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10-Q 1 d181414d10q.htm 10-Q 10-Q

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 March 31, 2021

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

Commission File Number: 001-39537

LOGO

Laird Superfood, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

81-1589788

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

275 W. Lundgren Mill Drive, Sisters, Oregon 97759

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (888) 670-6796

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	LSF	NYSE American

Indicate by check mark whether the registrant: (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.

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 May 11, 2021 the registrant had 8,990,904 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS


		Page
Part I.	Financial Information
Item 1.	Financial Statements		4
	Balance Sheets		4
	Statements of Operations		5
	Statements of Comprehensive Loss		6
	Statements of Convertible Preferred Stock and Stockholders’ Equity		7
	Statements of Cash Flows		8
	Notes to Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations		27
Item 4.	Controls and Procedures		34
Part II.	Other Information		34
Item 1.	Legal Proceedings		34
Item 1A.	Risk Factors		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 6.	Exhibits		36
Signatures			37

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements convey our current expectations or forecasts of future events and are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will,” “seeks,” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements.

Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Key factors that could cause actual results to be different than expected or anticipated include, but are not limited to:

•

our limited operating history and ability to become profitable;

•

our reliance on third parties for raw materials and production of some of our products;

•

our ability to manage our growth and scale our manufacturing and processing capabilities effectively, including our human resource requirements;

•

our future capital needs;

•

our ability to retain and grow our customer base;

•

our reliance on independent distributors for a substantial portion of our sales;

•

our ability to evaluate and measure our business, prospects and performance metrics;

•

our ability to compete and succeed in a highly competitive and evolving industry;

•

the health of the premium organic and natural food industry as a whole;

•

risks related to our intellectual property rights and developing a strong brand;

•

our reliance on key personnel, including Laird Hamilton and Gabrielle Reece;

•

regulatory risks;

•

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, 2020.

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. Financial Statements

LAIRD SUPERFOOD, INC.

BALANCE SHEET

(Unaudited)


	As of
	March 31, 2021			December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	51,745,417		$	57,208,080
Accounts receivable, net		770,155			839,659
Investment securities available-for-sale		8,690,523			8,706,844
Inventory		7,693,980			6,295,898
Prepaid expenses and other current assets		2,902,784			2,847,319
Deposits		488,823			97,674

Total current assets		72,291,682			75,995,474


Noncurrent assets
Property and equipment, net		3,501,718			3,513,488
Licensing agreement—intangible		132,100			132,100
Deferred rent		2,606,592			2,696,646

Other assets		77,922			4,992

Total noncurrent assets		6,318,332			6,347,226

Total assets	$	78,610,014		$	82,342,700


Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	1,600,645		$	1,315,964
Payroll liabilities		1,012,223			722,915
Accrued expenses		857,849			704,543

Total current liabilities		3,470,717			2,743,422


Long-term liabilities
Note payable		51,000			51,000

Total long-term liabilities		51,000			51,000

Total liabilities		3,521,717			2,794,422


Commitments and contingencies (Note 8)

Stockholders’ equity
Common stock, $0.001 par value, 100,000,000 and 9,600,000 shares authorized as of March 31, 2021 and December 31, 2020; 9,285,782 and 8,921,034 issued and outstanding at March 31, 2021, respectively; 9,247,758 and 8,892,886 issued and outstanding at December 31, 2020, respectively		8,921			8,893
Additional paid-in capital		112,343,131			111,452,346
Accumulated other comprehensive income (loss)		(6,083	)		14,207
Accumulated deficit		(37,257,672	)		(31,927,168	)

Total stockholders’ equity		75,088,297			79,548,278

Total liabilities, convertible preferred stock and stockholders’ equity	$	78,610,014		$	82,342,700

The accompanying notes are an integral part of these financial statements

LAIRD SUPERFOOD, INC.

STATEMENTS OF OPERATIONS

(Unaudited)


	For the Quarters Ended March 31,
	2021			2020
Sales, net	$	7,426,254		$	5,483,226
Cost of goods sold		(5,559,499	)		(3,365,609	)

Gross profit		1,866,755			2,117,617


General and administrative
Salaries, wages and benefits		1,205,854			816,172
Stock-based compensation		899,235			183,203
Professional fees		343,622			182,048
Insurance expense		522,399			31,195
Office expense		186,831			113,365
Occupancy		56,521			53,431
Merchant service fees		106,375			56,035
Netsuite subscription expense		55,021			26,395
Other expense		267,536			137,728

Total general and administrative expenses		3,643,394			1,599,572


Research and product development
Salaries, wages and benefits		70,361			74,902
Product development expense		162,844			57,743
Stock-based compensation		3,567			2,192
Other expense		3,915			8,478

Total research and product development expenses		240,687			143,315


Sales and marketing
Salaries, wages and benefits		633,751			746,010
Stock-based compensation		41,389			74,495
Advertising		1,681,344			936,363
General marketing		710,523			309,222
Amazon selling fee		202,276			187,571
Travel expense		8,756			70,014
Other expense		49,040			69,141

Total sales and marketing expenses		3,327,079			2,392,815

Total expenses		7,211,160			4,135,702

Operating loss		(5,344,405	)		(2,018,085	)


Other income (expense)
Interest and dividend income		13,901			22,854

Total other income		13,901			22,854

Loss before income taxes		(5,330,504	)		(1,995,231	)

Benefit from income taxes		—			—

Net loss attributable to Laird Superfood, Inc. common stockholders	$	(5,330,504	)	$	(1,995,231	)

Net loss per share attributable to Laird Superfood, Inc common stockholders:
Basic	$	(0.60	)	$	(0.47	)

Diluted	$	(0.60	)	$	(0.47	)

Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted		8,894,495			4,281,346

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

LAIRD SUPERFOOD, INC.

STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	For the Three Months Ended March 31,
	2021			2020
Net loss	$	(5,330,504	)	$	(1,995,231	)
Other comprehensive income (loss), net of tax
Change in unrealized gains (losses) on investment securities available-for-sale, net of tax⁽¹⁾		(20,290	)		31,090

Total other comprehensive income (loss)		(20,290	)		31,090

Comprehensive loss	$	(5,350,794	)	$	(1,964,141	)

⁽¹⁾	The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. See note 9 for the estimated tax benefit deferred.

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

LAIRD SUPERFOOD, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)


	Convertible Preferred Stock				Stockholders’ Equity
	Preferred Stock				Common Stock						Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balances, January 1, 2021		—	$	—		8,892,886		$	8,893		$	111,452,346		$	14,207		$	(31,927,168	)	$	79,548,278
Stock-based compensation		—		—		—			—			1,010,003			—			—			1,010,003
Withholding tax payments for share-based compensation		—		—		—			—			(188,793	)		—			—			(188,793	)
Stock option exercises		—		—		28,148			28			151,618			—			—			151,646
Common stock issuance costs		—		—		—			—			(82,043	)		—			—			(82,043	)
Other comprehensive income, net of tax		—		—		—			—			—			(20,290	)		—			(20,290	)
Net loss		—		—		—			—			—			—			(5,330,504	)		(5,330,504	)

Balances, March 31, 2021		—	$	—		8,921,034		$	8,921		$	112,343,131		$	(6,083	)	$	(37,257,672	)	$	75,088,297


	Convertible Preferred Stock				Stockholders’ Equity
	Preferred Stock				Common Stock						Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balances, January 1, 2020		629,186	$	6,722,951		4,188,558		$	4,188		$	27,184,250		$	(226	)	$	(19,076,867	)	$	14,834,296
Stock-based compensation		—		—		—			—			258,486			—			—			258,486
Stock option exercises		—		—		804			—			6,030			—			—			6,030
Common stock issuances		—		—		137,770			138			1,997,527			—			—			1,997,665
Less: repurchased common stock		—		—		(1,416	)		(1	)		(20,531	)		—			—			(20,532	)
Other comprehensive income, net of tax		—		—		—			—			—			31,090			—			31,090
Net loss		—		—		—			—			—			—			(1,995,231	)		(1,995,231	)

Balances, March 31, 2020		629,186	$	6,722,951		4,325,716		$	4,325		$	29,425,762		$	30,864		$	(21,072,098	)	$	15,111,804

