Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023March 31, 2024
OR
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-39537
Laird Superfood, Inc.
(Exact Name of Registrant as Specified in its Charter)
| | |
DelawareNevada
|
| 81-1589788 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer
Identification No.) |
5303 Spine Road,, Suite 204,, Boulder,, Colorado, 80301
(Address of principal executive offices, including Zip Code)
Registrant’s
Registrant’s telephone number, including area code: (541) (541) 588-3600
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Common Stock, $0.001 par value |
| LSF |
| NYSE American |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | |
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☒ |
| Smaller reporting company |
| ☒ |
|
|
|
| Emerging growth company |
| ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 8, 2023May 6, 2024 the registrant had 9,343,6439,611,544 shares of common stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS
Laird, our logo and other trademarks or service marks appearing in this report are the property of Laird Superfood, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
Unless the context otherwise indicates, references to “Laird Superfood,” “we,” “our,” “us” and the “Company” refer to Laird Superfood, Inc. and its subsidiary on a consolidated basis.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements convey our current expectations or forecasts of future events and are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be forward-looking statements. When we use the words “intends,“anticipates,” “believes,” “continues,” “could,” “estimates,” “predicts,“expects,” “intends,” “may,” “plans,” “potential,” “continues,“predicts,” “anticipates,” “plans,” “expects,” “believes,“seeks,” “should,” “could,” “may,” “will,” “seeks,“would,” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements.
Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by forward-looking statements. Key factors that could cause actual results to be different than expected or anticipated include, but are not limited to:
•our limited operating history and ability to become profitable;
•our ability to manage our growth, including our human resource requirements;
•our reliance on third parties for raw materials and production of our products to our quality standards;
•our future capital resources and needs, including our ability to continue as a going concern;
•our ability to retain and grow our customer base;
•our reliance on independent distributors for substantially all of our sales;
•our ability to evaluate and measure our business, prospects and performance metrics;
•our ability to compete and succeed in a highly competitive and evolving industry;
•the health of the premium organic and natural food industry as a whole;
•risks related to our intellectual property rights and developing a strong brand;
•our reliance on key personnel, including Laird Hamilton and Gabrielle Reece;
•risks of major bank failure, sustained financial market illiquidity, or illiquidity at our financial institutions;
•the risk of substantial dilution from future issuances of our equity securities; and
•the other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2022.
| ● | our limited operating history and ability to become profitable; |
| ● | our ability to manage our growth, including our human resource requirements; |
| ● | our reliance on third parties for raw materials and production of our products; |
| ● | our future capital resources and needs; |
| ● | our ability to retain and grow our customer base; |
| ● | our reliance on independent distributors for a substantial portion of our sales; |
| ● | our ability to evaluate and measure our business, prospects, and performance metrics; |
| ● | our ability to compete and succeed in a highly competitive and evolving industry; |
| ● | the health of the premium organic and natural food industry as a whole; |
| ● | risks related to our intellectual property rights and developing a strong brand; |
| ● | our reliance on key personnel, including Laird Hamilton and Gabrielle Reece; |
| ● | risks related to our international operations; |
| ● | the risk of substantial dilution from future issuances of our equity securities; and |
| ● | the other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2023. |
In light of these risks, uncertainties and assumptions, you are cautioned not to place undue reliance on forward-looking statements, which are inherently unreliable and speak only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. When considering forward-looking statements, you should keep in mind the cautionary statements in this report. We qualify all our forward-looking statements by these cautionary statements. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)(unaudited)
|
| | As of | | | As of | |
| | June 30,
2023 | | | December 31,
2022 | | | March 31, 2024 | | | December 31, 2023 | |
Assets | | | | | | | | | | | | |
Current assets | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | | $ | 10,576,295 | | | $ | 17,809,802 | | | $ | 7,289,286 | | | $ | 7,706,806 | |
Accounts receivable, net | | | 1,814,461 | | | | 1,494,469 | | | 2,064,745 | | | 1,022,372 | |
Inventory, net | | | 5,857,285 | | | | 5,696,565 | | | 5,633,124 | | | 6,322,559 | |
Prepaid expenses and other current assets, net | | | 1,651,717 | | | | 2,530,075 | | |
Prepaid expenses and other current assets | | | | 1,067,675 | | | | 1,285,564 | |
Total current assets | | | 19,899,758 | | | | 27,530,911 | | | | 16,054,830 | | | | 16,337,301 | |
Noncurrent assets | | | | | | | | | | |
Property and equipment, net | | | 155,160 | | | | 150,289 | | | 102,881 | | | 122,595 | |
Fixed assets held-for-sale | | | — | | | | 800,000 | | |
Intangible assets, net | | | 1,188,674 | | | | 1,292,118 | | | 1,033,510 | | | 1,085,231 | |
Related party license agreements | | | 132,100 | | | | 132,100 | | | 132,100 | | | 132,100 | |
Right-of-use assets | | | 417,172 | | | | 133,922 | | | | 323,007 | | | | 354,732 | |
Total noncurrent assets | | | 1,893,106 | | | | 2,508,429 | | | | 1,591,498 | | | | 1,694,658 | |
Total assets | | $ | 21,792,864 | | | $ | 30,039,340 | | | $ | 17,646,328 | | | $ | 18,031,959 | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | |
Accounts payable | | $ | 2,282,983 | | | $ | 1,080,267 | | | $ | 1,718,574 | | | $ | 1,647,673 | |
Accrued expenses | | | 3,748,178 | | | | 6,295,640 | | | 2,862,394 | | | 2,586,343 | |
Related party liabilities | | | 34,857 | | | | 16,500 | | | 28,167 | | | 2,688 | |
Lease liabilities, current portion | | | 126,580 | | | | 59,845 | | | | 148,598 | | | | 138,800 | |
Total current liabilities | | | 6,192,598 | | | | 7,452,252 | | | 4,757,733 | | | 4,375,504 | |
Lease liabilities | | | 305,836 | | | | 76,076 | | | | 208,142 | | | | 243,836 | |
Total liabilities | | | 6,498,434 | | | | 7,528,328 | | | | 4,965,875 | | | | 4,619,340 | |
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 March 31, 2024 and December 31, 2023; 9,885,429 and 9,519,725 issued and outstanding at March 31, 2024, respectively; and 9,749,326 and 9,383,622 issued and outstanding at December 31, 2023, respectively. | | | 9,520 | | | 9,384 | |
Additional paid-in capital | | | 119,071,283 | | | | 118,636,834 | | | 119,985,604 | | | 119,701,384 | |
Accumulated deficit | | | (103,786,188 | ) | | | (96,135,032 | ) | | | (107,314,671 | ) | | | (106,298,149 | ) |
Total stockholders’ equity | | | 15,294,430 | | | | 22,511,012 | | | | 12,680,453 | | | | 13,412,619 | |
Total liabilities and stockholders’ equity | | $ | 21,792,864 | | | $ | 30,039,340 | | | $ | 17,646,328 | | | $ | 18,031,959 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended
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 | |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2024 | | | 2023 | |
Sales, net | | $ | 9,908,938 | | | $ | 8,112,938 | |
Cost of goods sold | | | (5,944,837 | ) | | | (6,239,062 | ) |
Gross profit | | | 3,964,101 | | | | 1,873,876 | |
General and administrative | | | | | | | | |
Salaries, wages, and benefits | | | 922,407 | | | | 1,315,449 | |
Other general and administrative | | | 1,235,341 | | | | 1,766,861 | |
Total general and administrative expenses | | | 2,157,748 | | | | 3,082,310 | |
Sales and marketing | | | | | | | | |
Marketing and advertising | | | 2,053,258 | | | | 2,203,035 | |
Selling expenses | | | 779,156 | | | | 853,204 | |
Related party marketing agreements | | | 62,501 | | | | 37,809 | |
Total sales and marketing expenses | | | 2,894,915 | | | | 3,094,048 | |
Total operating expenses | | | 5,052,663 | | | | 6,176,358 | |
Operating loss | | | (1,088,562 | ) | | | (4,302,482 | ) |
Other income | | | 110,997 | | | | 170,994 | |
Loss before income taxes | | | (977,565 | ) | | | (4,131,488 | ) |
Income tax expense | | | (38,957 | ) | | | (12,422 | ) |
Net loss | | $ | (1,016,522 | ) | | $ | (4,143,910 | ) |
Net loss per share: | | | | | | | | |
Basic and diluted | | $ | (0.11 | ) | | $ | (0.45 | ) |
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted | | | 9,401,605 | | | | 9,213,723 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSSSTOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | |
| | 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 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | — | | | | 61,016 | |
Total other comprehensive income | | | — | | | | — | | | | — | | | | 61,016 | |
Comprehensive loss | | $ | (3,507,246 | ) | | $ | (4,904,520 | ) | | $ | (7,651,156 | ) | | $ | (18,982,906 | ) |
| | | Stockholders’ Equity | | | | | |
| | | Common Stock | | | Additional | | | Accumulated | | | | | |
| | | Shares | | | Amount | | | Paid-in Capital | | | Deficit | | | Total | |
Balances, January 1, 2024 | | | 9,383,622 | | | $ | 9,384 | | | $ | 119,701,384 | | | $ | (106,298,149 | ) | | $ | 13,412,619 | |
Stock-based compensation | | | — | | | | — | | | | 279,565 | | | | — | | | | 279,565 | |
Common stock issuances, net of taxes | | | 131,103 | | | | 131 | | | | (5,340 | ) | | | — | | | | (5,209 | ) |
Stock options exercised | | | 5,000 | | | | 5 | | | | 9,995 | | | | — | | | | 10,000 | |
Net loss | | | — | | | | — | | | | | | | | (1,016,522 | ) | | | (1,016,522 | ) |
Balances, March 31, 2024 | | | 9,519,725 | | | $ | 9,520 | | | $ | 119,985,604 | | | $ | (107,314,671 | ) | | $ | 12,680,453 | |
| | | Stockholders’ Equity | | | | | |
| | | Common Stock | | | Additional | | | Accumulated | | | | | |
| | | Shares | | | Amount | | | Paid-in Capital | | | Deficit | | | Total | |
Balances, January 1, 2023 | | | 9,210,414 | | | $ | 9,210 | | | $ | 118,636,834 | | | $ | (96,135,032 | ) | | $ | 22,511,012 | |
Stock-based compensation | | | — | | | | — | | | | 147,635 | | | | | | | | 147,635 | |
Common stock issuances, net of taxes | | | 9,086 | | | | 10 | | | | (4,420 | ) | | | — | | | | (4,410 | ) |
Net loss | | | — | | | | — | | | | — | | | | (4,143,910 | ) | | | (4,143,910 | ) |
Balances, March 31, 2023 | | | 9,219,500 | | | $ | 9,220 | | | $ | 118,780,049 | | | $ | (100,278,942 | ) | | $ | 18,510,327 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | |
| | Common Stock | | | Additional | | | Accumulated Other Comprehensive | | | Accumulated | | | | |
| | Shares | | | Amount | | | Paid-in Capital | | | Income (Loss) | | | Deficit | | | Total | |
Balances, January 1, 2023 | | | 9,210,414 | | | $ | 9,210 | | | $ | 118,636,834 | | | $ | — | | | $ | (96,135,032 | ) | | $ | 22,511,012 | |
Stock-based compensation | | | — | | | | — | | | | 147,635 | | | | | | | | | | 147,635 | |
Restricted stock units issued, net of taxes | | | 9,086 | | | | 10 | | | | (4,420 | ) | | | — | | | | — | | | | (4,410 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (4,143,910 | ) | | | (4,143,910 | ) |
Balances, March 31, 2023 | | | 9,219,500 | | | $ | 9,220 | | | $ | 118,780,049 | | | $ | — | | | $ | (100,278,942 | ) | | $ | 18,510,327 | |
Stock-based compensation | | | — | | | | — | | | | 306,076 | | | | — | | | | — | | | | 306,076 | |
Restricted stock units issued, net of taxes | | | 114,662 | | | | 115 | | | | (14,842 | ) | | | — | | | | — | | | | (14,727 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (3,507,246 | ) | | | (3,507,246 | ) |
Balances, June 30, 2023 | | | 9,334,162 | | | $ | 9,335 | | | $ | 119,071,283 | | | $ | — | | | $ | (103,786,188 | ) | | $ | 15,294,430 | |
