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:

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.

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

CONSOLIDATED CONDENSED STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS’ EQUITY

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

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 "our").

All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited consolidated condensed financial statements.

~~Inventory~~

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~~first-in first-out basis and consists primarily of raw materials and packaging and finished goods and ~~include direct~~includes co-packing fees, indirect labor and allocable overhead. The following table presents the components of inventory, net of reserves, as of:

June 30,
2023

December 31,
2022

Raw materials and packaging

$
2,674,183

$
3,764,804

Finished goods

3,183,102

1,931,761

Total inventory, net

$
5,857,285

$
5,696,565

	*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 ~~six~~nine months ended ~~June~~September 30, 2023, the Company recorded $~~262,718~~$881,721 and $~~627,742~~,$1,260,580, respectively, of inventory obsolescence and disposal costs. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded $~~135,645~~$236,946 and $1~~40,075~~,$342,178, respectively, of inventory obsolescence and disposal costs.

As of ~~June~~September 30, 2023 inventory reserves totaled $~~1,387,894~~.$1,614,840. This is comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $~~493,331~~,$473,888, as well as raw materials and finished goods specifically identified for disposal related to a product quality issue of $~~552,909~~$838,276 and discontinued inventories of $~~341,744~~.$302,676. As of December 31, 2022, inventory reserves totaled $~~1,545,033~~.$1,545,033. This was comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $~~746,966~~,$746,966, reserves specifically identified for disposal related to a product quality issue of $~~559,042~~$559,042 and discontinued inventories following exit activities of $~~239,025~~.$239,025.

As of ~~June~~September 30, 2023 and December 31, 2022, the Company had a total of $~~262,251~~$482,585 and $~~897,108~~,$897,108, respectively, of prepayments for future raw materials inventory which are included in prepaid expenses and other current assets, net on the unaudited consolidated condensed balance sheets.

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. See Note 4 for more information.

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 ~~Laird~~Mr. Hamilton’s contribution to the Company was in the form of intellectual property, granting the Company the right to use ~~Laird~~Mr. Hamilton’s name and likeness. This contribution, which was reported on the unaudited consolidated condensed balance sheets as of ~~June~~September 30, 2023 and December 31, 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.

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 ~~June~~September 30, 2023 and December 31, 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.

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 non-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.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ 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 ten~~ten-year~~-year terms upon the expiration of the initial ~~one-hundred~~one-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 ~~six~~nine months ended ~~June~~September 30, 2023 and ~~2022.~~2022.

	*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.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ 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~~$8.7 million of exit and disposal costs in the fourth quarter of 2022 and insignificant residual costs in the ~~six~~nine months ended ~~June~~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 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 $0.3~~ ~~million in the first half of 2023 and consideration receivable of $0.5~~ ~~million is included in Prepaid and other current assets on the unaudited consolidated condensed balance sheets as of June 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 Costs 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 Contingencie~~s

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.

~~As of June 30, 2023, $0.1~~ million of loss contingencies are included in accrued expenses. These relate to an ongoing class action lawsuit related to product labeling as a result of our failure to prevail on a motion to dismiss the matter. Contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. This contingency could result in increased expenses and/or losses, including damages, fines and/or civil penalties, and/or plaintiff legal fees, which could be substantial. We believe that our claims and defenses in this matter are substantial, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of matters, which could have a material adverse effect on our results of operations and/or our cash flows in the period in which the amounts are accrued or paid. Our assessments, which result from a complex series of judgments about future events and uncertainties, are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ 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 $~~10.6~~$7.4 million of cash and cash equivalents, and cash used in operations was $~~7.5~~$10.9 million in the ~~six~~nine months ended ~~June~~September 30, ~~2023.~~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.~~10-Q.

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.

At the end of the fourth quarter of 2022, the Company transitioned to a variable cost ~~third-party~~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 first ~~half~~nine 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 ~~costs~~cost of goods sold we have already realized margin improvements to ~~23.7~~%26.4% in the first ~~half~~nine months of 2023 compared to ~~14.5~~%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 June 2016, the FASB issued ASU No. ~~2016-13,~~2016-13, “Financial Instruments – Credit Losses (“(“Topic ~~326”~~326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs ~~2018-19~~2018-19 (issued November 2018), ~~2019-04~~2019-04 (issued April 2019), ~~2019-05~~2019-05 (issued May 2019), ~~2019-11~~2019-11 (issued November 2019), ~~2020-02~~2020-02 (issued February 2020) and ~~2020-03~~2020-03 (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 ~~2016-13~~2016-13 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~~2016-13 in the first quarter of 2023. The adoption had no impact on our unaudited consolidated condensed financial position, results of operations, or cash 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 ~~June~~September 30, 2023 for potential recognition of disclosure in the unaudited consolidated condensed financial statements. There were no such subsequent events.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

2. Prepaid Expenses and Other Current Assets

The following table presents the components of prepaid expenses and other current assets, as of:

June 30,
2023

December 31,
2022

Prepaid insurance

$
256,966

$
761,147

Prepaid inventory

262,251

897,108

Prepaid subscriptions and license fees

319,393

292,622

Prepaid advertising

117,317

166,872

Deposits

185,223

134,896

Other current assets

510,567

277,430

Prepaid and other current assets

$
1,651,717

$
2,530,075

	*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

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~~. $5,000,000. The line of credit was not renewed on August 31, 2023. The outstanding amounts under the line of credit ~~have~~had an interest rate calculated as Daily Simple Secured Overnight Financing Rate (“SOFR”) plus ~~1.5~~%1.5% per annum until paid in full. The balance on the line of credit was $0$0 as of ~~June~~September 30, 2023 and December 31, ~~2022.~~2022. Management was in compliance with all financial covenants as of ~~June 30, 2023 and~~ December 31, ~~2022.~~
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 had a maturity date of August 10, ~~2022~~. 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 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.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

4. Property and Equipment, net

Property and Equipment, net

Property and equipment, net is comprised of the following as of:

June 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

216,975

(89,982
)

126,993

318,795

(211,529
)

107,266

Leasehold improvements

46,276

(18,109
)

28,167

34,946

(15,148
)

19,798

$
263,251

$
(108,091
)

$
155,160

$
420,017

$
(269,728
)

$
150,289

	*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 $~~23,857~~$19,772 and $~~60,088~~$79,860 for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Depreciation expense was $~~186,319~~$167,794 and $~~329,138~~$496,932 for the three and ~~six~~nine months ended ~~June~~September 30, 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 $~~100,426~~$100,426 in the 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~~.$800,000. The book value exceeded the fair market value and, as such, the Company recorded impairment charges of $~~3,105,435~~,$3,105,435, included in general and administrative expenses. In the first ~~half~~three quarters of 2023, consideration amounting to $~~349,649~~$673,732 was received and $~~450,351~~$126,268 was receivable and included in other current assets as of ~~June~~September 30, ~~2023.~~2023.

5. Goodwill and Intangible Assets, Net

~~Goodwill~~

Goodwill

The carrying amount of goodwill attributed to the acquisition of Picky Bars was $~~6,486,000~~$6,486,000 as of the acquisition date. 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 ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2022. There was no goodwill as of ~~June~~September 30, 2023 or December 31, ~~2022.~~2022.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

Intangible Assets, Net

Intangible Assets, net is comprised of the following:

June 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

$
(53,450
)

$
837,377

$
890,827

$
—

$
890,827

Recipes (10 years)

330,000

(71,500
)

258,500

330,000

(55,000
)

275,000

Social media agreements (3 years)

80,000

(57,778
)

22,222

80,000

(44,444
)

35,556

Software (3 years)

131,709

(61,134
)

70,575

131,710

(40,975
)

90,735

Definite-lived intangible assets

1,432,536

(243,862
)

1,188,674

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

$
(243,862
)

$
1,320,774

$
1,564,637

$
(140,419
)

$
1,424,218

	*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 ~~7.3~~7.1 years.

