed emerging companies in the natural foods and beverages space. Ms. Hamill joined the Company as Vice President, Financial Planning and Analysis in April 2022 from Little Secrets Chocolate, where she served as chief financial officer from September 2018. Previously, Ms. Hamill served as the senior director of finance, premium yogurt at Danone North America from May 2017 through March 2018, and as senior director of finance, plant based beverage and food and various other finance positions at WhiteWave Foods from March 2003 through May 2017. Ms. Hamill holds an MBA with a finance concentration from Leeds School of Business at the University of Colorado and a Bachelor of Arts from Saint-Petersburg State University of Engineering and Economics.
Key Factors Affecting our Performance
We believe that our future performance will depend on many factors, including the following:
Ability to Grow Our Customer Base in both OnlineE-commerce and Traditional Wholesale Distribution Channels
We are currently seeking to grow our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retailwholesale distribution channels. OnlineE-commerce customer acquisitions typically occur at our direct websites, lairdsuperfood.com and pickybars.com, and Amazon.com. Our onlinee-commerce customer acquisition program includes paid and unpaid social media, search, display and traditional media. Our products are also sold through a growing number of physical retailwholesale channels. Wholesale customers include grocery chains, natural food outlets, club stores, and drug stores, and food service customers includeincluding coffee shops, gyms, restaurants, hospitality venues and corporate dining services, among others. Customer acquisition in physical retailwholesale channels depends on, among other things, paid promotions through retailers, display and traditional media.
Ability to Manage Co-Manufacturer and Third-Party Logistics Relationships
All of our production and logistics is handled by third-parties, and our performance will be highly dependent on the ability of these partners to produce and deliver our products in a timely manner and to our standards and at a reasonable cost.
Ability to Acquire and Retain Customers at a Reasonable Cost
We believe an ability to consistently acquire and retain customers at a reasonable cost relative to projected life-timelifetime value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as balancing more targeted and measurable “direct response” marketing spend with advertising focused on increasing our long-term brand recognition, where success attribution is less directly measurable on a near-term basis.
Ability to Drive Repeat Usage of Our Products
We accrue substantial economic value from repeat users of our products who consistently re-order our products. The pace of our growth will be affected by the repeat usage dynamics of existing and newly acquired customers.
Ability to Expand Our Product Line
Our goal is to expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products, each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.
Ability to Expand Gross Margins
Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials, controlling labor and shipping costs, controlling the impacts of inflationary market factors, as well as managing co-packer relationships.
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Ability to Expand Operating Margins
Our ability to expand operating margins will be impacted by our ability to cover fixed general and administrative costs and variable sales and marketing costs with higher revenues and gross profit dollars.
Ability to Manage Our Global Supply Chain
Our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers located inside and outside the United States. We may encounter difficulties in sourcing products.
Ability to Optimize Key Components of Working Capital
Our ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by our ability to effectively manage all the key working capital components that could influence our cash conversion cycle.
Components of Results of Operations
Sales, net
We sell our products indirectly to consumers through a broad set of physical wholesale channels. We also derive revenue from the sale of our products directly to consumers through our direct websites, as well as third-party online channels.
Cost of Goods Sold
Our
Cost of goods sold includes material, packaging, co-packing fees, inbound and outbound freight costs, labor, and overhead costs incurred in the storage and distribution of products sold in the period. Material costs include the cost of products purchased. In 2023, in addition to material and packaging costs, cost of goods sold consists primarilyconsisted of raw material costs,co-packers' tolling fees, third party labor to store and ship our products, indirect labor costs, directly related to producing our products, includingand inbound and outbound freight. In 2022, it also included wages and benefits shipping costs, lease expensesfor manufacturing, planning, and other factory overhead costs related to various aspects of production, warehousinglogistics personnel, depreciation, and shipping.facility costs.
Operating Expenses
Our operating expenses consist of general and administrative, research and product development, and sales and marketing expenses.
Income Taxes
Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses and benefits for the foreseeable future.