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

LAIRD SUPERFOOD, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Quarter Ended March 31,
	2021			2020
Cash flows used in operating activities
Net loss	$	(5,330,504	)	$	(1,995,231	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation		131,333			114,901
Amortization		5,270			2,524
Loss on disposal of equipment		2,325			—
Stock-based compensation		1,010,003			258,486
Provision for excess and obsolete inventory		102,604			—
Changes in operating assets and liabilities:
Accounts receivable		69,504			(1,259,099	)
Accrued investment income receivable		(3,969	)		4,847
Inventory		(1,500,686	)		271,028
Prepaid expenses and other current assets		(55,465	)		(357,734	)
Deferred rent		90,054			90,622
Deposits		(391,149	)		(17,191	)
Accounts payable		284,681			340,271
Payroll liabilities		289,308			142,208
Accrued expenses		153,306			60,604

Net cash from operating activities	$	(5,143,385	)	$	(2,343,764	)


Cash flows used in investing activities
Purchase of property and equipment		(122,588	)		(115,669	)
Purchase of software		(78,200	)		—
Proceeds from sale of property, equipment, and software		700			—

Net cash from investing activities	$	(200,088	)	$	(115,669	)


Cash flows from financing activities
Issuance of common stock		—			1,997,665
Common stock issuance costs		(82,043	)		—
Common stock repurchases		—			(20,532	)
Withholding tax payments for share based compensation		(188,793	)		—
Stock options exercised		151,646			6,030

Net cash from financing activities	$	(119,190	)	$	1,983,163

Net change in cash and cash equivalents		(5,462,663	)		(476,270	)
Cash and cash equivalents beginning of period		57,208,080			1,004,109

Cash and cash equivalents end of period	$	51,745,417		$	527,839

Supplemental disclosures of non-cash information
Unrealized gain (loss) on available-for-sale securities	$	(20,290	)	$	31,090

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

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

1.	Nature of Operations and Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements include the accounts of Laird Superfood, Inc. (the “Company” or “Laird Superfood” or “we”), a Delaware corporation. On July 3, 2018, the Company entered into a plan of conversion and was converted from a corporation under the laws of the State of Oregon to a corporation under the laws of the State of Delaware with an updated par value of $0.001 per share of common stock.

Nature of Operations

Laird Superfood, Inc. is an emerging consumer products platform focused on manufacturing and marketing highly differentiated, plant-based and functional foods from its headquarters in Sisters, Oregon. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, and roasted and instant coffees, teas and hot chocolate. The Company was founded in 2015.

Initial Public Offering

On September 25, 2020, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 3,047,500 shares of its common stock at a public offering price of $22 per share, including 397,500 shares of common stock upon the exercise of the underwriter’s option to purchase additional shares. After underwriting discounts and commissions and other offering costs, net proceeds from the IPO were approximately $61,966,237. Offering costs of approximately $1,350,815 were recognized as a reduction of additional-paid-in capital.

Upon the closing of the IPO, all outstanding shares of the Company’s preferred stock converted into shares of common stock, consisting of (i) 162,340 outstanding shares of Series A-1 convertible preferred stock converting into 324,680 aggregate shares of common stock, (ii) 152,253 outstanding shares of Series A-2 convertible preferred stock converting into 304,506 aggregate shares of common stock, and (iii) 383,142 outstanding shares of Series B-1 convertible preferred stock converting into 766,284 aggregate shares of common stock.

Concurrent Private Placement

Danone Manifesto Ventures, PBC (“DMV”) purchased 90,910 shares of our common stock in a private placement immediately subsequent to the consummation of the IPO for a total purchase price of $2,000,020, at a price per share of $22.

Basis of Accounting

The financial statements include the accounts of the Company. 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 months ended March 31, 2021 and 2020. 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.

Unaudited interim financial information

In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ equity and cash flows. The balance sheet as of December 31, 2020 was derived from audited annual financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2021. The accompanying unaudited interim financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the fiscal year ended December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results. The most significant estimates and judgments impact allowances for doubtful accounts and returns, inventory obsolescence, valuation allowance for deferred taxes, and fair value of stock-based compensation.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Segment reporting

The Company currently has one operating segment. In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management reviews financial information as a whole for purposes of allocation of resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.

Substantially all product sales for the periods provided were derived from domestic sales.

See Note 15 for additional information regarding sales by platform within the Company’s single segment.

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 that sum to the total of the same such amounts shown in the statement of cash flows.


	March 31, 2021		March 31, 2020
Cash and cash equivalents	$	51,503,218	$	527,839
Restricted cash		242,199		—

Total cash, cash equivalents, and restricted cash show in the statement of cash flows	$	51,745,417	$	527,839

Amounts in restricted cash represent those that are required to be set aside by contractual agreement. On December 3, 2020, the Company entered into an agreement with DMV, which provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. During the three months ended March 31, 2021, we contributed $55,904 to these projects. The restriction will be released upon the completion of the projects.

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit and cash equivalents. At times, cash and cash equivalents balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurable limits. The Company’s investment account (recognized as cash and cash equivalents) is with what the Company believes to be a high-quality broker. The Company has never experienced any losses related to these balances. Non-interest-bearing amounts on deposit in excess of FDIC insurable limits as of March 31, 2021 and December 31, 2020 approximated $6,402,956 and $6,639,821, respectively.

Accounts Receivable, net

Accounts receivable, net consists principally of trade receivables, which are recorded at the invoiced amount, net of allowances for doubtful accounts. Trade receivables do not bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The Company provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables. Based on these factors, management determined no allowance for doubtful accounts was required as of March 31, 2021 and December 31, 2020.

Investments

Investment securities that are not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income or loss, net of income taxes. Management determines the appropriate classification of securities at the time of purchase. Investment securities are valued utilizing quoted prices in active markets. Gains and losses on the sales of available-for-sale securities are determined using the specific-identification method.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists primarily of raw materials and packaging and finished goods. As of March 31, 2021 and December 31, 2020, inventory was comprised of the following:


	March 31, 2021		December 31, 2020
Raw Materials and Packaging	$	3,412,135	$	4,109,706
Finished Goods		4,281,845		2,186,192

Total	$	7,693,890	$	6,295,898

The Company periodically reviews the value of items in inventory and provides write-offs of inventory based on current market assessments, which are charged to cost of goods sold. For the three months ended March 31, 2021, the Company recorded $102,604 in inventory obsolescence primarily related to the Company’s liquid creamer product line which was launched in the second quarter of 2020. For the three months ended March 31, 2020, there was no inventory obsolescence.

As of March 31, 2021 and December 31, 2020, the Company had a total of $1,060,840 and $958,166, respectively, of prepayments for future raw materials inventory, which is included in prepaid expenses on the balance sheets.

Property and Equipment, net

Property and equipment are valued at cost, net of accumulated depreciation. Expenditures for maintenance and repairs that do not extend the useful life or increase the value of the assets are charged to expense in the period incurred. Additions and betterments are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for depreciation purposes for furniture and factory equipment range from 3 to 10 years. The useful life for leasehold improvements is the lesser of the lease term or the useful life. Construction in progress is not depreciated until such a time that the assets are completed and placed into service. Depreciation expense is allocated to general and administrative expenses and cost of goods sold upon the sale of inventory. For the three months ended March 31, 2021 and 2020, depreciation expense was $131,333 and $114,901, respectively.

As of March 31, 2021 and December 31, 2020, the Company had a total of $391,149 and $0, respectively, of deposits for future equipment purchases, which is included in deposits on the balance sheets.

Deferred Rent

Deferred rent includes tenant improvement costs that were incurred by the landlord, RII Lundgren Mill, LLC, in the build-out of the Company’s leased space and were reimbursed by the Company. These amounts are treated as additional rents and are expensed straight-line over the life of the lease.

Revenue Recognition

The Company recognizes revenue in accordance with the five-step model as prescribed by ASC Topic 606, Revenue from Contracts with a Customer, 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 Topic 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 entity satisfies a performance obligation. See Note 15 for additional information regarding revenue recognition. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

Cost of Goods Sold

Cost of goods sold includes material, labor, and overhead costs incurred in the storage and distribution of products sold in the period. Material costs include the cost of products purchased. Labor and overhead costs consist of indirect product costs, including wages and benefits for manufacturing, planning, and logistics personnel, depreciation, facility costs and freight.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Shipping and Handling

Costs of shipping and handling related to sales revenue are included in cost of goods sold. Shipping and handling costs totaled $1,238,996 and $634,641 for the three months ended March 31, 2021 and 2020, respectively. Income generated from shipping costs billed through to customers was included in Sales, net in the statements of operations. Shipping income totaled $25,659 and $151,551 for the three months ended March 31, 2021 and 2020, respectively.