For the three and ~~six~~nine months ended ~~June~~September 30, 2023, amortization expense was $~~51,722~~$51,721 and $~~103,444~~,$155,165, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, amortization expense was $~~103,741~~$104,201 and $~~245,223~~,$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 ~~recent~~ developments in the forecasts for e-commerce and wholesale sales of legacy Picky Bars products were triggering events during the ~~three~~nine months ended ~~June~~September 30, 2022 and in the three months ended December 31, 2022. ~~There were no triggering events or impairment charges in the three and six months ended June 30, 2023.~~

The Company performed a qualitative and quantitative 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 ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded impairment charges of $0$0 and $~~1,432,000~~,$1,432,000, respectively, net of accumulated amortization. In the three months ended December 31, 2022, the Company recorded impairment charges of $~~344,006~~,$344,006, net of accumulated amortization.

The Company performed a qualitative and quantitative 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 trade names utilizing the Relief From Royalty Method variation discounted cash-flow model, which exceeded the carrying value, indicating that these assets were impaired. In the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded impairment charges of $0$0 and $~~108,000~~,$108,000, respectively, net of accumulated amortization. In the three months ended December 31, 2022, the Company recorded impairment charges of $~~1,135,000~~,$1,135,000, net of accumulated amortization.

Intangible assets are amortized using the straight-line method over estimated useful lives ranging from three to ten ~~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

2023 (excluding the six months ended June 30, 2023)

$
106,855

2024

195,931

2025

156,818

2026

146,723

2027

146,723

Thereafter

435,624

$
1,188,674

~~6. Leases~~

~~Lessee~~

~~In accordance with ASC 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

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

6. Leases

~~reasonably assured to exercise.~~
Lessee

~~Table of Contents~~

~~LAIRD SUPERFOOD, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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.

The Company leased 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 was ten years, and the Company had the option to renew the lease for two additional ~~five-year~~five-year periods.

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 was ten 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 was ten 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 agreed to pay $~~1,550,000~~,$1,550,000, of which $~~500,000~~$500,000 was remitted in 2022 and $~~1,050,000~~$1,050,000 was satisfied in the first quarter of 2023. The Company ceased to realize 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 a total of $~~3,596,365~~,$3,596,365, which were included in General and administrative expenses for the year ended December 31, ~~2022.~~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-year~~three-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 Company will owe $99,883~~ ~~in the first twelve months, which will increase by~~ 3~~% on the first day of each succeeding year.~~2027.

The components of lease expense were as follows:

Three Months Ended
June 30, 2023

Six Months Ended
June 30, 2023

Operating leases

Operating lease cost

$
38,085

$
76,169

Variable lease cost

5,554

18,468

Operating lease expense

43,639

94,637

Short-term lease rent expense

56,960

173,187

Total rent expense

$
100,599

$
267,824

Three Months Ended
June 30, 2022

Six Months Ended
June 30, 2022

Operating leases

Operating lease cost

$
267,106

$
534,213

Variable lease cost

27,635

80,638

Operating lease expense

294,741

614,851

Short-term lease rent expense

68,957

103,498

Total rent expense

$
363,698

$
718,349

Six Months Ended
June 30, 2023

Six Months Ended
June 30, 2022

Operating cash flows - operating leases

$
62,923

$
370,214

Right-of-use assets obtained in exchange for operating lease liabilities

$
344,382

$
5,285,330

	*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	%

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

June 30, 2023

June 30, 2022

Weighted-average remaining lease term – operating leases (in years)

3.5

8.3

Weighted-average discount rate – operating leases

6.56
%

3.75
%

~~Table of Contents~~

~~LAIRD SUPERFOOD, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

As of ~~June~~September 30, 2023, future minimum payments during the next five years and thereafter are as follows:

2023 (excluding the six months ended June 30, 2023)

$
63,509

2024

138,800

2025

126,715

2026

109,145

2027

56,210

Total

494,379

Less imputed interest

(61,963
)
Operating lease liabilities

$
432,416

~~Lessor~~

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

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 $~~15,657~~$13,769 and $~~18,846~~$18,846 of sublease rental assets as of ~~June~~September 30, 2023 and December 31, 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
June 30, 2023

Six Months Ended
June 30, 2023

Operating leases

Operating lease income

$
14,055

$
28,110

Variable lease income

5,318

10,635

Total rental income

$
19,373

$
38,745

	*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 ~~June~~September 30, 2023, future minimum payments to be received during the next five years and thereafter are as follows:

2023 (excluding the six months ended June 30, 2023)

30,216

2024

61,640

2025

20,748

Total

$
112,604

2023 (excluding the nine months ended September 30, 2023)		30,216
2024		61,640
2025		20,748
Total	$	112,604

7. Deferred Tax Assets and Liabilities

The Company had a tax net loss for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 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:

	*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	%

Six Months Ended

June 30, 2023

June 30, 2022

Income tax benefit at statutory rates

$
1,604,134

$
2,968,062

Valuation allowance for deferred tax assets

(1,625,391
)

(2,947,086
)
Stock-based compensation

(17,634
)

(12,642
)
Other benefit, net

25,719

(14,108
)
Reported income tax expense

$
(13,172
)

$
(5,774
)
Effective tax rate:

0.2
%

0.0
%

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

The Company’s deferred tax assets consisted of the following as of:

June 30, 2023

December 31, 2022

Noncurrent deferred tax assets:

Net operating loss carryforwards

$
19,201,198

$
17,428,266

Intangible assets

2,163,563

2,382,397

Property and equipment

1,554,492

1,660,954

Research and development credits

348,427

300,105

Accrued expenses

866,024

766,385

Right of use asset

3,993

524

Bad debt allowance

33,736

20,282

Charitable contributions

40,782

38,557

Unexercised options

1,235,230

1,136,475

Capitalized research and development costs

242,052

194,320

Total noncurrent deferred tax assets

25,689,497

23,928,265

Valuation allowance

(25,689,497
)

(23,928,265
)
Total net deferred tax assets

$
—

$
—

	*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. As of ~~June~~September 30, 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 approximately $~~14,350~~.$9,850 and $9,803 as of September 30, 2023 and December 31,2022, respectively.

The changes in the valuation allowance for deferred tax assets and liabilities for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were net increases of $~~1.8~~$2.7 million and $~~4.5~~$5.8 million, respectively. At ~~June~~September 30, 2023 and December 31, 2022, the Company had ~~NOLs~~net operating loss carryforwards ("NOLs") totaling approximately $~~131.3~~$137.0 million and $~~118.6~~$118.6 million, respectively. At ~~June~~September 30, 2023 and December 31, 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 ~~June~~September 30, 2023 and December 31, 2022, the Company had federal NOLs totaling approximately $~~74.4~~$77.6 million and $~~67.5~~$67.5 million, respectively from 2018 and subsequent years that can be carried forward ~~indefinitely~~.indefinitely. At ~~June~~September 30, 2023 and December 31, 2022, the Company had state NOLs totaling $~~55.0~~$57.6 million and $~~49.3~~$49.3 million, respectively, that can be carried forward for between 15 and 20 years. At ~~June~~September 30, 2023 and December 31, 2022, the Company had credits totaling $~~0.4~~$0.4 million and $~~0.3~~$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.