Results of Operations
Comparison of the three months ended September 30, 2022 (“2023 (“Q3 2022”2023”) and September 30, 2021 (“2022 (“Q3 2021”2022”)
The following table summarizes our results of operations for the periods indicated:
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | | |
| | 2022 | | | 2021 | | | Change | | | Change | |
Sales, net | | $ | 8,844,845 | | | $ | 10,865,914 | | | $ | (2,021,069 | ) | | | (19 | )% |
Cost of goods sold | | | (6,773,029 | ) | | | (7,667,075 | ) | | | 894,046 | | | | (12 | )% |
Gross profit | | | 2,071,816 | | | | 3,198,839 | | | | (1,127,023 | ) | | | (35 | )% |
Gross margin | | | 23.4 | % | | | 29.4 | % | | | | | | |
General and administrative | | | 4,383,868 | | | | 4,254,124 | | | | 129,744 | | | | 3 | % |
Research and product development | | | 115,077 | | | | 242,604 | | | | (127,527 | ) | | | (53 | )% |
Sales and marketing | | | 3,390,857 | | | | 4,014,753 | | | | (623,896 | ) | | | (16 | )% |
Total expenses | | | 7,889,802 | | | | 8,511,481 | | | | (621,679 | ) | | | (7 | )% |
Operating loss | | | (5,817,986 | ) | | | (5,312,642 | ) | | | (505,344 | ) | | | 10 | % |
Total other income (expense) | | | 79,777 | | | | 10,721 | | | | 69,056 | | | | 644 | % |
Loss before income taxes | | | (5,738,209 | ) | | | (5,301,921 | ) | | | (436,288 | ) | | | 8 | % |
Income tax expense | | | — | | | | (49,777 | ) | | | 49,777 | | | | (100 | )% |
Net loss | | $ | (5,738,209 | ) | | $ | (5,351,698 | ) | | $ | (386,511 | ) | | | 7 | % |
| | | Three Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Sales, net | | $ | 9,179,781 | | | $ | 8,844,845 | | | $ | 334,936 | | | | 4 | % |
Cost of goods sold | | | (6,332,624 | ) | | | (6,773,029 | ) | | | 440,405 | | | | (7 | )% |
Gross profit | | | 2,847,157 | | | | 2,071,816 | | | | 775,341 | | | | 37 | % |
Gross margin | | | 31.0 | % | | | 23.4 | % | | | | | | | | |
General and administrative | | | 2,208,213 | | | | 4,383,868 | | | | (2,175,655 | ) | | | (50 | )% |
Research and product development | | | 40,123 | | | | 115,077 | | | | (74,954 | ) | | | (65 | )% |
Sales and marketing | | | 3,385,890 | | | | 3,390,857 | | | | (4,967 | ) | | | (0 | )% |
Total operating expenses | | | 5,634,226 | | | | 7,889,802 | | | | (2,255,576 | ) | | | (29 | )% |
Operating loss | | | (2,787,069 | ) | | | (5,817,986 | ) | | | 3,030,917 | | | | (52 | )% |
Other income | | | 132,185 | | | | 79,777 | | | | 52,408 | | | | 66 | % |
Loss before income taxes | | | (2,654,884 | ) | | | (5,738,209 | ) | | | 3,083,325 | | | | (54 | )% |
Income tax expense | | | — | | | | — | | | | — | | | | 100 | % |
Net loss | | $ | (2,654,884 | ) | | $ | (5,738,209 | ) | | $ | 3,083,325 | | | | (54 | )% |
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Sales, Net
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | | |
| | 2022 | | | 2021 | | | $ | | | % | |
Sales, net | | $ | 8,844,845 | | | $ | 10,865,914 | | | $ | (2,021,069 | ) | | | (19 | )% |
| | | Three Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Sales, net | | $ | 9,179,781 | | | $ | 8,844,845 | | | $ | 334,936 | | | | 4 | % |
Net sales decreasedincreased to $9.2 million in Q3 2023 from $8.8 million in Q3 2022 from $10.9 million in Q3 2021.2022. The declineincrease was primarily duedriven by a 43% increase in the wholesale channel driven by distribution gains in the natural and conventional channels, seasonal program expansion in the club channel, pricing actions, and velocity improvements behind our new packaging and the re-branding campaign that took place earlier in the year, offset in part by elevated trade spend investment to lower volumedrive growth and a 17% decline in clubour e-commerce channels, driven by out of stocks on Amazon and DTC sales duerelated to reduced marketing spend, the price increase implemented atproduct quality issue experienced in the endfirst quarter of second quarter, and removal of free shipping for orders under $40 (forty) dollars.2023 as well as planned reductions in media spend.
Cost of Goods Sold
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Costs of goods sold | | $ | (6,773,029 | ) | | $ | (7,667,075 | ) | | $ | 894,046 | | | | (12 | )% |
| | | Three Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Cost of goods sold | | $ | (6,332,624 | ) | | $ | (6,773,029 | ) | | $ | 440,405 | | | | (7 | )% |
Cost of goods sold decreased to $6.3 million in Q3 2023 from $6.8 million in Q3 2022 from $7.7which translates to a reduction of 7% and accounts for approximately 15-basis points of gross margin expansion, reflecting the benefits of the transition to a variable cost third-party co-manufacturing business model.