| | | Three Months Ended March 31, | |
| | | 2024 | | | 2023 | |
Cash flows from operating activities | | | | | | | | |
Net loss | | $ | (1,016,522 | ) | | $ | (4,143,910 | ) |
Adjustments to reconcile net loss to net cash from operating activities: | | | | | | | | |
Depreciation and amortization | | | 71,435 | | | | 87,953 | |
Stock-based compensation | | | 279,565 | | | | 147,635 | |
Provision for inventory obsolescence | | | 43,204 | | | | 234,394 | |
Allowance for credit losses | | | 26,865 | | | | 23,668 | |
Noncash lease costs | | | 38,083 | | | | 38,546 | |
Other operating activities, net | | | — | | | | (32,007 | ) |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | (1,069,238 | ) | | | (1,438,063 | ) |
Inventory | | | 646,231 | | | | 72,007 | |
Prepaid expenses and other current assets | | | 217,889 | | | | 402,299 | |
Operating lease liability | | | (32,254 | ) | | | (31,315 | ) |
Accounts payable | | | 84,880 | | | | 1,312,821 | |
Accrued expenses | | | 287,551 | | | | (2,728,290 | ) |
Net cash from operating activities | | | (422,311 | ) | | | (6,054,262 | ) |
Cash flows from investing activities | | | — | | | | 135,737 | |
Cash flows from financing activities | | | 4,791 | | | | (4,410 | ) |
Net change in cash and cash equivalents | | | (417,520 | ) | | | (5,922,935 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | | | 7,706,806 | | | | 17,809,802 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 7,289,286 | | | $ | 11,886,867 | |
Supplemental disclosures of cash flow information | | | | | | | | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | — | | | $ | 344,382 | |
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 | | $ | — | | | $ | 581,835 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | |
| | Common Stock | | | Additional | | | Accumulated Other Comprehensive | | | Accumulated | | | | |
| | Shares | | | Amount | | | Paid-in Capital | | | Income (Loss) | | | Deficit | | | Total | |
Balances, January 1, 2022 | | | 9,094,539 | | | $ | 9,095 | | | $ | 117,903,455 | | | $ | (61,016 | ) | | $ | (55,797,714 | ) | | $ | 62,053,820 | |
Stock-based compensation | | | — | | | | — | | | | 10,796 | | | | — | | | | — | | | | 10,796 | |
Stock option exercises | | | 1,750 | | | | 1 | | | | 14,247 | | | | — | | | | — | | | | 14,248 | |
Restricted stock units issued, net of taxes | | | 5,164 | | | | 5 | | | | (5 | ) | | | — | | | | — | | | | — | |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | — | | | | 61,016 | | | | — | | | | 61,016 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (14,139,402 | ) | | | (14,139,402 | ) |
Balances, March 31, 2022 | | | 9,101,453 | | | $ | 9,101 | | | $ | 117,928,493 | | | $ | — | | | $ | (69,937,116 | ) | | $ | 48,000,478 | |
Stock-based compensation | | | — | | | | — | | | | (209,242 | ) | | | — | | | | — | | | | (209,242 | ) |
Stock option exercises | | | 43,553 | | | | 44 | | | | 49,956 | | | | — | | | | — | | | | 50,000 | |
Restricted stock units issued, net of taxes | | | 13,897 | | | | 14 | | | | (14 | ) | | | — | | | | — | | | | — | |
Employee stock purchase plan shares issued | | | 11,055 | | | | 11 | | | | 28,276 | | | | — | | | | — | | | | 28,287 | |
Recovery of short-swing profits | | | — | | | | — | | | | 28,555 | | | | — | | | | — | | | | 28,555 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (4,904,520 | ) | | | (4,904,520 | ) |
Balances, June 30, 2022 | | | 9,169,958 | | | $ | 9,170 | | | $ | 117,826,024 | | | $ | — | | | $ | (74,841,636 | ) | | $ | 42,993,558 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | |
| | Six Months Ended June 30, | |
| | 2023 | | | 2022 | |
Cash flows from operating activities | | | | | | |
Net loss | | $ | (7,651,156 | ) | | $ | (19,043,922 | ) |
Adjustments to reconcile net loss to net cash from operating activities: | | | | | | |
Depreciation and amortization | | | 163,532 | | | | 574,361 | |
Provision for inventory obsolescence | | | 627,742 | | | | 140,075 | |
Impairment of goodwill and other long-lived assets | | | — | | | | 8,126,426 | |
Other operating activities, net | | | 620,226 | | | | 567,740 | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | | (371,355 | ) | | | 24,659 | |
Inventory | | | (788,462 | ) | | | 1,337,457 | |
Prepaid expenses and other current assets | | | 1,328,709 | | | | 1,258,290 | |
Operating lease liability | | | (62,923 | ) | | | (370,214 | ) |
Accounts payable | | | 1,202,716 | | | | (475,332 | ) |
Accrued expenses | | | (2,529,105 | ) | | | 897,620 | |
Net cash from operating activities | | | (7,460,076 | ) | | | (7,536,658 | ) |
Cash flows from investing activities | | | | | | |
Proceeds from sale of investment securities available-for-sale | | | — | | | | 8,513,783 | |
Other investing activities, net | | | 245,706 | | | | 396,667 | |
Net cash from investing activities | | | 245,706 | | | | 8,910,450 | |
Cash flows from financing activities | | | (19,137 | ) | | | 121,090 | |
Net change in cash and cash equivalents | | | (7,233,507 | ) | | | 1,494,882 | |
Cash, cash equivalents, and restricted cash, beginning of period | | | 17,809,802 | | | | 23,049,234 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 10,576,295 | | | $ | 24,544,116 | |
Supplemental disclosures of cash flow information | | | | | | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 344,382 | | | $ | 5,285,330 | |
Supplemental disclosures of non-cash investing activities | | | | | | |
Receivable from sale of assets held-for-sale included in other current assets at the end of the period | | $ | 450,351 | | | $ | — | |
Imputed interest related to operating leases | | $ | 15,036 | | | $ | 96,976 | |
Amounts reclassified from accumulated other comprehensive loss | | $ | — | | | $ | 61,016 | |
Amounts reclassified from property, plant, and equipment to fixed assets held-for-sale | | $ | — | | | $ | 947,394 | |
Amounts reclassified from property, plant, and equipment to intangible assets | | $ | — | | | $ | 153,691 | |
Purchases of equipment included in deposits at the beginning of the period | | $ | — | | | $ | 372,507 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
8
Table of Contents
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies and Estimates
Financial Statement Preparation
The accompanying unaudited consolidated condensed financial statements (the "balance sheet(s)," "statement(s) of operations," "statement(s) of stockholders' equity," "statement(s) of cash flows," and, collectively, the "financial statements") include the accounts of Laird Superfood, Inc., a DelawareNevada corporation, and its wholly owned subsidiary, Picky Bars, LLC, (collectively, the “Company”,“Company,” “Laird Superfood”, “we”,Superfood,” “we,” or "our").
Nature of Operations
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated, plant-based and functional foods. The core pillars of In management's opinion, the Laird Superfood platform are Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and functional roasted and instant coffees, teas and hot chocolate. The Company was founded in 2015.
Basis of Accounting
The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results include the three and six months ended June 30, 2023 and 2022. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements.
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited consolidated condensed financial statements.
Unaudited Interim Consolidated Condensed Financial Information
In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of onlywhich are normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ equity, and cash flows. flows for the interim periods.
Segment information is prepared on the same basis that the Company's Chief Executive Officer, who is deemed to be the Company's Chief Operating Decision Maker, reviews financial information for operational decision-making purposes.
The accompanying unaudited consolidated condensedfinancial statements and related financial information should be read in conjunction with the Company's fiscalAnnual Report on Form 10-K for the year 2022ended December 31, 2023 (the "2023 Form 10-K10-K") filed with the SECSecurities and Exchange Commission (the "SEC") on March 16, 2023. 13, 2024. The unaudited consolidated condensed balance sheetfinancial information as of December 31, 20222023 was derived from the audited annualfinancial statements and notes for the fiscal year ended December 31, 2023 included in Item 8 of the 2023 Form 10-K. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the footnotes and management's discussion and analysis of the consolidated financial statements in the 10-K. Certain information in footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") has been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements.
Operating results for the three and six months ended June 30, 2023March 31, 2024 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2023.2024.
Use
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The expanded annual disclosures are effective for the year ending December 31, 2024, and the expanded interim disclosures are effective in 2025 and will be applied retrospectively to all prior periods presented. While the Company is currently evaluating the expanded disclosure requirements, the Company does not expect the adoption of Estimatesthese amendments to have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires, among other things, additional disclosures primarily related to the income tax rate reconciliation and income taxes paid. The preparation ofexpanded annual disclosures are effective for our year ending December 31, 2025. The Company is currently evaluating the unauditedimpact that ASU 2023-09 will have on its consolidated condensed financial statements in conformity with GAAP requires managementand whether the Company will apply the standard prospectively or retrospectively.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period.be issued. The Company bases its estimates and assumptions on historical experience, known trends andhas evaluated events and various other factorstransactions subsequent to March 31, 2024 for potential recognition of disclosure in the financial statements and determined that management believes to be reasonable underthere were no such subsequent events aside from the circumstances, below.
On May 7, 2024, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions onCompany entered into an ongoing basis and, if necessary, makes adjustments. Dueaccounts receivable factoring agreement (the “Factoring Agreement”) with Alterna Capital Solutions LLC (the “Purchaser”). Pursuant to the risks and uncertainties involved inFactoring Agreement, the Company’s business and evolving market conditions and givenCompany has agreed to sell certain trade accounts receivable (the “Purchased Accounts”) to the subjective elementPurchaser from time to time. The Factoring Agreement provides for the Company to have access to up to $2.0 million (the “Maximum Amount”) on a revolving basis, measured by the aggregate amount advanced for the unpaid balance of all Purchased Accounts from time to time. The Factoring Agreement provides for the estimates and assumptions made, actual results may differ from estimated results. The most significant estimates and judgments include those related to allowances for doubtful accounts and returns, inventory obsolescence, goodwill, intangible assets, valuation allowance for deferred taxes, reserves on prepaid expenses,payment of certain fees by the discount rates used in determining rightCompany, including, among others, a funds usage fee of use assets and related lease liabilities, valuationprime plus 1.5% per annum with a minimum interest rate of inventory, trade and sales promotion liabilities, and fair value of stock-based compensation.
Segment reporting
10.0% per annum. The Company currently has one operating segment. Inwill also be charged a collateral monitoring fee of 0.05% per month, assessed on the average monthly accounts receivable balance, which is payable on the last day of each month. The Factoring Agreement is for an initial term of 12 months and will renew on a year-to-year basis thereafter, unless terminated in accordance with ASC 280, Segment Reporting (“ASC 280”), the Factoring Agreement.