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

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. As of ~~June~~September 30, 2023, the Company is authorized to award 1,124,160 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 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:

Options
Activity

Weighted Average
Exercise Price
(per share)

Weighted Average
Remaining Contractual
Term (years)

Aggregate
Intrinsic Value

Balance at January 1, 2023

921,657

$
6.86

8.00

$
—

Granted

400,000

$
0.81

Exercised/released

—

$
—

Cancelled/forfeited

(24,164
)

$
9.99

Balance at June 30, 2023

1,297,493

$
4.94

7.74

$
—

Exercisable at June 30, 2023

318,041

$
8.72

5.18

$
—

Options
Activity

Weighted Average
Exercise Price
(per share)

Weighted Average
Remaining Contractual
Term (years)

Aggregate
Intrinsic Value

Balance at January 1, 2022

747,800

$
11.51

6.57

$
1,143,013

Granted

453,498

$
7.21

Exercised/released

(76,750
)

$
2.14

Cancelled/forfeited

(192,283
)

$
17.05

Balance at June 30, 2022

932,265

$
9.02

7.81

$
—

Exercisable at June 30, 2022

419,565

$
9.76

5.82

$
—

				*Weighted*		*Weighted*
				*Average*		*Average*
	*Options*			*Exercise Price*		*Contractual*		*Aggregate*
	*Activity*			*(per share)*		*Term (years)*		*Intrinsic Value*
Balance at January 1, 2023		921,657		$	6.86		8.00	$	—
Granted		700,000		$	0.89
Exercised/released		—		$	—
Cancelled/forfeited		(360,317	)	$	3.52
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*
				*Average*		*Average*
	*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		453,498		$	7.21
Exercised/released		(76,750	)	$	2.14
Cancelled/forfeited		(317,185	)	$	15.25
Balance at September 30, 2022		807,363		$	8.50		7.73	$	—
Exercisable at September 30, 2022		314,343		$	8.72		5.42	$	—

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ 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 - Stock 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 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, ~~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.~~

●

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.

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:

Six Months Ended
June 30,

2023

2022

Weighted-average expected volatility

57.96
%

52.36
%
Weighted-average expected term (years)

6.25

6.25

Weighted-average expected risk-free interest rate

3.50
%

2.27
%
Dividend yield

—

—

Weighted-average fair value of options granted

$
0.55

$
2.79

	*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:

Number of RSUs

Weighted Average
Grant Date Fair Value (per share)

Weighted Average
Remaining Vesting
Term (years)

Aggregate
Fair Value

Balance at January 1, 2023

504,420

$
4.22

2.94

$
2,127,734

Granted

645,000

$
—

Exercised/released

(141,361
)

$
4.25

Cancelled/forfeited

(16,293
)

$
6.00

Balance at June 30, 2023

991,766

$
1.99

2.86

$
1,968,741

Number of RSUs

Weighted Average
Grant Date Fair Value (per share)

Weighted Average
Remaining Vesting
Term (years)

Aggregate
Fair Value

Balance at January 1, 2022

90,630

$
32.91

2.17

$
2,982,931

Granted

445,702

$
4.74

Exercised/released

(19,061
)

$
26.92

Cancelled/forfeited

(27,037
)

$
31.01

Balance at June 30, 2022

490,234

$
7.64

3.26

$
3,747,835

				*Weighted Average*		*Weighted Average*
				*Grant Date Fair*		*Remaining Vesting*		*Aggregate*
	*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		745,000		$	0.81
Exercised/released		(154,674	)	$	4.36
Cancelled/forfeited		(260,639	)	$	2.20
Balance at September 30, 2023		834,107		$	1.77		2.18	$	1,480,161

				*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.

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

Market-Based Stock Units

The following tables summarize the Company’s ~~market-based stock unit ("MSU")~~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, 2023

31,083

$
43.53

0.60

$
1,353,043

Granted

—

$
—

Exercised/released

—

$
—

Cancelled/forfeited

(9,769
)

$
43.53

Balance at June 30, 2023

21,314

$
43.53

0.29

$
927,798

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 June 30, 2022

31,083

$
43.53

0.87

$
1,353,043

				*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 volatility within the index are derived using historical volatility 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-coupon~~zero-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 was determined using a component valuation model. This plan was terminated in the 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 June 30, 2023		Six months ended June 30, 2023			Unrecognized compensation cost related to non-vested awards as of June 30, 2023		Weighted-average remaining vesting period as of June 30, 2023 (years)		*September 30, 2023*		*September 30, 2023*			*September 30, 2023*		*September 30, 2023 (years)*
Stock options	$	100,196	$	161,684		$	1,090,875		2.91	$	221,106	$	382,790		$	728,426		2.59
RSUs		195,915		354,630			23,651		2.74		127,252		481,881			1,296,981		2.34
MSUs		9,965		(62,603	)		1,777,578		0.59		16,578		(46,024	)		56,830		0.75
Total stock-based compensation	$	306,076	$	453,711		$	2,892,104		2.79	$	364,936	$	818,647		$	2,082,236		2.79

Cost of goods sold	$	780	$	(116	)	$	6,120		1.99	$	146	$	30		$	3,450		1.87
General and administrative		286,682		421,924			2,632,234		2.73		195,458		617,382			1,913,478		2.49
Sales and marketing		18,614		31,903			253,750		3.43		169,332		201,235			165,308		1.25
Total stock-based compensation	$	306,076	$	453,711		$	2,892,104		2.79	$	364,936	$	818,647		$	2,082,236		2.79

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ 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
June 30, 2022

Six months ended
June 30, 2022

Unrecognized compensation cost related to non-vested awards as of December 31, 2022

Weighted-average remaining vesting period as of December 31, 2022 (years)

Stock options

$
80,408

$
186,857

$
1,173,758

3.24

RSUs

377,538

740,876

1,707,145

2.91

MSUs

(668,782
)

(1,133,244
)

71,059

1.09

ESPP

1,594

7,065

—

—

Total stock-based compensation

$
(209,242
)

$
(198,446
)

$
2,951,962

3.07

Cost of goods sold

$
10,086

$
25,506

$
14,354

2.56

General and administrative

(259,475
)

(313,969
)

2,734,728

2.93

Research and product development

2,298

(6,067
)

2,517

0.73

Sales and marketing

37,849

96,084

200,363

3.84

Total stock-based compensation

$
(209,242
)

$
(198,446
)

$
2,951,962

3.07

There were forfeitures of MSU awards of certain members of executive leadership of $0$0 and $~~149,735~~$149,735 for the three and ~~six~~nine months ended ~~June~~September 30, 2023, and of $~~901,801~~$0 and $~~1,785,125~~ d~~uring~~$1,785,125 during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, representing discrete reversals of stock compensation expense to the periods.

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 shares had been issued. Dilutive potential common shares consist of employee stock options, ~~restricted stock units,~~RSUs, and ~~market based stock units.~~ MSUs. The dilutive effect of employee stock options, ~~restricted stock units,~~RSUs, and ~~market-based stock units~~MSUs by the Company are calculated using the treasury stock method. Basic earnings per share is reconciled 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 June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Net loss

$
(3,507,246
)

$
(4,904,520
)

$
(7,651,156
)

$
(19,043,922
)
Weighted average shares outstanding - basic and diluted

9,284,585

9,132,632

9,249,738

9,114,527

Basic and diluted:

Net loss per share, basic and diluted

$
(0.38
)

$
(0.54
)

$
(0.83
)

$
(2.09
)
Common stock options, restricted stock awards, and market-based stock awards excluded due to anti-dilutive effect

2,310,573

1,453,582

2,310,573

1,453,582

10. Concentrations

The Company had 78%85% of trade accounts receivable from three customers as of ~~June~~September 30, ~~2023.~~2023. The Company had 68%68% of trade accounts receivable from two customers as of December 31, ~~2022.~~2022.