Gross Profit
| | | Three Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Gross profit | | $ | 2,847,157 | | | $ | 2,071,816 | | | $ | 775,341 | | | | 37 | % |
Gross profit increased to $2.8 million in Q3 2021, primarily2023 from $2.1 million in Q3 2022. Gross margin improved to 31.0% in Q3 2023 from 23.4% in Q3 2022 driven by a reduction in cost of goods sold which accounted for 15-basis points of gross margin expansion due to decreased sales volume andthe transition to a decrease in labor costs that resulted from gained efficiencies and restructuring of our internal supply chain organization. This wasvariable cost third-party co-manufacturing business model offset in part by inflationary pressures on ocean freight, inboundelevated trade investments to grow the retail channel.
Operating Expenses
| | | Three Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Operating Expenses | | | | | | | | | | | | | | | | |
General and administrative | | $ | 2,208,213 | | | $ | 4,383,868 | | | $ | (2,175,655 | ) | | | (50 | )% |
Research and product development | | | 40,123 | | | | 115,077 | | | | (74,954 | ) | | | (65 | )% |
Sales and marketing | | | 3,385,890 | | | | 3,390,857 | | | | (4,967 | ) | | | (0 | )% |
Total operating expenses | | $ | 5,634,226 | | | $ | 7,889,802 | | | $ | (2,255,576 | ) | | | (29 | )% |
General and outbound shipping and energy costs.
Gross Profit
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Gross Profit | | $ | 2,071,816 | | | $ | 3,198,839 | | | $ | (1,127,023 | ) | | | (35 | )% |
Gross profitadministrative expenses decreased to $2.1$2.2 million in Q3 20222023 from $3.2 million in Q3 2021. Gross margin was 23.4% in Q3 2022 compared to 29.4% in Q3 2021. The margin decrease was driven primarily by deleverage of fixed manufacturing costs on lower production volume as we focused on optimizing inventory balances this year. Higher costs of inbound shipping and outbound freight also contributed to margin erosion in the quarter. This was partially offset by lower labor costs resulting from rightsizing of the organization in 2022.
Operating Expenses
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Operating Expenses | | | | | | | | | | | | |
General and Administrative | | $ | 4,383,868 | | | $ | 4,254,124 | | | $ | 129,744 | | | | 3 | % |
Research and Product Development | | | 115,077 | | | | 242,604 | | | | (127,527 | ) | | | (53 | )% |
Sales and Marketing | | | 3,390,857 | | | | 4,014,753 | | | | (623,896 | ) | | | (16 | )% |
Total Operating Expenses | | $ | 7,889,802 | | | $ | 8,511,481 | | | $ | (621,679 | ) | | | (7 | )% |
General and administrative expense was flat, with a slight increase to $4.4 million in Q3 2022, from $4.3 million in Q3 2021,primarily driven by lower personnel costs related to executive departures earlier this year, offset by increased professional fees and other administrative spend related to one time costs to exit contracts.broad, strategic reductions in spending.
Research and product development expense decreased to $0.1 millionexpenses were $40.1 thousand and $115.1 thousand in Q3 2023 and Q3 2022, from $0.2 million in Q3 2021respectively, as we continue to focusare focused on strengthening the performance of current product offerings in 2022 rather than the rapidand allocating fewer resources into developing new product development strategy in 2021 and prior.offerings.
Sales and marketing expense decreased toexpenses were $3.4 million in Q3 2023 and Q3 2022, from $4.0 millionas planned reductions in Q3 2021, primarily dueinefficient spending and lower personnel costs were offset by stock-based compensation expense related to reduced advertising expense and personnel costs.strategic partnerships established in the third quarter.
Other Income
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Other income | | $ | 79,777 | | | $ | 10,721 | | | $ | 69,056 | | | | 644 | % |
| | | Three Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Other income | | $ | 132,185 | | | $ | 79,777 | | | $ | 52,408 | | | | 66 | % |
Other income is composed of interest and dividend income and sublease rental income. Other income increased to $79.8 thousand of income in Q3 2022 from $10.7 thousand of income in Q3 2021, primarily due to the sublease agreement entered into in Q2 2022 and income on money market accounts elevated by the increases in interest rates.