The Company considers operating segments to be componentshas granted the Purchaser a security interest all of the Company’s business for which separate financial information is availablepersonal property and is evaluated regularly by management in deciding howfixtures, including, among other things, the Company’s accounts receivable, inventory, equipment, instruments, deposit accounts, general intangibles, and supporting obligations to allocate resourcessecure the payment and in assessing performance. Management reviews financial information presented on a consolidated basis for purposesperformance of allocating resources and evaluating financial performance. Accordingly,all obligations of the Company has determined that it hasto the Purchaser under the Factoring Agreement. The Factoring Agreement also provides for customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, and the exercise of remedies upon a single operating and reportable segment.breach or default
Substantially all product sales for the periods provided were derived from domestic sales.
See Note 12 for additional information regarding sales by platform within the Company’s single segment.
9
Notes to Unaudited Consolidated Condensed Consolidated Financial Statements
2.Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash are highly liquid instruments with an original maturity of three months or less when purchased. For the purposes of the statements of cash flows, the Company includes cash on hand, cash in clearing accounts, cash on deposit with financial institutions, investments with an original maturity of three months or less, and restricted cash in determining the total balance.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet.sheets as of:
| | | | | | | | |
| | 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 | |
| | | March 31, | | | December 31, | |
| | | 2024 | | | 2023 | |
Cash and cash equivalents | | $ | 7,099,755 | | | $ | 7,566,299 | |
Restricted cash | | | 189,531 | | | | 140,507 | |
Total cash, cash equivalents, and restricted cash | | $ | 7,289,286 | | | $ | 7,706,806 | |
Amounts in restricted cash represent those that are required to be set aside by the following contractual agreement. On December 3, 2020, the Company entered into an agreement with Danone Manifesto Ventures, PBC, which provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. During the three and six months ended June 30, 2023, we contributed $0 to these projects. During the three and six months ended June 30, 2022 we contributed $10,068 and $14,839, respectively, to these projects. The restriction will be released upon the completion of the projects.agreements:
Cash equivalents in the amount of $6,325,000 as of June 30, 2023 were pledged to secure our revolving line of credit and company credit card limits. See Note 3 for additional information.
| ● | On December 3, 2020, the Company entered into an agreement with Danone Manifesto Ventures, PBC, which provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. As of March 31, 2024 and December 31, 2023, cash equivalents in the amount of $99,525 were restricted under this agreement. During the three months ended March 31, 2024 and 2023, the Company contributed $0 to these projects. The restriction will be released upon the completion of the projects. |
| ● | Cash equivalents of $530,000 were pledged to secure Company credit card limits. As of March 31, 2024 and December 31, 2023, $90,006 and $40,982, respectively, of these funds were restricted to collateralize borrowings against these Company credit cards. |
Cash, cash equivalents, and restricted cash balances that exceeded the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation ("SPIC") insurable limits as of June 30, 2023March 31, 2024 and December 31, 20222023 totaled $462,616$6,324,134 and $2,747,721,$6,756,207, respectively. The Company has nevernot experienced any losses related to these balances. The Company’s cash, cash equivalents, and restricted cash are with what the Company believes to be a high-quality issuerfinancial institution and considers the risks associated with these funds in excess of FDIC and SPIC insurable limits to be low.
Accounts Receivable, net3. Inventory
Accounts receivable, net consists principally of trade receivables, which are recorded at the invoiced amount, net of allowances for credit loss. Trade receivables do not bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The primary indicators of the credit quality of our receivables are aging and payment history and are assessed on a quarterly basis. Our credit loss exposure is concentrated in our accounts receivable portfolio. Our allowance for credit losses is calculated using a loss-rate method based on historical experience and reasonable forecasts. Based on these factors, management determined an allowance for credit loss of $128,799 and $77,436 as of June 30, 2023 and December 31, 2022, respectively.
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-outfirst-in first-out basis and consists primarily of raw materials and packaging and finished goods and include directincludes co-packing fees, indirect labor, and allocable overhead. The following table presents the components of inventory, net of reserves, as of:
| | | | | | | | |
| | 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 | |
| | | March 31, | | | December 31, | |
| | | 2024 | | | 2023 | |
Raw materials and packaging | | $ | 2,470,319 | | | $ | 2,180,294 | |
Finished goods | | | 3,162,805 | | | | 4,142,265 | |
Total inventory, net | | $ | 5,633,124 | | | $ | 6,322,559 | |
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 months ended June 30, 2023,March 31, 2024, the Company recorded $262,718 and $627,742, respectively,$43,204 of inventory obsolescence and disposal costs. For the three and six months ended June 30, 2022,March 31, 2023, the Company recorded $135,645 and $140,075, respectively,$234,394 of inventory obsolescence and disposal costs.
As of June 30, 2023March 31, 2024 inventory reserves totaled $1,387,894.$927,340. This is comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $493,331, as well as raw materials and finished goods specifically identified$248,587, products quarantined for disposal related to a product quality issueissues of $552,909$334,269, and discontinued inventories of $341,744.$344,484. As of December 31, 2022,2023, inventory reserves totaled $1,545,033.$1,029,657. This was comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $746,966, reserves specifically identified$385,069, products quarantined for disposal related to a product quality issueissues of $559,042$306,276, and discontinued inventories following exit activities of $239,025.$338,312.
As of June 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had a total of $262,251$310,265 and $897,108,$449,242, 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.
10
Notes to Unaudited Consolidated Condensed Consolidated Financial Statements
4. Prepaid Expenses and Other Current Assets
The following table presents the components of prepaid expenses and other current assets, as of:
| | | March 31, | | | December 31, | |
| | | 2024 | | | 2023 | |
Prepaid insurance | | $ | 237,508 | | | $ | 371,802 | |
Prepaid inventory | | | 310,265 | | | | 449,242 | |
Prepaid subscriptions and license fees | | | 287,219 | | | | 139,590 | |
Deposits | | | 166,647 | | | | 238,719 | |
Other current assets | | | 66,036 | | | | 86,211 | |
Prepaid expenses and other current assets | | $ | 1,067,675 | | | $ | 1,285,564 | |
5. 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. Any outstanding amounts under the line of credit would have had an interest rate calculated as Daily Simple Secured Overnight Financing Rate (“SOFR”) plus 1.5% per annum until paid in full. The line of credit was renewed on September 1, 2022, with a maturity date of August 31, 2023, and the available credit was reduced to $5,000,000. The line of credit was terminated pursuant to its terms on August 31, 2023, and no amounts were due thereunder. The line of credit was not renewed.
6.Property and Equipment net
Property and Equipment
Property and equipment, net is comprised of the following as of:
| | | March 31, 2024 | | | December 31, 2023 | |
| | | Gross Carrying Amount | | | Accumulated Depreciation | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Depreciation | | | Net Carrying Amount | |
Furniture and office equipment | | $ | 184,242 | | | $ | (102,447 | ) | | $ | 81,795 | | | $ | 184,241 | | | $ | (85,093 | ) | | $ | 99,148 | |
Leasehold improvements | | | 46,276 | | | | (25,190 | ) | | | 21,086 | | | | 46,276 | | | | (22,829 | ) | | | 23,447 | |
| | | $ | 230,518 | | | $ | (127,637 | ) | | $ | 102,881 | | | $ | 230,517 | | | $ | (107,922 | ) | | $ | 122,595 | |
Depreciation expense was $19,714 for the three months ended March 31, 2024. Depreciation expense was $36,231 for the three months ended March 31, 2023.
Assets Classified as Held-for-Sale
In the fourth quarter of 2022, the Company entered into purchase agreements for the sale of the production equipment for an aggregate sales price of $800,000. In the first quarter of 2023, consideration amounting to $218,165 was received and $581,835 was receivable and included in prepaid expenses and other current assets on the balance sheets. Consideration was received in full by the end of 2023 and no amounts were receivable as of March 31, 2024 and December 31, 2023.
Notes to Unaudited Consolidated Condensed Financial Statements
7. Intangible Assets
Intangible assets are valued at cost, netcomprised of accumulated depreciation. Expenditures for maintenance and repairs that do not extend the following:
| | | March 31, 2024 | | | December 31, 2023 | |
| | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Trade names (10 years) | | $ | 890,827 | | | $ | (133,624 | ) | | $ | 757,203 | | | $ | 890,827 | | | $ | (106,899 | ) | | $ | 783,928 | |
Recipes (10 years) | | | 330,000 | | | | (96,250 | ) | | | 233,750 | | | | 330,000 | | | | (88,000 | ) | | | 242,000 | |
Social media agreements (3 years) | | | 80,000 | | | | (77,778 | ) | | | 2,222 | | | | 80,000 | | | | (71,111 | ) | | | 8,889 | |
Software (3 years) | | | 131,708 | | | | (91,373 | ) | | | 40,335 | | | | 131,708 | | | | (81,294 | ) | | | 50,414 | |
Definite-lived intangible assets | | | 1,432,535 | | | | (399,025 | ) | | | 1,033,510 | | | | 1,432,535 | | | | (347,304 | ) | | | 1,085,231 | |
Licensing agreements (indefinite) | | | 132,100 | | | | — | | | | 132,100 | | | | 132,100 | | | | — | | | | 132,100 | |
Total intangible assets | | $ | 1,564,635 | | | $ | (399,025 | ) | | $ | 1,165,610 | | | $ | 1,564,635 | | | $ | (347,304 | ) | | $ | 1,217,331 | |
The weighted-average useful life of all the Company’s intangible assets is 6.8 years.
For the three months ended March 31, 2024 and 2023 amortization expense was $51,721 and $51,722, respectively.
Definite-lived intangible assets
Definite life intangible assets are evaluated for impairment whenever events or increasechanges in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which the Company uses the asset, or an unexpected change in financial performance. When evaluating definite life intangible assets for impairment, the Company compares 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 months ended March 31, 2024.
Intangible assets are charged to expense in the period incurred. Additions and betterments are capitalized. Depreciation is computedamortized using the straight-line method over the estimated useful lives ranging from three to ten years. The estimated amortization expense for each of the assets. Estimated useful lives for depreciation purposes for furniturenext five years and factory equipment range from 3 to 7 years. The useful life for leasehold improvementsthereafter is the lesser of the lease term or the useful life. Construction in progress is not depreciated until such a time that theas follows:
2024 (excluding the three months ended March 31, 2024) | | $ | 137,386 | |
2025 | | | 149,994 | |
2026 | | | 139,899 | |
2027 | | | 139,899 | |
2028 | | | 139,899 | |
Thereafter | | | 326,433 | |
| | | $ | 1,033,510 | |
Indefinite-lived intangible assets are completed and placed into service.
Fixed Assets Held-for-Sale
Long-lived assets identified by the Company for sale, which have met all criteria to be classified as held for sale, are disclosed separately on the balance sheet. 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.
Leases
We categorize leases at their inception as either operating, finance, or short-term leases. Lease agreements effective during the three and six months ended June 30, 2023 and 2022 cover, or covered, office space, warehouse and distribution space, vehicles, and equipment. All of our long-term leases are operating leases. Operating leases are included in right-of-use assets, current lease liabilities, and long-term lease liabilities in our unaudited consolidated condensed balance sheets.
Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use a secured incremental borrowing rate as the discount rate for present value of lease payments when the rate implicit in the contract is not readily determinable. For operating leases with variable payments dependent upon an index or rate that commenced subsequent to the adoption of ASC 842, Leases, we apply the active index or rate as of the lease commencement date. Variable lease payments not based on an index or rate are not included in the operating lease liability as they cannot be reasonably estimated and are recognized in the period in which the obligation for those payments is incurred. Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the unaudited consolidated condensed balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.
We are the lessor in a sublease agreement. This lease is an operating lease and is recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs.
Revenue Recognition
The Company recognizes revenue in accordance with the five-step model as prescribed by ASC 606, Revenue from Contracts with Customers, in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the Company satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue and a refund liability for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. See Note 12 for additional information regarding revenue recognition.