Research and Product Development

Amounts spent on research and development activities are expensed as incurred as research and product development expense on the statements of operations. Research and product development expense was $240,687 and $143,315 for the three months ended March 31, 2021 and 2020, respectively.

Advertising

Advertising and marketing costs are expensed when incurred. Advertising and marketing expenses for the three months ended March 31, 2021 and 2020 was $2,391,867 and $1,245,585, respectively.

Income Taxes

Income taxes provide for the tax effects of transactions reported in the 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) 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 full deferred tax valuation allowance of $8,953,186 and $7,563,110 as of March 31, 2021 and December 31, 2020, respectively.

Repurchased Stock

Management presents repurchased stock (at cost) as a reduction in stockholders’ equity to reflect the historical stock repurchase transactions more clearly. There were no stock repurchase transactions for the three months ended March 31, 2021. There were stock repurchases of $20,532 in the three months ended March 31, 2020.

Stock Incentive Plan

The compensation cost relating to share-based payment transactions is recognized in the 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, 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 and preferred stock had been issued and are calculated under the treasury stock method. Due to the Company’s net loss, all stock options and convertible preferred stock are anti-dilutive and excluded.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Stock Split

The Company’s board of directors and stockholders approved a 2-for-1 split of the Company’s common stock, which was effected on August 19, 2020. The split divided each share of the Company’s issued and outstanding common stock into two shares of common stock and correspondingly adjusted the conversion prices of its convertible preferred stock. No fractional shares were issued in connection with the split. The split was effective upon filing of the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation on August 19, 2020. The Company has reflected the effect of the 2-for-1 split of its common stock (and the corresponding adjustment of the conversion prices of its preferred stock) in these financial statements as if it had occurred at the beginning of the earliest period presented.

Warrants

Issued and detachable stock warrants are classified as equity or liability instruments based on the specific terms of the underlying warrant agreement. In circumstances where debt or equity is issued with detachable warrants, the proceeds from issuance are allocated to each instrument based on an acceptable method, which generally involves determining the fair value of one or more of the instruments. In conjunction with the Company’s initial public offering, the warrant outstanding was cancelled. See additional information in Note 11.

License Agreement – Intangible Asset

On August 3, 2015, the Company entered into a license agreement with the Company’s co-founder Laird Hamilton (the “LH License”). The LH License stated Laird Hamilton’s contribution to the Company was in the form of intellectual property, granting the Company the right to use Laird Hamilton’s name and likeness. This contribution, which was reported on the balance sheets as of March 31, 2021 and December 31, 2020, was valued at $132,000 and satisfied with the issuance of 660,000 shares of common stock. The Company has determined that the intangible asset associated with the LH License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 14 for more information on the Company’s related party transaction with Mr. Hamilton.

On May 2, 2018, the Company entered into a license agreement with Gabrielle Reece, who is married to Mr. Hamilton (the “GR License”). Pursuant to the GR License, Ms. Reece granted the Company rights to her name, signature, voice, picture, image, likeness and biographical information commencing on July 1, 2015. This contribution, which is reported on the balance sheets as of March 31, 2021 and December 31, 2020, was valued at $100 based on the consideration exchanged. The Company has determined that the intangible asset associated with the GR License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 14 for more information on the Company’s related party transaction with Ms. Reece.

On November 19, 2018, the Company executed a License and Preservation Agreement with Mr. Hamilton and Ms. Reece which superseded the predecessor license agreements with both individuals. The agreement added specific terms related to noncompetition 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.

On May 26, 2020, the Company executed a License and Preservation Agreement with Mr. Hamilton, and Ms. Reece (the “2020 License”), which superseded the predecessor license and preservation agreement with both individuals. Among other modifications, the agreement (i) modified certain approval rights of Mr. Hamilton and Ms. Reece for use of their respective images, signatures, voices, and names (other than those owned by the Company), rights of publicity and common law and statutory rights to the foregoing in the Company’s products, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional ten-year terms upon the expiration of the initial one-hundred year term. No additional consideration was exchanged in connection with the agreement. As indefinite-lived intangibles, the Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the licensing agreements were less than the carrying amounts. Upon considering these factors, the Company determined it was more likely than not that the fair values of the 2020 License were not less than the carrying amounts; therefore, the Company recognized no impairment for the three months ended March 31, 2021 and 2020.

Employee Benefit Plan

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 months ended March 31, 2021 and 2020, we did not match employee contributions.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

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 financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Adopted Accounting Pronouncements

There were no new accounting pronouncements adopted in the three months ended March 31, 2021 and 2020, respectively.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Leases (Topic 842) (“ASU 2016-02”), whereby lessee will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. ASU 2016-02 is effective for the Company’s annual periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The adoption of the new standard is expected to result in the recognition of additional lease liabilities and right-of-use assets as of January 1, 2022. The Company is evaluating the potential impact of this pronouncement.

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. The Company has not yet evaluated the potential impact of this pronouncement.

Reclassification of Prior Period Presentation

Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or cash flows.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued. The Company has evaluated events and transactions subsequent to March 31, 2021 for potential recognition of disclosure in the financial statements.

On May 3, 2021, the Company entered into a definitive agreement to purchase all of the outstanding membership interest units in Picky Bars, LLC (“Picky Bars”), innovators in the healthy snack industry focused on nutritionally balanced, real-food products to fuel performance, for a cash-free, debt-free purchase price of $10,053,142 in cash, subject to customary working capital adjustments and 53,133 shares of Company common stock, subject to certain vesting conditions. The transaction closed simultaneously with execution of the agreement. Because the acquisition occurred subsequent to March 31, 2021, no results of operations of Picky Bars are included in our condensed statements of operations for the three months ended March 31, 2021. It is currently impractical to disclose a preliminary purchase price allocation, or pro forma financial information combining both entities as of the earliest period presented in these financial statements. Operations have continued with Picky Bars’ previous management and workforce at the Oregon facilities. The Company continues to operate as one segment. The acquisition will be accounted for in accordance with ASC 805, Business Combinations.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

2.	Prepaid Expenses and Other Current Assets

The following table presents the components of prepaid expenses and other current assets as of March 31, 2021 and December 31, 2020:


	March 31, 2021		December 31, 2020
Prepaid insurance	$	1,060,840	$	1,446,189
Prepaid inventory		943,083		958,166
Prepaid subscriptions and license fees		389,431		225,567
Prepaid advertising		310,700		—
Prepaid, other		141,169		152,323
Other current assets		57,561		51,111
Prepaid consulting		—		13,963

	$	2,902,784	$	2,847,319

3.	Investment securities

Investment securities as of March 31, 2021 and December 31, 2020 consisted of the following:


	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
March 31, 2021
Federal agency bonds – mortgage-backed	$	8,696,606	$	586	$	(6,669	)	$	8,690,523

Total investment securities available-for-sale	$	8,696,606	$	586	$	(6,669	)	$	8,690,523


	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
December 31, 2020
Federal agency bonds – mortgage-backed	$	8,692,637	$	14,207	$	—		$	8,706,844

Total investment securities available-for-sale	$	8,692,637	$	14,207	$	—		$	8,706,844

The amortized cost and estimated fair value of investment securities as of March 31, 2021, by contractual maturity, are shown below:


	Available-for-sale
March 31, 2021	Amortized cost		Estimated fair value
Due after one year through five years	$	8,696,606	$	8,690,523

Total investment securities available-for-sale	$	8,696,606	$	8,690,523

Investment securities with an estimated fair value of $8,690,523 and $8,706,844 as of March 31, 2021 and December 31, 2020, respectively, were pledged to secure our revolving line of credit. See Note 5 for additional information.

The Company recorded no sales or maturities of available for sale securities during the three months ended March 31, 2021 and 2020.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

4.	Fair Value Measurements

Factors used in determining the fair value of our assets and liabilities are summarized into three broad categories:

•

Level 1 – quoted prices in active markets for identical securities as of the reporting date;

•

Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and

•

Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following tables summarize assets subject to fair value measurements:


Fair Value as of March 31, 2021	Level 1		Level 2		Level 3
Federal agency bonds - mortgage-backed	$	—	$	8,690,523	$	—


Fair Value as of December 31, 2020	Level 1		Level 2		Level 3
Federal agency bonds - mortgage-backed	$	—	$	8,706,844	$	—

The Company believes the carrying amounts of Cash and cash equivalents, Accounts receivable, Prepaid expenses and other current assets, Deposits, Other Assets, Accounts payable, Payroll liabilities and Accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

The Company believes that fair values of U.S. Agency Bonds issued by the Federal Home Loan Mortgage Corporation are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. agency bonds are included in the Level 2 fair value hierarchy.