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Comparison of the nine months ended September 30, 2022 (“YTD 2022”) and September 30, 2021 (“YTD 2021”)
The following table summarizes our results of operations for the periods indicated:
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | $ | | | % | |
| | 2022 | | | 2021 | | | Change | | | Change | |
Sales, net | | $ | 26,858,864 | | | $ | 27,443,394 | | | $ | (584,530 | ) | | | (2 | )% |
Cost of goods sold | | | (21,259,300 | ) | | | (20,225,269 | ) | | | (1,034,031 | ) | | | 5 | % |
Gross profit | | | 5,599,564 | | | | 7,218,125 | | | | (1,618,561 | ) | | | (22 | )% |
Gross margin | | | 20.8 | % | | | 26.3 | % | | | | | | |
General and administrative | | | 18,848,037 | | | | 12,060,429 | | | | 6,787,608 | | | | 56 | % |
Research and product development | | | 335,377 | | | | 858,143 | | | | (522,766 | ) | | | (61 | )% |
Sales and marketing | | | 11,115,499 | | | | 11,233,765 | | | | (118,266 | ) | | | (1 | )% |
Total expenses | | | 30,298,913 | | | | 24,152,337 | | | | 6,146,576 | | | | 25 | % |
Operating loss | | | (24,699,349 | ) | | | (16,934,212 | ) | | | (7,765,137 | ) | | | 46 | % |
Total other income (expense) | | | (77,008 | ) | | | 36,246 | | | | (113,254 | ) | | | (312 | )% |
Loss before income taxes | | | (24,776,357 | ) | | | (16,897,966 | ) | | | (7,878,391 | ) | | | 47 | % |
Income tax expense | | | (5,774 | ) | | | (86,495 | ) | | | 80,721 | | | | (93 | )% |
Net loss | | $ | (24,782,131 | ) | | $ | (16,984,461 | ) | | $ | (7,797,670 | ) | | | 46 | % |
Sales, Net
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Sales, net | | $ | 26,858,864 | | | $ | 27,443,394 | | | $ | (584,530 | ) | | | (2 | )% |
Net sales decreased to $26.9 million in YTD 2022 from $27.4 million in YTD 2021. The decline was primarily due to lower sales in our direct to consumer channel driven by significantly lower dedicated media spend and elevated discounts, as well as lower club sales. This was offset by double digits growth in Amazon.com sales and new distribution gains in wholesale channel as well as acquisition of Picky Bars in Q2 2021.
Cost of Goods Sold
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Costs of goods sold | | $ | (21,259,300 | ) | | $ | (20,225,269 | ) | | $ | (1,034,031 | ) | | | 5 | % |
Cost of goods sold increased to $21.3 million in YTD 2022 from $20.2 million in YTD 2021, primarily due to inflationary pressures in costs of raw materials and packaging inbound and outbound freight expenses offset in part by decrease in labor costs due to gained efficiencies and organizational rightsizing.
Gross Profit
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Gross Profit | | $ | 5,599,564 | | | $ | 7,218,125 | | | $ | (1,618,561 | ) | | | (22 | )% |
Gross profit decreased to $5.6 million in YTD 2022 from $7.2 million in YTD 2021. Gross margin was 20.8% in YTD 2022 compared to 26.3% in YTD 2021. The margin decrease is driven by elevated promotional activity, and general inflationary pressures on raw materials, packaging and freight combined with fixed costs deleverage on lower production volumes this year as compared to prior year as we focused on optimizing inventory levels to improve working capital turns. This was partially offset by lower labor costs resulting from rightsizing of the organization in 2022.
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Operating Expenses
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Operating Expenses | | | | | | | | | | | | |
General and Administrative | | $ | 18,848,037 | | | $ | 12,060,429 | | | $ | 6,787,608 | | | | 56 | % |
Research and Product Development | | | 335,377 | | | | 858,143 | | | | (522,766 | ) | | | (61 | )% |
Sales and Marketing | | | 11,115,499 | | | | 11,233,765 | | | | (118,266 | ) | | | (1 | )% |
Total Operating Expenses | | $ | 30,298,913 | | | $ | 24,152,337 | | | $ | 6,146,576 | | | | 25 | % |
General and administrative expense, increased to $18.8 million in YTD 2022 from $12.1 million in YTD 2021, primarily due to impairment of goodwill and intangible assets recorded in YTD 2022 of $6.5 million and $1.5 million, respectively. See Note 9 to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for more information. Excluding, cost of impairment of goodwill and intangible assets, general and administrative expenses decreased by $1.3 million driven primarily by reduced personnel costs including stock-based compensation.
Research and product development expense decreased to $0.3 million in YTD 2022 from $0.9 million in YTD 2021, as we continue to focus on strengthening the performance of current product offerings in 2022 rather than the rapid product development strategy in 2021 and prior.
Sales and marketing expense decreased to $11.1 million in YTD 2022 from $11.2 million in YTD 2021, primarily due to advertising expense and marketing fees.
Other Income (Expense)
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | 2022 v. 2021 Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
Other income (expense) | | $ | (77,008 | ) | | $ | 36,246 | | | $ | (113,254 | ) | | | (312 | )% |
Other income (expense) is composed of interest income, rental income, income and losses related to investment securities available-for-sale, and other non-operating gains and losses. The increase in other income was driven by increases in dividend income on money market funds as interest rates rise.