The Company had 13%no significant accounts payable concentrations due to a vendor as of September 30, 2023. The Company had 41% of accounts payable due to ~~one~~ ~~vendor as of June 30, 2023. The Company had~~ 41~~% of accounts payable due to~~ two vendors as of December 31, ~~2022.~~2022.

The Company sold a substantial portion of products to three customers (49%(50%) and three customers (45%(46%), respectively, for the three and ~~six~~nine months ended ~~June~~September 30, ~~2023.~~2023. As of ~~June~~September 30, 2023, the amount due from these customers was $~~1,608,326~~.$2,439,551. The Company sold a substantial portion of products to two customers (21%(21%) and ~~one~~ ~~customer (~~12%)no customers for the three and ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2022. As of ~~June~~September 30, 2022, the amount due from these customers included in accounts receivable was $~~556,117~~.$1,134,994.

The Company purchased a substantial portion of products from two~~three~~ suppliers (33%(52%) and two suppliers (26%(40%), respectively, for the three and ~~six~~nine months ended ~~June~~September 30, ~~2023.~~2023. The Company purchased a substantial portion of products from three suppliers (51%(68%) and ~~two~~ ~~suppliers (~~64%one supplier (48%), respectively, for the three and ~~six~~nine months ended ~~June~~September 30, ~~2022.~~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. ~~Indonesia~~Vietnam geographically accounted for approximately 11%29% and 12%17%, respectively, of our total raw materials and packaging purchases for the three and ~~six~~nine months ended ~~June~~September 30, ~~2023. Indonesia, Sri Lanka, and~~2023. Vietnam geographically accounted for approximately 51%41% and 64%48%, respectively, of our total raw materials and packaging purchases for the three and ~~six~~nine months ended ~~June~~September 30, ~~2022.~~

2022.

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

11. Related Party

FASB ASC Topic 850,Related Party Disclosures, requires that information about transactions with related parties that would influence 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-year~~ten-year terms upon the expiration of the initial ~~one-hundred-year~~ one-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.

Marketing Agreements

The Company has an influencer agreement with Gabby Reece to provide certain marketing services. In connection with these services, in the three and ~~six~~nine months ended ~~June~~September 30, 2023, advertising expenses totaling $~~125,198~~$141,712 and $~~264,525~~,$435,084, respectively, were included in sales and marketing expenses in the unaudited consolidated condensed statements of operations. In the three and ~~six~~nine months ended ~~June~~September 30, 2022, advertising expenses totaling $~~22,750~~$19,500 and $~~33,250~~,$52,750, respectively, were included in sales and marketing expenses in the unaudited consolidated condensed statements of operations. As of ~~June~~September 30, 2023 and December 31, 2022, amounts payable to Gabby Reece of $~~34,847~~$56,574 and $~~16,500~~,$16,500, respectively, ~~were~~ included in ~~accrued expenses~~related party liabilities in the unaudited consolidated condensed balance sheets.

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed Financial Statements

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 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-party~~third-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 collect 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.

In accordance with ASC 606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:

Three Months Ended June 30,

2023

2022

$

% of Total

$

% of Total

Coffee creamers

$
4,636,807

60
%

$
4,694,975

54
%
Hydration and beverage enhancing supplements

998,309

13
%

1,296,779

15
%
Harvest snacks and other food items

1,845,016

24
%

1,713,441

20
%
Coffee, tea, and hot chocolate products

1,973,437

26
%

1,568,142

18
%
Other

124,952

2
%

419,390

5
%
Gross sales

9,578,521

125
%

9,692,727

112
%
Shipping income

259,843

2
%

291,410

3
%
Returns and discounts

(2,114,273
)

(27
)%

(1,310,131
)

(15
)%
Sales, net

$
7,724,091

100
%

$
8,674,006

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	%

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Consolidated Condensed ~~Consolidated~~ Financial Statements

Six Months Ended June 30,

2023

2022

$

% of Total

$

% of Total

Coffee creamers

$
9,754,167

62
%

$
10,149,382

56
%
Hydration and beverage enhancing supplements

1,669,159

11
%

2,754,210

15
%
Harvest snacks and other food items

3,598,042

23
%

3,400,232

19
%
Coffee, tea, and hot chocolate products

3,942,732

25
%

3,384,327

19
%
Other

154,681

1
%

657,713

4
%
Gross sales

19,118,781

122
%

20,345,864

113
%
Shipping income

563,069

2
%

539,602

3
%
Returns and discounts

(3,844,821
)

(24
)%

(2,871,447
)

(16
)%
Sales, net

$
15,837,029

100
%

$
18,014,019

100
%

The Company generates revenue through two channels: e-commerce and wholesale:

Three Months Ended June 30,

2023

2022

$

% of Total

$

% of Total

E-commerce

$
4,139,373

54
%

$
5,178,819

60
%
Wholesale

3,584,718

46
%

3,495,187

40
%
Sales, net

$
7,724,091

100
%

$
8,674,006

100
%

Six Months Ended June 30,

2023

2022

$

% of Total

$

% of Total

E-commerce

$
8,567,054

54
%

$
10,602,770

59
%
Wholesale

7,269,975

46
%

7,411,249

41
%
Sales, net

$
15,837,029

100
%

$
18,014,019

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	%

	*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~~accounts receivable. Contract assets include deferred ~~costs~~cost of goods sold associated with deferred revenue and are included in finished goods inventories. Contract liabilities include deferred revenue, customer deposits, rewards programs, and refund liabilities, and are included in accrued expenses. The balances of receivables from contracts with 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	)

January 1,
2022

December 31,
2022

June 30,
2023

Accounts receivable, net

$
1,268,718

$
1,494,469

$
1,814,461

Contract assets

$
8,316

$
57,249

$
101,220

Contract liabilities

$
(200,914
)
$
(443,227
)
$
(348,121
)

Table of Contents

ITEM 2. ~~MANAGEMENT’S~~MANAGEMENT’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, 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, 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. 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 were ~~$7.7~~$9.2 million and ~~$15.8~~$25.0 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and were ~~$8.7~~$8.8 million and ~~$18.0~~$26.9 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022. Wholesale net sales grew 3%43% in the ~~second~~third quarter of 2023 compared to same period prior year, driven by distribution gains in the ~~Club channel, where net sales grew 18%, as well as distribution~~natural and conventional channels, seasonal program expansion in the ~~natural~~club channel, pricing actions, and ~~improved velocities in~~velocity improvements behind our ~~coffee creamer segment due to~~ new ~~branding~~packaging and ~~packaging.~~the re-branding campaign launched earlier this year. E-commerce channel sales decreased ~~20%~~17% in the ~~second~~third quarter of 2023 driven by a planned media spend reduction across the Amazon ~~sales, as well as significant planned reductions in marketing media spend.~~and direct-to-consumer channels. Amazon sales were also negatively impacted by inventory out of stocks related to the product quality withdrawal issue that we experienced in the first quarter of 2023. ~~We expect to fully mitigate~~By the ~~out~~end of ~~stock issue in~~ the third quarter of ~~2023.~~2023, we had fully mitigated the out-of-stock issue. Wholesale net sales for ~~the first half of~~year-to-date ("YTD") 2023 ~~declined 2%~~increased by 11% compared to ~~the first half of~~YTD 2022 primarily due to club sales, despite elevated trade discounts in 2023. E-commerce channel sales for ~~the first half of~~YTD 2023 decreased ~~19%~~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 ~~six~~nine months ended ~~June~~September 30, 2023, the e-commerce business made up 53% and 54% of net ~~sales.~~sales, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2022 the e-commerce business made up ~~60%~~66% and ~~59%~~61% of net sales, respectively. Lairdsuperfood.com and pickybars.com are platforms that provide an authentic brand experience for our customers that drives engagement and provides feedback for future product development. We view our 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 87% of direct-to-consumer sales for the ~~six~~nine months ended ~~June~~September 30, 2023.