As of December 31, 2020, the Company classified fixed assets as held for sale which was included in Level 3 fair value.

5.	Revolving Lines of Credit

On February 5, 2019, the Company entered into a revolving line of credit with First Interstate Bank (“FIB”) in a principal amount not exceeding $5,000,000. The line of credit is secured by the Company’s investment account held at FIB. The outstanding amounts under the line of credit have an interest rate calculated as LIBOR plus 2.0% per annum until paid in full. The loan agreement was renewed by the Company on March 1, 2021 and has a maturity date of February 5, 2023. The balance on the line of credit was $0 as of March 31, 2021 and December 31, 2020. Management was in compliance with all financial covenants as of March 31, 2021 and December 31, 2020.

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. Upon the mutual agreement of the Company and East, the primary revolving line of credit may be expanded to $10,000,000, subject to an increase in the borrowing base. The borrowing base is comprised of (a) up to 90% of eligible accounts receivable aged 90 days or less from due date utilizing the average of a trailing three months of actual book value, plus (b) up to 90% of inventory and prepaid inventory book values utilizing the average of a trailing three months of actual book value. The outstanding amounts under the line of credit have a fixed interest rate of 15% per annum until paid in full and the line of credit has a maturity date of August 10, 2022. In the event of default, the interest rate would increase to 20% while such default exists. The line of credit is secured by a security interest in accounts receivable and inventory. The balance on the line of credit was $0 as of both March 31, 2021 and December 31, 2020. Management was in compliance with all financial covenants as of March 31, 2021 and December 31, 2020.

A secondary line of credit with East in an amount up to $200,000 is available to the Company, which is not subject to the requirements of the borrowing base. The secondary line of credit is secured by a security interest in the Company’s accounts receivable and inventory. The secondary line is available with the same draw and payback conditions as the primary line. The balance on the secondary line of credit was $0 as of both March 31, 2021 and December 31, 2020.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

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, excluding (a) shares representing, in the aggregate, not more than five percent of the Company’s issued and outstanding capital stock on a fully-diluted basis, issued to employees, consultants or directors pursuant to incentive plans; (b) shares issued for consideration other than cash pursuant to a merger, consolidation, strategic alliance, acquisition or similar business combination; (c) shares issued in connection with any distribution dividend, conversion or recapitalization; (d) shares issued pursuant to any bona fide arms’ length equipment loan or leasing agreement, real property leasing agreement, or debt financing from a financial institution; (e) shares issued in connection with strategic transactions involving the Company and other entities, such as joint ventures, manufacturing, marketing or distribution agreements (provided that in the case of clauses (d) and (e), such issuance represents ten percent or more of the Company’s issued and outstanding capital stock on a fully-diluted basis); and (f) shares issued pursuant to a registration statement filed under the Securities Act of 1933, as amended, in connection with an initial public offering.

6.	Long-term Debt

The following table presents the components of long-term debt:


	March 31, 2021		December 31, 2020
Forgivable loan, City of Sisters	$	51,000	$	51,000

Long-term debt	$	51,000	$	51,000

City of Sisters

On May 30, 2017, the Company entered into a forgivable loan agreement with the City of Sisters in the amount of $51,000. This forgivable loan was issued to help the Company expand its business operations in the city of Sisters, Oregon through eligible jobs. The Company had until May 30, 2020 to create jobs for 30 full-time employees with an average annual salary of $40,000 per person, and, once created and filled, the Company must maintain those jobs for an additional period of three years for the loan to be converted to a grant. If the requirements are not met, the Company is required to pay the loan in full, including interest of 8 percent per annum on the unpaid principal amount. The Company created the eligible jobs as of April 1, 2018.

7.	Property and Equipment, Net

Property and equipment, net is comprised of the following as of March 31, 2021 and December 31, 2020:


	March 31, 2021			December 31, 2020
Factory equipment	$	2,749,057		$	2,668,839
Land		947,394			947,394
Furniture and office equipment		531,232			532,116
Leasehold improvements		276,553			259,504
Construction in progress		16,666			—

	4,250,902			4,407,853
Accumulated depreciation		(1,019,184	)		(894,365	)

Property and equipment, net	$	3,501,718		$	3,513,488

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

8.	Commitments and Contingencies

The Company currently leases 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. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On November 20, 2018, the Company completed the reimbursement of $797,471. The Company also issued the landlord 2,000 stock options on April 15, 2018 with a strike price of $7.50 per share in conjunction with this lease agreement.

The Company executed a second lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated December 17, 2018. The lease commenced on July 1, 2019 with monthly payments of $12,784, to escalate after 24 months by the lesser of 3% or the CPI adjustment. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord paid for many tenant improvements and the Company committed to reimbursing the landlord, in additional rents, for specific improvements. On December 20, 2018, the Company completed the initial reimbursement of $1,202,529. The Company made the final reimbursement in the amount of $1,399,001 on December 31, 2019.

On May 26, 2019, the Company executed and commenced an agricultural license agreement for the lease of agricultural land in Hanalei, Hawaii with PRW Princeville Development Company LLC (the “Hanalei Agricultural License”). Total monthly payments were the greater of $1,000 or eight percent of total monthly gross sales of the business done and/or generated on, in, into or from the premises. The initial lease term was five years, with one option to extend the term by five years. The agreement was subsequently amended on September 19, 2019 to include a termination clause if the storefront and property in the Hanalei, Hawaii retail lease, discussed below, is not executed. The amendment also expanded the permitted access to include access through other property to the public roadway. On November 3, 2020, the Company and PRW Princeville Development Company LLC entered a termination and release agreement, terminating the Hanalei Agricultural License effective as of October 30, 2020.

On May 26, 2019, the Company executed a license agreement with PRW Princeville Development Company LLC for storefront and property in Hanalei, Hawaii (the “Hanalei Retail License”). Initially, total monthly payments were the greater of $1,000 or eight percent of total monthly gross sales of the business done and/or generated on, in, into or from the property. The initial lease term was five years, with one option to extend the term by five years. The agreement commenced upon receipt of applicable permits. The agreement was subsequently amended on September 19, 2019 to extend the initial permitting period from January 1, 2020 to July 1, 2020, and the payment terms to include the monthly minimum lease payment due the first of the month, with a reconciliation to gross sales in the subsequent month. The agreement was subsequently amended on July 23, 2020 to extend the initial permitting period from July 1, 2020 to April 15, 2021. On November 3, 2020, the Company and PRW Princeville Development Company LLC entered a termination and release agreement, terminating the Hanalei Retail License effective as of October 30, 2020.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

The following table sets forth the amounts of our significant contractual obligations and commitments with definitive payment terms as of March 31, 2021:


Payments Due by Period	Operating Leases⁽¹⁾		Note Payable		Total
2021	$	178,997	$	51,000	$	229,997
2022		244,622		—		244,622
2023		251,960		—		251,960
2024		259,519		—		259,519
2025		267,305		—		267,305
Thereafter		863,932		—		863,932

	$	2,066,335	$	51,000	$	2,117,335

⁽¹⁾	Operating lease obligations related to our manufacturing facility leases dated March 1, 2018 and December 17, 2018.

Rent expense is allocated to general and administrative expenses and cost of goods sold upon the sale of inventory. Rent expense for the three months ended March 31, 2021 and 2020 was $251,090 and $172,180, respectively.