Comparison of the nine months ended September 30, 2023 (“YTD 2023”) and September 30, 2022 (“YTD 2022”)
The following table summarizes our results of operations for the periods indicated:
| | | Nine Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Sales, net | | $ | 25,016,810 | | | $ | 26,858,864 | | | $ | (1,842,054 | ) | | | (7 | )% |
Cost of goods sold | | | (18,419,709 | ) | | | (21,259,300 | ) | | | 2,839,591 | | | | (13 | )% |
Gross profit | | | 6,597,101 | | | | 5,599,564 | | | | 997,537 | | | | 18 | % |
Gross margin | | | 26.4 | % | | | 20.8 | % | | | | | | | | |
General and administrative | | | 7,822,834 | | | | 18,848,037 | | | | (11,025,203 | ) | | | (58 | )% |
Research and product development | | | 206,313 | | | | 335,377 | | | | (129,064 | ) | | | (38 | )% |
Sales and marketing | | | 9,313,110 | | | | 11,115,499 | | | | (1,802,389 | ) | | | (16 | )% |
Total operating expenses | | | 17,342,257 | | | | 30,298,913 | | | | (12,956,656 | ) | | | (43 | )% |
Operating loss | | | (10,745,156 | ) | | | (24,699,349 | ) | | | 13,954,193 | | | | (56 | )% |
Other income (expense) | | | 452,288 | | | | (77,008 | ) | | | 529,296 | | | | (687 | )% |
Loss before income taxes | | | (10,292,868 | ) | | | (24,776,357 | ) | | | 14,483,489 | | | | (58 | )% |
Income tax expense | | | (13,172 | ) | | | (5,774 | ) | | | (7,398 | ) | | | 128 | % |
Net loss | | $ | (10,306,040 | ) | | $ | (24,782,131 | ) | | $ | 14,476,091 | | | | (58 | )% |
Sales, Net
| | | Nine Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Sales, net | | $ | 25,016,810 | | | $ | 26,858,864 | | | $ | (1,842,054 | ) | | | (7 | )% |
Net sales decreased to $25.0 million in YTD 2023 from $26.9 million in YTD 2022. The decline was primarily due to an 18% decline in our e-commerce channels, driven by out of stocks on Amazon and DTC related to the product quality issue experienced in the first quarter of 2023, as well as planned reductions in media spending across both channels. Wholesale sales increased by 11% in YTD 2023 driven by the timing of club orders, offset by elevated trade promotional activity.
Cost of Goods Sold
| | | Nine Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Cost of goods sold | | $ | (18,419,709 | ) | | $ | (21,259,300 | ) | | $ | 2,839,591 | | | | (13 | )% |
Cost of goods sold decreased to $18.4 million in YTD 2023 from $21.3 million in YTD 2022 which equates to a 13% reduction and accounts for approximately 10.5-basis points of margin expansion as we realize the benefits of the transition to a variable cost third-party co-manufacturing business model.
Gross Profit
| | | Nine Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Gross profit | | $ | 6,597,101 | | | $ | 5,599,564 | | | $ | 997,537 | | | | 18 | % |
Gross profit increased to $6.6 million in YTD 2023 from $5.6 million in YTD 2022. Gross margin improved to 26.4% in YTD 2023 from 20.8% in YTD 2022, driven by benefits of the transition to a variable cost third-party co-manufacturing business model and pricing, offset in part by elevated promotional spend.
Operating Expenses
| | | Nine Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Operating expenses | | | | | | | | | | | | | | | | |
General and administrative | | $ | 7,822,834 | | | $ | 18,848,037 | | | $ | (11,025,203 | ) | | | (58 | )% |
Research and product development | | | 206,313 | | | | 335,377 | | | | (129,064 | ) | | | (38 | )% |
Sales and marketing | | | 9,313,110 | | | | 11,115,499 | | | | (1,802,389 | ) | | | (16 | )% |
Total operating expenses | | $ | 17,342,257 | | | $ | 30,298,913 | | | $ | (12,956,656 | ) | | | (43 | )% |
General and administrative expenses decreased to $7.8 million in YTD 2023 from $18.8 million in YTD 2022, primarily due to impairment of goodwill and long-lived acquisition intangible assets of $8.0 million in the first quarter of 2022, as well as reduced personnel costs and other general and administrative expenses following the exit activities in the fourth quarter of 2022.
Research and product development expenses decreased to $0.2 million in YTD 2023 from $0.3 million in YTD 2022.
Sales and marketing expenses decreased to $9.3 million in YTD 2023 from $11.1 million in YTD 2022, primarily due to a planned reduction in inefficient spending and lower personnel costs.
Other Income (Expense)
| | | Nine Months Ended September 30, | | | $ | | | % | |
| | | 2023 | | | 2022 | | | Change | | | Change | |
Other income (expense) | | $ | 452,288 | | | $ | (77,008 | ) | | $ | 529,296 | | | | (687 | )% |
Other income (expense) decreasedis composed of interest income and expense, rental income, income and losses related to $(77.0)investment securities available-for-sale, and other non-operating gains and losses. The increase in other income was driven by increases in dividend income on money market funds as interest rates rise in YTD 2023 and losses on sales of available securities in YTD 2022.