For the three and ~~six~~nine months ended ~~June~~September 30, 2023, ~~Wholesale~~wholesale made up 47% and 46% of our net ~~sales.~~sales, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, ~~Wholesale~~wholesale made up ~~40%~~34% and ~~41%~~39% of our net sales, respectively. Laird Superfood products are sold through a diverse set of wholesale channels, including ~~conventional,~~ natural and specialty grocery, conventional grocery, club, food service, and drug stores. The diversity of our wholesale 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

~~Exit activities~~

The Company ceased in-house production and fulfillment activities at the end of 2022 and moved to a third-party outsourced model for manufacturing and fulfillment. As part of this transition, the Company disposed of unusable inventory, terminated its leases of manufacturing facilities effective January 31, 2023, and eliminated substantially all production and fulfillment labor. Manufacturing equipment, furniture, tools, and internal-use production software were sold or abandoned and were impaired accordingly in the fourth quarter of 2022. Final transition costs were incurred in the first quarter of 2023 and there are no further expected costs. This move was undertaken to transform our supply chain to a variable cost third-party co-manufacturing business model that drastically reduces our overhead costs and allows for significant gross margin expansion. See Note 1 to the unaudited consolidated condensed financial statements elsewhere in this Quarterly Report on Form 10-Q.

Product 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.

Table of Contents

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 E-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 wholesale distribution channels. E-commerce customer acquisitions typically occur at our websites, ~~Lairdsuperfood.com~~ lairdsuperfood.com and ~~Pickybars.com~~pickybars.com, and Amazon.com. Our e-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 wholesale channels. Wholesale customers include grocery chains, natural food outlets, club stores, drug stores, and food service customers including coffee shops, gyms, restaurants, hospitality venues and corporate dining services, among others. Customer acquisition in physical wholesale 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 lifetime 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.

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

Cost of goods sold includes material, packaging, co-packing fees, ~~distribution,~~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, ~~labor~~in addition to material and ~~overhead~~packaging costs, cost of goods sold consisted of co-packers' tolling fees, third party labor to store and ship our products, indirect ~~product~~labor costs, and ~~freight,~~inbound and inoutbound freight. In 2022, it also included wages and benefits for manufacturing, planning, and logistics personnel, depreciation, and facility costs.

Operating Expenses

Our operating expenses consist of general and administrative, research and product development, and sales and marketing expenses.

Table of Contents

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 ~~June~~September 30, 2023 ~~(“Q2 2023”~~ (“Q3 2023”) and ~~June~~September 30, 2022 ~~(“Q2 2022”~~ (“Q3 2022”)

The following table summarizes our results of operations for the periods indicated:

Three Months Ended June 30,

$

%

2023

2022

Change

Change

Sales, net

$
7,724,091

$
8,674,006

$
(949,915
)

(11
)%
Cost of goods sold

(5,848,023
)

(7,096,068
)

1,248,045

(18
)%
Gross profit

1,876,068

1,577,938

298,130

19
%
Gross margin

24.3
%

18.2
%

General and administrative

2,616,177

2,635,525

(19,348
)

(1
)%
Research and product development

82,324

116,467

(34,143
)

(29
)%
Sales and marketing

2,833,172

3,753,002

(919,830
)

(25
)%
Total operating expenses

5,531,673

6,504,994

(973,321
)

(15
)%
Operating loss

(3,655,605
)

(4,927,056
)

1,271,451

(26
)%
Other income (expense)

149,109

22,536

126,573

562
%
Loss before income taxes

(3,506,496
)

(4,904,520
)

1,398,024

(29
)%
Income tax expense

(750
)

—

(750
)

100
%
Net loss

$
(3,507,246
)

$
(4,904,520
)

$
1,397,274

(28
)%

	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	)%

Sales, Net

Three Months Ended June 30,

$

%

2023

2022

Change

Change

Sales, net

$
7,724,091

$
8,674,006

$
(949,915
)

(11
)%

	Three Months Ended September 30,				$		%
	2023		2022		Change		Change
Sales, net	$	9,179,781	$	8,844,845	$	334,936		4	%

Net sales ~~decreased~~increased to ~~$7.7~~$9.2 million in Q2Q3 2023 from ~~$8.7~~$8.8 million in Q2Q3 2022. The ~~decline~~increase was primarily ~~due~~driven 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 drive growth and a ~~20%~~17% 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 ~~spend in the DTC channel offset by 3% Wholesale growth.~~spend.

Cost of Goods Sold

Three Months Ended June 30,

$

%

2023

2022

Change

Change

Costs of goods sold

$
(5,848,023
)

$
(7,096,068
)

$
1,248,045

(18
)%

	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 ~~$5.8~~$6.3 million in Q2Q3 2023 from ~~$7.1~~$6.8 million in Q2Q3 2022 ~~in line with sales, with favorability as we realize~~which 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 June 30,

$

%

2023

2022

Change

Change

Gross profit

$
1,876,068

$
1,577,938

$
298,130

19
%

	Three Months Ended September 30,				$		%
	2023		2022		Change		Change
Gross profit	$	2,847,157	$	2,071,816	$	775,341		37	%

Gross profit increased to ~~$1.9~~$2.8 million in Q2Q3 2023 from ~~$1.6~~$2.1 million in Q2Q3 2022. Gross margin improved to ~~24.3%~~31.0% in Q2Q3 2023 from ~~18.2%~~23.4% in Q2Q3 2022 driven by a reduction in cost of goods sold which accounted for 15-basis points of gross margin expansion due to the transition to a ~~co-manufactured~~variable cost third-party co-manufacturing business model ~~as well as price increases implemented~~offset in ~~Q2 2023.~~
part by elevated trade investments to grow the retail channel.

Operating Expenses

Three Months Ended June 30,

$

%

2023

2022

Change

Change

Operating Expenses

General and administrative

$
2,616,177

$
2,635,525

$
(19,348
)

(1
)%
Research and product development

82,324

116,467

(34,143
)

(29
)%
Sales and marketing

2,833,172

3,753,002

(919,830
)

(25
)%
Total operating expenses

$
5,531,673

$
6,504,994

$
(973,321
)

(15
)%

	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 administrative expenses decreased to ~~$2.6~~$2.2 million in Q2Q3 2023 from ~~$2.6~~$4.4 million in Q2Q3 2022, primarily driven by ~~increases~~lower personnel costs and broad, strategic reductions in ~~stock-based compensation due to executive forfeitures in Q2 2022.~~spending.

Table of Contents

Research and product development expenses were ~~$0.1 million~~$40.1 thousand and $115.1 thousand in Q2Q3 2023 and ~~Q2 2022. We~~Q3 2022, respectively, as we are focused on strengthening the performance of current product offerings and allocating fewer resources into developing new product offerings.

~~Table of Contents~~

Sales and marketing expenses ~~decreased to $2.8~~were $3.4 million in Q2Q3 2023 ~~from $3.8 million in Q2~~and Q3 2022, ~~primarily due to a~~as planned ~~reduction~~reductions in inefficient ~~spend~~spending and lower personnel ~~costs.~~costs were offset by stock-based compensation expense related to strategic partnerships established in the third quarter.