9.	Deferred Tax Assets and Liabilities

The Company had a tax net loss for the three months ended March 31, 2021 and 2020, and therefore expects no assessment of income taxes for such periods. Additionally, the net deferred tax assets are fully allowed for as of March 31, 2021 and December 31, 2020. Due to the full valuation allowance during 2020 and as of March 31, 2021 there was no provision for, or benefit from, income taxes reported for the three months ended March 31, 2021 and 2020. The Company’s deferred tax assets and liabilities consisted of the following as of March 31, 2021 and December 31, 2020:


	March 31, 2021			December 31, 2020
Noncurrent deferred tax assets:
Federal net operating loss carryforwards	$	6,385,696		$	5,332,738
State net operating loss carryforwards		2,548,054			2,112,119
Federal depreciation and amortization		346,060			458,203
State depreciation and amortization		166,329			213,359
Accrued—PTO		80,283			75,702
Other		137,996			106,526

Total noncurrent deferred tax assets		9,664,418			8,298,647

Noncurrent deferred tax liabilities:
Federal depreciation and amortization	$	—		$	—
State depreciation and amortization		—			—
Deferred rent asset		711,232			735,537

Total noncurrent deferred tax liabilities		711,232			735,537

Net noncurrent deferred tax assets	$	8,953,186		$	7,563,110
Valuation allowance		(8,953,186	)		(7,563,110	)

Total net noncurrent deferred tax assets	$	—		$	—

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

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. Based on this guidance, the Company provided a valuation allowance for the full amount. The net increase in the valuation allowance for deferred tax assets and liabilities for the three months ended March 31, 2021 and December 31, 2020 was $1,390,076 and $977,988, respectively. This valuation allowance included the estimated tax asset of $1,277 related to the unrealized loss on investment securities available-for-sale as of March 31, 2021. As of March 31, 2021 and December 31, 2020, the Company had U.S. federal net operating losses (“NOLs”) totaling approximately $32,923,866 and $27,528,486, respectively. The Company had federal NOLs as of March 31, 2021 and December 31, 2020 totaling approximately $1,868,077 from 2017 and prior years that can be carried forward for 20 years, which begin to expire in 2036. As of March 31, 2021 and December 31, 2020 the Company had federal NOLs totaling approximately $31,055,789 and $25,660,409, respectively from 2018 through 2021 that can be carried forward indefinitely.

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.

10.

Stock Incentive Plan

The Company adopted an incentive plan (the “2020 Omnibus Incentive Plan”) on September 22, 2020, to provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, 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. The Company is authorized to award 1,000,000 shares under the 2020 Omnibus Incentive Plan. Previously, the Company had adopted its 2018 Equity Incentive Plan and 2016 Stock Incentive Plan (together with the 2020 Omnibus Incentive Plan, the “Stock Incentive Plans”), under which the Company had issued stock options and restricted stock units. Following the effective date of the 2020 Omnibus Incentive Plan, no additional awards may be made under the 2018 Equity Incentive Plan or 2016 Stock Incentive Plan. The Stock Incentive Plans were established to provide eligible individuals with an incentive to contribute to the Company’s success and to operate and manage the Company’s business in a manner that will provide for its long-term growth and profitability and that will benefit the Company’s shareholders and other stakeholders, including employees and customers. The Stock Incentive Plans are also intended to provide a means of recruiting, rewarding, and retaining key personnel.

The Stock Incentive Plans prescribe various terms and conditions for the award of options and the total number of shares authorized for this purpose. For options, the strike price is equal to the fair market value of the Company’s stock price at the date of grant. Generally, options become exercisable based on years of service and vesting schedules, and expire after (i) a period of ten years from the date of grant, (ii) three months following the date of termination of employment from the Company, (iii) one year following the date of termination from the Company by reason of death or disability, (iv) the date of termination of employment for cause, or (v) the fifth anniversary of the date of the grant if it is held by a 10 percent or greater stockholder.

The following table summarizes the Company’s stock option activity during the three months ended March 31, 2021 and 2020:


	March 31, 2021
	Options Activity			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Term (years)		Aggregate intrinsic value
Balance at January 1, 2021		887,640		$	9.65		6.42	$	33,433,274
Granted		44,068			45.53
Exercised/released		(28,148	)		6.16
Cancelled/forfeited		(2,750	)		11.71

Balance at March 31, 2021		900,810		$	11.42		6.35	$	23,488,929

Exercisable at March 31, 2021		543,598		$	7.55		5.19	$	16,264,671

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements


	March 31, 2020
	Options Activity			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Term (years)		Aggregate intrinsic value
Balance at January 1, 2020		788,528		$	8.42		7.17	$	4,799,381
Granted		44,000			14.50
Exercised/released		(804	)		7.50
Cancelled/forfeited		(584	)		9.00

Balance at March 31, 2020		831,140		$	8.74		7.07	$	4,790,541

Exercisable at March 31, 2020		461,032		$	6.31		5.63	$	3,779,313

The stock-based compensation expense is recognized ratably over the requisite service period for all awards. As a result of applying the provisions of ASC 718, “Compensation- Stock Compensation” (“ASC 718”), the Company recognized stock compensation expense of $1,010,003 and $258,486 for the three months ended March 31, 2021 and 2020, respectively.

In the three months ended March 31, 2021 and 2020, there were $188,793 and $0, respectively, of payroll taxes withheld from stock-based compensation which were remitted directly to the tax authorities on the behalf of the recipients of the awards.

As of March 31, 2021 and December 31, 2020, there was $2,655,329 and $1,990,834, respectively, of total unrecognized compensation cost related to non-vested stock option share-based compensation arrangements with a remaining weighted-average vesting period of 3.19 years.

During the three months ended March 31, 2021, we granted 21,766 restricted stock units to seven employees based on the agreed upon amounts in the 2021 employment agreements. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $39,478 in the three months ended March 31, 2021. As of March 31, 2021 and December 31, 2020, there was $2,119,650 and $1,613,520, respectively, of total unrecognized compensation cost related to non-vested restricted stock units with a remaining weighted-average vesting period of 3.21 years.

During the three months ended March 31, 2021, we granted 189,608 market-based stock units (“MSUs”) to eight employees based on the agreed upon amounts in their respective market-based restricted stock unit agreements. As a result of applying the provisions of ASC 718 to these issuances we recorded stock-based compensation expense of $385,486 for the three months ended March 31, 2021. These MSUs vest upon the 30-day trading volume of the weighted average stock price reaching or exceeding established targets, after reaching certain time targets. As of March 31, 2021 and December 31, 2020, there was $3,884,514 and $0, respectively, of total unrecognized compensation cost related to non-vested MSUs with a remaining weighted-average vesting period of 1.82 years. 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 volatilities within the index are derived using historical volatilities 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 PSUs is recognized over the requisite service period regardless of whether the market conditions are satisfied.

ASC 718 requires the use of the fair-value-based method for measuring the value of stock-based compensation. We estimate the fair value of each stock option award on the date of grant using a Black-Scholes option-pricing model, the MSUs on the grant date using a Monte Carlo simulation, and each restricted stock unit is estimated using the fair value of the Company’s stock on the date of grant. The estimated fair value of each grant of stock options awarded during the three months ended March 31, 2021 and 2020 was determined using the following assumptions:

•

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 IPO 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 (“SAB”) No. 107 (“SAB 107”), whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.

•

Risk-free Interest Rate. The risk-free interest rate is based on the interest rate payable on 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, dividend on its shares of common stock.

•

Expected Volatility. The expected volatility is based on the volatility of the historical stock prices of identified peer companies.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, the Company’s share-based compensation expense could be materially different for future awards.

For the three months ended March 31, 2021 and 2020, the grant-date fair value of stock options was estimated at the time of grant using the following weighted-average inputs and assumptions in the Black-Scholes option pricing model:


	For the Three Months Ended March 31,
	2021			2020
Weighted-average expected volatility		51.92	%		68.25	%
Weighted-average expected term (years)		6.25			6.25
Weighted-average expected risk-free interest rate		0.63	%		1.19	%
Dividend yield		0.00	%		0.00	%

Weighted-average fair value of options granted	$	21.50		$	18.10

11.

Preferred Stock

On September 25, 2020, the Company completed its IPO in which the Company issued and sold 3,047,500 shares of its common stock at a public offering price of $22 per share. Upon the closing of the IPO, all outstanding shares of the Company’s preferred stock converted into shares of common stock, consisting of (i) 162,340 outstanding shares of Series A-1 convertible preferred stock converting into 324,680 aggregate shares of common stock, (ii) 152,253 outstanding shares of Series A-2 convertible preferred stock converting into 304,506 aggregate shares of common stock, and (iii) 383,142 outstanding shares of Series B-1 convertible preferred stock converting into 766,284 aggregate shares of common stock.

As of March 31, 2021 and December 31, 2020, the Company is authorized to issue 5,000,000 shares of preferred stock, par value $0.001 per share, and there were no shares of preferred stock issued or outstanding.

Series A-1 and A-2 Preferred Stock

Effective November 19, 2018, the Company executed a capital transaction of $25,000,000 with a private investor, with $15,000,000 funded at the closing date and an additional $10,000,000 to be funded one year following the execution. The additional tranche was determined to be embedded in the initial agreement and not subject to bifurcation accounting. The investing entity received Series A-1 preferred stock, carrying certain standard protective provisions.