Cost of Goods Sold
Cost of goods sold includes material, packaging, co-packing fees, distribution freight, 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 and overhead costs consisted of indirect product costs and freight, and in 2022 also included wages and benefits for manufacturing, planning, and logistics personnel, depreciation, and facility costs.
Shipping and Handling
Costs of shipping and handling related to sales revenue are included in cost of goods sold. Shipping and handling costs totaled $1,294,999 and $2,869,314, respectively, for the three and six months ended June 30, 2023. Shipping and handling costs totaled $1,602,342 and $3,141,555 for the three and six months ended June 30, 2022. Income generated from shipping costs billed through to customers was included in Sales, net in the unaudited consolidated condensed statements of operations. Shipping income totaled $259,843 and $563,069, respectively, for the three and six months ended June 30, 2023. Shipping income totaled $291,410 and $539,602, respectively, for the three and six months ended June 30, 2022.
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Table of Contents
LAIRD SUPERFOOD, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Research and Product Development
Amounts spent on research and development activities are expensed as incurred as Research and product development expense on the unaudited consolidated condensed statements of operations. Research and product development expense was $82,324 and $166,190, respectively, for the three and six months ended June 30, 2023. Research and product development expense was $116,467 and $220,300, respectively, for the three and six months ended June 30, 2022.
Advertising
Advertising costs are expensed when incurred. Advertising expenses for the three and six months ended June 30, 2023 were $1,155,789 and $2,316,997, respectively. Advertising expenses for the three and six months ended June 30, 2022 were $1,567,465 and $3,359,202, respectively.
Marketing
Marketing costs are expensed when incurred. Marketing expenses for the three and six months ended June 30, 2023 were $892,776 and $1,785,564, respectively. Marketing expenses for the three and six months ended June 30, 2022 were $1,096,025 and $2,158,670, respectively.
Income Taxes
Income taxes provide for the tax effects of transactions reported in the unaudited consolidated condensed financial statements and consist of income taxes currently due and deferred tax assets and liabilities. The Company may also be subject to interest and penalties from taxing authorities on underpayment of income taxes. In such an event, interest and penalties are included in income tax expense. Deferred tax assets and liabilities are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes), stock-based compensation, right of use assets, and net operating losses. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Due to the historical net loss position of the Company, the Company recorded a deferred tax valuation allowance of $25,689,497 and $23,928,265 as of June 30, 2023 and December 31, 2022, respectively.
Stock Incentive Plan
The compensation cost relating to share-based payment transactions is recognized in the unaudited consolidated condensed financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock option awards or vesting of restricted stock units ("RSUs") and market-based stock units ("MSUs"), recipients are issued shares of common stock. Pre-vesting forfeitures result in the reversal of all compensation cost as of the date of termination; post-vesting cancellation does not.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock that were outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all dilutive potential common stock had been issued and is calculated under the treasury stock method. Due to the Company’s net loss, all outstanding stock options, RSUs, and MSUs are anti-dilutive and excluded.
License Agreement – Indefinite Lived Intangible Asset
On August 3, 2015, the Company entered into a license agreement with the Company’s co-founder Laird Hamilton (the “LH License”). The LH License stated LairdMr. Hamilton’s contribution to the Company was in the form of intellectual property, granting the Company the right to use LairdMr. Hamilton’s name and likeness. This contribution, which was reported on the unaudited consolidated condensed balance sheets as of June 30, 2023 March 31, 2024 and December 31, 2022, 2023, 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.
Notes to Unaudited Consolidated Condensed Financial Statements
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.information. This contribution, which is reported on the unaudited consolidated condensed balance sheets as of June 30, 2023 March 31, 2024 and December 31, 2022, 2023, 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 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 tenten-year-year terms upon the expiration of the initial one-hundredone-hundred year term. No additional consideration was exchanged in connection with the agreement. As indefinite-lived intangibles, the Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the licensing agreements were less than the carrying amounts. Upon considering these factors, the Company determined it was more likely than not that the fair value of the 2020 License was not less than the carrying amount; therefore, the Company recognized no impairment for the three and six months ended June 30, 2023 and 2022.
Definite Lived Intangible Assets, net8. Leases
Definite lived intangible assets are valued at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for amortization purposes range between 3 and 10 years. Amortization expense is allocated to general and administrative expense. For the three and six months ended June 30, 2023, amortization expenses were $51,722 and $103,444, respectively. For the three and six months ended June 30, 2022, amortization expenses were $103,741 and $245,223, respectively. The Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the definite lived intangible assets were less than the carrying amounts. There were no impairment charges in the three and six months ended June 30, 2023. In the last month of the first quarter of 2022, management determined the sustained decline in stock price, coupled with changes in market conditions, was a triggering event. Upon considering these factors, the Company determined it was more likely than not that the fair value was less than the carrying amounts of long-lived intangible assets; therefore, the Company recognized impairment charges of $0 and $1,540,000 for the three and six months ended June 30, 2022, respectively. See Note 5 for more information.
Goodwill
Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in conjunction with a business combination. Goodwill is reviewed for impairment annually as of December 31, or whenever events occur or circumstances change that indicate goodwill may be impaired. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than 50%) that the fair value of goodwill is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of goodwill is less than its carrying amount, or if the Company chooses not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the fair value, not to exceed the total amount of goodwill. In the last month of the first quarter, management had determined the sustained decline in stock price, coupled with a change in market conditions, was determined to be a triggering event. The Company performed a qualitative and quantitative analysis on the Company's goodwill for impairment concluding that the fair value of goodwill as calculated using a discounted cash flow model exceeds the carrying value, indicating that goodwill was impaired. The Company recorded goodwill impairment charges of $0 and $6,486,000, respectively, during the three and six months ended June 30, 2022. There was no goodwill as of June 30, 2023 or December 31, 2022.
Employee Benefit PlanLessee
The Company sponsors a defined contribution 401(k) plan (the “401(k) plan”) for all employees 18 years or older. The 401(k) plan was initiated on July 1, 2018. Employee contributions may be made on a before-tax basis, limited by Internal Revenue Service regulations. For the three and six months ended June 30, 2023 and 2022, the Company did not match employee contributions.
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 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 million of exit and disposal costs in the fourth quarter of 2022 and insignificant residual costs in the six months ended June 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 $0.3 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 Contingencies
We may be subject to contingencies arising in the ordinary course of business, such as product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations and guarantees and indemnifications. In assessing contingencies related to legal and environmental proceedings that are pending against the Company, or unasserted claims that are probable of being asserted, we record accruals for these contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. If an amount within a range of loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.
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 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 million of cash and cash equivalents, and cash used in operations was $7.5 million in the six months ended June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Absent any other action, the Company will require additional liquidity to continue its operations over the next 12 months from the date of this Quarterly Report on Form 10-Q.
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 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 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 of goods sold we have already realized margin improvements to 23.7% in the first half of 2023 compared to 14.5% for fiscal year 2022. Management has specific plans to further improve gross margins, optimize marketing spend, and cut selling, general, and administrative costs later in the year which management believes will significantly reduce expected future cash outlays.
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.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs 2018-19 (issued November 2018), 2019-04 (issued April 2019), 2019-05 (issued May 2019), 2019-11 (issued November 2019), 2020-02 (issued February 2020) and 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 is effective for the Company’s annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted ASU 2016-13 in the first quarter of 2023. The adoption 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 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 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 | |
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. The line of credit was renewed on September 1, 2022, with a maturity date of August 31, 2023, and the available credit was reduced to $5,000,000. The outstanding amounts under the line of credit have an interest rate calculated as Daily Simple Secured Overnight Financing Rate (“SOFR”) plus 1.5% per annum until paid in full. The balance on the line of credit was $0 as of June 30, 2023 and December 31, 2022. Management was in compliance with all financial covenants as of June 30, 2023 and December 31, 2022.
On August 10, 2017, the Company entered into a revolving line of credit with East Asset Management, LLC (“East”) in a principal amount not exceeding the lesser of the borrowing base or $3,000,000. The outstanding amounts under the line of credit had a fixed interest rate of 15% per annum until paid in full and the line of credit had a maturity date of August 10, 2022. The loan agreement was closed on May 19, 2022.
A secondary line of credit with East in an amount up to $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% of equity in any such offerings at a 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 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 | |
Depreciation expense was $23,857 and $60,088 for the three and six months ended June 30, 2023, respectively. Depreciation expense was $186,319 and $329,138 for the three and six months ended June 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. The Company sold the land in the second quarter of 2022 resulting in a gain of $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. The book value exceeded the fair market value and, as such, the Company recorded an impairment charge of $100,426 in the second quarter of 2022. The Company sold these assets in the third quarter of 2022 for $103,240, recording a gain of $3,240 included in general and administrative expenses.
In the fourth quarter of 2022, the Company entered into purchase agreements for the sale of the production equipment for a sales price of $800,000. The book value exceeded the fair market value and, as such, the Company recorded impairment charges of $3,105,435, included in general and administrative expenses. In the first half of 2023, consideration amounting to $349,649 was received and $450,351 was receivable and included in other current assets as of June 30, 2023.
5. Goodwill and Intangible Assets, Net
Goodwill
The carrying amount of goodwill attributed to the acquisition of Picky Bars was $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 and $6,486,000 for the three and six months ended June 30, 2022. There was no goodwill as of June 30, 2023 or December 31, 2022.
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LAIRD SUPERFOOD, INC.
Notes to Unaudited 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 | |
The weighted-average useful life of all the Company’s intangible assets is 7.3 years.
For the three and six months ended June 30, 2023, amortization expense was $51,722 and $103,444, respectively. For the three and six months ended June 30, 2022, amortization expense was $103,741 and $245,223, 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 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 months ended June 30, 2022 and 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 months ended June 30, 2022, the Company recorded impairment charges of $0 and $1,432,000, respectively, net of accumulated amortization. In the three months ended December 31, 2022, the Company recorded impairment charges of $344,006, net of accumulated amortization.
The Company performed a qualitative and quantitative 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 months ended June 30, 2022, the Company recorded impairment charges of $0 and $108,000, respectively, net of accumulated amortization. In the three months ended December 31, 2022, the Company recorded impairment charges of $1,135,000, net of accumulated amortization.
Intangible assets are amortized using the straight-line method over estimated useful lives ranging from three to ten years. The estimated amortization expense for each of the next five years and thereafter is as follows:
| | | | |
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
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
reasonably assured to exercise.
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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-yearfive-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, which were included in General and administrative expenses for the year ended December 31, 2022.
The Company assumed an operating lease in the acquisition of Picky Bars, LLC on May 3, 2021. The Company pays monthly rent of $4,609, which escalates by 3% in months 15, 27, 39, and 51. The initial lease term is 62 months,, and the Company has the option to renew the lease for two additional three-yearthree-year periods.
The Company entered into a sublease agreement with Somatic Experiencing Trauma Institute with a commencement date of January 1, 2023,, for a 5,257 square foot office space in Boulder, Colorado which serves as the Company's newcurrent 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 day2027.
Notes to Unaudited Consolidated Condensed Financial Statements
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 | | | Three Months Ended | |
| | | March 31, 2024 | | | March 31, 2023 | |
Operating leases | | | | | | | | |
Operating lease cost | | $ | 38,085 | | | $ | 38,547 | |
Variable lease cost | | | 5,565 | | | | 12,915 | |
Operating lease expense | | | 43,650 | | | | 51,462 | |
Short-term lease rent expense | | | 64,229 | | | | 115,763 | |
Total rent expense | | $ | 107,879 | | | $ | 167,225 | |
| | | Three Months Ended | | | Three Months Ended | |
| | | March 31, 2024 | | | March 31, 2023 | |
Operating cash flows - operating leases | | $ | 32,254 | | | $ | 31,315 | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | - | | | $ | 344,382 | |
| | | March 31, 2024 | | | March 31, 2023 | |
Weighted-average remaining lease term – operating leases (in years) | | | 2.9 | | | | 3.9 | |
Weighted-average discount rate – operating leases | | | 6.81 | % | | | 6.51 | % |
20
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LAIRD SUPERFOOD, INC.