Cash Flows
Comparison of the nine months ended September 30, 2023 and 2022:
The following table shows a summary of our cash flows for the periods presented:
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
Cash flows from operating activities | | $ | (10,929,145 | ) | | $ | (11,133,377 | ) |
Cash flows from investing activities | | | 567,459 | | | | 8,981,156 | |
Cash flows from financing activities | | | (23,066 | ) | | | 121,090 | |
Net change in cash, cash equivalents, and restricted cash | | $ | (10,384,752 | ) | | $ | (2,031,131 | ) |
Cash Flows from Operating Activities
Cash used in operating activities was $10.9 million for YTD 2023 and $11.1 million for YTD 2022. Cash burn in the first quarter of 2023 of $6.1 million was elevated by increasing accounts receivable levels due to the timing of collections of large wholesale orders and decreases in current liabilities which included $1.1 million payments in connection with the Sisters, Oregon lease exit and $0.6 million in severances and bonuses. In the second and third quarters of 2023, normalized cash used in operations was $2.4 million per quarter, the improvement driven by overall reductions in net operating losses following the change in our business model offset by increases in inventory to prepare for seasonal demand and reductions in accrued expenses.
Cash Flows from Investing Activities
Cash provided by investing activities was $0.6 million for YTD 2023 as compared to cash provided by investing activities of $9.0 million for YTD 2022. The change is primarily due to proceeds from the sale of available-for-sale securities in the first quarter of 2022 and assets held for sale in the second quarter of 2022.
Cash Flows from Financing Activities
Cash used in financing activities was $23.1 thousand for YTD 2023 compared to $121.1 thousand of expensecash provided in YTD 2022, primarily related to inflows from $36.2 thousandstock option exercises.
Liquidity and Capital Resources
As of September 30, 2022,2023, we had incurred accumulated net losses of $80.6$106.4 million, including operating losses of $24.7$10.7 million and $16.9$24.7 million for YTD 20222023 and YTD 2021,2022, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, however, we have enactedtook several strategic rightsizingssteps in 2023 and 2022 to optimize spending and improve gross margins in order to significantly reduce cash burn and bring the business closer to breakeven and profitability in future quarters. These steps included transitioning out of the organization throughout 2022in-house manufacturing to a third-party co-manufactured model, closing manufacturing facilities and offices in Sisters, Oregon, several rounds of organizational restructuring to optimize our workforce, and reducing marketing and administrative investment through eliminating non-essential spending. We will continue to seek to optimize spending and expand gross margins. We have historically financed our operations and capital expenditures through private placements of our preferred stock and common stock, our initial public offering, as well asour lines of credit, and term loans.
Our historical uses of cash have primarily consisted of cash used in operating activities to fund our operating losses and working capital needs. Cash used in operations was $10.9 million for YTD 2023 and $11.1 million for YTD 2022.
As of September 30, 2023, we had $7.4 million of cash-on-hand. As of December 31, 2022, we had $21.0$17.8 million of cash-on-hand and $5.0 million of available borrowings under our lines of credit. As of December 31, 2021, we had $31.7 million of cash-on-hand and investments and $19.7 million of available borrowings under our lines of credit. As of September 30, 2022,2023, and December 31, 2021,2022, we had no outstanding notes payable and no amounts were outstanding under our lines of credit.
Our future capital requirements will depend on many factors, including our ability to execute on our planned sales growth rate, the timing and extent of spending to support research and development efforts, the continued expansionimprovement of sales and marketing activities,our operating margins, the enhancement of our product platforms, the introduction of new products, and acquisition activity. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
•Cash outflows for capital expenditures were $1.1 million in YTD 2022 and $1.0 million in YTD 2021. The increase was | ● | The Company has lease arrangements for corporate office space. As of September 30, 2023, the Company had fixed lease payment obligations of $0.5 million, with $0.1 million payable within 12 months. |
| ● | As of September 30, 2023, $6.0 million of current liabilities were accrued related to short-term operating activities and personnel costs. |
| ● | Advertising and marketing expenditures were $6.5 million in YTD 2023 and $8.2 million in YTD 2022. We expect to continue to invest in these activities as part of the strategic expansion of sales volume, however, we have made strategic shifts to reduce and improve the efficacy of future customer acquisition costs. |
While we expect the strategic actions outlined above to support the increasedrive meaningful improvements in our manufacturing and production capacity needs. The majority of capital expenditures for YTD 2022 occurred in Q1 2022 and we do not expect to incur significant capital expendituresoperating cash flows in the near future.