In conjunction with this equity infusion, in November and December 2018, the Company further sold to existing stockholders an additional $7,000,000 of shares of Series A-1 and A-2 preferred stock.

All shares of Series A-1 and A-2 preferred stock issued were convertible into common stock at any time at the option of the holder, or mandatorily convertible into common stock upon the event of an initial public offering. The Series A-1 and A-2 preferred stock were redeemable upon the occurrence of a deemed liquidation event. The Company determined that this redemption feature requires classification of both Series A-1 and A-2 preferred stock as mezzanine equity in our balance sheet as of December 31, 2019.

Shares of Series A-2 preferred stock were issued at a 20% discount, based on preexisting terms in a line of credit agreement with East. As a result, the $673,133 was recorded as a reduction to additional paid-in-capital in 2018 and was considered a deemed dividend increasing the net loss attributable to common stockholders.

On November 18, 2019, the Company negotiated the repurchase of 609,013 shares of Series A-1 preferred stock from a private investor for $7,500,000, or $12.32 per share, and the termination of the private investor’s commitment to fund an additional $10,000,000 in November 2019. At the time of repurchase, the carrying value of the shares of Series A-1 preferred stock outstanding on the balance sheet was $14,999,901, or a value of $24.63 per share. The favorable rate at which the shares were able to be negotiated resulted in a deemed contribution of $7,448,879 which was included in net loss available to common stockholders.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Series B-1 and B-2 Preferred Stock

Effective April 13, 2020, the Company completed a private placement to DMV for 383,142 shares of its Series B-1 Preferred Stock for total proceeds of $10,000,006, or $26.10 per share. The shares of Series B-1 Preferred Stock issued were convertible into common stock at any time at the option of the holder, or mandatorily convertible into common stock upon the event of an initial public offering. The Series B-1 Preferred Stock were redeemable upon the occurrence of a deemed liquidation event. The Company determined that this redemption feature required classification of the Series B-1 Preferred Stock as mezzanine equity in our balance sheet.

In connection with the closing of the private placement of Series B-1 Preferred Stock on April 13, 2020, the Company entered into a Stockholder Agreement with DMV, under which the Company granted DMV (i) the right to purchase a specified percentage of the Company’s common stock in the event of an initial public offering of the Company’s common stock or in a concurrent private placement (the “Participation Right”), (ii) the right to designate one member to Laird Superfood’s board of directors, and (iii) the right to designate a representative as an observer to Laird Superfood’s board of directors, in each case for so long as DMV and its affiliates hold more than five percent of the shares of the Company’s outstanding common stock. The Participation Right terminated upon the IPO. On August 28, 2020, DMV waived its right to designate a member of the board of directors for election, contingent upon the IPO closing on or before December 31, 2020, but DMV’s right to designate an observer of the board of directors will continue for so long as DMV holds more than five percent of the outstanding common stock of the Company. The Company also issued a warrant to purchase common stock to DMV on April 13, 2020, which provided that if DMV exercised the Participation Right for $10,000,000 of shares of the Company’s common stock, DMV would have been entitled to purchase at the time of the closing of the offering, for $0.005 per share, a number of shares of the Company’s common stock equal to ten percent of the shares then held by DMV and its affiliates (including shares issuable upon conversion of the Series B-1 Preferred Stock), but excluding the amounts purchased by DMV or its affiliates in the offering or otherwise.

In accordance with ASC 480, the Company recorded the Series B-1 Preferred Stock issued with detachable warrants by allocating the proceeds to the instruments based on their relative fair values. Utilizing the Black-Scholes option pricing model, the Company calculated the fair value of the warrants on April 13, 2020 to be approximately $899,617. The fair value of the warrants was computed assuming a risk-free interest rate of 0.17%, no dividends, expected volatility of approximately 65%, which was calculated based on a combination of historical volatility and the history of comparable peer companies, and an expected warrant life of approximately 0.75 years. As a result, the relative fair value for the warrants of $825,366 was recorded as an increase to additional paid-in-capital and a preferred stock discount.

The discount was initially amortized as a deemed discount over approximately 11.5 months, which is estimated based on the expected timing of a warrant exercisability trigger and the customary lock-up agreement of six months once exercised. DMV purchased $2,000,020 of our common stock in a private placement immediately subsequent to the consummation of the IPO, which did not meet the participation minimum to exercise the warrant, rendering the warrants null.

12.

Earnings per Share

Basic earnings (loss) per share is determined by dividing net loss attributable to Laird Superfood, Inc. common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is similarly determined, except that the denominator is increased to include the number of additional common and preferred shares that would have been outstanding if all dilutive potential common and preferred shares had been issued. Dilutive potential common and preferred shares consist of employee stock options and restricted stock units. The dilutive effect of employee stock options, restricted stock units, and convertible preferred stock issued by the Company and are calculated using the treasury stock method. The weighted average shares outstanding included 1,000 and zero shares that are considered outstanding, but unissued as of March 31, 2021 and 2020, respectively, for unpaid equity share bonuses. Basic earnings per share is reconciled to diluted earnings per share in the following table:


	Three Months Ended March 31,
	2021			2020
Net loss attributable to Laird Superfood, Inc. common stockholders	$	(5,330,504	)	$	(1,995,231	)

Weighted average shares outstanding- basic		8,894,495			4,281,346
Dilutive securities		—			—

Weighted average shares outstanding- diluted		8,894,495			4,281,346

Common stock equivalent shares excluded due to anti-dilutive effect		1,169,237			1,460,582

Basic and diluted:
Net loss per share (basic)	$	(0.60	)	$	(0.47	)

Net loss per share (diluted)	$	(0.60	)	$	(0.47	)

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

13.

Concentrations

The Company had 41% of trade accounts receivable from two customers as of March 31, 2021. The Company had 67% of trade accounts receivable from two customers as of March 31, 2020.

The Company had 62% of accounts payable due to two vendors as of March 31, 2021. The Company had 55% of accounts payable due to two vendors as of March 31, 2020.

The Company sold a substantial portion of products to two customers (29%) for the three months ended March 31, 2021. As of March 31, 2021, the amount due from the customers included in accounts receivable was $486,729. The Company sold a substantial portion of products to one customer (32%) for the three months ended March 31, 2020. As of March 31, 2020, the amount due from this customer included in accounts receivable was $799,842.

The Company purchased a substantial portion of products from one supplier (51%) for the three months ended March 31, 2021, and from two suppliers (66%) for the three months ended March 31, 2020.

In addition, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. Vietnam, Indonesia, and Sri Lanka geographically accounted for approximately 62% of our total raw materials and packaging purchases for the three months ended March 31, 2021. Vietnam and the Philippines geographically accounted for approximately 65% of our total raw material and packaging purchases for the three months ended March 31, 2020.

14.

Related Party

FASB ASC Topic 850, Related Party Disclosures, requires that information about transactions with related parties that would make a difference in 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 fair value of the service provided and the most recent post-IPO market price per share. Additional material related party transactions are noted below.

License Agreements

On May 26, 2020, the Company executed a License and Preservation Agreement which superseded the predecessor license and preservation agreement with both Mr. Hamilton and Ms. Reece. Among other modifications, the agreement (i) modified certain approval rights, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional ten-year terms upon the expiration of the initial one-hundred-year term. No additional consideration was exchanged in connection with the agreement. See additional discussion related to the 2020 License in Note 1 of the financial statements.

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Concurrent Private Placement

DMV purchased 90,910 shares of our common stock in a private placement immediately subsequent to the consummation of the IPO for a total purchase price of $2,000,020, at a price per share of $22. Additionally, DMV provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. Please see Note 1 of the financial statements for additional discussion.

No-Charge Storage Lease

On of January 1, 2021, the Company entered into a lease agreement with PX2, LLC (“PX2”) for warehousing, distribution, and related industrial purposes. Under this agreement, the cost of rent which the Company will pay to PX2 is solely the reimbursement of utilities relating to the Company’s use (i.e., electric, janitorial, insurance, and other bills, which are estimated to be de minimis). Paul Hodge, CEO, President, and Director of the Company is a member of PX2. This contract is expressly intended to provide no individual benefit to such individual, with the Company only responsible for incremental costs due to the Company’s use of the property, otherwise the property is utilized without obligation to the Company, as a gratis convenience by PX2. This lease expires on December 31, 2021.