Notes to Unaudited 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 | % |
21
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
As of June 30, 2023,March 31, 2024, 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
2024 (excluding the three months ended March 31, 2024) | | $ | 106,545 | |
2025 | | | 126,714 | |
2026 | | | 109,145 | |
2027 | | | 56,210 | |
Total | | | 398,614 | |
Less imputed interest | | | (41,874 | ) |
Operating lease liabilities | | $ | 356,740 | |
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 leasesublease term expires on April 30, 2025. 2025. The leasesublease meets all of the criteria of an operating lease and is accordingly recognized straight line over the leasesublease term with a related sublease rental asset accounting for abatements and initial direct costs. The Company had $15,657$9,994 and $18,846$11,881 of sublease rental assets as of June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, included in prepaid expenses 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 | | | Three Months Ended | |
| | | March 31, 2024 | | | March 31, 2023 | |
Operating leases | | | | | | | | |
Operating lease income | | $ | 14,055 | | | $ | 14,055 | |
Variable lease income | | | 5,317 | | | | 5,318 | |
Total rental income | | $ | 19,372 | | | $ | 19,373 | |
Notes to Unaudited Consolidated Condensed Financial Statements
As of June 30, 2023,March 31, 2024, future minimum payments to be received during the next five years and thereafter, as applicable, are as follows:
| | | | | | |
2023 (excluding the six months ended June 30, 2023) | | | | | 30,216 | |
2024 | | | | | 61,640 | |
2025 | | | | | 20,748 | |
Total | | | | $ | 112,604 | |
2024 (excluding the three months ended March 31, 2024) | | $ | 46,532 | |
2025 | | | 20,748 | |
Total | | $ | 67,280 | |
7. Deferred Tax Assets and Liabilities9. Income Taxes
The Company had a tax net loss for the three and six months ended June 30, 2023 March 31, 2024 and 2022,2023, 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. Accounting Standards Codification ("ASC") 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:
| | | | | | | | |
| | 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 | % |
| | | Three Months Ended | |
| | | March 31, 2024 | | | March 31, 2023 | |
| | | | | | | | | |
Income tax benefit at statutory rates | | $ | 205,289 | | | $ | 873,910 | |
Valuation allowance for deferred tax assets | | | (178,672 | ) | | | (856,116 | ) |
Stock-based compensation | | | (42,697 | ) | | | (6,328 | ) |
Other expense, net | | | (22,877 | ) | | | (23,888 | ) |
Reported income tax expense | | $ | (38,957 | ) | | $ | (12,422 | ) |
Effective tax rate: | | | 4.0 | % | | | 0.3 | % |
22
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LAIRD SUPERFOOD, INC.
Notes to Unaudited 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 | | $ | — | | | $ | — | |
| | | March 31, 2024 | | | December 31, 2023 | |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 20,346,129 | | | $ | 20,088,873 | |
Intangible assets | | | 2,217,760 | | | | 2,258,079 | |
Property and equipment | | | 1,083,199 | | | | 1,104,854 | |
Research and development credits | | | 251,540 | | | | 235,514 | |
Research and development | | | 244,698 | | | | 268,414 | |
Inventory | | | 202,206 | | | | 246,182 | |
Accrued expenses | | | 477,870 | | | | 496,695 | |
Right of use asset | | | 8,904 | | | | 7,366 | |
Bad debt allowance | | | 116,570 | | | | 64,250 | |
Charitable contributions | | | 34,172 | | | | 40,773 | |
Unexercised options | | | 932,412 | | | | 890,128 | |
Total deferred tax assets | | | 25,915,460 | | | | 25,701,128 | |
Valuation allowance | | | (25,915,460 | ) | | | (25,701,128 | ) |
Total net deferred tax assets | | $ | — | | | $ | — | |
14
The Company assesses its deferred tax assets and liabilities
Notes to determine if it is more likely than not that they will be realized; if not, a valuation allowance is required to be recorded. Unaudited Consolidated Condensed Financial Statements
As of June 30, 2023,March 31, 2024, 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. The Company has recorded a provision for state income taxes and a corresponding current state income tax payable of approximately $21,478 and $7,373 as of March 31, 2024 and December 31, 2023, respectively.
As of March 31, 2024 and December 31, 2023, the Company had aggregate net operating losses ("NOLs") totaling approximately $138.5 million and $136.8 million, respectively. As of March 31, 2024 and December 31, 2023, the Company had federal NOLs totaling approximately $1.9 million from 2017 and prior years that can be carried forward for 20 years and which begin to expire in 2036. As of March 31, 2024 and December 31, 2023, the Company had federal NOLs totaling approximately $78.8 million and $77.8 million, respectively, from 2018 and subsequent years that can be carried forward indefinitely. As of March 31, 2024 and December 31, 2023, the Company had state NOLs totaling $57.8 million and $57.1 million, respectively, that can be carried forward for between 15 and 20 years. As of March 31, 2024 and December 31, 2023, the Company had credits totaling $0.3 million and $0.2 million, respectively, that can be carried forward for five years. As of March 31, 2024 and December 31, 2023, the Company had other carryforwards totaling $0.6 million that can be carried forward for between one and five years.
The use of net operating losses may be subject to certain limitations, such as those triggered by ownership changes under Section 382 of the Internal Revenue Code. Because these provisions, the use of a portion of the Company's NOLs and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.
The Company assesses its deferred tax assets and liabilities to determine if it is more likely than not, they will be realized; if not, a valuation allowance is required to be recorded. Management has determined that it was notis more likely than not that the deferred tax assets wouldnot 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.
The changeschange in the valuation allowance for deferred tax assets and liabilities for the sixthree months ended June 30, 2023 March 31, 2024 and 20222023 were net increases of $1.8$0.2 million and $4.5$0.9 million, respectively. At June 30, 2023 and December 31, 2022, the Company had NOLs totaling approximately $131.3 million and $118.6 million, respectively. At June 30, 2023 and December 31, 2022, the Company had federal NOLs totaling approximately $1.9 million from 2017 and prior years that can be carried forward for 20 years, which begin to expire in 2036. At June 30, 2023 and December 31, 2022, the Company had federal NOLs totaling approximately $74.4 million and $67.5 million, respectively from 2018 and subsequent years that can be carried forward indefinitely. At June 30, 2023 and December 31, 2022, the Company had state NOLs totaling $55.0 million and $49.3 million, respectively, that can be carried forward for between 15 and 20 years. At June 30, 2023 and December 31, 2022, the Company had credits totaling $0.4 million and $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.
23
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
8.10. 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 30, 2023,March 31, 2024, the Company ishas no additional authorized shares 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 hadas of March 31, 2024, excluding 2,159,886 of shares to be issued stockupon vesting and exercise of outstanding options and restricted stock units. Following the effective dateRSUs.
Notes 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.Unaudited Consolidated Condensed Financial Statements
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 | | | $ | — | |
activity during the three months ended March 31, 2024 and 2023:
| | | | | | | Weighted | | | Weighted | | | | | |
| | | | | | | Average | | | Average | | | | | |
| | | Options | | | Exercise Price | | | Contractual | | | Aggregate | |
| | | Activity | | | (per share) | | | Term (years) | | | Intrinsic Value | |
Balance at January 1, 2024 | | | 1,234,778 | | | $ | 4.52 | | | | 7.91 | | | $ | 30,000 | |
Granted | | | 799,188 | | | $ | 0.73 | | | | — | | | | — | |
Exercised/released | | | (5,000 | ) | | $ | 2.00 | | | | — | | | | — | |
Cancelled/forfeited | | | (1,000 | ) | | $ | 12.32 | | | | — | | | | — | |
Balance at March 31, 2024 | | | 2,027,966 | | | $ | 3.03 | | | | 8.56 | | | $ | 2,657,292 | |
Exercisable at March 31, 2024 | | | 681,464 | | | $ | 5.03 | | | | 7.09 | | | $ | 559,810 | |
| | | | | | | 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 | | | — | | | $ | — | | | | — | | | $ | — | |
Exercised/released | | | — | | | $ | — | | | | — | | | $ | — | |
Cancelled/forfeited | | | (24,164 | ) | | $ | 9.99 | | | | — | | | $ | — | |
Balance at March 31, 2023 | | | 897,493 | | | $ | 6.78 | | | | 7.74 | | | $ | — | |
Exercisable at March 31, 2023 | | | 318,041 | | | $ | 8.72 | | | | 5.43 | | | $ | — | |
24The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our historical experience.
Restricted Stock Units
The following tables summarize the Company’s RSU activity during the three months ended March 31, 2024 and 2023:
| | | | | | | Weighted Average | | | Weighted Average | | | | | |
| | | | | | | Grant Date Fair | | | Remaining Vesting | | | Aggregate | |
| | | Number of RSUs | | | Value (per share) | | | Term (years) | | | Fair Value | |
Balance at January 1, 2024 | | | 771,885 | | | $ | 1.76 | | | | 1.98 | | | $ | 1,361,696 | |
Granted | | | — | | | $ | — | | | | — | | | $ | — | |
Exercised/released | | | (33,779 | ) | | $ | 3.29 | | | | — | | | $ | — | |
Cancelled/forfeited | | | — | | | $ | — | | | | — | | | $ | — | |
Balance at March 31, 2024 | | | 738,106 | | | $ | 1.69 | | | | 1.81 | | | $ | 1,250,652 | |
Notes to Unaudited Consolidated Condensed Consolidated Financial Statements
| | | | | | | 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 | | | — | | | $ | — | | | | — | | | $ | — | |
Exercised/released | | | (13,146 | ) | | $ | 11.30 | | | | — | | | $ | — | |
Cancelled/forfeited | | | (16,279 | ) | | $ | 5.98 | | | | — | | | $ | — | |
Balance at March 31, 2023 | | | 474,995 | | | $ | 3.96 | | | | 2.67 | | | $ | 1,881,278 | |
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.
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 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 | |
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 | |
The Company estimates the fair value of each restricted stock unit using the fair value of the Company’s common stock on the date of grant.