Other Income

Three Months Ended June 30,

$

%

2023

2022

Change

Change

Other income

$
149,109

$
22,536

$
126,573

562
%

	Three Months Ended September 30,				$		%
	2023		2022		Change		Change
Other income	$	132,185	$	79,777	$	52,408		66	%

Other income is composed of interest income and expense, 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 ~~six~~nine months ended ~~June~~September 30, 2023 (“ (“YTD ~~2023”~~2023”) and ~~June~~September 30, 2022 (“ (“YTD ~~2022”~~2022”)

The following table summarizes our results of operations for the periods indicated:

Six Months Ended June 30,

$

%

2023

2022

Change

Change

Sales, net

$
15,837,029

$
18,014,019

$
(2,176,990
)

(12
)%
Cost of goods sold

(12,087,085
)

(14,486,271
)

2,399,186

(17
)%
Gross profit

3,749,944

3,527,748

222,196

6
%
Gross margin

23.7
%

19.6
%

General and administrative

5,614,621

14,464,169

(8,849,548
)

(61
)%
Research and product development

166,190

220,300

(54,110
)

(25
)%
Sales and marketing

5,927,220

7,724,642

(1,797,422
)

(23
)%
Total operating expenses

11,708,031

22,409,111

(10,701,080
)

(48
)%
Operating loss

(7,958,087
)

(18,881,363
)

10,923,276

(58
)%
Other income (expense)

320,103

(156,785
)

476,888

(304
)%
Loss before income taxes

(7,637,984
)

(19,038,148
)

11,400,164

(60
)%
Income tax expense

(13,172
)

(5,774
)

(7,398
)

128
%
Net loss

$
(7,651,156
)

$
(19,043,922
)

$
11,392,766

(60
)%

	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

Six Months Ended June 30,

$

%

2023

2022

Change

Change

Sales, net

$
15,837,029

$
18,014,019

$
(2,176,990
)

(12
)%

	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 ~~$15.8~~$25.0 million in YTD 2023 from ~~$18.0~~$26.9 million in YTD 2022. The decline was primarily due to ~~a 19%~~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 ~~spend in the DTC channel.~~spending across both channels. Wholesale sales ~~decreased~~increased by 2%11% in YTD 2023 driven ~~primarily~~by the timing of club orders, offset by elevated trade promotional ~~activity in YTD 2023 and timing of Club orders.~~activity.

Cost of Goods Sold

Six Months Ended June 30,

$

%

2023

2022

Change

Change

Costs of goods sold

$
(12,087,085
)

$
(14,486,271
)

$
2,399,186

(17
)%

	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 ~~$12.1~~$18.4 million in YTD 2023 from ~~$14.5~~$21.3 million in YTD 2022 ~~in line with sales, with favorability~~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

Six Months Ended June 30,

$

%

2023

2022

Change

Change

Gross profit

$
3,749,944

$
3,527,748

$
222,196

6
%

	Nine Months Ended September 30,				$		%
	2023		2022		Change		Change
Gross profit	$	6,597,101	$	5,599,564	$	997,537		18	%

Gross profit increased to ~~$3.7~~$6.6 million in YTD 2023 from ~~$3.5~~$5.6 million in YTD 2022. Gross margin improved to ~~23.7%~~26.4% in YTD 2023 from ~~19.6%~~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

Six Months Ended June 30,

$

%

2023

2022

Change

Change

Operating expenses

General and administrative

$
5,614,621

$
14,464,169

$
(8,849,548
)

(61
)%
Research and product development

166,190

220,300

(54,110
)

(25
)%
Sales and marketing

5,927,220

7,724,642

(1,797,422
)

(23
)%
Total operating expenses

$
11,708,031

$
22,409,111

$
(10,701,080
)

(48
)%

	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 ~~$5.6~~$7.8 million in YTD 2023 from ~~$14.5~~$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.

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Research and product development expenses ~~were~~decreased to $0.2 million in YTD 2023 ~~and~~from $0.3 million in YTD 2022.

~~Table of Contents~~

Sales and marketing expenses decreased to ~~$5.9~~$9.3 million in YTD 2023 from ~~$7.7~~$11.1 million in YTD 2022, primarily due to a planned reduction in inefficient ~~spend~~spending and lower personnel costs.

Other Income (Expense)

Six Months Ended June 30,

$

%

2023

2022

Change

Change

Other income (expense)

$
320,103

$
(156,785
)

$
476,888

(304
)%

	Nine Months Ended September 30,					$		%
	2023		2022			Change		Change
Other income (expense)	$	452,288	$	(77,008	)	$	529,296		(687	)%

Other income (expense) is composed of interest income and expense, 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 in YTD 2023 and losses on sales of available securities in YTD 2022.

Cash Flows

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2023 and ~~2022:~~2022:

The following table shows a summary of our cash flows for the periods presented:

Six Months Ended June 30,

2023

2022

Cash flows from operating activities

$
(7,460,076
)

$
(7,536,658
)
Cash flows from investing activities

245,706

8,910,450

Cash flows from financing activities

(19,137
)

121,090

Net change in cash

$
(7,233,507
)

$
1,494,882

	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 ~~$7.5~~$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 ~~quarter~~and third quarters of 2023, normalized cash used in operations was ~~$1.4~~$2.4 million per quarter, the improvement driven by ~~reduction~~overall reductions in ~~accounts receivables due to collections timing and overall reduction in loss from operations~~net operating losses following the change in our business ~~model.~~
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 ~~$0.2~~$0.6 million for YTD 2023 as compared to cash provided by investing activities of ~~$8.9~~$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 ~~$19.1~~$23.1 thousand for YTD 2023 compared to $121.1 thousand of cash provided in YTD 2022, primarily related to inflows from stock option exercises.

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Liquidity and Capital Resources

As of ~~June~~September 30, 2023, we had incurred accumulated net losses of ~~$103.8~~$106.4 million, including operating losses of ~~$8.0~~$10.7 million and ~~$18.9~~$24.7 million for YTD 2023 and YTD 2022, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, however, we took several strategic steps in 2023 and 2022 to optimize spending and improve gross ~~margins.~~margins in order to significantly reduce cash burn and bring the business closer to breakeven and profitability in future quarters. These steps ~~include~~included transitioning out of in-house manufacturing to a third-party co-manufactured model, closing manufacturing facilities and offices in Sisters, Oregon, several rounds of organizational restructuring ~~reducing~~to optimize our workforce, and reducing marketing and administrative investment through eliminating non-essential ~~spend.~~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 common stock, our initial public offering, our 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 ~~$7.5~~$10.9 million for YTD 2023 and $11.1 million for YTD 2022.

As of ~~June~~September 30, 2023, we had ~~$10.6~~$7.4 million of ~~cash-on-hand and $5.0 million of available borrowings under our lines of credit.~~cash-on-hand. As of December 31, 2022, we had $17.8 million of cash-on-hand and $5.0 million of available borrowings under our lines of credit. As of ~~June~~September 30, 2023, and December 31, 2022, we had no outstanding notes payable and no amounts were outstanding under our lines of credit.