•The Company has lease arrangements for certain equipmentfuture, there are critical uncertainties in forward-looking statements. Until such a time that we begin got realize the full benefits of these strategic actions, considering our recurring losses from operations, our limited cash resources on hand, and facilities, including corporate and manufacturing space. As of September 30, 2022,the dependence by the Company had fixed lease payment obligations of $4.9 million, with $0.7 million payable within 12 months.
•As of September 30, 2022, $4.9 million ofon its ability to obtain additional financing to fund its operations after the current liabilities were accrued related to short term operating activities and personnel costs.
•Advertising and marketing expenditures were $8.2 million in YTD 2022 and $8.4 million in YTD 2021. We expectcash resources are exhausted raise substantial doubt about our ability to continue to invest in these activities as part of the strategic expansion of sales volume, however, we have made strategic shifts to reduce and improve the efficacy of future customer acquisition costs.
We expect to continue to incur operating lossesa going concern for the foreseeable future and may require additional capital resources to continue to grow our business. We believe our cash, cash equivalents, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements fortwelve months following the next 12 months and beyond based on our current business plans.date of this report.
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Cash Flows
Comparison of the nine months ended September 30, 2022 and 2021:
The following table shows a summary of our cash flows for the periods presented:
| | | | | | | | |
| | For the Nine Months Ended | |
| | September 30, | |
| | 2022 | | | 2021 | |
Cash flows from operating activities | | $ | (11,133,377 | ) | | $ | (14,242,999 | ) |
Cash flows from investing activities | | | 8,981,156 | | | | (12,092,290 | ) |
Cash flows from financing activities | | | 121,090 | | | | 184,747 | |
Net change in cash | | $ | (2,031,131 | ) | | $ | (26,150,542 | ) |
Cash Flows from Operating Activities
Cash used in operating activities was $11.1 million for YTD 2022 as compared to $14.2 million used in YTD 2021. The improvement in cash burn is driven by decreasing inventory levels, prepaid expenses, and lower general and administrative spend.
Cash Flows from Investing Activities
Cash provided by investing activities was $9.0 million for YTD 2022 as compared to cash used in investing activities of $12.1 million for YTD 2021. The change is primarily due to proceeds from the sale of available-for-sale securities in YTD 2022 and cash used in the acquisition of Picky Bars in YTD 2021.
Cash Flows from Financing Activities
Cash provided by financing activities was $121 thousand and $185 thousand for YTD 2022 and YTD 2021, respectively, primarily related to inflows from stock option exercises.
Segment Information
We have one operating segment and one reportable segment. Our Chief Executive Officer reviews financial information on an aggregatea consolidated basis for purposes of allocating resources and evaluating financial performance.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Summary of Significant Accounting Policies” of the Notes to condensed consolidatedthe Unaudited Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 20212022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s unaudited consolidated condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 20212022 Form 10-K.
Recent Accounting Pronouncements
See Recently IssuedAdopted Accounting Pronouncements in Note 1 to our unaudited consolidated condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Emerging Growth Company Status
As a company with less than $1.235 billion in annual gross revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
•a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
•an exemption from the auditor attestation requirement on the effectiveness of our internal control over financial reporting;
•reduced disclosure about our executive compensation arrangements; and
•no non-binding advisory votes on executive compensation or golden parachute arrangements.
| ● | a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
| ● | an exemption from the auditor attestation requirement on the effectiveness of our internal control over financial reporting; |
| ● | reduced disclosure about our executive compensation arrangements; and |
| ● | no non-binding advisory votes on executive compensation or golden parachute arrangements. |
We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of our IPO occurs, or such earlier time when we no longer qualify as an emerging growth company. We would cease to be an emerging growth company on the earlier of (1) the last day of the fiscal year (a) in which we have more than $1.235 billion in annual gross revenue or (b) in which we have more than $700 million in market value of our capital stock held by non-affiliates, or (2) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all these reduced burdens.
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In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to provide this information in our Quarterly Reports.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2022,2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2022, due to the material weakness in internal control over financial reporting described below.2023.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of financial statements for the three months ended March 31, 2022, our management identified a material weakness in the Company’s internal control over financial reporting, relating to a miscalculation of basic and diluted net loss per share caused by a formula error. Our independent registered public accounting firm identified this error, and the error was corrected by management. We believe our failure to identify this error resulted from a material weakness related to ineffective operation of management review controls related to financial reporting due to staffing constraints. The issue was corrected prior to the filing of the quarterly report on the Form 10-Q for the period ended March 31, 2022.
Remediation Measures
With the oversight of senior management and our audit committee, we have taken steps to take additional measures to remediate the underlying causes of the identified material weakness, primarily through the hiring of additional accounting and finance resources; the development and implementation of additional formal, documented policies and procedures; and improved processes and management review control activities.