25
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LAIRD SUPERFOOD, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Market-Based Stock Units ("MSUs")
The following tables summarize the Company’s market-based stock unit ("MSU") activity:MSU activity during the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | | |
| | 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, 2024 | | | 621,314 | | | $ | 1.57 | | | | 0.62 | | | $ | 977,558 | |
Granted | | | — | | | $ | — | | | | — | | | $ | — | |
Exercised/released | | | (100,000 | ) | | $ | 0.25 | | | | — | | | $ | — | |
Cancelled/forfeited | | | (21,314 | ) | | $ | 43.53 | | | | — | | | $ | — | |
Balance at March 31, 2024 | | | 500,000 | | | $ | 0.05 | | | | 0.37 | | | $ | 24,460 | |
These
| | | | | | | 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 | | | — | | | $ | — | | | | — | | | $ | — | |
Exercised/released | | | — | | | $ | — | | | | — | | | $ | — | |
Cancelled/forfeited | | | (9,769 | ) | | $ | 43.53 | | | | — | | | $ | — | |
Balance at March 31, 2023 | | | 21,314 | | | $ | 43.53 | | | | 0.42 | | | $ | 927,798 | |
The MSUs vest upon the 30-day weighted average stock price reaching or exceeding established targets after reaching certain time targets.within the requisite service period. 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 U.S. Treasury bond with a maturity equal to the performance period and assume a 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
Notes 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% 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.Unaudited Consolidated Condensed Financial Statements
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 Topic 718,Compensation - Stock Compensation to equity awards:
| | | | | | | | | | | | | | | | | | Three 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) | | | March 31, 2024 | | | March 31, 2024 | | | March 31, 2024 (years) | |
Stock options | | $ | 100,196 | | | $ | 161,684 | | | $ | 1,090,875 | | | | 2.91 | | | $ | 81,506 | | | $ | 939,421 | | | 3.19 | |
RSUs | | | 195,915 | | | | 354,630 | | | | 23,651 | | | | 2.74 | | | 178,794 | | | 921,177 | | | 2.04 | |
MSUs | | | 9,965 | | | | (62,603 | ) | | | 1,777,578 | | | | 0.59 | | | | 19,265 | | | | 9,063 | | | 0.37 | |
Total stock-based compensation | | $ | 306,076 | | | $ | 453,711 | | | $ | 2,892,104 | | | | 2.79 | | | $ | 279,565 | | | $ | 1,869,661 | | | 2.61 | |
| | | | | | | | | | | | | |
Cost of goods sold | | $ | 780 | | | $ | (116 | ) | | $ | 6,120 | | | | 1.99 | | | $ | 682 | | | $ | 12,615 | | | 4.20 | |
General and administrative | | | 286,682 | | | | 421,924 | | | | 2,632,234 | | | | 2.73 | | | 231,101 | | | 1,627,026 | | | 2.44 | |
Sales and marketing | | | 18,614 | | | | 31,903 | | | | 253,750 | | | | 3.43 | | | | 47,782 | | | | 230,020 | | | 3.73 | |
Total stock-based compensation | | $ | 306,076 | | | $ | 453,711 | | | $ | 2,892,104 | | | | 2.79 | | | $ | 279,565 | | | $ | 1,869,661 | | | 2.61 | |
| | | Three Months Ended | | | Unrecognized Compensation Cost Related to Non-Vested Awards as of | | | Weighted-Average Remaining Vesting Period as of | |
| | | March 31, 2023 | | | December 31, 2023 | | | December 31, 2023 (years) | |
Stock options | | $ | 61,488 | | | $ | 654,313 | | | | 2.36 | |
RSUs | | | 158,715 | | | | 1,099,972 | | | | 2.17 | |
MSUs | | | (72,568 | ) | | | 34,281 | | | | 0.57 | |
Total stock-based compensation | | $ | 147,635 | | | $ | 1,788,566 | | | | 2.21 | |
| | | | | | | | | | | | | |
Cost of goods sold | | $ | (896 | ) | | $ | 2,976 | | | | 1.62 | |
General and administrative | | | 135,242 | | | | 1,666,980 | | | | 2.29 | |
Sales and marketing | | | 13,289 | | | | 118,610 | | | | 0.99 | |
Total stock-based compensation | | $ | 147,635 | | | $ | 1,788,566 | | | | 2.21 | |
26
Notes to Unaudited
Consolidated Condensed
Consolidated Financial Statements
| | | | | | | | | | | | | | | | |
| | 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 and $149,735 for the three and six months ended June 30, 2023, and of $901,801 and $1,785,125 during the three and six months ended June 30, 2022, respectively, representing discrete reversals of stock compensation expense to the periods.
9.11. Earnings per Share
Basic earnings (loss) per share is determined by dividing the net loss attributable to Laird Superfood, Inc.the Company's common stockholders by the weighted average number of shares of common sharesstock outstanding during the period. Diluted earnings (loss) per share is similarly determined, except that the denominator is increased to include the number of additional shares of common sharesstock 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 unitsMSUs 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 March 31, | |
| | | 2024 | | | 2023 | |
Net loss | | $ | (1,016,522 | ) | | $ | (4,143,910 | ) |
Weighted average shares outstanding - basic and diluted | | | 9,401,605 | | | | 9,213,723 | |
Basic and diluted: | | | | | | | | |
Net loss per share, basic and diluted | | $ | (0.11 | ) | | $ | (0.45 | ) |
Common stock options, restricted stock awards, and market-based stock awards excluded due to anti-dilutive effect | | | 3,266,072 | | | | 1,393,802 | |
| | | | | | | | | | | | | | | | |
| | 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 | |
10.12. Concentrations
The Company had 78%following table details the concentration of vendor accounts payable balances in excess of 10% of total accounts payable at each period:
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
Vendor A | | 10% | | * |
Vendor B | | * | | 14% |
| Vendor C | | * | | 10% |
| Vendor D | | * | | 23% |
Total | | 10% | | 47% |
* Less than 10%.
The following table details the concentration of customer accounts receivable balances in excess of 10% of total trade accounts receivable from threeat each period:
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
Customer A | | 18% | | 45% |
Customer B | | 24% | | 21% |
Customer C | | 28% | | * |
Total | | 70% | | 67% |
* Less than 10%.
Notes to Unaudited Consolidated Condensed Financial Statements
The following table details the concentration of sales to specific customers asin excess of June 30, 2023. The Company had 68%10% of tradetotal net sales for each year and the accounts receivable from twothose customers asat the end of December 31, 2022.each period:
The Company had 13% 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.
| | | As of and for the Three Months Ended |
| | | March 31, 2024 | | March 31, 2023 |
| | | Net Sales | | Accounts Receivable | | Net Sales | | Accounts Receivable |
Customer A | | 11% | | 461,132 | | 16% | | 1,612,941 |
Customer B | | 19% | | 623,431 | | 13% | | 675,743 |
Customer C | | 12% | | 710,504 | | 12% | | 484,800 |
Total | | 42% | | 1,795,067 | | 41% | | 2,773,484 |
The Company sold a substantial portion of products to three customers (49%) and three customers (45%), respectively, for the three and six months ended June 30, 2023. As of June 30, 2023, the amount due from these customers was $1,608,326. The Company sold a substantial portion of products to two customers (21%) and one customer (12%) for the three and six months ended June 30, 2022. As of June 30, 2022, the amount due from these customers included in accounts receivable was $556,117.
The Company purchased a substantial portion of productsraw materials and packaging from threecertain suppliers. The following table details the concentration of purchases from specific suppliers (33%) and two suppliers (26%)in excess of 10% of total purchases for the three and six months ended June 30, 2023. each period:
| | | For the Three Months Ended March 31, |
| | | 2024 | | 2023 |
Supplier A | | 17% | | * |
Supplier B | | 11% | | * |
Supplier C | | 11% | | 15% |
Supplier D | | 10% | | * |
Supplier E | | 10% | | * |
Supplier F | | * | | 26% |
Total | | 59% | | 41% |
* Less than 10%.
The Company purchased a substantial portion of products from three suppliers (51%) and two suppliers (64%), respectively, for the three and six months ended June 30, 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 geographically accounted for approximately 11% and 12%, respectively, of our total raw materials and packaging originating from certain geographical regions. The following table details the concentration of purchases from specific regions in excess of 10% of total purchases for the three and six months ended June 30, 2023. Indonesia, Sri Lanka, and Vietnam geographically accounted for approximately 51% and 64% of our total raw materials and packaging purchases for the three and six months ended June 30, 2022.each period:
| | | For the Three Months Ended March 31, |
| | | 2024 | | 2023 |
Sri Lanka | | 17% | | * |
Vietnam | | * | | 14% |
China | | * | | 10% |
Indonesia | | * | | 12% |
Total | | 17% | | 36% |
* Less than 10%.
13. Related Parties
27
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LAIRD SUPERFOOD, INC.
Notes to Unaudited 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-yearten-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 17 of the unaudited consolidated condensed financial statements.
Notes to Unaudited Consolidated Condensed Financial Statements
Marketing Agreements
The
On October 26, 2022, the Company hasexecuted an influencer agreement with Gabby Reece to provide certain marketing services.services for a term ending December 31, 2023 with an option to renew for one-year terms. In connection with these services, in the three and six months ended June 30, March 31, 2024 and 2023, advertising expenses totaling $125,198$62,501 and $264,525,$37,809, respectively, were included in sales and marketing expenses in the unaudited consolidated condensed statements of operations. In the three and six months ended June 30, 2022, advertising expenses totaling $22,750 and $33,250, respectively, were included in sales and marketing expenses in the unaudited consolidated condensed statements of operations. As of June 30, 2023March 31, 2024 and December 31, 2022,2023, amounts payable to Gabby Reece of $34,847$28,167 and $16,500,$2,688, respectively, were included in accrued expensesrelated party liabilities in the unaudited consolidated condensed balance sheets.
12.14. 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 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 Topic 606,Revenue from Contracts with Customers, 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 March 31, | |
| | | 2024 | | | 2023 | |
| | | $ | | | % of Total | | | $ | | | % of Total | |
Coffee creamers | | $ | 5,570,321 | | | | 56 | % | | $ | 5,132,143 | | | | 63 | % |
Coffee, tea, and hot chocolate products | | | 2,175,265 | | | | 22 | % | | | 1,955,140 | | | | 24 | % |
Hydration and beverage enhancing supplements | | | 2,025,272 | | | | 20 | % | | | 670,851 | | | | 8 | % |
Harvest snacks and other food items | | | 1,304,060 | | | | 13 | % | | | 1,752,397 | | | | 22 | % |
Other | | | 122,012 | | | | 1 | % | | | 29,729 | | | | — | % |
Gross sales | | | 11,196,930 | | | | 112 | % | | | 9,540,260 | | | | 117 | % |
Shipping income | | | 111,428 | | | | 1 | % | | | 303,226 | | | | 4 | % |
Returns and discounts | | | (1,399,420 | ) | | | (13 | )% | | | (1,730,548 | ) | | | (21 | )% |
Sales, net | | $ | 9,908,938 | | | | 100 | % | | $ | 8,112,938 | | | | 100 | % |
28
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LAIRD SUPERFOOD, INC.
Notes to Unaudited 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 March 31, | |
| | | 2024 | | | 2023 | |
| | | $ | | | % of Total | | | $ | | | % of Total | |
E-commerce | | $ | 5,868,337 | | | | 59 | % | | $ | 4,427,681 | | | | 55 | % |
Wholesale | | | 4,040,601 | | | | 41 | % | | | 3,685,257 | | | | 45 | % |
Sales, net | | $ | 9,908,938 | | | | 100 | % | | $ | 8,112,938 | | | | 100 | % |
Receivables from contracts with customers are included in Accountsaccounts receivable. Contract assets include deferred costscost 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. All contract liabilities as of December 31, 2023 were recognized in net sales for the three months ended March 31, 2024. The balances of receivables from contracts with customers, contract assets, and contract liabilities were as follow:
| | | January 1, | | | December 31, | | | March 31, | |
| | | 2023 | | | 2023 | | | 2024 | |
Accounts receivable, net | | $ | 1,494,469 | | | $ | 1,022,372 | | | $ | 2,064,745 | |
Contract assets | | $ | 57,249 | | | $ | — | | | $ | — | |
Contract liabilities | | $ | (729,667 | ) | | $ | (427,974 | ) | | $ | (512,635 | ) |
| | | | | | | | | | |
| | 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 | ) |
29
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with the unaudited consolidated condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022.2023(the "2023 Form 10-K"). 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 onthe 2023 Form 10-K for the year ended December 31, 2022.10-K.
Overview
Overview
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketingcreates highly differentiated, plant-based, and functional foods.foods, many of which incorporate adaptogens which may support a variety of brain functions. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, FunctionalHydrate hydration products and organicbeverage enhancing supplements, harvest snacks and other food items, and functional roasted and instant coffees, teas, and hot chocolate, Hydrate hydration products and beverage enhancing supplements, and Harvest snacks and other food items.chocolate. 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’sOur 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 Companyus to maximize penetration of a multi-billion-dollar opportunity in the grocery market.