15.

Revenue Recognition

The Company’s primary source of revenue is sales of coffee creamers, hydration and beverage enhancing supplements, and coffee, tea and hot chocolate products. The Company recognizes revenue when control of the promised good or service is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales. Each delivery or shipment made to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection of 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, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:


	Three Months Ended March 31,
	2021						2020
	$			% of Total			$			% of Total
Coffee Creamers	$	5,021,908			68	%	$	4,019,362			73	%
Hydration and Beverage Enhancing Supplements		1,064,576			14	%		858,707			16	%
Coffee, Tea, and Hot Chocolate Products		1,900,832			26	%		740,572			14	%
Other		359,321			5	%		59,590			1	%

Gross Sales		8,346,637			113	%		5,678,231			104	%
Shipping income		25,659			0	%		151,551			3	%
Returns and discounts		(946,042	)		(13	%)		(346,556	)		(7	%)

Sales, net	$	7,426,254			100	%	$	5,483,226			100	%

The Company generates revenue through three channels: online, wholesale, and food service:


	Three Months Ended March 31,
	2021					2020
	$		% of Total			$		% of Total
Online	$	4,362,407		59	%	$	2,650,741		48	%
Wholesale		2,923,056		39	%		2,727,812		50	%
Food Service		140,791		2	%		104,673		2	%

Sales, net	$	7,426,254		100	%	$	5,483,226		100	%

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Contract assets (deferred costs of goods sold associated with deferred revenue), contract liabilities (deferred revenue, customer deposits, rewards programs), and refund liabilities (accrued returns) have been estimated and recorded as of March 31, 2021. Contract assets included in finished goods inventories were $32,324 and $0 as of March 31, 2021 and December 31, 2020, respectively. Contract liabilities and refund liabilities included in accrued expenses were $257,019 and $19,697 as of March 31, 2021, respectively. Contract liabilities and refund liabilities included in accrued expenses were $132,280 and $28,968 as of December 31, 2020, respectively. Receivables from contracts with customers are included in Accounts Receivable, net on the Company’s balance sheets. As of March 31, 2021 and December 31, 2020, Accounts receivable, net included, $770,155 and $839,659, respectively, of receivables from contracts with customers.

16.

Impact of COVID-19

Since January of 2020, the coronavirus (COVID-19) outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, has caused significant disruptions in international and U.S. economies and markets. In 2020, demand for our shelf-stable powdered coffee creamers, hydration and beverage enhancing supplements, and coffee, tea and hot chocolate products increased as consumers prepared more meals in their homes. As we work in a critical infrastructure industry as part of the nation’s food supply, we have implemented health and safety policies for all of our staff, including a transition to telework wherever reasonably possible; enacted strict sanitation protocols throughout our operations; and restricted access to visitors. Our top priority is the health and safety of our employees, and we are following published guidelines by the Centers for Disease Control and Prevention and other governmental health organizations in implementing procedures to protect our employees. The pandemic is an ever evolving and challenging situation and its impact on our business in the future is uncertain.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 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 Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, and roasted and instant coffees, teas and hot 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’s long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market.

We have experienced strong sales growth since inception. Net sales increased to $7.4 million for the three months ended March 31, 2021, from $5.5 million for the three months ended March 31, 2020, representing net sales growth of 35%. The growth in the three months ended March 31, 2021 was primarily driven by a significant expansion of our customer base in online channels.

Our omnichannel distribution strategy has three key components: online, wholesale and food service. In aggregate, this omnichannel strategy provides us with a diverse set of customers and wholesale partners, along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com. We believe that, along with a trusted brand name, extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry.

Our online business is two pronged and consists of lairdsuperfood.com and Amazon.com. For the three months ended March 31, 2021 and 2020, the online business made up 59% and 48% of our net sales, respectively. Lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development, while generating highly attractive margins. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our website 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 over two-thirds of lairdsuperfood.com sales for three months ended March 31, 2021.

Our wholesale business addresses the $759 billion grocery industry, specifically the $174 billion Natural, Organic and Functional Foods and Beverages sub-segment, which has been increasing its proportion of the grocery industry, as well as many non-grocery retail channels. For the three months ended March 31, 2021 and 2020, wholesale revenue comprised 39% and 50% of our net sales, respectively. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. The diversity of our retail 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

Initial Public Offering

Concurrent Private Placement

Danone Manifesto Ventures, PBC (“DMV”) purchased $2,000,020 of our common stock in a private placement immediately subsequent to the consummation of the IPO, at a price per share of $22.

Capital Contribution

On December 3, 2020, the Company entered into an agreement with DMV for an additional capital contribution as a participant in the DMV COVID-19 Relief Fund. The Agreement provided the Company with cash consideration of $298,103 for the purpose of supporting three relief projects: (1) continual sanitation rotation, (2) spend on increased labor, material and maintenance costs in the face of adversity, and (3) new/ existing hospitals relief initiative. The Company has included the balance in cash and cash equivalents on the Balance Sheet as of March 31, 2021. See Note 1 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.

Two-for-One Stock Split

Our board of directors and stockholders approved a two-for-one split of our common stock, which was effected on August 19, 2020. The split divided each outstanding share of our common stock into two shares of common stock and correspondingly adjusted the conversion prices of our convertible preferred stock. No fractional shares were issued in connection with the split. All references to common stock, options to purchase common stock, restricted stock, share data, per share data and related information have been retroactively adjusted, where applicable, in this Quarterly Report to reflect the split of our common stock, and the corresponding adjustment of the conversion prices of our preferred stock, as if it had occurred at the beginning of the earliest period presented.

Workforce Housing

On April 20, 2021, the Audit Committee of the Company’s board of directors consented to Mr. Hodge, CEO, pledging up to 150,000 of his shares of the Company’s common stock as collateral to a line of credit in support of Mr. Hodge individually developing workforce housing in Sisters, Oregon, where the Company is headquartered.

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 Online and Traditional Wholesale Distribution Channels

We are currently growing our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retail distribution channels. Online customer acquisitions typically occur at our direct website lairdsuperfood.com and Amazon.com. Our online customer acquisition program includes paid and unpaid social media, search, display and traditional media. Our products are also sold through a growing number of physical retail channels. Wholesale customers include grocery chains, natural food outlets, club stores, and drug stores, and food service customers include coffee shops, gyms, restaurants, hospitality venues and corporate dining services, among others. Customer acquisition in physical retail channels depends on, among other things, paid promotions through retailers, display and traditional media.

Ability to Acquire and Retain Customers at a Reasonable Cost

We believe an ability to consistently acquire and retain customers at a reasonable cost relative to projected life-time value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as balancing more targeted and measurable “direct response” marketing spend with advertising focused on increasing our long-term brand recognition, where success attribution is less directly measurable on a near-term basis.

Ability to Drive Repeat Usage of Our Products

We accrue substantial economic value from repeat users of our products who consistently re-order our products. The pace of our growth rate will be affected by the repeat usage dynamics of existing and newly acquired customers.

Ability to Expand Our Product Line

Our goal is to substantially 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, as well as spreading other production-related costs over greater manufacturing volumes.

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 and Expand Production In-line with Demand

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.

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 website, as well as third- party online channels.

Cost of Goods Sold

Our cost of goods sold consists primarily of raw material costs, labor costs directly related to producing our products, including wages and benefits, shipping costs, lease expenses and other factory overhead costs related to various aspects of production, warehousing and shipping.

Operating Expenses

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

We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and higher expenses for insurance, investor relations and professional services. We expect our general and administrative expenses will increase as our business grows.

Benefit from Income Taxes

Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses and benefits for the foreseeable future.