Given the routine nature of the error that gave rise to the material weakness in the first quarter of 2022, we believe the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weakness has been remediated. We will continue to monitor the operating effectiveness of these controls and will make any further changes management determines appropriate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended of September 30, 2022,2023, aside from those described above, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings.
We are not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.
Item 1A. Risk Factors.
There have been no material changes
The following risk factor disclosures should be read in conjunction with respect to the risk factors described in the Company's 2022 Form 10-K and subsequent periodic filings with the SEC. We are supplementing the risk factors previously disclosed in such filings to include the following updated risk factors:
Our historical operating results indicate substantial doubt exists related to our Annual Report on Form 10-Kability to operate as a going concern.
Our unaudited consolidated condensed financial statements for the yearnine months ended December 31, 2021.September 30, 2023 were prepared assuming that we will continue as a going concern. The going concern basis of presentation assumes that we will continue in operation for the foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern. Our management concluded that our recurring losses from operations, our limited cash resources on hand and the dependence by the Company on its ability to obtain financing to fund its operations after the current cash resources are exhausted raise substantial doubt about our ability to continue as a going concern for the twelve months following the date of this report.
As reflected in the accompanying unaudited consolidated condensed financial statements, the Company had cash and cash equivalents of $7.4 million and an accumulated deficit of $106.4 million at September 30, 2023, and cash used in operations was $10.7 million in the nine months ended September 30, 2023. We expect to continue to generate operating losses for the foreseeable future. There can be no assurance that the Company will be able to raise additional funds, whether through public offerings, private placements or otherwise, on terms acceptable to the Company or at all. If we are delayed in completing or are unable to raise additional funds, we may seek to reduce our cash outflows, but there are no assurances that these reductions would be sufficient to allow us to continue to operate as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our unaudited consolidated condensed financial statements and an investor could lose all or part of its investment in our equity. In addition, the perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our future contractual obligations or pursue additional strategic transactions.
Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on the Company’s operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10 and March 12, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank (“SVB”), and Signature Bank, respectively, after each bank was unable to continue their operations. These events exposed vulnerabilities in the banking sector, including legal uncertainties, significant deposit outflows, volatility and contagion risk, and caused market prices of regional bank stocks to plummet.
We have not experienced any adverse impact to our current and projected business operations, financial condition and results of operations as a result of the SVB, Signature Bank or other recent bank failures; however, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. If, for example, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. Therefore, while it is not currently possible to predict the potential impact that the failure of SVB, Signature Bank, or other bank failures could have on economic activity or our business in particular, the failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.
Although we expect to continue to assess our banking relationships as we believe necessary or appropriate, our access to cash in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the financial institutions with which we have banking relationships, and in turn, us. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could also include factors involving financial markets or the financial services industry generally. The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
None.
Item 3. Defaults Upon Senior Securities
None.
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Effective November 4, 2022, the Company entered into an employment agreement (the “Employment Agreement”) with Anya Hamill, who served as interim Chief Financial Officer since May 2022 and now serves as permanent Chief Financial Officer. The Employment Agreement provides for the following benefits, among other provisions:
Not Applicable.
Item 6. Exhibits.
•an annual base salary of $275,000;
•an annual bonus opportunity of up to 100% of base salary based on the achievement of performance goals, with a target payout of 50% of base salary;
•restricted stock units relating to 50,000 shares of common stock, vesting over four years;
•stock options to purchase 50,000 shares of common stock with an exercise price equal to the grant date fair value of the Company’s common stock, vesting over four years; and
•a payment equal to 12 months base salary and COBRA coverage for up to 12 months if Ms. Hamill resigns for good reason or the Company terminates Ms. Hamill’s employment without cause, and, if such resignation or termination occurs within two years following a change in control (as defined in the Employment Agreement), the vesting of all of Ms. Hamill’s equity awards.
Ms. Hamill will also be eligible to participate in the Company’s equity incentive plans and long-term incentive plans and other benefits available to the Company’s executive officers.
The foregoing descriptions of the Employment Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Employment Agreement, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.4 and incorporated herein by reference.
On November 7, 2022, the Board of Directors terminated the Company’s 2020 Employee Stock Purchase Plan, which allowed employees to purchase shares of the Company’s common stock through accumulated payroll deductions.
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Item 6. Exhibits.
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
* Filed herewith.
** The certifications attached as Exhibit 32.1 and 32.2 are not deemed filed with the SEC and are not incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such.
40
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Laird Superfood, Inc. |
| (Registrant) |
| |
Date: November 9, 2023 | Laird Superfood, Inc.
|
| (Registrant)
|
|
|
Date: November 10, 2022
| /s/ Jason Vieth |
| Jason Vieth |
| President and Chief Executive Officer |
|
|
Date: November 10, 20229, 2023 | /s/ Anya Hamill |
| Anya Hamill |
| Chief Financial Officer |
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