Net sales were $7.7$9.9 million and $15.8$8.1 million, respectively, for the three and six months ended June 30,March 31, 2024 and 2023, and were $8.7 million and $18.0 million, respectively, for the three and six months ended June 30, 2022. Wholesale netrepresenting 22% year-over-year growth. E-commerce channel sales grew 3%increased by 33% in the secondfirst quarter of 2024 compared to the same period last year despite a significant, planned reduction in media spend in the channel. Sales through Amazon.com increased by 48% year-over-year building on the strong performance in the fourth quarter of 2023, as compared to same period priorreduced sales volume during the first quarter of 2023 stemming from out-of-stocks associated with the quality event last year. Direct-to-Consumer ("DTC") sales, on lairdsuperfood.com and pickybars.com, increased by 25% year-over year driven by the Clubstrong performance in both subscription and repeat customers, average order value, and improved discounts rates due to strategic shifts in our promotional strategies. Wholesale channel where net sales grew 18%, as well as distribution expansion inincreased by 10% compared to the natural channel and improved velocities in our coffee creamer segment due to new branding and packaging. E-commerce channel sales decreased 20% in the secondfirst quarter of 2023 driven by Amazon sales growth in club stores, as well as significant planned reductionsvelocity improvement and distribution expansion in marketing media spend. Amazon sales were negatively impacted by inventory out of stocks related togrocery, and more efficient promotional spend across the product quality withdrawal issue we experienced in the first quarter of 2023. We expect to fully mitigate the out of stock issue in the third quarter of 2023. Wholesale net sales for the first half of 2023 declined 2% compared to the first half of 2022 primarily due to elevated trade discounts in 2023. E-commerce channel sales for the first half of 2023 decreased 19% 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.channel.
Our e-commerce business is two-pronged and consists of direct-to-consumer salesDTC (lairdsuperfood.com and pickybars.com) and the use of third-party platforms, such as Amazon.com. For the three and six months ended June 30,March 31, 2024 and 2023, the e-commerce business made up 54%59% and 55% of net sales. For the three and six months ended June 30, 2022 the e-commerce business made up 60% and 59% ofour net sales, respectively. Lairdsuperfood.com and pickybars.com are platforms that provide an authentic brand experience for our customersconsumers that drivesdrive engagement through educational content and providesprovide 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. ContentWe believe the 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%over three quarters of direct-to-consumerDTC sales for the sixthree months ended June 30,March 31, 2024 and 2023.
For the three and six months ended June 30,March 31, 2024 and 2023, Wholesalewholesale made up 46% of our net sales. For the three41% and six months ended June 30, 2022, Wholesale made up 40% and 41%45% of our net sales, respectively. Laird Superfood products are sold through a diverse set of wholesaleretail channels, including conventional, natural, and specialty grocery club, food service,stores, and drugclub stores. The diversity of our wholesaleretail 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
Redomestication
On December 31, 2023 (the “Effective Date”), we changed our state of incorporation from the state of Delaware to the state of Nevada (the “Redomestication”) by means of a plan of conversion, as described in our definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission (the “SEC”) on October 10, 2023.
As of the Effective Date:
| ● | our domicile changed from the state of Delaware to the state of Nevada; and |
| ● | the affairs of the Company ceased to be governed by the Delaware General Corporation Law and the Company’s then existing certificate of incorporation and bylaws, and instead became governed by the Nevada Revised Statutes and the Company's new articles of incorporation and bylaws. |
The Company ceased in-house production and fulfillment activities at the end of 2022 and movedRedomestication was previously submitted to a third-party outsourced model for manufacturingvote of, and fulfillment. As partwas approved by, our stockholders at our Annual Meeting of this transition,Stockholders held on November 28, 2023. The Redomestication did not result in any change in the business, physical location, management, assets, liabilities, or net worth of the Company, disposednor did it result in any change in location of unusable inventory, terminated its leasesour current employees, including management. The Redomestication did not affect any of manufacturing facilities effective January 31, 2023,our material contracts with any third parties, and eliminated substantially all productionour rights and fulfillment labor. Manufacturing equipment, furniture, tools,obligations under those material contractual arrangements continue to be the rights and internal-use production software were sold or abandoned and were impaired accordingly inobligations of the fourth quarterCompany after the Redomestication. The daily business operations 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 1Company will continue as they have been conducted prior to the unauditedRedomestication. The consolidated condensed financial statements elsewhere in this Quarterly Report on Form 10-Q.
Product quality issue
In the first quartercondition and results 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 asoperations of the affected productCompany immediately after consummation of the Redomestication remains the same as possible. In connection with this withdrawal, we incurred costs associated with inventory obsolescence, quality testing,immediately before the Redomestication.
Our Strategy 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.
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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.compickybars.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,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 userscustomers 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, freight, 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, laborraw materials and packaging, and overhead costs consisted ofincluding inbound and outbound freight, direct and indirect productlabor, third-party logistics ("3PL") fees, warehouse storage costs, and freight,other miscellaneous costs related to manufacturing and in 2022 also included wages and benefits for manufacturing, planning, and logistics personnel, depreciation, and facility costs.distributing our products.
Operating Expenses
Our operating expenses consist of general and administrative research and product development,expenses and sales and marketing expenses.
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Income Taxes
Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses andor benefits for the foreseeable future.
Results of Operations
Comparison of the three months ended June 30, 2023 (“Q2 2023”March 31, 2024 (“Q1 2024”) and June 30, 2022 (“Q2 2022”March 31, 2023 (“Q1 2023”)
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 | )% |
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 March 31, | | | $ | | | % | |
| | | 2024 | | | 2023 | | | Change | | | Change | |
Sales, net | | $ | 9,908,938 | | | $ | 8,112,938 | | | $ | 1,796,000 | | | | 22 | % |
Cost of goods sold | | | (5,944,837 | ) | | | (6,239,062 | ) | | | 294,225 | | | | (5 | )% |
Gross profit | | | 3,964,101 | | | | 1,873,876 | | | | 2,090,225 | | | | 112 | % |
Gross margin | | | 40.0 | % | | | 23.1 | % | | | | | | | | |
General and administrative | | | 2,157,748 | | | | 3,082,310 | | | | (924,562 | ) | | | (30 | )% |
Sales and marketing | | | 2,894,915 | | | | 3,094,048 | | | | (199,133 | ) | | | (6 | )% |
Total operating expenses | | | 5,052,663 | | | | 6,176,358 | | | | (1,123,695 | ) | | | (18 | )% |
Operating loss | | | (1,088,562 | ) | | | (4,302,482 | ) | | | 3,213,920 | | | | (75 | )% |
Other income | | | 110,997 | | | | 170,994 | | | | (59,997 | ) | | | (35 | )% |
Loss before income taxes | | | (977,565 | ) | | | (4,131,488 | ) | | | 3,153,923 | | | | (76 | )% |
Income tax expense | | | (38,957 | ) | | | (12,422 | ) | | | (26,535 | ) | | | 214 | % |
Net loss | | $ | (1,016,522 | ) | | $ | (4,143,910 | ) | | $ | 3,127,388 | | | | (75 | )% |
| | | Three Months Ended March 31, | | | $ | | | % | |
| | | 2024 | | | 2023 | | | Change | | | Change | |
Sales, net | | $ | 9,908,938 | | | $ | 8,112,938 | | | $ | 1,796,000 | | | | 22 | % |
Net sales decreasedincreased to $7.7$9.9 million in Q2 2023Q1 2024 from $8.7$8.1 million in Q2 2022.Q1 2023, representing 22% growth year-over-year. The declineincrease was primarily due to a 20% decline in our e-commerce channels, driven by out of stocks on Amazona 33% increase in the e-commerce channel in sales through both platforms, Amazon.com and DTC, related to the product quality issue as well as planned reductions in mediapromotional spend in DTC, as compared to reduced sales volume in Q1 2023 from out-of-stocks associated with a quality event. Further, the DTCwholesale channel offsetalso grew by 3% Wholesale growth.10% driven primarily by sales growth in club stores, velocity improvements and distribution gains in grocery stores, and more efficient promotional 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 March 31, | | | $ | | | % | |
| | | 2024 | | | 2023 | | | Change | | | Change | |
Cost of goods sold | | $ | (5,944,837 | ) | | $ | (6,239,062 | ) | | $ | 294,225 | | | | (5 | )% |
Cost of goods sold decreased to $5.8$5.9 million in Q2 2023Q1 2024 from $7.1$6.2 million in Q2 2022 in line with sales, with favorability as we realizeQ1 2023, a reduction of 5%, which reflects the full benefits realization of the transition to a variable cost third-party co-manufacturing business model.
model, which was partially offset by higher sales volume.
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 March 31, | | | $ | | | % | |
| | | 2024 | | | 2023 | | | Change | | | Change | |
Gross profit | | $ | 3,964,101 | | | $ | 1,873,876 | | | $ | 2,090,225 | | | | 112 | % |
Gross profit increased to $4.0 million in Q1 2024 from $1.9 million in Q2 2023 from $1.6 million in Q2 2022.Q1 2023. Gross margin improved to 24.3%40.0% in Q2 2023Q1 2024 from 18.2%23.1% in Q2 2022 driven by the transition to a co-manufactured modelQ1 2023. This improvement reflects increased net sales as well as price increases implemented in Q2 2023.
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 | )% |
General and administrative expenses decreased to $2.6 million in Q2 2023 from $2.6 million in Q2 2022, primarily driven by increases in stock-based compensation due to executive forfeitures in Q2 2022.
Research and product development expenses were $0.1 million in Q2 2023 and Q2 2022. We are focused on strengthening the performance of current product offerings.
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Sales and marketing expenses decreased to $2.8 million in Q2 2023 from $3.8 million in Q2 2022, primarily due to a planned reduction in inefficient spend and lower personnel costs.
Other Income
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | $ | | | % | |
| | 2023 | | | 2022 | | | Change | | | Change | |
Other income | | $ | 149,109 | | | $ | 22,536 | | | $ | 126,573 | | | | 562 | % |
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.
Comparison of the six months ended June 30, 2023 (“YTD 2023”) and June 30, 2022 (“YTD 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 | )% |
Sales, Net
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | $ | | | % | |
| | 2023 | | | 2022 | | | Change | | | Change | |
Sales, net | | $ | 15,837,029 | | | $ | 18,014,019 | | | $ | (2,176,990 | ) | | | (12 | )% |
Net sales decreased to $15.8 million in YTD 2023 from $18.0 million in YTD 2022. The decline was primarily due to a 19% decline in our e-commerce channels, driven by out of stocks on Amazon and DTC related to the product quality issue as well as planned reductions in media spend in the DTC channel. Wholesale sales decreased by 2% driven primarily by elevated trade promotional activity in YTD 2023 and timing of Club orders.
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 | )% |
Cost of goods sold decreased to $12.1 million in YTD 2023 from $14.5 million in YTD 2022 in line with sales, with favorability 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 | % |
Gross profit increased to $3.7 million in YTD 2023 from $3.5 million in YTD 2022. Gross margin improved to 23.7% in YTD 2023 from 19.6% in YTD 2022, driven byfull benefits of the transition to a variable cost third-party co-manufacturing business model and pricing, offseta reduction in part bytrade discounts due to improved promotional efficiencies and elevated promotional spend.trade spend in the prior year associated with the quality event that occurred in Q1 2023.
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 | )% |
| | | Three Months Ended March 31, | | | $ | | | % | |
| | | 2024 | | | 2023 | | | Change | | | Change | |
Operating Expenses | | | | | | | | | | | | | | | | |
General and administrative | | $ | 2,157,748 | | | $ | 3,082,310 | | | $ | (924,562 | ) | | | (30 | )% |
Sales and marketing | | | 2,894,915 | | | | 3,094,048 | | | | (199,133 | ) | | | (6 | )% |
Total operating expenses | | $ | 5,052,663 | | | $ | 6,176,358 | | | $ | (1,123,695 | ) | | | (18 | )% |
General and administrative expenses decreased to $5.6$2.2 million in YTD 2023Q1 2024 from $14.5$3.1 million in YTD 2022,Q1 2023, 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 reduceddriven by lower personnel costs and other general and administrative expenses following the exit activitiesbroad, strategic reductions in the fourth quarter of 2022.spending.