~~Table of Contents~~

Our future capital requirements will depend on many factors, including our ability to execute on our planned sales growth and the continued improvement of 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:

•

~~The Company has lease arrangements for corporate office space. As of June 30, 2023, the Company had fixed lease payment obligations of $0.5 million, with $0.1 million payable within 12 months.~~

•

~~As of June 30, 2023, $6.1 million of current liabilities were accrued related to short term operating activities and personnel costs.~~

•

~~Advertising and marketing expenditures were $4.1 million in YTD 2023 and $5.5~~

●

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 ~~expansion~~actions outlined above to drive meaningful improvements in our operating cash flows in the future, there are critical uncertainties in forward-looking statements. Until such a time that we begin got realize the full benefits of ~~sales volume, however, we have made~~these strategic ~~shifts to reduce and improve the efficacy of future customer acquisition costs.~~

~~We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. Our management concluded that~~actions, considering our recurring losses from operations, our limited cash resources on hand, and the dependence by the Company on its ability to obtain additional 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.

Segment Information

We have one operating segment and one reportable segment. Our Chief Executive Officer reviews financial information on a 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 the 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 2022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s unaudited consolidated condensed financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2022 Form 10-K.

Recent Accounting Pronouncements

See Recently Adopted 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.

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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.

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.

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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 ~~June~~September 30, 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 effective as of ~~June~~September 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended of ~~June~~September 30, 2023, aside from those described above, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

The following risk factor disclosures should be read in conjunction with 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 ability to operate as a going concern.

Our unaudited consolidated condensed financial statements for the ~~six~~nine months ended ~~June~~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 ~~additional~~ 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 ~~$10.6~~$7.4 million and an accumulated deficit of ~~$103.8~~$106.4 million at ~~June~~September 30, 2023, and cash used in operations was ~~$7.5~~$10.7 million in the ~~six~~nine months ended ~~June~~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~~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

~~Table of Contents~~

uncertainties, significant deposit outflows, volatility and contagion risk, and caused market prices of regional bank stocks to plummet.

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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

Not Applicable.

Item 6. Exhibits.

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~~Item 6. Exhibits.~~

The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.

Incorporated by Reference

Exhibit Number

Description

Form

File No.

~~Incorporated by Reference~~Exhibit

Filing Date

Filed /
Furnished
Herewith

~~Exhibit Number~~

~~Description~~

~~Form~~

~~File No.~~

~~Exhibit~~

~~Filing Date~~

Filed /
Furnished
Herewith

31.1

~~31.1~~

Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* 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.

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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: August 10, 2023~~	/s/ Jason Vieth
	Jason Vieth
	President and Chief Executive Officer

Date: ~~August 10,~~November 9, 2023	/s/ Anya Hamill
	Anya Hamill
	Chief Financial Officer


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


	As of						*As of*
	June 30, 2023			December 31, 2022			*September 30, 2023*			*December 31, 2022*
Assets
Current assets
Cash, cash equivalents, and restricted cash	$	10,576,295		$	17,809,802		$	7,425,050		$	17,809,802
Accounts receivable, net		1,814,461			1,494,469			2,186,645			1,494,469
Inventory, net		5,857,285			5,696,565			6,552,571			5,696,565
Prepaid expenses and other current assets, net		1,651,717			2,530,075			1,436,035			2,530,075
Total current assets		19,899,758			27,530,911			17,600,301			27,530,911
Noncurrent assets
Property and equipment, net		155,160			150,289			138,604			150,289
Fixed assets held-for-sale		—			800,000			—			800,000
Intangible assets, net		1,188,674			1,292,118			1,136,953			1,292,118
Related party license agreements		132,100			132,100			132,100			132,100
Right-of-use assets		417,172			133,922			386,118			133,922
Total noncurrent assets		1,893,106			2,508,429			1,793,775			2,508,429
Total assets	$	21,792,864		$	30,039,340		$	19,394,076		$	30,039,340
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,282,983		$	1,080,267		$	1,869,458		$	1,080,267
Accrued expenses		3,748,178			6,295,640			4,059,799			6,295,640
Related party liabilities		34,857			16,500			56,574			16,500
Lease liabilities, current portion		126,580			59,845			129,274			59,845
Total current liabilities		6,192,598			7,452,252			6,115,105			7,452,252
Lease liabilities		305,836			76,076			278,418			76,076
Total liabilities		6,498,434			7,528,328			6,393,523			7,528,328
Stockholders’ equity
Common stock, $0.001 par value, 100,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 9,699,866 and 9,334,162 issued and outstanding at June 30, 2023, respectively; and 9,576,117 and 9,210,414 issued and outstanding at December 31, 2022, respectively.		9,335			9,210
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		119,071,283			118,636,834			119,432,281			118,636,834
Accumulated deficit		(103,786,188	)		(96,135,032	)		(106,441,072	)		(96,135,032	)
Total stockholders’ equity		15,294,430			22,511,012			13,000,553			22,511,012
Total liabilities and stockholders’ equity	$	21,792,864		$	30,039,340		$	19,394,076		$	30,039,340


	Stockholders’ Equity															Stockholders’ Equity
	Common Stock				Additional			Accumulated Other Comprehensive		Accumulated						Common Stock				Additional			Accumulated Other Comprehensive		Accumulated
	Shares		Amount		Paid-in Capital			Income (Loss)		Deficit			Total			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			9,210,414	$	9,210	$	118,636,834		$	—	$	(96,135,032	)	$	22,511,012
Stock-based compensation		—		—		147,635								147,635			—		—		147,635								147,635
Restricted stock units issued, net of taxes		9,086		10		(4,420	)		—		—			(4,410	)		9,086		10		(4,420	)		—		—			(4,410	)
Net loss		—		—		—			—		(4,143,910	)		(4,143,910	)		—		—		—			—		(4,143,910	)		(4,143,910	)
Balances, March 31, 2023		9,219,500	$	9,220	$	118,780,049		$	—	$	(100,278,942	)	$	18,510,327			9,219,500	$	9,220	$	118,780,049		$	—	$	(100,278,942	)	$	18,510,327
Stock-based compensation		—		—		306,076			—		—			306,076			—		—		306,076			—		—			306,076
Restricted stock units issued, net of taxes		114,662		115		(14,842	)		—		—			(14,727	)		114,662		115		(14,842	)		—		—			(14,727	)
Net loss		—		—		—			—		(3,507,246	)		(3,507,246	)		—		—		—			—		(3,507,246	)		(3,507,246	)
Balances, June 30, 2023		9,334,162	$	9,335	$	119,071,283		$	—	$	(103,786,188	)	$	15,294,430			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


	Six Months Ended June 30,						*Nine Months Ended September 30,*
	2023			2022			*2023*			*2022*
Cash flows from operating activities
Net loss	$	(7,651,156	)	$	(19,043,922	)	$	(10,306,040	)	$	(24,782,131	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		163,532			574,361			235,025			846,356
Stock-based compensation								818,647			284,980
Provision for inventory obsolescence		627,742			140,075			1,260,580			342,178
Impairment of goodwill and other long-lived assets		—			8,126,426			—			8,126,426
Other operating activities, net		620,226			567,740			398,052			527,740
Changes in operating assets and liabilities:
Accounts receivable		(371,355	)		24,659			(937,876	)		(417,670	)
Inventory		(788,462	)		1,337,457			(1,958,157	)		1,061,152
Prepaid expenses and other current assets		1,328,709			1,258,290			1,061,879			2,242,703
Operating lease liability		(62,923	)		(370,214	)		(94,679	)		(556,597	)
Accounts payable		1,202,716			(475,332	)		810,908			(62,080	)
Accrued expenses		(2,529,105	)		897,620			(2,217,484	)		1,253,566
Net cash from operating activities		(7,460,076	)		(7,536,658	)		(10,929,145	)		(11,133,377	)
Cash flows from investing activities
Proceeds from sale of investment securities available-for-sale		—			8,513,783			—			8,513,783
Other investing activities, net		245,706			396,667			567,459			467,373
Net cash from investing activities		245,706			8,910,450			567,459			8,981,156
Cash flows from financing activities		(19,137	)		121,090			(23,066	)		121,090
Net change in cash and cash equivalents		(7,233,507	)		1,494,882			(10,384,752	)		(2,031,131	)
Cash, cash equivalents, and restricted cash, beginning of period		17,809,802			23,049,234			17,809,802			23,049,234
Cash, cash equivalents, and restricted cash, end of period	$	10,576,295		$	24,544,116		$	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		$	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	$	450,351		$	—		$	126,268		$	—
Imputed interest related to operating leases	$	15,036		$	96,976
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		$	—		$	61,016
Amounts reclassified from property, plant, and equipment to fixed assets held-for-sale	$	—		$	947,394		$	—		$	947,394
Amounts reclassified from property, plant, and equipment to intangible assets	$	—		$	153,691		$	—		$	153,691
Purchases of equipment included in deposits at the beginning of the period	$	—		$	372,507		$	—		$	372,507