Results of Operations

Comparison of the three months ended March 31, 2021 (“Q1 2021”) and March 31, 2020 (“Q1 2020”)

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


	For the three months ended March 31,
	2021			2020			$ Change			% Change
Sales, net	$	7,426,254		$	5,483,226		$	1,943,028			35	%
Cost of goods sold		(5,559,499	)		(3,365,609	)		(2,193,890	)		65	%

Gross profit		1,866,755			2,117,617			(250,862	)		(12	%)
Gross margin		25.1	%		38.6	%
General and administrative		3,643,394			1,599,572			2,043,822			128	%
Research and product development		240,687			143,315			97,372			68	%
Sales and marketing		3,327,079			2,392,815			934,264			39	%

Total expenses		7,211,160			4,135,702			3,075,458			74	%
Operating loss		(5,344,405	)		(2,018,085	)		(3,326,320	)		165	%
Other income(expense)		13,901			22,854			(8,953	)		(39	%)

Loss before income taxes		(5,330,504	)		(1,995,231	)		(3,335,273	)		167	%
Benefit from income taxes		—			—			—			0	%

Net loss attributable to Laird Superfood, Inc. common stockholders	$	(5,330,504	)	$	(1,995,231	)	$	(3,335,273	)		167	%

Sales, Net


	Three months ended March 31,				2021 v. 2020 Change
	2021		2020		$		%
Sales, net	$	7,426,254	$	5,483,226	$	1,943,028		35	%

Net sales increased by $1.9 million to $7.4 million in Q1 2021, compared to $5.5 million in Q1 2020. This increase was due to growth in our online channels, primarily caused by an increase in sales volume. Products introduced after Q1 2020, including Organic Peruvian Coffee with Functional Mushrooms, Functional Coffees, Pili Nuts, Renew Protein, and Liquid Creamers, accounted for $2.1 million of gross sales in Q1 2021.

Cost of Goods Sold


	Three months ended March 31,						2021 v. 2020 Change
	2021			2020			$			%
Cost of Goods Sold	$	(5,559,499	)	$	(3,365,609	)	$	(2,193,890	)		65	%

Cost of goods sold increased by $2.2 million in Q1 2021 to $5.6 million from $3.4 million in Q1 2020, primarily due to sales growth in the 2021 period, elevated outbound shipping costs, increased personnel costs, and increased co-packing costs primarily associated with our Liquid Creamer product line.

Gross Profit


	Three months ended March 31,				2021 v. 2020 Change
	2021		2020		$			%
Gross Profit	$	1,866,755	$	2,117,617	$	(250,861	)		(12	%)

Gross profit decreased by $251.9 thousand in Q1 2021 to $1.9 million from $2.1 million in Q1 2020. Likewise, gross margins decreased to 25.1% in Q1 2021 from 38.6% in Q1 2020 primarily due elevated outbound shipping costs combined with the launch of a free shipping initiative for direct online purchases made on lairdsuperfood.com, increased personnel costs, disposal costs related to the initial production and distribution of our liquid creamer product line, and increased co-packing costs primarily associated with our Liquid Creamer product line.

Operating Expenses


	Three months ended March 31,				2021 v. 2020 Change
	2021		2020		$		%
Operating Expenses
General and administrative	$	3,643,394	$	1,599,572	$	2,043,822		128	%
Research and product development		240,687		143,315		97,372		68	%
Sales and marketing		3,327,079		2,392,815		934,264		39	%

Total operating expenses	$	7,211,160	$	4,135,702	$	3,075,458		74	%

General and administrative expense increased by $2.0 million in Q1 2021 to $3.6 million from $1.6 million in Q1 2020, primarily due to stock-based compensation, personnel costs, insurance expense, and professional fees.

Research and product development expense increased by $97.4 thousand to $240.7 thousand in Q1 2021 from $143.3 thousand in Q1 2020, primarily due to costs to bring new products to market.

Sales and marketing expense increased by $934.3 thousand in Q1 2021 to $3.3 million from $2.4 million in Q1 2020, primarily due to increased advertising expense.

Other Income


	Three months ended March 31,				2021 v. 2020 Change
	2021		2020		$			%
Other income	$	13,901	$	22,854	$	(8,953	)		(39	%)

Other income is composed of interest income and dividend income related to interest income on investment securities available-for-sale. Other income decreased $9.0 thousand in Q1 2021 to $13.9 thousand from $22.9 thousand in Q1 2020, primarily as the result of declining interest rates.

Liquidity and Capital Resources

As of March 31, 2021, we had incurred accumulated net losses of $37.3 million, including operating losses of $5.3 million and $2.0 million for Q1 2021 and Q1 2020, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, and we expect to incur additional expenses associated with being a public company. We have historically financed our operations and capital expenditures through private placements of our preferred stock and common stock, our IPO, as well as 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.

As of March 31, 2021, we had $60.4 million of cash-on-hand and investments and an aggregate of $12.7 million of available borrowings under our lines of credit. As of December 31, 2020, we had $65.9 million of cash-on-hand and investments and $11.1 million of available borrowings under our lines of credit. As of March 31, 2021, and December 31, 2020, we had $51 thousand outstanding under our forgivable loans with the City of Sisters, Oregon and no amounts were outstanding under our lines of credit.

We currently have an approximately 26,000 square foot warehouse under construction by a third party adjacent to our current buildings which we intend to lease and have purchased five adjoining lots providing opportunity for expansion of our campus if needed. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the enhancement of our product platforms, the introduction of new products and acquisition activity. We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. We believe that current cash and cash equivalents will be sufficient to fund our operations and capital requirements for at least the next 12 months following the date of this report. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. In addition, if additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all.

Cash Flows

Comparison of the three months ended March 31, 2021 and March 31, 2020:

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


	For the three months ended March 31,
	2021			2020
Cash flows from operating activities	$	(5,143,385	)	$	(2,343,764	)
Cash flows from investing activities		(200,088	)		(115,669	)
Cash flows from financing activities		(119,190	)		1,983,163

Net change in cash	$	(5,462,663	)	$	(476,270	)

Cash Flows from Operating Activities

Cash used in operating activities was $5.1 million for Q1 2021 as compared to $2.3 million for Q1 2020, both of which are primarily the result of the operating losses for the periods.

Cash Flows from Investing Activities

Cash used in investing activities was $200.1 thousand for Q1 2021 as compared to cash used of $115.7 thousand for Q1 2020. Cash outflows related to purchases of manufacturing equipment.

Cash Flows from Financing Activities

Cash used in financing activities was $119.2 thousand for Q1 2021 compared to cash provided of $2.0 million for Q1 2020. Cash outflows for Q1 2021 primarily related to payroll tax payments withheld from stock-based compensation, and common stock issuance costs, offset by stock option exercises, while cash inflows for Q1 2020 primarily related to a private round of equity funding.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited interim financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 1 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which we adopted January 1, 2019. Under ASC 606, we recognize revenue in accordance with a five-step model in which we evaluate the transfer of promised goods or services and recognize revenue when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that we determine are within the scope of ASC 606, we perform 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 entity satisfies a performance obligation. We have elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. We will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

Stock Incentive Plan

The compensation cost relating to share-based payment transactions is recognized in the 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 awards, recipients are issued shares of common stock.

Income Taxes

Income taxes provide for the tax effects of transactions reported in the financial statements and consist of income taxes currently due and deferred tax assets and liabilities. We 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) 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, we recorded a full deferred tax valuation allowance as of March 31, 2021 and December 31, 2020.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recent Accounting Pronouncements

See Recently Issued Accounting Pronouncements in Note 1 to our unaudited interim 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 $1.07 billion in 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.

We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of our IPO occurs, or such earlier time when we no longer qualify as an emerging growth company. We would cease to be an emerging growth company on the earlier of (1) the last day of the fiscal year (a) in which we have more than $1.07 billion in annual 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 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

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended of March 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1.

Legal Proceedings.

We are not subject to any material legal proceedings.

Item 1A.

Risk Factors.

There have been no material changes with respect to the risk factors disclosed in our 2020 Form 10-K.

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

There have been no material unregistered sales of equity securities and use of proceeds.

Item 6. Exhibits.

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

Incorporated by Reference

Exhibit
Number

Description

Form

File No.

Exhibit

Filing Date

Filed /
Furnished
Herewith

3.1

Amended and Restated Certificate of Incorporation of Laird Superfood, Inc.

8-K

001-39537

3.1

9/25/2020

3.2

Amended and Restated Bylaws of Laird Superfood, Inc.

8-K

001-39537

3.2

9/25/2020

10.1

Form of Laird Superfood, Inc. Executive Bonus Plan.

8-K

001-39537

10.1

3/10/2021

10.2

Amended line of credit agreement

10.2

31.1

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

31.2

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

32.1

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

32.2

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

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

The certifications attached as Exhibit 32.1 and 32.2 are not deemed filed with the SEC and are not incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such.

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 13, 2021				/s/ Paul W. Hodge, Jr.
				Paul W. Hodge, Jr.
				President and Chief Executive Officer

Date: May 13, 2021				/s/ Valerie Ells
				Valerie Ells
				Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

SEC Form 10-Q filed by Laird Superfood, Inc.