Research and product development expenses were $0.2 million in YTD 2023 and YTD 2022.
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Sales and marketing expenses decreased to $5.9were $2.9 million in YTD 2023 from $7.7Q1 2024 compared to $3.1 million in YTD 2022, primarily due to aQ1 2023, driven by planned reductionreductions in inefficient spendmarketing and lower personnel costs.advertising spend.
Other Income (Expense)
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | $ | | | % | |
| | 2023 | | | 2022 | | | Change | | | Change | |
Other income (expense) | | $ | 320,103 | | | $ | (156,785 | ) | | $ | 476,888 | | | | (304 | )% |
| | | Three Months Ended March 31, | | | $ | | | % | |
| | | 2024 | | | 2023 | | | Change | | | Change | |
Other income | | $ | 110,997 | | | $ | 170,994 | | | $ | (59,997 | ) | | | (35 | )% |
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.
Cash Flows
Comparison of the six months ended June 30, 2023 and 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 | |
Cash Flows from Operating Activities
Cash useddecrease in operating activitiesother income was $7.5 million for YTD 2023 and 2022. Cash burn in the first quarter of 2023 of $6.1 million was elevateddriven 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 paymentsdividend income on money market funds as the amounts carried in connection with the Sisters lease exit and $0.6 million in severances and bonuses. In the second quarter of 2023, cash used in operations was $1.4 million, the improvement driven by reduction inthose accounts receivables due to collections timing and overall reduction in loss from operations following the change in business model.
decrease.
Cash Flows from Investing Activities
Cash provided by investing activities was $0.2 million for YTD 2023 as compared to cash provided by investing activities of $8.9 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 thousand for YTD 2023 compared to $121.1 thousand of cash provided in YTD 2022, primarily related to inflows from stock option exercises.
Liquidity and Capital Resources
As of June 30, 2023,March 31, 2024, we had incurredhave an accumulated net lossesdeficit of $103.8$107.3 million, includingwhich includes operating losses of $8.0$1.1 million and $18.9$4.3 million for YTDQ1 2024 and Q1 2023, and YTD 2022, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, however we tookbusiness. However, after taking several strategic steps in 2023 and 2022, we have significantly optimized spending, improved gross margins, and significantly reduced cash burn in an effort to optimize spendingbring the business closer to breakeven and improve gross margins.profitability in future quarters, with the first quarter of net income and positive cash flows from operations realized in the fourth quarter of 2023. These steps includeincluded, among others, transitioning out of in-house manufacturing to a variable cost third-party co-manufacturedco-manufacturing business model, closing manufacturing facilities and offices in Sisters, Oregon, several rounds of organizational restructuring reducingto optimize our workforce,headcount costs, and reducing marketing and administrative investment through eliminating non-essential spend.spending. We will continue to seek to optimize spending and expand gross margins. Additionally, our current business plan is to continue to utilize inventory management to reduce working capital. We have historically financed our operations and capital expenditures through private placements of our common stock, our initial public offering our("IPO"), 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 million for YTD 2023 and 2022.
As of June 30,March 31, 2024 and December 31, 2023, we had $10.6$7.3 million and $7.7 million, respectively, of cash-on-hand, and $5.0total net working capital of $11.3 million and $12.0 million for the same periods. We have no significant unused sources of available borrowings underliquid assets outside of our lines of credit. 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 30, 2023, and December 31, 2022, we had no outstanding notes payable and no amounts were outstanding under our lines of credit.working capital.
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Our future capital requirements will depend on many factors, including our abilitygrowth rate, the timing and extent of spending to execute on our planned sales growthsupport research and development efforts, the continued improvementexpansion of our operating margins,sales and marketing activities, the enhancement of our product platforms, and 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 million in YTD 2022. | ● | We have lease arrangements for corporate office space. As of March 31, 2024, we had fixed lease payment obligations of $0.4 million, with $0.1 million payable within 12 months. |
| ● | As of March 31, 2024, $4.6 million of current liabilities were accrued related to short-term operating activities and personnel costs, excluding the aforementioned current lease liabilities. |
| ● | Marketing and advertising expenditures were $2.1 million in Q1 2024 and $2.2 million in Q1 2023. 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. |
Based on our current business plans, we believe that our existing cash balances, including our anticipated cash flow from operations, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next eighteen months. In the future, we may raise funds by issuing debt or equity securities, or securities convertible into or exchangeable for our common stock. Such financing and other potential financing may result in dilution to stockholders, reduction in the market price of our common stock, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have made strategic shiftssufficient funds for our current or future operating plans. However, we may be unable 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 requireraise additional capital resources to continue to grow our business. Our management concluded that our recurring losses from operations, our limited cash resourcesfunds or enter into such other arrangements when needed, 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.favorable terms, or at all.
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’sour management's discussion and analysis of itsour financial condition and operating results require the Company’sour 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 Quarterly Report on Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 20222023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s unaudited consolidated condensedour financial statements. There have been no material changes to the Company’sour critical accounting estimates since the 20222023 Form 10-K.
Recent Accounting Pronouncements
See Recently AdoptedIssued Accounting Pronouncements in Note 1 to our unaudited consolidated condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Emerging Growth Company Status
As a company with less than $1.235 billion in annual gross revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
•a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
•an exemption from the auditor attestation requirement on the effectiveness of our internal control over financial reporting;
•reduced disclosure about our executive compensation arrangements; and
•no non-binding advisory votes on executive compensation or golden parachute arrangements.
| ● | a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
| ● | an exemption from the auditor attestation requirement on the effectiveness of our internal control over financial reporting; |
| ● | reduced disclosure about our executive compensation arrangements; and |
| ● | no non-binding advisory votes on executive compensation or golden parachute arrangements. |
We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of our IPO occurs, or such earlier time when we no longer qualify as an emerging growth company. We wouldwill 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.
Not Applicable.
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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 Securities Exchange Act)Act of 1934, as amended (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 30, 2023,March 31, 2024, 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 30, 2023.March 31, 2024.
Changes in Internal Control over Financial Reporting
There werehave been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the three months ended of June 30, 2023, aside from those described above,quarterly period covered by this report that have 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
From time to time, we may be involved in claims and legal actions that arise in the ordinary course of business. To our knowledge, there are no material pending legal proceedings to which we are a party or of which any litigation that we believe could have a material adverse effect onof our financial condition or results of operations.property is the subject.
Item 1A. Risk Factors.
The following risk factor disclosures
There were no material changes to the Risk Factors disclosed in "Item 1A. Risk Factors" in the 2023 Form 10-K during these three months ended March 31, 2023. This quarterly report on Form 10-Q should be read in conjunction with the risk factors previously described in the Company's 20222023 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:10-K.
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 months ended June 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 million and an accumulated deficit of $103.8 million at June 30, 2023, and cash used in operations was $7.5 million in the six months ended June 30, 2023. We expect to continue to generate operating losses for the foreseeable future. There can be no assurance that the Company will be able to raise additional funds, whether through public offerings, private placements or otherwise, on terms acceptable to the Company or at all. If we are delayed in completing or are unable to raise additional funds, we may seek to reduce our cash outflows, but there are no assurances that these reductions would be sufficient to allow us to continue to operate as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our unaudited consolidated condensed financial statements and an investor could lose all or part of its investment in our equity. In addition, the perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our future contractual obligations or pursue additional strategic transactions.
Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on the Company’s operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10 and March 12, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank (“SVB”), and Signature Bank, respectively, after each bank was unable to continue their operations. These events exposed vulnerabilities in the banking sector, including legal
36
uncertainties, significant deposit outflows, volatility and contagion risk, and caused market prices of regional bank stocks to plummet.
We have not experienced any adverse impact to our current and projected business operations, financial condition and results of operations as a result of the SVB, Signature Bank or other recent bank failures; however, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. If, for example, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. Therefore, while it is not currently possible to predict the potential impact that the failure of SVB, Signature Bank, or other bank failures could have on economic activity or our business in particular, the failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.
Although we expect to continue to assess our banking relationships as we believe necessary or appropriate, our access to cash in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the financial institutions with which we have banking relationships, and in turn, us. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could also include factors involving financial markets or the financial services industry generally. The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
None.
Item 3. Defaults Upon Senior Securities
None.
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not Applicable.
During the three months ended March 31, 2024, none of the Company's directors or executive officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
37Entry into an Accounts Receivable Factoring Agreement
On May 7, 2024, the Company entered into an accounts receivable factoring agreement (the “Factoring Agreement”) with Alterna Capital Solutions LLC (the “Purchaser”). Pursuant to the Factoring Agreement, the Company has agreed to sell certain trade accounts receivable (the “Purchased Accounts”) to the Purchaser from time to time.
The Factoring Agreement provides for the Company to have access to up to $2.0 million (the “Maximum Amount”) on a revolving basis, measured by the aggregate amount advanced for the unpaid balance of all Purchased Accounts from time to time. Upon receipt of the upfront purchase price for any Purchased Accounts, the Company will have sold and assigned all of its rights in such Purchased Accounts and all proceeds thereof. The upfront purchase price for a Purchased Account is up to 70% of the face amount thereof and the remaining portion is payable only if and when the Purchaser receives payment from account debtors exceeding the aggregate unadvanced face amount of the unpaid balance of all Purchased Accounts from time to time, plus all amounts due on accounts ineligible to be purchased, plus all accrued fees and expenses. The proceeds from the Factoring Agreement will be used to fund general working capital needs.
The Factoring Agreement provides for the payment of certain fees by the Company, including, among others, a funds usage fee of prime plus 1.5% per annum with a minimum interest rate of 10.0% per annum. The Company will also be charged a collateral monitoring fee of 0.05% per month, assessed on the average monthly accounts receivable balance, which is payable on the last day of each month. The Purchaser has the right to require the Company to repurchase any Purchased Accounts that (i) are uncollectable other than due to insolvency of the account debtor or, if certain conditions are met, the inability of the account debtor to pay the account or (ii) are no longer eligible.
The Factoring Agreement is for an initial term of 12 months and will renew on a year-to-year basis thereafter, unless terminated in accordance with the Factoring Agreement. The Company may terminate the Factoring Agreement at any time upon 30 days prior written notice and payment to Purchaser of an early termination fee equal to 2.0% of the Maximum Amount if terminated during the first12 months and 1.0% of the Maximum Amount during the subsequent terms.
The Company has granted the Purchaser a security interest all of the Company’s personal property and fixtures, including, among other things, the Company’s accounts receivable, inventory, equipment, instruments, deposit accounts, general intangibles, and supporting obligations to secure the payment and performance of all obligations of the Company to the Purchaser under the Factoring Agreement. The Factoring Agreement also provides for customary provisions, including representations, warranties and covenants, indemnification, waiver of jury trial, and the exercise of remedies upon a breach or default.
The foregoing summary of the Factoring Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the Factoring Agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
Item 6. Exhibits.
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
* Filed herewith.
** The certifications attached as Exhibit 32.1 and 32.2 are furnished and 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: May 8, 2024 | Laird Superfood, Inc.
|
| (Registrant)
|
|
|
Date: August 10, 2023
| /s/ Jason Vieth |
| Jason Vieth |
| President and Chief Executive Officer |
|
(Principal Executive Officer and duly authorized officer) |
| |
Date: August 10, 2023May 8, 2024 | /s/ Anya Hamill |
| Anya Hamill |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
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