	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	10,476,770	$	17,710,277
Restricted cash		99,525		99,525
Total cash, cash equivalents, and restricted cash	$	10,576,295	$	17,809,802


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Page
Part I. Financial Information

Item 1. Unaudited Consolidated Condensed Financial Statements		4

Unaudited Consolidated Condensed Balance Sheets		4

Unaudited Consolidated Condensed Statements of Operations		5

Unaudited Consolidated Condensed Statements of Comprehensive Loss		6

Unaudited Consolidated Condensed Statements of Stockholders’ Equity		7

Unaudited Consolidated Condensed Statements of Cash Flows		8

Notes to Unaudited Consolidated Condensed Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations		30	29

Item 3. Quantitative and Qualitative Disclosures About Market Risk		35

Item 4. Controls and Procedures		36

Part II. Other Information		36

Item 1. Legal Proceedings		36

Item 1A. Risk Factors		36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37

Item 3. Defaults Upon Senior Securities		37

Item 4. Mine Safety Disclosures		37

Item 5. Other Information		37

Item 6. Exhibits		38	37

Signatures	39	39


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Sales, net	$	7,724,091		$	8,674,006		$	15,837,029		$	18,014,019
Cost of goods sold		(5,848,023	)		(7,096,068	)		(12,087,085	)		(14,486,271	)
Gross profit		1,876,068			1,577,938			3,749,944			3,527,748
General and administrative
Impairment of goodwill and long-lived assets		—			100,426			—			8,126,426
Other expense		2,616,177			2,535,099			5,614,621			6,337,743
Total general and administrative expenses		2,616,177			2,635,525			5,614,621			14,464,169
Research and product development		82,324			116,467			166,190			220,300
Sales and marketing
Advertising		1,155,789			1,567,465			2,316,997			3,359,202
Related party marketing agreements		125,198			22,750			264,525			33,250
Other expense		1,552,185			2,162,787			3,345,698			4,332,190
Total sales and marketing expenses		2,833,172			3,753,002			5,927,220			7,724,642
Total operating expenses		5,531,673			6,504,994			11,708,031			22,409,111
Operating loss		(3,655,605	)		(4,927,056	)		(7,958,087	)		(18,881,363	)
Other income (expense)		149,109			22,536			320,103			(156,785	)
Loss before income taxes		(3,506,496	)		(4,904,520	)		(7,637,984	)		(19,038,148	)
Income tax expense		(750	)		—			(13,172	)		(5,774	)
Net loss	$	(3,507,246	)	$	(4,904,520	)	$	(7,651,156	)	$	(19,043,922	)
Net loss per share:
Basic	$	(0.38	)	$	(0.54	)	$	(0.83	)	$	(2.09	)
Diluted	$	(0.38	)	$	(0.54	)	$	(0.83	)	$	(2.09	)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted		9,284,585			9,132,632			9,249,738			9,114,527


	June 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		216,975		(89,982	)		126,993		318,795		(211,529	)		107,266
Leasehold improvements		46,276		(18,109	)		28,167		34,946		(15,148	)		19,798
	$	263,251	$	(108,091	)	$	155,160	$	420,017	$	(269,728	)	$	150,289


2023 (excluding the six months ended June 30, 2023)	$	106,855
2024		195,931
2025		156,818
2026		146,723
2027		146,723
Thereafter		435,624
	$	1,188,674


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Operating leases
Operating lease cost	$	267,106	$	534,213
Variable lease cost		27,635		80,638
Operating lease expense		294,741		614,851
Short-term lease rent expense		68,957		103,498
Total rent expense	$	363,698	$	718,349


	June 30, 2023			June 30, 2022
Weighted-average remaining lease term – operating leases (in years)		3.5			8.3
Weighted-average discount rate – operating leases		6.56	%		3.75	%


2023 (excluding the six months ended June 30, 2023)	$	63,509
2024		138,800
2025		126,715
2026		109,145
2027		56,210
Total		494,379
Less imputed interest		(61,963	)
Operating lease liabilities	$	432,416


	Six Months Ended
	June 30, 2023			June 30, 2022

Income tax benefit at statutory rates	$	1,604,134		$	2,968,062
Valuation allowance for deferred tax assets		(1,625,391	)		(2,947,086	)
Stock-based compensation		(17,634	)		(12,642	)
Other benefit, net		25,719			(14,108	)
Reported income tax expense	$	(13,172	)	$	(5,774	)
Effective tax rate:		0.2	%		0.0	%


	Options Activity			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Balance at January 1, 2023		921,657		$	6.86		8.00	$	—
Granted		400,000		$	0.81
Exercised/released		—		$	—
Cancelled/forfeited		(24,164	)	$	9.99
Balance at June 30, 2023		1,297,493		$	4.94		7.74	$	—
Exercisable at June 30, 2023		318,041		$	8.72		5.18	$	—


	Number of RSUs			Weighted Average Grant Date Fair Value (per share)		Weighted Average Remaining Vesting Term (years)		Aggregate Fair Value
Balance at January 1, 2023		504,420		$	4.22		2.94	$	2,127,734
Granted		645,000		$	—
Exercised/released		(141,361	)	$	4.25
Cancelled/forfeited		(16,293	)	$	6.00
Balance at June 30, 2023		991,766		$	1.99		2.86	$	1,968,741


	Number of MSUs			Weighted Average Grant Date Fair Value (per share)		Weighted Average Remaining Vesting Term (years)		Aggregate Fair Value
Balance at January 1, 2023		31,083		$	43.53		0.60	$	1,353,043
Granted		—		$	—
Exercised/released		—		$	—
Cancelled/forfeited		(9,769	)	$	43.53
Balance at June 30, 2023		21,314		$	43.53		0.29	$	927,798


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net loss	$	(3,507,246	)	$	(4,904,520	)	$	(7,651,156	)	$	(19,043,922	)
Weighted average shares outstanding - basic and diluted		9,284,585			9,132,632			9,249,738			9,114,527
Basic and diluted:
Net loss per share, basic and diluted	$	(0.38	)	$	(0.54	)	$	(0.83	)	$	(2.09	)
Common stock options, restricted stock awards, and market-based stock awards excluded due to anti-dilutive effect		2,310,573			1,453,582			2,310,573			1,453,582


	January 1, 2022			December 31, 2022			June 30, 2023
Accounts receivable, net	$	1,268,718		$	1,494,469		$	1,814,461
Contract assets	$	8,316		$	57,249		$	101,220
Contract liabilities	$	(200,914	)	$	(443,227	)	$	(348,121	)